-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, PAJEKDkgi7B4R1vFSuuF1B4cgtvbkBW2krR8Ytpgky7f3CN2QXIuSA8CZWBJK8PZ rNs25l0S3aDCBidWEpz+oQ== 0000899243-02-001088.txt : 20020416 0000899243-02-001088.hdr.sgml : 20020416 ACCESSION NUMBER: 0000899243-02-001088 CONFORMED SUBMISSION TYPE: 10-K PUBLIC DOCUMENT COUNT: 12 CONFORMED PERIOD OF REPORT: 20011231 FILED AS OF DATE: 20020415 FILER: COMPANY DATA: COMPANY CONFORMED NAME: EEX CORP CENTRAL INDEX KEY: 0001023060 STANDARD INDUSTRIAL CLASSIFICATION: CRUDE PETROLEUM & NATURAL GAS [1311] IRS NUMBER: 752421863 STATE OF INCORPORATION: TX FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10-K SEC ACT: 1934 Act SEC FILE NUMBER: 001-12905 FILM NUMBER: 02610181 BUSINESS ADDRESS: STREET 1: 2500 CITYWEST BLVD STREET 2: STE 1400 CITY: HOUSTON STATE: TX ZIP: 77042 BUSINESS PHONE: 7132433100 MAIL ADDRESS: STREET 1: 2500 CITYWEST BLVD. STREET 2: SUITE 1400 CITY: HOUSTON STATE: TX ZIP: 77042 FORMER COMPANY: FORMER CONFORMED NAME: ENSERCH EXPLORATION INC /TX/ DATE OF NAME CHANGE: 19970812 FORMER COMPANY: FORMER CONFORMED NAME: LONE STAR ENERGY PLANT OPERATIONS INC DATE OF NAME CHANGE: 19960917 10-K 1 d10k.txt FORM 10-K - ------------------------------------------------------------------------------- - ------------------------------------------------------------------------------- UNITED STATES SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 ---------------- FORM 10-K (Mark One) [X]ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE ACT OF 1934 for the fiscal year ended December 31, 2001 or [_]TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE ACT OF 1934 for the transition period from to . Commission file number 1-12905 ---------------- EEX CORPORATION (Exact name of registrant as specified in its charter) ---------------- Texas 75-2421863 (State or other jurisdiction of (I.R.S. Employer incorporation or organization) Identification No.) 2500 CityWest Blvd. 77042 Suite 1400 (Zip Code) Houston, Texas (Address of principal executive office) (713) 243-3100 (Registrant's telephone number, including area code) ---------------- Securities registered pursuant to Section 12(b) of the Act: Common Stock ($.01 Par Value) New York Stock Exchange (Title of Each Class) (Name of Each Exchange on Which Registered) Securities registered pursuant to Section 12(g) of the Act: None Indicate by check mark whether the Registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the Registrant was required to file such reports) and (2) has been subject to such filing requirements for the past 90 days. Yes [X] No [_] Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be contained, to the best of Registrant's knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K. [X] Aggregate market value of the outstanding shares of Common Stock of the Registrant, based upon the closing price of the shares on the New York Stock Exchange on such date, held by nonaffiliates of the Registrant as of March 31, 2002: $85,908,569. Shares of the Registrant's Common Stock outstanding as of March 31, 2002: 42,487,395 shares. DOCUMENTS INCORPORATED BY REFERENCE The information required by Part III (Items 10, 11, 12 and 13) is incorporated by reference to the Registrant's definitive proxy statement for the 2002 annual meeting of shareholders. - ------------------------------------------------------------------------------- - ------------------------------------------------------------------------------- FORM 10-K ANNUAL REPORT FOR THE FISCAL YEAR ENDED DECEMBER 31, 2001 TABLE OF CONTENTS ----------------
Page ---- PART I ITEM 1. Business...................................................... 3 General..................................................... 3 History..................................................... 3 Strategy.................................................... 3 U.S. Exploration and Development--Onshore................... 5 U.S. Exploration and Development--Offshore.................. 6 International Exploration and Development................... 7 Plant Operations Business................................... 8 Sales of Natural Gas and Crude Oil.......................... 8 Competition................................................. 8 Government Regulation....................................... 8 Employees................................................... 10 Offices..................................................... 11 ITEM 2. Properties.................................................... 11 ITEM 3. Legal Proceedings............................................. 13 ITEM 4. Submission of Matters to a Vote of Security Holders........... 13 PART II ITEM 5. Market for Registrant's Common Equity and Related Stockholder Matters...................................................... 14 ITEM 6. Selected Financial and Operating Data......................... 15 ITEM 7. Management's Discussion and Analysis of Financial Condition and Results of Operations.................................... 17 Risks, Uncertainties and Critical Accounting Policies and Estimates.................................................. 17 Results of Operations....................................... 21 Liquidity and Capital Resources............................. 24 Other Matters............................................... 26 ITEM 7A. Quantitative and Qualitative Disclosures About Market Risk.... 27 ITEM 8. Financial Statements and Supplementary Data................... 29 ITEM 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure..................................... 60 PART III ITEM 10. Directors and Executive Officers of the Registrant............ 61 ITEM 11. Executive Compensation........................................ 61 ITEM 12. Security Ownership of Certain Beneficial Owners and Management................................................... 61 ITEM 13. Certain Relationships and Related Transactions................ 61 PART IV ITEM 14. Exhibits, Financial Statement Schedules and Reports on Form 8-K...................................................... 62
2 PART I Item 1. Business General EEX Corporation ("EEX" or the "Company") and its predecessors have been engaged in the exploration for and the development, production and sale of natural gas and crude oil since 1918. Its activities are currently concentrated in Texas, the Gulf of Mexico and Indonesia. EEX also provides operation and maintenance services, under contract, to two cogeneration plants ("Plant Operations Business"). EEX is exposed to a number of risks and uncertainties, including risks associated with significant estimates, that are described under "Management's Discussion and Analysis of Financial Condition--Risks, Uncertainties and Critical Accounting Policies and Estimates" in Item 7. History Until August 1997, the oil and gas exploration and production business of EEX was conducted through subsidiary and affiliate entities of ENSERCH Corporation ("ENSERCH"). From 1985 to 1994, the business was conducted through Enserch Exploration Partners, Ltd. ("EP"), a limited partnership. At yearend 1994, EP and its affiliates were reorganized into a Texas corporation, Enserch Exploration, Inc. ("Old EEI"), of which ENSERCH owned approximately 99%. The publicly-owned interest in Old EEI increased to approximately 17% in September 1995. EEX was organized in the State of Texas in 1992 as a wholly-owned subsidiary of ENSERCH. It conducted the Plant Operations Business of ENSERCH under the name of Lone Star Energy Plant Operations, Inc. ("LSEPO"). In 1997, pursuant to a merger agreement between Texas Utilities Company and ENSERCH, Old EEI was merged into LSEPO, with LSEPO being the surviving company ("Merger"). In the Merger, LSEPO changed its name to Enserch Exploration, Inc. ("EEI"). ENSERCH then distributed its entire 83% ownership interest in EEI pro rata to ENSERCH's shareholders in a tax-free distribution ("Distribution"). The Merger and the Distribution were each effective on August 5, 1997. On December 19, 1997, EEI changed its name to EEX Corporation. Strategy The Company's strategy is to grow its onshore U.S. oil and gas reserves and production, realize value from its undeveloped leases in the Gulf of Mexico and sell or otherwise use its currently inactive Floating Production System ("FPS") and two associated pipelines and other supporting facilities ("Pipelines"). EEX's liquidity is impaired and the independent auditors have issued an audit report with a report modification for a going concern uncertainty. This report modification will result in a default under the current credit facility. If the current revolving credit agreement is not replaced with another borrowing facility, EEX would be required to repay the amount outstanding under the revolving credit agreement on June 27, 2002, or earlier if EEX is in default under the agreement and the lenders accelerate the maturity. EEX is exploring various other options including the raising of additional capital, the sale or merger of the Company or a sale of a significant portion of its assets to repay the loan. In the event these efforts are unsuccessful, EEX may seek protection from its creditors and reorganization under the Federal bankruptcy laws. The following paragraphs describing EEX's strategy assume that EEX is successful in concluding the extension or replacement of existing borrowings or the raising of additional capital. No assurances can be given that EEX will be successful in completing an acceptable financing plan or a sale or merger of the Company. At the end of 1999, the Company acquired the domestic exploration and production operations of Tesoro Petroleum Corporation. This acquisition supplemented existing production, lengthened average reserve life, provided reinvestment opportunities in faster payback projects and resulted in a stronger foundation from which 3 to pursue exploration potential in the Gulf of Mexico. The Company's strategy is intended to provide reserve and production growth and improve investment and operating efficiency. The major elements of this strategy are: Grow the Onshore U.S. Business--During 2000 and 2001, the Company successfully invested a large portion of its capital program in its onshore properties with very favorable results. The Company's 2001 drilling program was successful in 55 out of 65 wells drilled. EEX's estimate of total proved reserve additions and revisions (including minority interest) from the onshore program is approximately 98 billion cubic feet equivalent of natural gas ("Bcfe"), or 213%, of the 46 Bcfe produced during 2001. All reserve additions were achieved through the drilling program. Adjusted for production and asset sales, onshore reserves (including minority interest) increased by approximately 12%. These reserve additions and revisions were achieved at a favorable economic finding and development cost of approximately $1.11 per thousand cubic feet equivalent of natural gas ("Mcfe"). The Company intends to invest a significant portion of its 2002 capital budget in the onshore business through exploration, development, acquisition of producing properties, and/or investments in new leaseholds. The level of investment in 2002, however, is expected to be approximately $40 million, significantly lower than 2001 as a result of lower gas prices and limitations in funds available for investment. This reduction in capital spending could have an adverse impact on production levels during the year and reserves reported at yearend 2002. Realize Value from the FPS and Pipelines--The Company owns a 60% interest in the FPS and Pipelines. The FPS is a combination Deepwater drilling rig and processing facility capable of simultaneous drilling and production operations. The facility is capable of processing up to approximately 40,000 barrels of oil and 100 million cubic feet of gas daily for transport into a pipeline system. The Pipelines are each approximately 53 miles long and have estimated daily throughput capacity of 70,000 barrels of oil and 140 million cubic feet of gas. A processing facility located at the terminus of the pipelines in shallow water is also 60% owned by EEX. These assets are not currently in service following the abandonment of the Cooper Field. The Pipelines are located approximately six miles from the Llano discovery well and may have utility as support infrastructure for anticipated developments at Llano and the greater Llano complex. The FPS and Pipelines are unique assets constructed for a particular purpose. The possible uses for these assets will affect their ultimate value. The Company is presently evaluating options to realize the value of the FPS following notification from the Llano Field operator in February 2002 that the FPS was no longer being considered for use in a Llano development. The Pipelines remain under consideration as a transportation alternative for the Llano Field. See U.S. Exploration and Development--Offshore--Deepwater Gulf of Mexico Exploration and FPS and Pipelines. Explore the Deep Potential of EEX's Gulf of Mexico Lease Portfolio--The Company believes that potential reserves under its leasehold interests in the Gulf of Mexico in water depths greater than 600 feet ("Deepwater") may provide the basis for significant long-term production growth. EEX currently holds 68 Deepwater leases, a majority of which are located in water depths between 1,500 and 3,500 feet. To reduce the financial risk associated with dry holes and to accelerate a drilling program, a joint venture was formed with Enterprise Oil PLC ("Enterprise") in 1997. This joint venture provided that Enterprise would fund a portion of EEX's share of exploratory well costs and certain appraisal and development costs in return for one-half of EEX's working interest in 78 Deepwater leases. The exploratory and appraisal well funds due under this agreement were fully paid as of December 31, 2000. Development funds under this agreement are contingent on approval of development plans. EEX has no Deepwater proved reserves in its yearend reserve determination. In late 1998, the Company began geologic and geophysical studies to identify reserve potential in formations deeper than that conventionally pursued on the Gulf of Mexico in water depths of less than 600 feet ("Deep Shelf"). The Company believes it is economically more attractive to explore this potential than to explore in and around existing mature fields (the "Conventional Shelf"). The Company sold its producing fields and a substantial portion of its undeveloped leasehold in the Conventional Shelf and intends to focus technical resources on defining this deeper exploration potential. The Company may in the future change the composition and size of its leasehold position in the Shelf through participation in lease sales, asset trades or sales, acquisition of producing properties and/or permitting some leases to expire. 4 EEX plans to realize the value of its Deepwater and Deep Shelf lease portfolio through additional joint venture or farmout arrangements as a non- operator to reduce its financial risk. These arrangements will likely result in a substantial dilution of the Company's ownership interest in any affected leases. At yearend 2001, EEX had no such arrangements approved other than the joint venture agreement for the Devil's Island well currently drilling at Garden Banks Block 344. EEX and another offshore operator entered into an Agreement that resulted in the parties being successful bidders on six federal offshore lease blocks at OCS Lease Sale No. 182 held March 20, 2002. The parties are presently awaiting awarding of the leases covering these six blocks. U.S. Exploration and Development--Onshore Onshore operations are located in four oil and gas producing trends: Gulf Coast of Texas and Louisiana, the Val Verde Basin in southwest Texas, the East Texas Basin and the Texas Panhandle. EEX pursues a strategy of "growth through the drillbit" by extending the proved producing trends both laterally and to deeper horizons through its exploration expertise and drilling program. EEX builds its onshore drilling inventory through leasing, farmouts and targeted producing property acquisitions. During 2001, EEX, through its subsidiaries, invested approximately $109 million in capital and cash exploration expense to increase production and add reserves in their onshore producing assets. This investment program focused primarily on the Val Verde Basin area, Dinn Ranch, Provident City and the Vaquillas Ranch Fields. For the year 2001, production averaged approximately 126 million cubic feet equivalent of natural gas ("MMcfe") per day. Approximately 68% (282 Bcfe) of the Company's onshore net proved reserve volume is located in 29 producing fields in the Texas Gulf Coast. Highlights from the year 2001 activity regarding the major Gulf Coast producing assets follow: Dinn Ranch Field. Dinn Ranch Field is located in Duval County, Texas in the Wilcox trend. In 2001, a significant discovery was made in the deep portion of the field and net proved reserve additions of 33 Bcfe were achieved from activity on two wells which were in the process of completion at yearend. These two wells began producing in late February 2002 at a combined rate of approximately 34 MMcfe gross (9 MMcfe net) per day. Net production for the year for the field averaged approximately 2 MMcfe per day. As of the end of the first quarter of 2002, two additional development wells are in process of completion and are expected to be producing to sales in the third quarter of 2002. Discussions are underway with the Company's co-owner to determine development plans for 2002 beyond the two completing wells. The Company owns working interest in the field ranging from 35% to 50%. Bob West Field. The Bob West Field was discovered in 1990. It is located in the southern part of the Wilcox trend in Starr and Zapata Counties, Texas. In 2001, 3 wells were completed and placed on production. The field's production for the year averaged approximately 24 MMcfe per day (net). The Company owns non-operated working interests in the field that range from 33% to 70%. In addition, the Company owns a non-operated 70% interest in the field's central gas processing facility, which has a gross capacity of 350 million cubic feet of natural gas ("MMcf") per day and a 50% interest in the Starr-Zapata Pipeline, a 26-mile, 20-inch pipeline through which gas from the field area is transported to market. The Company also owns a non-operated 25% interest in the field's central compression facility. Vaquillas Ranch Field. Vaquillas Ranch Field (EEX 100% interest) is operated by EEX and located in Webb County, Texas in the southern part of the Wilcox trend. In 2001, the Company continued the redevelopment program begun in the fourth quarter of 1999 by drilling and completing 8 wells. The drilling program resulted in an additional 9 Bcfe of proved reserves. Net production for the year averaged approximately 13 MMcfe per day. 5 Fashing Field. Fashing Field is located in Atascosa County, Texas and produces from the Edwards formation. In 2000, the Company completed a field study that indicated the potential for additional reserves. As a result of the study, 3 wells were drilled and turned to sales in 2001. Net production for the year averaged approximately 8 MMcfe per day. Discussions are underway with the Company's co-owner to determine additional development plans for 2002. The Company owns working interests in the field that range from 47% to 100%. Provident City Fields. The Provident City Fields are located in Lavaca County, Texas in the Wilcox trend. In 2001, 4 wells were completed to sales and 4 workovers of existing wells were performed resulting in an addition of 12 Bcfe to proved reserves. By yearend, net production increased approximately 255% from the beginning of the year. Net production for the year averaged approximately 3 MMcfe per day with December 2001 net production averaging 8 MMcfe per day. The Company owns working interest in the field ranging from 16% to 100%. The Val Verde Basin in Texas contains approximately 20% (82 Bcfe) of the Company's onshore net proved reserve volume. The two major EEX fields in this Basin are Vinegarone East and Langtry. Vinegarone East Field. The Vinegarone East Field (EEX 75% interest), located in Edwards County, Texas, is operated by EEX and produces from Pennsylvanian-aged sands. During the year, 7 wells were drilled resulting in 6 producing wells. Net production for the year averaged 17 MMcfe per day. Production from the field is carried to sales through an 11-mile, 6-inch pipeline owned (75% interest) and operated by the Company. Langtry Field. The Langtry Field (EEX 45% interest) is located in Val Verde County, Texas and was the Company's most significant onshore exploration discovery in 2000. During 2001, 13 wells were drilled and completed. The field was turned to sales in May 2001 when a 23-mile, 8-inch pipeline was completed. The pipeline is owned (45% interest) and operated by the Company. Net production for the year averaged approximately 10 MMcfe per day. Two additional development wells will be drilled in the second quarter of 2002. EEX also owns onshore properties located in East Texas and the Texas Panhandle. U.S. Exploration and Development--Offshore Deepwater Gulf of Mexico Exploration--In December 2000, EEX announced that the Garden Banks Block 344 No. 3, an exploratory well on the Jason Prospect, had encountered hydrocarbon-bearing sands. The well was drilled to a total depth of approximately 21,000 feet and encountered hydrocarbon-bearing intervals totaling approximately 100 net feet of pay. Early evaluation of the information gathered by well logs, bottom hole pressure tests, fluid samples and side-wall cores indicated the Jason discovery warrants appraisal. The Company is actively seeking joint venturers to appraise this discovery through a sidetrack from the existing well bore or another well at a drilling location elsewhere on the block. EEX owns a 100% working interest and approximately 80% net revenue interest. The Jason discovery may provide an opportunity to utilize EEX's FPS and Pipeline infrastructure. No assurances can be given that an agreement will be reached with potential joint-venturers regarding appraisal of the Jason discovery or that future development of the Jason Prospect will employ the FPS and/or Pipelines. In May 2001, EEX relinquished operatorship of the Llano Field in Garden Banks Blocks 385 and 386. EEX remained operator of Garden Banks Blocks 344, 387, 388 and the western half of Block 345, where the Jason discovery and the Travis and Devil's Island prospects are located. The Llano owners also agreed to normalize their interests over the Llano Field (Garden Banks Blocks 385 and 386) with EEX holding a 27.5% interest (previously EEX held a 30% interest on Block 386 and a 25% interest on Block 385). In September 2001, EEX sold its 27.5% interest in the Llano Field for $50 million cash plus an overriding royalty interest of 1/2 of 1% for the first 100 million barrels of oil equivalent total production from the Llano Field and 1% on all production thereafter. The effective date of the sale was June 1, 2001 and the purchaser reimbursed all of EEX's costs associated with the Llano No. 4 well that was drilling at that time. The sale resulted in a pre-tax gain for EEX of approximately $27 million ($17 million after-tax) recorded during the third quarter of 2001. 6 EEX currently has one Deepwater rig under contract. The Global Marine semi- submersible rig, the Arctic I, was delivered to EEX in July 1999, to begin a three-year contract which has a current operating rate of approximately $140,000 per day. This rig was stacked at the conclusion of the Jason well and, in early February 2001, was assigned to another operator at a rate of $55,000 per day until June 2001. EEX incurred approximately $15 million recorded as exploration expense in stacking and subsidy costs during 2001 for the Arctic I rig. The Llano owners used the rig to drill the Llano No. 4 appraisal well and returned the rig to EEX in November 2001. The rig was moved to EEX's Devil's Island Prospect at Garden Banks Block 344 in the greater Llano area. EEX entered into a joint venture agreement with Amerada Hess Corporation for the drilling of an exploration well on this prospect, utilizing the Arctic I drilling rig at its full day rate. Under the joint venture agreement, Amerada Hess will operate and earn an 80% interest in Garden Banks Block 344 (E/2) and Garden Banks Block 345 by participating with EEX in drilling the well. EEX will retain a 20% working interest after the well is drilled and pay 30% of the costs of the well up to the AFE (Authorization for Expenditure) amount, 20% thereafter. The well began drilling operations in December 2001 and is expected to reach targeted depth in the second quarter of 2002. The Arctic I rig contract expires in early July 2002. If drilling operations conclude prior to the end of the contract period, EEX will seek an assignment of the rig to another operator at a subsidized rate or decide to "stack" the rig at a total cost of approximately $150,000 per day for the remainder of the contract term. FPS and Pipelines--During 2001, EEX continued its efforts to place into service the FPS and the Pipelines, both of which are currently not in use. In November 2001, EEX and the co-owner of the FPS and Pipelines submitted a proposal to the Llano owners for their use in support of a Llano Field development. This proposal was subsequently modified to compete with alternative processing and transportation options for the Llano area. In the fourth quarter, the $152 million carrying value of the FPS and Pipelines was impaired to a fair market valuation of $70 million to reflect these modified proposals and values management believes could be received in an orderly sale of the assets. In February 2002, the Llano Field operator notified EEX that the FPS is no longer being considered for use in a Llano development. The Pipelines remain under consideration as a transportation alternative for the Llano Field. No assurances can be given that the Pipelines will ultimately be used in a Llano Field development or other potential development in the Llano area, or that management's estimated fair market value of the FPS and Pipelines will be realized in the market. Gulf of Mexico Deep Shelf--In 2001, EEX further developed its geologic interpretation of deeper exploration potential under the Gulf of Mexico Shelf. The Company began marketing efforts to form a joint venture or farmout arrangement with third parties to reduce the financial risk of exploring these leases. No agreements were finalized in 2001 to fund this program. EEX and another offshore operator entered into an Agreement that resulted in the parties being successful bidders on six federal offshore lease blocks at OCS Lease Sale No. 182 held March 20, 2002. The parties are presently awaiting awarding of the leases covering these six blocks. Gulf of Mexico Conventional Shelf--In December 2000, EEX sold its interests in approximately 100 Gulf of Mexico Shelf blocks to W&T Offshore, Inc., substantially all of EEX's Shelf production. As part of this sale, EEX retained the rights to deeper, non-producing horizons in ten of these blocks where the Company believes there is deep exploration potential. International Exploration and Development The Company plans to exit its portfolio of international assets in 2002. Indonesia (Onshore Java) Tuban Block--EEX owns a 50% interest in the production-sharing contract relating to the Tuban Block, which includes the Mudi Field. In December 2001, EEX received an acceptable bid for the purchase of the Tuban Block and in March 2002, signed a purchase and sale agreement with an 7 Indonesian company. A $16 million impairment on the Indonesian assets was incurred in the fourth quarter of 2001 to reflect the difference between the agreed sales price and book value at closing, currently estimated to occur in the second quarter of 2002. The impairment also includes a discount incorporated in the sales price associated with certain receivables. Indonesia (Offshore Sumatra) Asahan Block--In 1997, EEX acquired a 60% interest in 4,200 square kilometers in the Asahan Block. In 2001, EEX was carried for a 15% interest in an exploration well that encountered hydrocarbons drilled by the farmout operator. These assets are expected to be sold in the second quarter of 2002 along with the Tuban Block as described above. New Zealand--The Company will relinquish its remaining concession in New Zealand in the second quarter of 2002. Plant Operations Business EEX Power Systems Company ("EEXPS"), a division of EEX, provides operation and maintenance services under contract to two cogeneration plants located in Sweetwater, Texas and Bellingham, Washington. EEXPS operates and maintains the facilities under the terms of operation and maintenance contracts that provide EEXPS periodic fees and reimbursement of certain costs. During 2001, EEX attempted to sell its Plant Operations Business but was unable to conclude a sale. Currently, there are no ongoing efforts to sell the Plant Operations Business. Sales of Natural Gas and Crude Oil EEX sells its natural gas under both long- and short-term contracts. EEX markets most of its gas through third-party marketing organizations. EEX sells its crude oil under contracts that are for periods of one year or less. Crude oil prices are based upon field posted prices plus bonuses. EEX makes no sales of natural gas and/or crude oil to any customer where the loss of such customer would have a material adverse effect on EEX. Sales data are set forth under "Selected Operating Data" included as part of Item 6. EEX utilizes financial instruments to reduce exposure of its oil and gas production to price volatility. See Item 7A, "Quantitative and Qualitative Disclosures about Market Risk," Item 7, "Management's Discussion and Analysis of Financial Condition and Results of Operations--Oil and Gas Marketing," and Note 16 to Consolidated Financial Statements in Item 8 for additional information on hedging activities. Competition All phases of the oil and gas industry are highly competitive. EEX competes in the acquisition of properties, the search for and development of reserves, the production and sale of oil and gas and the securing of the labor, equipment, and capital required to conduct operations. EEX's competitors include major oil and gas companies, independent oil and gas concerns and individual producers and operators. Many of these competitors have financial and other resources that are substantially greater than those available to EEX. Oil and gas producers also compete with other industries that supply energy and fuel. Government Regulation The oil and gas industry is extensively regulated by federal, state and local authorities and by governmental agencies of foreign countries. Legislation affecting the oil and gas industry is under constant review for amendment or expansion. Numerous departments and agencies, federal, state and foreign, have issued rules and 8 regulations binding on the oil and gas industry and its individual members, some of which carry substantial penalties for the failure to comply. Because these 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. Regulation of Onshore Operations--EEX's production of oil and gas in Texas is regulated by the Texas Railroad Commission, and in Louisiana, by the Louisiana Department of Natural Resources. Similar types of regulations are in effect in Indonesia and other foreign countries. Such regulations include requiring permits for the drilling of wells, maintaining bonding requirements in order to drill or operate wells, and regulating the location of wells, the method of drilling and casing wells, the surface use and restoration of properties upon which wells are drilling and the plugging and abandonment of wells. EEX's operations are also subject to various conservation laws and regulations. These include the regulation of the size of drilling and spacing units or proration units and the density of wells which may be drilled and unitization or pooling of oil and gas properties. In addition, conservation laws establish maximum rates of production requirements regarding the ratability of production. Regulation of Offshore Operations--Lessees must obtain the approval of the Minerals Management Service ("MMS"), a federal agency, and various other federal and state agencies for exploration, development and production plans prior to the commencement of offshore operations. Similarly, the MMS has promulgated regulations governing the plugging and abandoning of wells located offshore and the removal of all production facilities. The MMS also issues rules on calculation of royalty payments and valuation of production for royalty purposes. Environmental Matters--EEX's U.S. oil and gas operations are subject to extensive federal, state and local laws and regulations dealing with environmental protection. These laws include the Comprehensive Environmental Response, Compensation and Liability Act ("CERCLA"), also known as "Superfund," and similar state statutes. Failure to comply with these laws and regulations may result in the assessment of administrative, civil, or criminal penalties. With respect to offshore leases in U.S. waters, EEX's operations are subject to interruption or termination by governmental authorities on account of environmental contamination and other considerations. The Outer Continental Shelf Lands Act ("OCSLA") provides the federal government with broad discretion in regulating the release or continued use of offshore resources for oil and gas production. If the government were to exercise its authority under OCSLA to restrict the availability of offshore oil and gas leases (for example, due to a serious incident of pollution), such an action could have a material adverse effect on EEX's operations. The Oil Pollution Act of 1990 ("OPA") and regulations thereunder impose a variety of regulations related to the prevention of oil spills and liability for damages resulting from such spills in the United States waters. The OPA assigns liability to each responsible party for oil removal and cleanup costs, and a variety of public and private damages including natural resource damages. In addition, OPA imposes ongoing requirements on responsible parties, including preparation of spill response plans and proof of financial responsibility to cover at least some costs in a potential spill. EEX maintains insurance against costs of cleanup operations, but is not fully insured against all such risks. The Coastal Zone Management Act authorizes state implementation and development of programs containing management measures for the control of nonpoint source pollution to restore and protect coastal waters. EEX's U.S. onshore operations are subject to numerous laws and regulations controlling the discharge of materials into the environment or otherwise relating to the protection of the environment. These laws and regulations, among other things, may 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, 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. 9 The operations of EEX are also subject to the Clean Water Act and the Clean Air Act, as amended, and comparable state statutes. EEX may be required to incur certain capital expenditures over the next five to ten years for pollution control equipment. The Company's operations may generate or transport both hazardous and nonhazardous solid wastes that are subject to the requirements of the Resource Conservation and Recovery Act ("RCRA") and comparable state laws and regulations. In addition, EEX currently owns or leases, and has in the past owned or leased, properties that have been used for oil and gas operations for many years. Although EEX has utilized operating and disposal practices that were standard in the industry at the time, hydrocarbons or other wastes may have been disposed of or released on or under the properties owned or leased by EEX or on or under other locations where such wastes have been taken for disposal. Many of these properties have been operated by third parties whose operations were not under EEX's control. These properties and the wastes disposed thereon may be subject to CERCLA, RCRA, and analogous state laws, and EEX could be required to remove or remediate previously disposed wastes or property contamination or perform remedial plugging operations to prevent future contamination. EEX's foreign operations are potentially subject to similar governmental controls and restrictions relating to the environment. Requirements of these foreign governmental bodies may include, among other things, controls over the discharge of materials in the environment, standards for removal and cleanup of spills, and restrictions on the handling and disposal of waste materials. Regulation of Natural Gas Marketing and Transportation--All price and nonprice controls for all sales of natural gas have been removed by federal statute. EEX may sell its natural gas currently at market prices, subject to applicable contract provisions. The Federal Energy Regulatory Commission ("FERC") regulates interstate natural gas transportation rates and service conditions, which affect the marketing of natural gas produced by EEX, as well as the revenues received by EEX for sales of such natural gas. Since the latter part of 1985, the FERC has endeavored to make interstate natural gas transportation more accessible to gas buyers and sellers on an open and nondiscriminatory basis. The FERC's efforts have significantly altered the marketing and pricing of natural gas, most notably from Order Nos. 636, 636-A, 636-B, 636-C and 637. The FERC issued Order No. 639 on April 10, 2000, to promote the open and nondiscriminatory pipeline access mandates of the OCSLA. The Order applies to gas transportation service providers on the Outer Continental Shelf that are not subject to FERC jurisdiction under the Natural Gas Act. Order No. 639 imposes certain reporting requirements and provides a mechanism for complaints of discriminatory and anticompetitive shipping practices. Additional proposals and proceedings that might affect the natural gas industry are considered from time to time by Congress, the FERC, state regulatory bodies and the courts. EEX cannot predict when or if any such proposals might become effective, or their effect, if any, on EEX's operations. The natural gas industry historically has been very heavily regulated; therefore, there is no assurance that the less stringent regulatory approach recently pursued by the FERC and Congress will continue indefinitely into the future. State regulation of gathering facilities generally includes various transportation, safety, environmental, nondiscriminatory purchase and transport requirements, but does not currently entail rate regulation. Growing competitive pressures in marketing natural gas may cause states to regulate gathering facilities more stringently in the future. 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, 2002, EEX had 139 full-time employees, 100 of which were involved principally with oil and gas operations. The remaining employees were involved with the Plant Operations Business. 10 Offices The principal offices of EEX are located at 2500 CityWest Blvd., Suite 1400, Houston, Texas 77042, and its telephone number is (713) 243-3100. An onshore office is located at 1020 N.E. Loop 410, Suite 700, San Antonio, Texas 78209, and its telephone number is (210) 829-3500. Plant operation offices are maintained in Sweetwater, Texas and Bellingham, Washington. Item 2. Properties In December 2000, EEX sold its interests in substantially all of its Gulf of Mexico Shelf production. As part of this sale, EEX retained the rights to deeper, non-producing horizons in ten of the blocks sold. In 2001, EEX's operations were located in three regions: (i) the Gulf of Mexico--Deepwater, (ii) Onshore and (iii) International, primarily Indonesia. The following table sets forth estimated net proved reserves of EEX by region, as audited by Netherland, Sewell & Associates, Inc.:
Proved Reserves at December 31, 2001 ---------------------------------- Oil and Gas Natural Gas Liquids Total (MMcf)(1) (MBbls)(2) (MMcfe)(3) ----------- ----------- ---------- Gulf of Mexico--Deepwater................. -- -- -- Onshore................................... 394,987 3,704 417,211 International............................. -- 10,856 65,136 ------- ------ ------- Total................................... 394,987 14,560 482,347 ======= ====== ======= Minority Interest (4)..................... 135,959 659 139,913 ======= ====== =======
- -------- (1) Million cubic feet. (2) Thousand barrels. (3) Million cubic feet of gas equivalent with one barrel of liquid converted to six Mcf of gas. (4) Included in Onshore above. See Note 14 to Consolidated Financial Statements in Item 8 for additional information on Minority Interest. See Note 24 to Consolidated Financial Statements in Item 8 for additional information on oil and gas reserves. During 2001, EEX filed Form EIA-23 with the Department of Energy reflecting reserve estimates for the year 2000. Such reserve estimates were not materially different from the 2000 reserve estimates reported in Note 24 to Consolidated Financial Statements in Item 8. Developed and undeveloped lease acreage as of December 31, 2001 is set forth below:
Developed Undeveloped ----------------- ---------------------- Gross Net(1) Gross Net(1) ------- ------ --------- --------- Gulf of Mexico--Deepwater.... 17,280 10,944 364,007 131,460 Onshore...................... 82,016 46,248 352,379(2) 236,289(2) ------- ------ --------- --------- Total Domestic............. 99,296(3) 57,192(3) 716,386 367,749 International................ 5,000 1,250(4) 2,847,066 1,626,209(4) ------- ------ --------- --------- Total...................... 104,296 58,442 3,563,452 1,993,958 ======= ====== ========= ========= Minority Interest (5)........ 28,393 13,996 89,407 50,778 ======= ====== ========= =========
- -------- (1) Represents the proportionate interest of EEX in the gross acres under lease. (2) Includes 120,678 gross and 101,008 net acres--Gulf of Mexico Shelf. 11 (3) Does not include 23,040 gross/6,884 net acres (developed deep) or 25,000 gross/7,563 net acres (developed Shelf) wherein EEX only owns rights below the deepest producing reservoir. (4) EEX owns 25% interest by virtue of the Production Sharing Contract. (5) Included in Onshore above. See Note 14 to Consolidated Financial Statements in Item 8 for additional information on Minority Interest. EEX purchased approximately 30,928 gross/26,608 net acres in 6 offshore blocks (5 Shelf, 1 Deepwater) at Federal OCS Lease Sale 178, Part 1 held March 28, 2001. Additionally, EEX acquired 10,080 net acres in the fourth quarter of 2001 in deepwater blocks in which it already owned an undivided interest. The total number of blocks in which EEX had an interest at yearend was 97 (not including 3 blocks in which EEX has only an overriding royalty interest), with an average working interest of 48.13%. EEX operates 47 of these blocks. During 2001, EEX relinquished its interest in 18 Gulf of Mexico blocks and sold its interest in one. The primary terms during which the undeveloped acreage can be retained by payment of delay rentals, or by drilling operations, without the establishment of oil and gas reserves, expire as follows:
Undeveloped Acres Expiring ------------------------------------------------------ Gulf of Mexico-- Deepwater Onshore International --------------- --------------- ------------------- Gross Net Gross Net Gross Net ------- ------- ------- ------- --------- --------- 2002.................... 28,800 8,352 101,368 53,832(1) 1,357,635 1,357,635 2003.................... 46,632 16,825 56,286 25,848 -- -- 2004 and later.......... 276,480 103,161 169,697 142,441(2) 1,494,431 269,824 ------- ------- ------- ------- --------- --------- Total................. 351,912 128,338 327,351 222,121 2,852,066 1,627,459 ======= ======= ======= ======= ========= =========
- -------- (1) Includes 9,704 gross and 1,941 net Gulf of Mexico Shelf acres. (2) Includes 107,824 gross and 99,060 net Gulf of Mexico Shelf acres. The Company may allow drilling rights with regard to a portion of the undeveloped acreage to expire before the expiration of primary terms specified in this schedule by non-payment of delay rentals. Drilling activity during the three years ended December 31 is set forth below:
2001 2000 1999 ---------- ---------- --------- Gross Net Gross Net Gross Net ----- ---- ----- ---- ----- --- Exploratory Wells: Productive................................. 5.0 2.5 6.0 2.2 2.0 1.5 Dry........................................ 4.0 2.4 8.0 2.2 7.0 3.6 ---- ---- ---- ---- --- --- Total.................................... 9.0 4.9 14.0 4.4 9.0 5.1 ==== ==== ==== ==== === === Development Wells: Productive................................. 54.0 33.1 44.0 28.7 2.0 0.8 Dry........................................ 7.0 4.3 8.0 4.9 -- -- ---- ---- ---- ---- --- --- Total.................................... 61.0 37.4 52.0 33.6 2.0 0.8 ==== ==== ==== ==== === ===
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, 2001, EEX was participating in 9 wells (4.4 net), which were either being drilled, or in some stage of completion. 12 The number of wells drilled is not a significant measure or indicator of the relative success or value of a drilling program because the significance of the reserves and economic potential may vary widely for each project. It is also important to recognize that reported completions may not necessarily correspond to capital expenditures, since Securities and Exchange Commission guidelines do not allow a well to be reported as completed until it is ready for production. In the case of offshore wells, this may be several years following initial drilling because of the timing of construction of platforms, pipelines and other necessary facilities. The Company owned interest in productive gas and oil wells at December 31, 2001 as follows:
Gas Oil ----------- ---------- Gross Net Gross Net ----- ----- ----- ---- Onshore............................................... 408.0 250.2 14.0 8.5 International......................................... -- -- 18.0 8.5 ----- ----- ---- ---- Total............................................... 408.0 250.2 32.0 17.0 ===== ===== ==== ==== The Company has ownership in wells with dual completions in single boreholes at December 31, 2001 as follows: Gas Oil ----------- ---------- Gross Net Gross Net ----- ----- ----- ---- Onshore............................................... 21.0 14.2 -- -- International......................................... -- -- -- -- ----- ----- ---- ---- Total............................................... 21.0 14.2 -- -- ===== ===== ==== ====
Additional information relating to the oil and gas activities of EEX is set forth in Note 24 to Consolidated Financial Statements in Item 8 and in "Selected Financial and Operating Data" in Item 6. EEX leases approximately 49,000 square feet of office space for its office in Houston, Texas, expiring in January 2003. EEX leases approximately 19,000 square feet of office space for its office in San Antonio, Texas, expiring in December 2005. Item 3. Legal Proceedings EEX is involved in a number of legal and administrative proceedings incident to the ordinary course of its business. In the opinion of management, based on the advice of counsel and current assessment, any liability to EEX relative to these ordinary course proceedings will not have a material adverse effect on EEX's operations or financial condition. The operations and financial position of EEX continue to be affected from time to time in varying degrees by domestic and foreign political developments as well as legislation and regulations pertaining to restrictions on oil and gas production, imports and exports, natural gas regulation, tax increases, environmental regulations and cancellation of contract rights. Both the likelihood and overall effect of such occurrences on EEX vary greatly and are not predictable. EEX has taken and will continue to take into account uncertainties and potential exposures in legal and administrative proceedings in periodically establishing accounting reserves. Item 4. Submission of Matters to a Vote of Security Holders None. 13 PART II Item 5. Market for Registrant's Common Equity and Related Stockholder Matters The Company's common stock is traded principally on the New York Stock Exchange under the ticker symbol "EEX." The following table shows the high and low sales prices per share of the common stock as reported in the New York Stock Exchange--Composite Transactions report for the periods shown.
2001 2000 ------------- ------------- High Low High Low ------ ------ ------ ------ First Quarter.................................... $5.063 $3.370 $4.313 $2.250 Second Quarter................................... 5.000 2.700 6.250 2.125 Third Quarter.................................... 3.350 1.100 6.875 4.500 Fourth Quarter................................... 2.000 1.120 5.813 3.000
At March 31, 2002, EEX had 42,487,395 outstanding shares of common stock held by 9,942 shareholders of record. There were no dividends declared on the Company's common stock in 2001 or 2000. The declaration of future dividends will be dependent upon business conditions, earnings, cash requirements and other relevant factors as determined by the Company's Board of Directors. Under the terms of the Company's Series B 8% Cumulative Perpetual Preferred Stock (the "Series B Preferred Stock"), the Company may not declare or pay any dividend or make any other distribution on its common stock, unless all dividends due upon the Series B Preferred Stock have been paid or provided for. 14 Item 6. Selected Financial and Operating Data EEX CORPORATION SELECTED FINANCIAL DATA
As of or for the Year Ended December 31 -------------------------------------------------- 2001 2000 1999 1998 1997 --------- -------- -------- -------- --------- (In thousands, except per share amounts) INCOME STATEMENT DATA Revenues................. $ 206,884 $262,412 $177,374 $219,052 $ 314,213 ========= ======== ======== ======== ========= Income (Loss) Before Extraordinary Item...... $(149,574) $ 2,946 $(87,797) $(40,926) $(216,103) Extraordinary Item--Debt Extinguishment Gain, Net of Tax.................. (3,593) -- -- -- -- --------- -------- -------- -------- --------- Net Income (Loss)........ (145,981) 2,946 (87,797) (40,926) (216,103) Preferred Stock Dividends............... 14,465 13,364 12,117 -- -- --------- -------- -------- -------- --------- Net (Loss) Applicable to Common Shareholders..... $(160,446) $(10,418) $(99,914) $(40,926) $(216,103) ========= ======== ======== ======== ========= Net (Loss) Per Common Share, Basic and Diluted(a) Before Extraordinary Item.................. $ (3.94) $ (0.25) $ (2.37) $ (0.97) $ (5.12) Extraordinary Item-- Debt Extinguishment Gain, Net of Tax...... 0.09 -- -- -- -- --------- -------- -------- -------- --------- Per Common Share....... $ (3.85) $ (0.25) $ (2.37) $ (0.97) $ (5.12) ========= ======== ======== ======== ========= BALANCE SHEET DATA Total Assets........... $ 750,118 $764,068 $780,784 $565,070 $ 807,789 ========= ======== ======== ======== ========= CAPITAL STRUCTURE Short-term borrowings.... $ -- $ -- $ -- $ -- $ 5,000 Capital lease obligations............. -- 205,634 222,444 233,318 241,735 Secured notes payable.... 114,343 -- -- -- -- Bank revolving credit agreement............... 325,000 75,000 -- -- 25,000 Gas sales obligation..... 59,937 83,490 105,000 -- -- Minority interest in preferred stock of subsidiary.............. -- -- -- -- 100,000 Minority interest third party................... 5,000 5,000 3,050 -- -- Shareholders' equity..... 180,788 289,601 294,863 234,300 274,663 --------- -------- -------- -------- --------- Total.................. $ 685,068 $658,725 $625,357 $467,618 $ 646,398 ========= ======== ======== ======== =========
- -------- (a) The per share amounts for periods prior to 1998 have been restated to reflect the reduction in weighted average shares outstanding due to the one-for-three reverse stock split effective on December 8, 1998. 15 EEX CORPORATION SELECTED OPERATING DATA
As of or for the Year Ended December 31 ------------------------------------ 2001 2000 1999 1998 1997 ------ -------- ------ ------ ------ Sales volume Natural gas (Bcf)(a).................... 43.0 55.1 41.0 57.9 84.5 Oil, condensate and natural gas liquids (MMBbls)(e)............................ 2.6 2.8 4.6 5.8 5.4 Total volumes (Bcfe)(a)............... 58.6 71.9 68.5 92.7 116.9 Average sales price(b)(c) Natural gas (per Mcf)................... $ 3.22 $ 3.14 $ 2.28 $ 2.21 $ 2.36 Oil, condensate and natural gas liquids (per Bbl).............................. 23.17 28.26 16.45 13.15 18.53 Total (per Mcfe)...................... 3.39 3.51 2.46 2.20 2.57 Average costs and expenses (per Mcfe)(c) Production and operating(b)............. $ 0.63 $ 0.55 $ 0.57 $ 0.51 $ 0.42 Exploration(d).......................... 0.59 0.47 0.62 0.49 0.60 Depletion, depreciation and amortization........................... 1.17 1.31 1.01 1.09 1.24 General, administrative and other....... 0.32 0.27 0.41 0.26 0.24 Taxes, other than income................ 0.25 0.15 0.07 0.12 0.15 Net Wells Drilled Total................................... 42 38 6 24 57 Productive.............................. 36 31 2 19 44 Proved Reserve Data (at yearend) Natural gas (Bcf)(a).................... 395.0 382.6 362.8 203.6 460.2 Oil, condensate and natural gas liquids (MMBbls)(e)............................ 14.6 25.1 17.5 26.2 23.8 Total (Bcfe)(a)....................... 482.3 533.3 468.1 360.6 603.2 Standardized Measure of Discounted Future Net Cash Flows (in millions)...... $389.2 $1,283.3 $436.3 $275.9 $619.1
- -------- (a) Billion cubic feet or billion cubic feet equivalent, as applicable. Ratio of six Mcf of natural gas to one barrel of crude oil, condensate or natural gas liquids. (b) Before related production, severance and ad valorem taxes. (c) One thousand cubic feet or one thousand cubic feet equivalent, as applicable. Ratio of six Mcf of natural gas to one barrel of crude oil, condensate or natural gas liquids. Average sales prices reflect results net of hedged transactions. (d) The year 2001 excludes approximately $15 million of costs associated with stacking of the Arctic I rig and recognition of the net costs associated with the assignment of the Arctic I contract through May 2001. The year 1999 excludes approximately $44 million of dry hole costs associated with the George and Mackerel prospects. (e) One million barrels of crude oil or other liquid hydrocarbons. 16 Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations The following discussion should be read in conjunction with EEX Corporation's ("EEX" or the "Company") Consolidated Financial Statements and notes thereto included under Item 8. Certain statements in this report, including statements of EEX and management's expectations, intentions, plans and beliefs, are "forward-looking statements," within the meaning of Section 21E of the Securities Exchange Act of 1934, as amended, and are subject to certain events, risks and uncertainties that may be outside EEX's control. Actual results and developments could differ materially from those expressed in or implied by such statements due to a number of factors, including, without limitation, those described in the context of such forward-looking statements, the risks, uncertainties and critical accounting policies and estimates set forth below and described from time to time in EEX's other documents and reports filed with the Securities and Exchange Commission ("SEC"). Risks, Uncertainties and Critical Accounting Policies and Estimates Liquidity--Management is continuing to negotiate for a new credit agreement to replace its current revolving credit agreement that matures on June 27, 2002. EEX has a waiver until April 30, 2002 for exceeding the debt to capital ratio under this agreement. The independent auditors have issued an audit report with a report modification for a going concern uncertainty. This report modification will result in a default under the current credit facility. If the current revolving credit agreement is not replaced with another borrowing facility, EEX would be required to repay the amount outstanding under the revolving credit agreement on June 27, 2002, or earlier if EEX is in default under the agreement and the lenders accelerate the maturity. EEX is exploring various other options including the raising of additional capital, the sale or merger of the Company or a sale of a significant portion of its assets to repay the loan. In the event these efforts are unsuccessful, EEX may seek protection from its creditors and reorganization under the Federal bankruptcy laws. Also, the New York Stock Exchange ("Exchange") may delist EEX's common stock, which could result in decreased liquidity for the common shareholders. EEX currently exceeds the minimum quantitative criteria of the Exchange for continued listing, however, no assurances can be given that the Company will continue to meet these criteria or that the Exchange will not use other criteria or information in considering whether to institute delisting proceedings. A liquidation of assets to retire debt and preferred securities may result in little to no funds remaining for the common shareholders. No assurances can be given that EEX will be successful in completing an acceptable financing plan or a sale or merger of the Company. A new credit agreement would include financial maintenance covenants. Management believes that EEX would be able to maintain such covenants. However, in the event that EEX's business plan is adversely impacted by the risks, uncertainties and significant estimates described below, EEX could default under its new credit agreement, which would allow the lenders to enforce their security interest in EEX's oil and gas and other assets. EEX's access to trade credit may become limited because of EEX's financial condition. This would adversely affect working capital. In addition, EEX may not be able to obtain credit to hedge future gas production or may be required to maintain margins for hedges. Natural Gas Prices--EEX's revenues, operating results, financial condition and ability to borrow funds or obtain additional capital depend substantially on current market expectations of future prices for natural gas in the United States. Lower prices in the future would have a serious adverse impact on the Company's future financial results, the Company's ability to meet debt covenants expected as part of the Company's refinancing plan, and the Company's ability to access equity and debt markets on favorable terms. Management has taken steps to mitigate a portion of this risk through the use of financial instruments to hedge the price of natural gas during the year 2002 and 2003. Conversely, a rise in natural gas prices above hedge levels during this period would result in the Company not realizing the benefit of this increase on the hedged volumes. These hedges represent only a small portion of EEX's total proved reserves, its principal asset. Lower gas prices would seriously reduce the value of EEX's proved reserves and could impact the Company's annual assessment of 17 impairment required under Statement of Financial Accounting Standards No. 144 ("SFAS No. 144"), "Accounting for the Impairment or Disposal of Long-Lived Assets" effective January 1, 2002. Although management believes that long-term natural gas prices will be in excess of five-year historical average gas prices of approximately $3.00 per MMBtu (Henry Hub), there can be no assurances that high natural gas prices will, in fact, prevail. Estimated Value of the FPS and Pipelines--Management assessed the fair value of the FPS and Pipelines to be $70 million at yearend. This value was based upon proposals made by EEX to the Llano Field operator, competition from processing and transportation alternatives, and general estimates of the market for these assets in a third party sale. The FPS and Pipelines are unique assets. The possible uses for these assets will affect their ultimate value. There is no established third party market for these assets; it is very difficult to accurately estimate what a sale would bring. In addition, the carrying value of the assets assumes an orderly disposition of the assets, which may take a significant amount of time. An immediate sale or a sale under distressed circumstances might realize much less than the carrying value of the assets. The value of the Pipelines depends on their use to transport production from the greater Llano or other areas in proximity to the Pipelines. If all producers choose other transportation alternatives, the value of the Pipelines would be seriously reduced. You should not assume that management's estimate of current fair value is a definitive view of the market for these assets. The asset value could be higher or lower than this estimate depending on actual third party markets for the FPS and ultimate utility of the Pipelines. These factors are generally beyond the control of EEX. Oil and Gas Reserve Estimates--The process of estimating quantities of proved reserves is inherently uncertain, and the reserve data included in this document are only estimates prepared by the Company. Reserve engineering is a subjective process of estimating underground accumulations of hydrocarbons that cannot be measured in an exact manner. The process relies on interpretation of available geologic, geophysical, engineering and production data. The extent, quality and reliability of this data can vary. The process also requires certain economic assumptions regarding drilling and operating expense, capital expenditures, taxes and availability of funds. The SEC mandates some of these assumptions, such as oil and gas prices and the present value discount rate. Proved reserve estimates prepared by others may be substantially higher or lower than the Company's estimates. Because these estimates depend on many assumptions, all of which may differ from actual results, reserve quantities actually recovered may be significantly different than estimated. Material revisions to reserve estimates may be made depending on the results of drilling, testing, and rates of production. You should not assume that the present value of future net cash flows is the current market value of our estimated proved reserves. In accordance with SEC requirements, the Company based the estimated discounted future net cash flows from proved reserves on prices and costs on the date of the estimate. The Company's rate of recording depreciation, depletion and amortization expense for proved properties is dependent on the Company's estimate of proved reserves. If these reserve estimates decline, the rate at which the Company records these expenses will increase. Lower prices could make it uneconomic to drill and produce proved undeveloped reserves. Estimated Value of EEX's Leasehold and Investment in the Llano Area-- Management believes that this area contains substantial quantities of oil and natural gas, none of which is currently classified as proved reserves. EEX's investment in this area includes a royalty interest in the Llano Field with a carrying value of $12 million, the Jason discovery well with a carrying value of $24 million and the cost of the currently drilling Devil's Island exploration well expected to be approximately $15 million net to EEX. In addition, the Pipelines previously discussed derive their principal value from their utility as transportation for potential yet to be proved reserves in this area. Development of the Llano Field and a possible Devil's Island discovery are outside the control of EEX. Development of the Jason Field depends, in part, on the initial success of other development in the area, of which there are none currently active or approved by their owners. Some factors that may limit future development are 18 lower commodity prices, low estimates of future recoverable reserves, unfavorable investment economics, availability of capital, and approval by co- owners. To the extent these developments do not ultimately occur, EEX may be required to impair the value of its assets in this area. Asset Sales--EEX has assumed that it will close the sale of its Indonesian assets during the second quarter of 2002 pursuant to the stock purchase agreements signed as of March 11, 2002. If this sale does not close, EEX's debt would be higher than planned, which may adversely affect EEX's ability to obtain a new credit facility on satisfactory terms. Successful Efforts Accounting--The successful efforts method of accounting is used for oil and gas operations. Under this method, acquisition costs for proved and unproved properties are capitalized when incurred. Exploration costs, including seismic purchases and processing, exploratory dry hole drilling costs and cost of carrying and retaining unproved properties are expensed as incurred. EEX incurred significant dry hole expense in the past as part of its Gulf of Mexico exploration program. Management believes it can limit Gulf of Mexico offshore exploration risk in the future through farmout of its leasehold interests. In addition, EEX's onshore program is also exposed to risk for drilling exploratory dry holes. EEX is also exposed to potential impairments if the book value of a field or field area exceeds its expected future net cash flows. This may occur if discoveries are less than anticipated, reserves are revised downward, commodity prices fall or costs increase. This determination is made either through recognition of an adverse change or as part of the annual review of all fields. The impairment of unamortized capital costs for a field or field area is reduced to an estimated fair value if it is determined that the sum of expected future net cash flows is less than the net carrying value. Leasehold costs of producing properties are depleted using the unit of production method based on estimated proved oil and gas reserves quantified on the basis of their equivalent energy content. Amortization of drilling and equipment costs is based on the unit of production method using estimated proved developed oil and gas reserves quantified on the basis of their equivalent energy content. The current undiscounted cost of estimated future site restoration, dismantlement and abandonment, net of salvage, is included in the cost of productive oil and gas properties and a corresponding liability is recorded. The recorded cost is amortized on the unit of production method. Actual costs incurred for these activities are charged to the recorded liability. The sale of the Gulf of Mexico Shelf properties in December 2000 eliminated substantially all of EEX's accrued abandonment liabilities. Depreciation of other property, plant and equipment is provided principally by the straight line method over the estimated service lives of the related assets as follows: FPS and Pipelines-20 years, leasehold improvements- remaining term of the lease, computer hardware and software- 3 to 5 years, and furniture, fixtures and other-3 to 7 years. Major improvements are capitalized, maintenance and repairs are charged to expense as incurred. Derivative Instruments--Effective January 1, 2001, EEX adopted Statement of Financial Accounting Standards No. 133 ("SFAS No. 133"), "Accounting for Derivative Instruments and Hedging Activities," as amended, which requires that all derivative instruments be reported on the balance sheet at fair value and that changes in a derivative's fair value be recognized currently in earnings unless specific hedge criteria are met. Fair value is determined based on current market contracts with the same terms and conditions. For derivatives designated as cash flow hedges, the effective portions of changes in the fair value of the derivative are recorded in other comprehensive income (loss) and are recognized in the Consolidated Statement of Operations when the hedged item affects earnings. Ineffective portions of changes in the fair value of cash flow hedges are recognized as a charge or credit to earnings. The Company uses derivative instruments to manage exposures to commodity price risks. Hedging transactions are subject to the Company's risk management policy, which does not permit speculative positions. The Company documents relationships between hedging instruments and hedged items, and assesses and documents, both at the hedge's inception and on an ongoing basis, whether the derivatives that are used in hedging transactions are highly effective in offsetting changes in fair values or cash flows associated with the hedged items. None of EEX's current hedges contain requirements to maintain margins. The Company may from time to time settle early derivative transactions. Gains or losses are included in other comprehensive income until they are recognized in revenues to match the underlying sales transaction being hedged. See Item 7A, "Quantitative and Qualitative Disclosures about Market Risk." 19 Revenue Recognition and Gas Imbalances--The Company follows the sales method of accounting for revenue recognition and gas imbalances, which recognizes over and under lifts of gas when sold, to the extent sufficient gas reserves or balancing agreements are in place. Gas sales volumes are not significantly different from the Company's share of production. Income Taxes--Under Statement of Financial Accounting Standards No. 109 ("SFAS No. 109"), "Accounting for Income Taxes," deferred income taxes are recognized at each yearend for the future tax consequences of differences between the tax bases of assets and liabilities and their financial reporting amounts based on tax laws and statutory tax rates applicable to the periods in which the differences are expected to affect taxable income. Valuation allowances are established when necessary to reduce the deferred tax asset to the amount expected to be realized. The Company's deferred tax asset is fully reserved as of December 31, 2001. Arctic I Rig Commitment--The majority of the remaining commitment associated with the Arctic I rig (See Note 19 to Consolidated Financial Statements in Item 8 and the discussion under "U.S. Exploration and Development--Offshore, Deepwater Gulf of Mexico Exploration" in Item 1) will be used for the Devil's Island well which is currently being drilled, and in which EEX pays 30% of the costs of the well up to the AFE amount, 20% thereafter. If the Arctic I is returned to EEX after the drilling of this well and before the end of the contract period, EEX intends to pursue subsidized contract assignments or stack the rig. If EEX cannot find other parties willing to use the rig for the remainder of the contract term, EEX will incur approximately $150,000 per day in expense to stack the rig. Impairment of Assets--EEX accounts for oil and gas properties using the successful efforts method of accounting, which requires EEX to comply with the requirements of SFAS No. 121. The process by which the Company assesses its oil and gas properties under SFAS No. 121 starts with a comparison of the carrying value of an asset to its estimated future undiscounted net cash flow ("Future Value"). These net cash flows are prepared by the Company. The reserves are audited by its independent petroleum consultant, Netherland, Sewell & Associates, Inc. This analysis uses a multi-year market-based commodity price forecast in effect at yearend 2001. The initial prices used in this analysis for 2002 annual cash flows were $21.00 per barrel of oil and $2.742 per million British Thermal Units of gas ("MMBtu"). This analysis is generally prepared at a field level or field-group level. The fields or groups reflect the lowest level for which cash flows are reasonably and separately identifiable and for which the assets possess common operational infrastructure and geographic proximity. Where insufficient Future Value is projected to recover the carrying value of an asset, a determination of fair value is made. Fair value is estimated for most oil and gas properties by discounting the annual net cash flows at a rate of 10% per annum. The carrying value of the asset is reduced to its estimated fair value. Exploration Risk--Exploration for oil and gas in the Deepwater Gulf of Mexico and unexplored frontier areas has inherent and historically high risk of economic failure. Onshore U.S. exploration also has inherent risk of economic failure. EEX is focusing on exploration opportunities in onshore and Gulf of Mexico. Future reserve increases and production will be dependent on EEX's success in these exploration efforts and no assurances can be given of such success. Exploration 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. Operational Risks and Hazards--EEX's operations are subject to the risks and uncertainties associated with finding, acquiring and developing oil and gas properties, and producing, transporting and selling oil and gas. 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. Operating hazards such as fires, explosions, blow-outs, equipment failures, abnormally pressured formations and environmental accidents may have a material adverse effect on EEX's operations or financial condition. EEX's ability to sell its oil and gas production is dependent on the availability and capacity of gathering systems, pipelines and other forms of transportation. 20 Offshore Risks--EEX's Gulf of Mexico oil and gas exploration prospects include properties located in water depths greater than 2,000 feet where operations are by their nature more difficult than drilling operations conducted on land in established producing areas. Deepwater drilling and operations require the application of more advanced technologies that involve a higher risk of mechanical failure and can result in significantly higher drilling and operating costs which, in turn, can require greater capital investment than anticipated and materially change the expected future value of offshore development projects. The size of oil and gas reserves determined through exploration and confirmation drilling operations must ultimately be significant enough to justify the additional capital required to construct and install production and transportation systems and drill development wells. Development of any discoveries made pursuant to EEX's Deepwater exploration program may not return any profit to it and could result in an economic loss. Furthermore, offshore operations require a significant amount of time between the discovery and the time the gas or oil is actually marketed, increasing the market risk involved with such operations. Government Regulation--EEX's business is subject to certain federal, state and local laws and regulations relating to the drilling for and the production of oil and gas, as well as environmental and safety matters. Enforcement of or changes to these regulations, which EEX is unable to predict, could have a material impact on EEX's operations, financial condition and results of operations. Results of Operations EEX reported a 2001 net loss of $160 million ($3.85 per share), a net loss of $10 million ($0.25 per share) in 2000 and a net loss of $100 million ($2.37 per share) in 1999. In 2001, results of operations were impacted by several major items: . $127 million pre-tax charge for impairments required by Statement of Financial Accounting Standards No. 121, "Accounting for the Impairment of Long-Lived Assets and for Long-Lived Assets to Be Disposed Of," ("SFAS No. 121") incurred during the fourth quarter of 2001. The FPS and Pipelines were impaired $82 million to a fair market valuation based on competitive factors for processing and transportation facilities in the Llano area and the values management believes could be received in an orderly sale of assets. The onshore U.S properties were impaired $29 million, of which $23 million was attributable to the production payment related to the Encogen obligation. The Indonesian assets were impaired $16 million to reflect the agreed price of the potential purchaser of these assets. See Note 9 to Consolidated Financial Statements in Item 8. . $11 million reduction in the net realizable value of the deferred tax asset in accordance with Statement of Financial Accounting Standards No. 109, "Accounting for Income Taxes, " ("SFAS No. 109"). The deferred tax asset of approximately $168 million is fully impaired. . $4 million extraordinary post-tax gain from the repurchase of a portion of the notes related to the FPS and Pipelines. See Note 7 to Consolidated Financial Statements in Item 8. . $17 million post-tax gain from the sale of the Llano Field in September 2001 offset by an $18 million pre-tax loss from the exercise by a third party of an option to repurchase a portion of the production payment related to Encogen obligation. In addition, a $4 million pre-tax gain from the sale of the Sheridan Field in September 2001. In 2000, results of operations were impacted by two major items: . $12 million pre-tax charge for impairment of producing oil and gas properties required by SFAS No. 121. . $7 million pre-tax loss on sales of property, plant and equipment. In 1999, results of operations were impacted by three major items: . $26 million pre-tax charge for impairment of producing oil and gas properties required by SFAS No. 121. 21 . $15 million pre-tax gain on sales of property, plant and equipment. . $44 million pre-tax deepwater dry hole costs associated with the George and Mackerel prospects. In the following comparisons of results of operations, 2001, 2000 and 1999 results have been adjusted to exclude the items described above. 2001 Results of Operations Compared With 2000 Revenues for 2001 were $207 million, 21% lower than the $262 million reported for the year 2000. Natural gas revenues for the year 2001 were 20% lower than 2000. This decrease was due to a 22% decrease in production, offset slightly by a 3% increase in average natural gas sales prices. The average natural gas sales price per thousand cubic feet (Mcf) was $3.22 for the year 2001, compared with $3.14 in the year 2000. The average natural gas sales price for the year 2001 includes hedging losses of $0.2 million and 21,707 billion British Thermal Units ("BBtu") delivered under fixed-price physical delivery contracts and the Gas Sales Obligation at an average price of $2.601 per MMBtu. The average natural gas sales price of $3.14 per Mcf for the year 2000 includes hedging losses of $20 million and 12,811 BBtu delivered under the Gas Sales Obligation at an average price of $2.519 per MMBtu. Natural gas production for the year 2001 was 43 billion cubic feet (Bcf), compared with 55 Bcf for the year 2000. The decrease in production is primarily due to the sale of the offshore shelf properties. Oil revenues decreased 24% due to an 18% decline in average prices and a 7% decline in production primarily due to the sale of the offshore shelf properties. The average oil price during the year 2001 decreased to $23.47 from $28.54. Costs and expenses, excluding the unusual items described above, were $193 million, compared with $204 million for the year 2000. Operating expenses (production and operating, general, administrative and other, and taxes other than income) were $70 million in the year 2001, unchanged from 2000. Production and operating and general, administrative and other costs were lower, offset by increased taxes, other than income. Production and operating costs decreased primarily as a result of the sale of the offshore shelf properties, offset by an increase in workover expense. Excluding a bad debt expense of approximately $3 million related to the bankruptcy of Enron Corp., general, administrative and other were down approximately 18% for the year. Exploration expense for the year 2001 increased to $49 million, compared to $34 million for the same period of 2000. Exploration expense includes approximately $15 million in costs associated with the stacking of the Arctic I rig and recognition of the net costs associated with the assignment of the Arctic I contract through May 2001. Also included in exploration expense for 2001 was a $4 million write-off of an offshore lease due to a contract forfeiture. Depletion, depreciation and amortization for the year 2001 was $68 million, $26 million lower than the same period of 2000, primarily due to the sale of the offshore shelf properties and a lower rate on the Mudi Field. Total interest and other financing costs for the year 2001, including interest income, preferred stock dividends and other income, were $43 million, a $3 million decrease from the same period of 2000, primarily due to lower interest expense related to the debt associated with the FPS and Pipelines and the Gas Sales Obligation, offset by higher interest expense associated with increased borrowings under the revolving credit agreement. 2000 Results of Operations Compared With 1999 Revenues for 2000 were $262 million, $85 million (48%) higher than 1999. Natural gas revenues, 85% higher than 1999, were impacted by a 34% increase in production primarily due to the acquisition of the Tesoro onshore properties in December 1999 and an increase in the unhedged average price of 53%, offset by production decline on properties located in the Gulf of Mexico Shelf. The average unhedged natural gas sales price per Mcf was $3.51 in 2000, compared with $2.29 in 1999. The unhedged gas price includes the effects of the Gas Sales Obligation representing approximately 13 Bcf of gas delivered in 2000 at an average realized price of $2.51 per Mcf. The average natural gas sales price per Mcf (after hedging losses of $20.2 million) was $3.14 in 2000, 22 compared to $2.28 in 1999, an increase of 38%. Natural gas production for 2000 was 55 Bcf, compared with 41 Bcf in 1999. Oil revenues increased 4% due to higher average oil prices, offset by lower production. A 70% increase in the unhedged average oil price was offset by a $0.1 million oil hedging loss for the year 2000, compared to a $1.3 million oil hedging loss for the year 1999. Crude oil production decreased 40% to 2,726 thousand barrels ("MBbls") in 2000 from 4,528 MBbls in 1999. Costs and expenses, excluding the unusual items described above, were $204 million in 2000, compared to $192 million in 1999, a 7% increase. Operating expenses (production and operating, general and administrative and taxes other than income) were $70 million in 2000, 4% lower than 1999, resulting from property sales and the favorable impact from restructuring measures implemented over the last year, specifically lower general and administrative cost, offset by higher taxes, other than income, associated with increased gas production from the onshore operations. Exploration expense for 2000 include $4 million for dry hole costs, compared to $51 million in 1999. Depletion, depreciation and amortization was $94 million in 2000, $25 million higher than 1999 due to higher production volumes resulting from the Tesoro onshore property acquisition and increased rates at the Mudi Field, offset by asset sales and production decline primarily on properties located in the Gulf of Mexico Shelf. Total interest and other financing costs, including interest income, preferred stock dividends, minority interest and other income, were $47 million, a $24 million increase from 1999, resulting primarily from an increase in interest expense due to amounts outstanding under the revolving credit agreement and the Gas Sales Obligation, and by a decrease in interest income due to lower cash balances during 2000. Oil and Gas Marketing Results of operations are largely dependent upon the difference between the prices received for oil and gas produced and the costs of finding and producing such resources. On an energy-equivalent basis, U.S. gas reserves at January 1, 2002 constituted approximately 95% of total U.S. reserves (82% of total Company reserves), and U.S. gas production accounted for approximately 94% of total U.S. production (73% of total Company production) for 2001. Accordingly, variations in gas prices have a more significant impact on operations than variations in oil prices. A portion of the risk associated with fluctuations in the price of oil and natural gas is managed through the use of hedging techniques such as oil and gas swaps and collars. EEX fixed the price on 2001 gas production volumes of approximately 14 Bcf of natural gas (32% of natural gas production), including approximately 5 Bcf of natural gas swaps and 9 Bcf of natural gas collars, but excluding the Gas Sales Obligation and fixed-price delivery contracts. None of EEX's current hedges contain requirements to maintain margins. The average swap price was $3.95 per MMBtu and the average collar strike prices were $2.97 and $4.41 per MMBtu. In total, oil and gas price hedging activities decreased 2001 revenues by $0.2 million, 2000 revenues by $20.3 million and 1999 revenues by $1.9 million. See Item 7A-Quantitative and Qualitative Disclosures About Market Risk and Note 16 to the Consolidated Financial Statements in Item 8. The Company may from time to time settle early derivative transactions. Gains or losses are included in other comprehensive income until they are recognized in revenues to match the underlying sales transaction being hedged. During the fourth quarter of 2001, the Company settled early a derivative transaction for the year 2002 for approximately $6 million and a derivative transaction for the year 2003 for approximately $2 million which will be recognized in earnings in the respective periods. 23 Liquidity and Capital Resources Cash and Cash Equivalents The following summary table reflects the Company's cash flows (in thousands):
Year Ended Year Ended December 31, December 31, 2001 2000 ------------ ------------ Net cash provided by operating activities.......... $ 74 $ 85 Net cash used in investing activities.............. 106 116 Net cash provided by financing activities.......... 148 35
As of December 31, 2001, the cash and cash equivalents balance was $137 million. Operating Activities--Net cash flows provided by operating activities for the year ended December 31, 2001 were $74 million, a decrease of $11 million over the year 2000. This decrease was primarily due to the sale of the offshore shelf properties in December 2000 and the expenses associated with stacking the Arctic I rig and the assignment of the Arctic I rig contract during the year. This was partially offset by a decrease in receivables. Net cash flows provided by operating activities for the year ended December 31, 2000 were $85 million, a decrease of $9 million compared to the same period of 1999. Increased receivables and decreased advances from partners were partially offset by higher revenues. Investing Activities--Net cash flows used in investing activities for the year ended December 31, 2001 were $106 million, a $10 million decrease from cash flows used in investing activities for the same period of 2000. The decrease in investing activities was primarily due to lower capital expenditures and slightly higher proceeds from sales of properties in 2001. Net cash flows used in investing activities for the year ended December 31, 2000 were $116 million, a $227 million decrease from cash flows used in investing activities for the same period of 1999. The decrease in investing activities was primarily due to the acquisition of the Tesoro onshore properties in 1999 of $212 million. Capital spending increased during the year, offset by higher proceeds from disposition of properties. The increased capital spending related primarily to the onshore operations. Financing Activities--Net cash flows provided by financing activities for the year ended December 31, 2001 were $148 million, compared to $35 million for the same period of 2000. Increased borrowings under the existing revolving credit facility and proceeds from early derivative settlements were partially offset by the purchase of the lessor's equity interest in the FPS capital lease. As of December 31, 2001, EEX had $325 million outstanding under the existing revolving credit agreement. Net cash flows provided by financing activities for the year ended December 31, 2000 were $35 million, compared to $247 million for the same period of 1999. As of December 31, 2000, EEX had $75 million outstanding under the existing revolving credit agreement. During the first quarter of 1999, EEX received $150 million from the issuance of preferred stock and warrants. In December 1999, EEX received $105 million for the Gas Sales Obligation. Financing Activities Revolving Credit Facility--EEX has a $325 million revolving credit facility with a group of banks that matures on June 27, 2002, of which $325 million was outstanding at December 31, 2001, all of which is classified as a current liability. The credit available was reduced from $350 million by amendment in February 2002. The interest rate ranges from the London Inter-Bank Offered Rate, or LIBOR, plus 0.55% to 1.30% per annum, plus a facility fee of 0.20% to 0.45% per annum, depending upon the debt to capital ratio. The revolving 24 credit agreement limits, at all times, total debt, as defined in the agreement, to the lesser of 60% of capitalization, as defined, or $1 billion, and prohibits liens on property except under certain circumstances. As of December 31, 2001, the debt-to-capital ratio under the revolving credit agreement was approximately 71%. EEX obtained a waiver of this default from the lenders which expires April 30, 2002. The opinion of the independent auditors on the financial statements in this annual report contains a report modification for a going concern uncertainty. The report modification will cause a breach of another covenant. EEX is continuing to negotiate with its lenders to replace its current revolving credit facility. In late March 2002, EEX was negotiating for a new facility that would mature in June 2003 and require the Company to provide a first mortgage security interest in all of EEX's U.S. reserves and other assets. In order to provide first liens on the properties of EEX E&P Company, L.P ("EEX E&P"), EEX would have to prepay the Gas Sales Obligation (described below). Due to increasing gas prices, the mark-to-market obligation required for a prepayment increased during March 2002 to an extent that prepaying the Gas Sales Obligation would have resulted in limited or no liquidity under the proposed terms of the new credit agreement. Also, the amount of the mark-to- market obligation would not have been fixed until the prepayment of the Gas Sales Obligation was approved as necessary in the Enron Corp. bankruptcy proceedings. Therefore, EEX is currently negotiating a modification of the proposed terms of a new credit agreement. Under the currently proposed terms, the new facility would mature in March 2003 and be secured by security interest in EEX's U.S. reserves and other assets. However, the security interest of the new credit agreement in the properties of EEX E&P would be subordinate to the existing security interest until the Gas Sales Obligation can be prepaid under acceptable terms. There can be no assurance that EEX will be able to conclude the negotiations to replace its current credit facility with a new credit facility upon terms acceptable to it. If the current revolving credit agreement is not replaced with another borrowing facility, EEX would be required to repay the amount outstanding under the revolving credit agreement on June 27, 2002, or earlier if EEX is in default under the agreement and the lenders accelerate the maturity. After a default, amounts outstanding would bear interest at the rate of LIBOR plus 2%. EEX is exploring various other options including the raising of additional capital, the sale or merger of the Company or a sale of a significant portion of its assets to repay the loan. In the event these efforts are unsuccessful, EEX may seek protection from its creditors and reorganization under the Federal bankruptcy laws. No assurances can be given that EEX will be successful in completing an acceptable financing plan or a sale or merger of the Company. Secured Notes--In December 1996, EEX refinanced the FPS and Pipelines with a group of financial institutions through two leveraged leases. During the second quarter of 2001, EEX purchased the lessor's equity interest, terminated the leases and assumed directly the debt secured by the FPS and Pipelines. The purchase price of the undivided interest in the FPS was $69 million. EEX borrowed the $69 million under the revolving credit agreement and assumed the debt of the capital lease obligation. In December 2001, EEX purchased approximately $23 million principal amount of the certificates representing the debt for $17 million, a discount of 25%. At December 31, 2001, the principal amount outstanding was approximately $114 million. At December 31, 2001, approximately $339 million is due during the year 2002 under the current revolving credit facility and the secured notes. Gas Sales Obligation--In December 1999, EEX E&P entered into a prepaid forward sale of natural gas. Under the agreement, EEX E&P agreed to deliver approximately 50 Bcfe of production to an affiliate of Enron Corp. from January 2000 through December 2004 in exchange for prepayment of $105 million in December 1999. EEX E&P acts as the Enron affiliate's agent to market the committed production. The Enron affiliate receives an adjusted index price monthly for the committed volume. EEX has no "off-balance sheet" financing arrangements. 25 Future Capital Requirements Planned 2002 capital expenditures are estimated to be approximately $50 million, compared to actual expenditures of $170 million and $181 million in 2001 and 2000, respectively. The 2002 capital program assumes that a new credit agreement is executed. If a new credit agreement is not obtained, the capital budget could be curtailed. The significant reduction in planned capital spending is attributable to: . the completion of the Encogen obligation--EEX will no longer be required to purchase gas reserves to meet this obligation; . the sale of the Llano Field; . termination of the Arctic I drilling contract in early July 2002; . anticipated sale of Indonesian assets; and . reduced spending on onshore U.S. opportunities due to capital constraints. Offshore capital expenditures are expected to be approximately $10 million. EEX will continue to seek co-venturers to explore its offshore prospects under agreements that provide EEX with a carried interest or limit EEX's capital investment. In addition to the above-described capital expenditures, a principal and interest payment of approximately $18 million is due January 2, 2003 on the Secured Notes. There can be no assurance that the Company will have sufficient liquidity even if it completes a new credit agreement to make this payment. Sources of Capital and Liquidity--Until EEX is able to secure a new credit agreement (of which no assurances can be given), raise additional capital, sell or merge the Company, or sell a significant portion of its assets, it will have no sources of funds except cash and cash equivalents on hand, operating cash flows and proceeds of asset sales to fund capital and operating expenses. In January 2002, EEX received $11 million from the sale of a part of the production payment associated with the Encogen obligation. Estimated cash and cash equivalents at March 31, 2002 is approximately $108 million. The closing of the sale of the Indonesian assets is expected to occur in the second quarter of 2002. EEX estimates that if the sales had closed on March 31, 2002, EEX would have received approximately $27 million in cash, the difference between the agreed purchase price less the net cash flows received by EEX after the effective date. The actual cash received by EEX will depend on the closing date of the sale. The sale is subject to certain material contingencies and no assurances can be given that the sale will close. EEX's access to public or private equity or debt markets may be limited by general market conditions in or volatility of the markets, general conditions affecting the oil and gas industry, or by EEX's financial condition. No assurances can be given that EEX will be able to secure funds in these markets when necessary, or that such funds will be obtained on terms favorable to it. If EEX is required to sell assets to repay the revolving credit agreement, operating cash flows will be significantly reduced and may be insufficient to meet current expenses. If such a sale is conducted under distressed conditions, EEX may not receive the same amount for the assets that would be obtained in an orderly sale. The Company does not expect to pay cash dividends in the foreseeable future. Other Matters Recently Issued Accounting Pronouncements In 2001, the Financial Accounting Standards Board ("FASB") issued Statements of Financial Accounting Standards No. 141, "Business Combinations" ("SFAS No. 141") and No. 142, "Goodwill and Other Intangible 26 Assets" ("SFAS No. 142"). SFAS No. 141 requires the use of the purchase method of accounting for all business combinations initiated after June 30, 2001. The adoption of this statement had no impact on the Company's consolidated results of operations and financial position. Under SFAS No. 142, goodwill and intangible assets deemed to have indefinite lives will no longer be amortized but will be subject to annual impairment tests. SFAS No. 142 is effective for fiscal years beginning after December 15, 2001. The Company will adopt the statement effective January 1, 2002. The adoption of this standard has no impact on the Company's consolidated results of operations and financial position. In 2001, the FASB issued Statement of Financial Accounting Standards No. 143, "Accounting for Asset Retirement Obligations" ("SFAS No. 143"). SFAS No. 143 addresses accounting and reporting for obligations associated with the retirement of tangible long-lived assets and the associated asset retirement costs. The statement is effective for fiscal years beginning after June 15, 2002. The Company is currently assessing the impact, if any, of this standard. In 2001, the FASB issued Statement of Financial Accounting Standards No. 144, "Accounting for the Impairment or Disposal of Long-Lived Assets" ("SFAS No. 144"). This statement is effective for fiscal years beginning after December 15, 2001 and replaces SFAS No. 121. The Company will adopt this statement for long-lived assets and asset disposals, whether previously held and used or newly acquired on January 1, 2002. SFAS No. 144 requires that long-lived assets be measured at the lower of carrying amount or fair value less cost to sell, whether reported in continuing operations or discontinued operations. Discontinued operations will no longer be measured at net realizable value or include amounts for operating losses that have not yet occurred. This statement expands the definition of a discontinued operation from a segment of business to a component of an entity that has been disposed of or is classified as held for sale and can be clearly distinguished, operationally and for reporting purposes, from the rest of the entity. The results of operations of a component classified as held for sale shall be reported in discontinued operations in the period incurred. The Company has not yet determined what the effect of adoption, if any, will be on its consolidated results of operations and financial position. Item 7A. Quantitative and Qualitative Disclosures About Market Risk Effective January 1, 2001, the Company adopted Statement of Financial Accounting Standards No. 133 ("SFAS No. 133"), "Accounting for Derivative Instruments and Hedging Activities", as amended. The effect of adopting this standard was a decrease to shareholders' equity of approximately $20 million, all of which would have been reclassified into earnings during the next twelve months. Due to significant price declines during the year 2001, the net loss related to oil and gas financial hedging activities that was reclassified to revenues to match the underlying sales transaction being hedged was only $0.2 million for the year ended December 31, 2001. The Company may from time to time settle early derivative transactions. Gains or losses are included in other comprehensive income until they are recognized in revenues to match the underlying sales transaction being hedged. During the fourth quarter of 2001, the Company settled early a derivative transaction for the year 2002 for approximately $6 million and a derivative transaction for the year 2003 for approximately $2 million which will be recognized in earnings in the respective periods. The Company is exposed to commodity price risk in the normal course of business. Significant changes in commodity prices will have a corresponding change in reported revenues. A portion of the risk associated with fluctuations in the price of natural gas is managed through the use of hedging techniques such as gas swaps and collars. The tables below provide information about EEX's hedging instruments as of December 31, 2001. Since essentially all of the hedging done by EEX utilized either "swap" or "collar" instruments, the tables have been separated to show the volumes hedged utilizing each instrument. The Notional Amount is equal to the volumetric hedge position of EEX during the periods. The fair values of the hedging instruments, which have been recorded in other comprehensive income, are based on the difference between the applicable strike price and the New York Mercantile Exchange future prices for the applicable trading months. 27 The Company enters into the majority of its hedging transactions with one counterparty and a netting agreement is in place with that counterparty. The Company does not obtain collateral to support the agreements but monitors the financial viability of counterparties and believes its credit risk is minimal on these transactions.
Average Strike Price Notional (Per MMBtu) (2) Fair Value at Amount ---------------- December 31, 2001 (BBtu)(1) Floor Ceiling (In thousands) --------- ------- -------- ----------------- Natural Gas Collars: January 2002--March 2002.. 1,350 $ 3.854 $ 6.138 $ 1,637 April 2002--June 2002..... 1,365 3.374 5.658 1,026 ------ ------- Total................... 2,715 $ 2,663 ====== ======= Notional Average Fair Value at Amount Swap Price December 31, 2001 (BBtu)(1) (Per MMBtu)(2) (In thousands) --------- ---------------- ----------------- Natural Gas Swaps: January 2002--March 2002.. 4,360 $ 4.02 $ 5,978 April 2002--June 2002..... 4,095 3.77 4,704 July 2002--September 2002..................... 4,140 3.86 4,541 October 2002--December 2002..................... 4,140 4.04 4,239 January 2003--March 2003.. 3,600 3.66 1,469 April 2003--June 2003..... 3,640 3.39 1,254 July 2003--September 2003..................... 3,680 3.47 1,248 October 2003--December 2003..................... 3,680 3.65 1,191 ------ ------- Total................... 31,335 $24,624 ====== =======
- -------- (1) Billions of British Thermal Units. (2) Millions of British Thermal Units. Interest Rate Risk--The Company has no open interest rate swap or interest rate lock agreements. At December 31, 2001, the Company's only outstanding debt consisted of secured notes with fixed interest rates. The following table presents principal amounts and related average interest rates by year of maturity for the Company's secured notes at December 31, 2001:
Principal Average (In thousands) Interest Rate -------------- ------------- 2002............................................ $ 13,579 7.54% 2003............................................ 14,642 7.54% 2004............................................ 15,789 7.54% 2005............................................ 14,840 7.54% 2006............................................ -- 7.54% Thereafter...................................... 55,493 7.54% -------- Total........................................... $114,343 ======== Fair Value...................................... $114,343 ========
The Company's exposure to interest rate risk is primarily related to future use of its revolving credit facility and to market conditions, as they may exist, should new financings be undertaken. These exposures may be managed through the use of swap or other derivatives as appropriate. Certain other market risks are disclosed in Item 7--Management's Discussion and Analysis of Financial Condition and Results of Operations. 28 Item. 8. Financial Statements and Supplementary Data REPORT OF INDEPENDENT AUDITORS The Board of Directors and Shareholders of EEX Corporation We have audited the accompanying consolidated balance sheets of EEX Corporation and subsidiaries (the "Company"), as of December 31, 2001 and 2000, and the related consolidated statements of operations, shareholders' equity, and cash flows for each of the three years in the period ended December 31, 2001. 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 auditing standards generally accepted in the United States. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion. In our opinion, the financial statements referred to above present fairly, in all material respects, the consolidated financial position of EEX Corporation and subsidiaries at December 31, 2001 and 2000, and the consolidated results of their operations and their cash flows for each of the three years in the period ended December 31, 2001, in conformity with accounting principles generally accepted in the United States. The accompanying financial statements have been prepared assuming that the Company will continue as a going concern. As more fully described in Note 2, the Company has incurred recurring net losses and has a substantial working capital deficiency as of December 31, 2001. In addition, the Company has not complied with certain covenants of loan agreements with banks. These conditions raise substantial doubt about the Company's ability to continue as a going concern. Management's plans in regard to these matters are also described in Note 2. The financial statements do not include any adjustments to reflect the possible future effects on the recoverability and classification of assets or the amounts and classification of liabilities that may result from the outcome of this uncertainty. Ernst & Young LLP Houston, Texas February 20, 2002, except for Note 25 as to which the date is March 11, 2002 29 EEX CORPORATION CONSOLIDATED STATEMENT OF OPERATIONS
Year Ended December 31 ----------------------------- 2001 2000 1999 --------- -------- -------- (In thousands, except per share amounts) Revenues: Natural gas.................................. $ 138,573 $173,195 $ 93,512 Oil, condensate and natural gas liquids...... 60,261 78,829 75,189 Cogeneration operations...................... 6,247 8,389 8,878 Other........................................ 1,803 1,999 (205) --------- -------- -------- Total...................................... 206,884 262,412 177,374 --------- -------- -------- Costs and Expenses: Production and operating..................... 36,697 39,212 39,338 Exploration.................................. 49,373 33,780 86,369 Depletion, depreciation and amortization..... 68,313 93,965 68,978 Impairment of FPS and Pipelines.............. 82,286 -- -- Impairment of producing oil and gas properties.................................. 44,744 12,200 26,424 (Gain) Loss on sales of property, plant and equipment................................... (12,263) 7,230 (15,483) Cogeneration operations...................... 5,254 6,960 8,043 General, administrative and other............ 18,739 19,538 28,355 Taxes, other than income..................... 14,731 10,906 4,744 --------- -------- -------- Total...................................... 307,874 223,791 246,768 --------- -------- -------- Operating Income (Loss)........................ (100,990) 38,621 (69,394) Other Income--Net.............................. 101 365 95 Interest Income................................ 1,169 1,082 6,129 Interest and Other Financing Costs............. (29,736) (33,586) (17,686) --------- -------- -------- Income (Loss) Before Income Taxes, Minority Interest and Extraordinary Item............... (129,456) 6,482 (80,856) Income Taxes (Benefit)......................... 20,118 1,586 6,891 --------- -------- -------- Income (Loss) Before Minority Interest and Extraordinary Item............................ (149,574) 4,896 (87,747) Minority Interest Third Party.................. -- 1,950 50 --------- -------- -------- Income (Loss) Before Extraordinary Item........ (149,574) 2,946 (87,797) Extraordinary Item--Debt Extinguishment Gain, Net of Tax.................................... (3,593) -- -- --------- -------- -------- Net Income (Loss).............................. (145,981) 2,946 (87,797) Preferred Stock Dividends...................... 14,465 13,364 12,117 --------- -------- -------- Net (Loss) Applicable to Common Shareholders... $(160,446) $(10,418) $(99,914) ========= ======== ======== Net (Loss) Per Common Share, Basic and Diluted Before Extraordinary Item.................... $ (3.94) $ (0.25) $ (2.37) Extraordinary Item--Debt Extinguishment Gain, Net of Tax.................................. 0.09 -- -- --------- -------- -------- Per Common Share............................. $ (3.85) $ (0.25) $ (2.37) ========= ======== ======== Weighted Average Shares Outstanding, Basic and Diluted....................................... 41,724 41,949 42,200 ========= ======== ========
See Notes to Consolidated Financial Statements. 30 EEX CORPORATION CONSOLIDATED BALANCE SHEET
December 31 ----------------- 2001 2000 -------- -------- (In thousands) ASSETS ------ Current Assets: Cash and cash equivalents.................................. $136,638 $ 19,791 Accounts receivable--trade (net of allowance of $4,430 and $2,270)................................................... 34,468 57,539 Natural gas hedging derivatives............................ 23,203 -- Other...................................................... 10,208 22,478 -------- -------- Total current assets..................................... 204,517 99,808 -------- -------- Property, Plant and Equipment (at cost): Oil and gas properties (successful efforts method)......... 975,007 955,263 Other...................................................... 8,668 8,160 -------- -------- Total.................................................... 983,675 963,423 -------- -------- Less accumulated depletion, depreciation and amortization.. 446,020 323,875 -------- -------- Net property, plant and equipment........................ 537,655 639,548 -------- -------- Deferred Income Tax Assets................................... -- 19,846 Other Assets................................................. 7,946 4,866 -------- -------- Total.................................................... $750,118 $764,068 ======== ======== LIABILITIES AND SHAREHOLDERS' EQUITY ------------------------------------ Current Liabilities: Accounts payable--trade.................................... $ 48,575 $ 76,999 Bank revolving credit agreement............................ 325,000 -- Capital lease obligations.................................. -- 13,351 Secured notes payable...................................... 13,579 -- Other...................................................... 7,118 5,993 -------- -------- Total current liabilities................................ 394,272 96,343 -------- -------- Bank Revolving Credit Agreement.............................. -- 75,000 Capital Lease Obligations.................................... -- 192,283 Secured Notes Payable........................................ 100,764 -- Gas Sales Obligation......................................... 59,937 83,490 Other Liabilities............................................ 9,357 22,351 Minority Interest Third Party................................ 5,000 5,000 Shareholders' Equity......................................... 180,788 289,601 -------- -------- Total.................................................... $750,118 $764,068 ======== ========
See Notes to Consolidated Financial Statements. 31 EEX CORPORATION CONSOLIDATED STATEMENT OF CASH FLOWS
Year Ended December 31, ------------------------------- 2001 2000 1999 --------- --------- --------- (In thousands) OPERATING ACTIVITIES Net Income (Loss)........................... $(145,981) $ 2,946 $ (87,797) Impairment of FPS and pipelines............. 82,286 -- -- Impairment of producing oil and gas properties................................. 44,744 12,200 26,424 Impairment of undeveloped leasehold......... 12,395 7,606 2,907 Dry hole cost............................... 4,834 3,872 50,770 Depletion, depreciation and amortization.... 68,313 93,965 68,978 Deferred income taxes (benefit)............. 20,118 1,586 6,988 Gain on early extinguishment of debt, net of tax........................................ (3,593) -- -- (Gain) Loss on sales of property, plant and equipment.................................. (12,263) 7,230 (15,483) Other....................................... 1,902 (13,001) 16,513 Changes in current operating assets and liabilities: Accounts receivable....................... 21,421 (29,291) 21,031 Other current assets...................... 2,714 (8,364) 785 Restricted cash........................... -- -- (5,000) Accounts payable.......................... (23,843) 3,229 11,235 Other current liabilities................. 1,125 3,413 (2,610) --------- --------- --------- Net cash flows provided by operating activities............................. 74,172 85,391 94,741 --------- --------- --------- INVESTING ACTIVITIES Additions of property, plant and equipment.. (170,362) (181,220) (169,061) Tesoro acquisition, net..................... -- -- (212,086) Proceeds from dispositions of property, plant and equipment........................ 69,384 64,420 19,081 Other (changes in accruals)................. (4,581) 1,252 19,614 --------- --------- --------- Net cash flows used in investing activities............................. (105,559) (115,548) (342,452) --------- --------- --------- FINANCING ACTIVITIES Issuance of preferred stock and common stock warrants................................... -- -- 150,000 Borrowings under bank revolving credit agreement.................................. 330,000 214,000 235,000 Repayment of borrowings under bank revolving credit agreement........................... (80,000) (139,000) (235,000) Borrowings under short-term financing agreement.................................. -- 45,000 2,000 Repayment of borrowings under short-term financing agreement........................ -- (45,000) (2,000) Deliveries under the Gas Sales Obligation... (23,553) (21,510) 105,000 Proceeds from hedge settlements............. 7,590 -- -- Minority interest third party............... -- 1,950 3,050 Payments of capital lease obligations....... (7,805) (16,810) (10,874) Purchase of treasury stock.................. (40) (3,735) -- Purchase of secured notes payable........... (17,202) -- -- Purchase of lessor's equity interest in capital lease.............................. (54,416) -- -- Payments of secured notes payable........... (6,340) -- -- --------- --------- --------- Net cash flows provided by financing activities............................. 148,234 34,895 247,176 --------- --------- --------- Net Increase (Decrease) in Cash and Cash Equivalents.................................. 116,847 4,738 (535) Cash and Cash Equivalents at Beginning of Year......................................... 19,791 15,053 15,588 --------- --------- --------- Cash and Cash Equivalents at End of Year...... $ 136,638 $ 19,791 $ 15,053 ========= ========= =========
See Notes to Consolidated Financial Statements. 32 EEX CORPORATION CONSOLIDATED STATEMENT OF SHAREHOLDERS' EQUITY
Year Ended December 31 ------------------------------- 2001 2000 1999 --------- --------- --------- (In thousands) Common Stock, authorized 150 million shares: Balance at beginning of year................ $ 429 $ 424 $ 424 Issued for stock plans (276 and 558 shares).................................... 3 5 -- --------- --------- --------- Balance at end of year (Outstanding shares: 42,496, 42,256, and 42,483)................ 432 429 424 --------- --------- --------- Preferred Stock, authorized 10 million shares: Balance at beginning of year................ 18 16 -- Issued 1.5 million shares, $0.01 par value.. -- -- 15 Dividend payment............................ 1 2 1 --------- --------- --------- Balance at end of year (1.9, 1.8, and 1.6 million shares)............................ 19 18 16 --------- --------- --------- Paid in Capital: Balance at beginning of year................ 744,782 729,925 569,268 Market valuation adjustments of restricted stock...................................... 1,183 1,531 302 Issuance of preferred stock................. -- -- 149,985 Dividends on preferred stock................ 14,465 13,362 12,117 Stock issue costs........................... -- (36) (1,747) Stock options exercised..................... 54 -- -- --------- --------- --------- Balance at end of year...................... 760,484 744,782 729,925 --------- --------- --------- Retained Earnings (Deficit): Balance at beginning of year................ (445,166) (434,748) (334,698) Termination of phantom stock plan........... -- -- (129) Issue common stock from treasury stock...... -- -- (7) Net (Loss) Applicable to common shareholders............................... (160,446) (10,418) (99,914) --------- --------- --------- Balance at end of year...................... (605,612) (445,166) (434,748) --------- --------- --------- Unamortized Restricted Stock Compensation: Balance at beginning of year................ (1,067) (443) (206) Grants (303, 670, and 98 shares)............ (1,389) (1,963) (597) Cancellations (26, 112, and 18 shares)...... 16 169 21 Amortization................................ 1,037 1,170 143 Market value adjustments.................... -- -- 196 --------- --------- --------- Balance at end of year...................... (1,403) (1,067) (443) --------- --------- --------- Unearned Compensation: Balance at beginning of year................ (349) -- -- Replacement awards from options settled and restricted stock issued.................... 349 (349) -- --------- --------- --------- Balance at end of year...................... -- (349) -- --------- --------- --------- Other Comprehensive Income: Balance at beginning of year................ -- -- -- Net change in fair value of derivative financial instruments...................... 27,287 -- -- Deferred settlements on canceled hedges..... 8,667 -- -- --------- --------- --------- Balance at end of year...................... 35,954 -- -- --------- --------- --------- Treasury Stock: Balance at beginning of year................ (9,046) (311) (488) Termination of phantom stock plan; issued common stock (8 shares).................... -- -- 170 Issue common stock from treasury stock...... -- -- 7 Purchase of shares--forward purchase facilities (797 shares).................... -- (8,723) -- Purchase of restricted stock shares for payroll taxes (9 and 3 shares)............. (40) (12) -- --------- --------- --------- Balance at end of year (817, 808, and 14 shares).................................... (9,086) (9,046) (311) --------- --------- --------- Shareholders' Equity.......................... $ 180,788 $ 289,601 $ 294,863 ========= ========= =========
See Notes to Consolidated Financial Statements. 33 EEX CORPORATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS 1. ORGANIZATION AND BASIS OF PRESENTATION EEX Corporation ("EEX" or the "Company") is an energy exploration company involved in both domestic and international (primarily Indonesia) oil and gas exploration and production. EEX also provides operation and maintenance services, under contract, to two cogeneration plants. Prior to August 5, 1997, Enserch Exploration, Inc. ("Old EEI"), EEX's predecessor, was approximately 83% owned by ENSERCH Corporation ("ENSERCH"). On August 5, 1997, the merger of ENSERCH and Texas Utilities Company and the related merger of Old EEI and Lone Star Energy Plant Operations, Inc. ("LSEPO") were completed. Under the terms of the Old EEI/LSEPO merger, LSEPO changed its name to "Enserch Exploration, Inc." ("EEI"), shares of Old EEI were automatically converted into shares of EEI on a one-for-one basis in a tax-free transaction, EEI issued 691,631 shares of common stock to ENSERCH in exchange for outstanding LSEPO common stock and ENSERCH distributed to its shareholders, on a pro rata basis, all of the shares of EEI common stock it owned. On December 19, 1997, at a special meeting, the shareholders approved a change of the name of the Company to EEX Corporation. 2. GOING CONCERN The Company's consolidated financial statements have been presented on the basis that it is a going concern, which contemplates the realization of assets and satisfaction of liabilities in the normal course of business. The Company has incurred recurring net losses and has a substantial working capital deficiency as of December 31, 2001. In addition, there are uncertainties relating to the Company's ability to meet all expenditure and cash flow requirements through fiscal year 2002 and early 2003, which could result in a default under the Company's revolving credit agreement. These conditions raise substantial doubt about the Company's ability to continue as a going concern. The financial statements do not include any adjustments to reflect the possible future effects on the recoverability and classification of assets or the amounts and classification of liabilities that may result from the outcome of these uncertainties. The Company is seeking to alleviate these conditions by renegotiating its current revolving credit agreement that matures on June 27, 2002, raising additional capital, or through the sale or merger of the Company. The Company has a waiver until April 30, 2002 for exceeding the debt to capital ratio under this agreement. The independent auditors' modification of their opinion as to the uncertainty regarding EEX's ability to continue as a going concern is a covenant breach under the current revolving credit agreement. One or more defaults will allow the lenders to accelerate the maturity and declare all borrowings under the current revolving credit agreement immediately payable. EEX is exploring various other options including the raising of additional capital, the sale or merger of the Company or a sale of a significant portion of its assets to repay the loan. No assurances can be provided, however, that the Company will be able to conclude a new credit agreement, obtain additional waivers of covenant breaches, raise additional capital, or sell or merge the Company. In the event these efforts are unsuccessful, EEX may seek protection from its creditors and reorganization under the Federal bankruptcy laws. In either case, EEX may not be able to continue its business as presently constituted and planned. The New York Stock Exchange may delist EEX's common stock, which could result in decreased liquidity for the common shareholders. EEX currently exceeds the minimum quantitative criteria of the Exchange for continued listing, however, no assurances can be given that the Company will continue to meet these criteria, or that the Exchange will not use other criteria or information in considering whether to institute delisting proceedings. A liquidation of assets to retire debt and preferred securities, may result in minimal to no funds remaining for the common shareholders. 34 EEX CORPORATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued) 3. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES Principles of Consolidation--The consolidated financial statements are presented in accordance with generally accepted accounting principles in the United States. The consolidated financial statements include the accounts of EEX and its subsidiaries. All intercompany accounts and transactions have been eliminated in consolidation. Critical Accounting Policies and Estimates--The preparation of consolidated financial statements in conformity with generally accepted accounting principles requires the use of estimates and assumptions by management, many of which may significantly affect the reported amounts of assets and liabilities and related disclosure of contingent assets and liabilities as of the date of the financial statements and the reported revenues and expenses during the reporting period. Future outcomes could differ from those estimates and assumptions and materially affect reported amounts of assets, liabilities, revenues and expenses, and related disclosure of contingent assets and liabilities. The Company believes the following critical accounting policies affect its more significant judgments and estimates used in the preparation of its consolidated financial statements: Oil and Gas Reserve Estimates--The process of estimating quantities of proved reserves is inherently uncertain, and the reserve data included in this document are only estimates prepared by the Company. Reserve engineering is a subjective process of estimating underground accumulations of hydrocarbons than cannot be measured in an exact manner. The process relies on interpretation of available geologic, geophysical, engineering and production data. The extent, quality and reliability of this data can vary. The process also requires certain economic assumptions regarding drilling and operating expense, capital expenditures, taxes and availability of funds. The SEC mandates some of these assumptions such as oil and gas prices and the present value discount rate. Proved reserve estimates prepared by others may be substantially higher or lower than the Company's estimates. Because these estimates depend on many assumptions, all of which may differ from actual results, reserve quantities actually recovered may be significantly different than estimated. Material revisions to reserve estimates may be made depending on the results of drilling, testing, and rates of production. You should not assume that the present value of future net cash flows is the current market value of the Company's estimated proved reserves. In accordance with SEC requirements, the Company based the estimated discounted future net cash flows from proved reserve on prices and costs on the date of the estimate. The Company's rate of recording depreciation, depletion and amortization expense for proved properties is dependent on the Company's estimate of proved reserves. If these reserve estimates decline, the rate at which the Company records these expenses will increase. Lower prices could make it uneconomic to drill and produce proved undeveloped reserves. Estimated Value of the FPS and Pipelines--Management assessed the fair value of the FPS and Pipelines to be $70 million at yearend. This value was based upon proposals made by EEX to the Llano Field operator, competition from processing and transportation alternatives, and general estimates of the market for these assets in a third party sale. There is no established third party market for these unique assets; it is very difficult to accurately estimate what a sale would bring. In addition, the carrying value of the assets assumes an orderly disposition of the assets, which may take a significant amount of time. An immediate sale or a sale under distressed circumstances might realize much less than the carrying value of the assets. The value of the Pipelines depends on their use to transport production from the greater Llano or other areas in proximity to the Pipelines. 35 EEX CORPORATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued) If all producers choose other transportation alternatives, the value of the Pipelines would be seriously reduced. You should not assume that management's estimate of current fair value is a definitive view of the market for these assets. The asset value could be higher or lower than this estimate depending on actual third party markets for the FPS and ultimate utility of the Pipelines. These factors are generally beyond the control of EEX. Estimated Value of EEX's Leasehold and Investment in the Llano Area-- Management believes that this area contains substantial quantities of oil and natural gas, none of which is currently classified as proved reserves. EEX's investment in this area includes a royalty interest in the Llano Field with a carrying value of $12 million, the Jason discovery well with a carrying value of $24 million and the cost of the currently drilling Devil's Island exploration well expected to be approximately $15 million net to EEX. In addition, the Pipelines previously discussed derive their principal value from their utility as transportation for potential yet to be proved reserves in this area. Development of the Llano Field and a possible Devil's Island discovery are outside the control of EEX. Development of the Jason Field depends, in part, on the initial success of other development in the area, of which there are none currently active or approved by their owners. Some factors that may limit future development are lower commodity prices, low estimates of future recoverable reserves, unfavorable investment economics, availability of capital, and approval by co-owners. To the extent these developments do not ultimately occur, EEX may be required to impair the value of its assets in this area. Successful Efforts Accounting--The successful efforts method of accounting is used for the Company's oil and gas operations. Under this method, acquisition costs for proved and unproved properties are capitalized when incurred. Exploration costs, including seismic purchases and processing, exploratory dry hole drilling costs and cost of carrying and retaining unproved properties are expensed as incurred. EEX is exposed to potential impairments if the book value of a field or field area exceeds its expected future net cash flows. This may occur if discoveries are less than anticipated, reserves are revised downward, commodity prices fall or costs increase. This determination is made either through recognition of an adverse change or a part of the annual review of all fields. The impairment of unamortized capital costs for a field or field area is reduced to an estimated fair value if it is determined that the sum of expected future net cash flows is less than the net carrying value. See Note 9. Leasehold costs of producing properties are depleted using the unit of production method based on estimated proved oil and gas reserves quantified on the basis of their equivalent energy content. Amortization of drilling and equipment costs is based on the unit of production method using estimated proved developed oil and gas reserves quantified on the basis of their equivalent energy content. The current undiscounted cost of estimated future site restoration, dismantlement and abandonment, net of salvage, is included in the cost of productive oil and gas properties and a corresponding liability is recorded. The recorded cost is amortized on the unit of production method. Actual costs incurred for these activities are charged to the recorded liability. The sale of the Gulf of Mexico Shelf properties in December 2000 eliminated substantially all of EEX's accrued abandonment liabilities. Depreciation of other property, plant and equipment is provided principally by the straight line method over the estimated service lives of the related assets as follows: FPS and Pipelines-20 years, leasehold improvements- remaining term of the lease, computer hardware and software- 3 to 5 years, and furniture, fixtures and other-3 to 7 years. Major improvements are capitalized, maintenance and repairs are charged to expense as incurred. Reclassifications--Certain items in prior periods have been reclassified to be consistent with the current presentation. Net Income (Loss) Applicable to Common Shareholders Per Share--Basic net income (loss) per share is based on the weighted average number of common shares outstanding during the period. Diluted net income (loss) per common share is based on the weighted average number of common shares and all dilutive potential common shares outstanding during the period. 36 EEX CORPORATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued) Derivative Instruments--Effective January 1, 2001, EEX adopted Statement of Financial Accounting Standards No. 133 ("SFAS No. 133"), "Accounting for Derivative Instruments and Hedging Activities," as amended, which requires that all derivative instruments be reported on the balance sheet at fair value and that changes in a derivative's fair value be recognized currently in earnings unless specific hedge criteria are met. Fair value is determined based on current market contracts with the same terms and conditions. For derivatives designated as cash flow hedges, the effective portions of changes in the fair value of the derivative are recorded in other comprehensive income (loss) and are recognized in the Consolidated Statement of Operations when the hedged item affects earnings. Ineffective portions of changes in the fair value of cash flow hedges are recognized as a charge or credit to earnings. The Company uses derivative instruments to manage exposures to commodity price risks. Hedging transactions are subject to the Company's risk management policy, which does not permit speculative positions. The Company documents relationships between hedging instruments and hedged items, and assesses and documents, both at the hedge's inception and on an ongoing basis, whether the derivatives that are used in hedging transactions are highly effective in offsetting changes in fair values or cash flows associated with the hedged items. The Company may from time to time settle early derivative transactions. Gains or losses are included in other comprehensive income until they are recognized in revenues to match the underlying sales transaction being hedged. See Note 16 for additional information regarding derivative instruments. Concentration of Credit Risk--Derivative contracts subject the Company to concentration of credit risk. The Company transacts the majority of its derivative contracts with one counterparty. The Company had in place financial hedges and physical contracts with Enron North America Corp. at the time it filed for bankruptcy in December 2001 and recorded a reserve of approximately $3 million related to these transactions. Stock Based Employee Compensation--The Company follows the intrinsic method of accounting for stock based compensation plans as prescribed by Accounting Principles Board Opinion No. 25, "Accounting for Stock Issued to Employees" and related interpretations. Cash and Cash Equivalents--Cash and cash equivalents include highly liquid investments with maturities of three months or less when purchased. In addition, during 1999 and early 2000, EEX classified as restricted cash, the collateral deposit required by contractual commitment under a forward purchase facility (See Note 5). Revenue Recognition and Gas Imbalances--The Company follows the sales method of accounting for revenue recognition and gas imbalances, which recognizes over and under lifts of gas when sold, to the extent sufficient gas reserves or balancing agreements are in place. Gas sales volumes are not significantly different from the Company's share of production. Income Taxes--Under Statement of Financial Accounting Standards No. 109 ("SFAS No. 109"), "Accounting for Income Taxes", deferred income taxes are recognized at each yearend for the future tax consequences of differences between the tax bases of assets and liabilities and their financial reporting amounts based on tax laws and statutory tax rates applicable to the periods in which the differences are expected to affect taxable income. Valuation allowances are established when necessary to reduce the deferred tax asset to the amount expected to be realized. The Company's deferred tax asset is fully reserved as of December 31, 2001. Impact of New Accounting Standards--On January 1, 2001, the Company adopted SFAS No. 133. This statement, as amended, requires that all derivative instruments be recorded on the balance sheet as either an asset or liability measured at its fair value. SFAS No. 133 requires that changes in a derivatives fair value be realized currently in earnings unless specific hedge criteria are met. The Company utilizes cash flow hedges to reduce risk of price volatility for future natural gas production. The Company's hedges qualify for hedge accounting under SFAS 133. Accounting for qualifying hedges allows derivative gains and losses to offset related results on 37 EEX CORPORATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued) the hedged item in the statement of operations. See Note 16 for additional information regarding derivative instruments. In 2001, the Financial Accounting Standards Board ("FASB") issued Statements of Financial Accounting Standards No. 141, "Business Combinations" ("SFAS No. 141") and No. 142, "Goodwill and Other Intangible Assets" ("SFAS No. 142"). SFAS No. 141 requires the use of the purchase method of accounting for all business combinations initiated after June 30, 2001. The adoption of this statement had no impact on the Company's consolidated results of operations and financial position. Under SFAS No. 142, goodwill and intangible assets deemed to have indefinite lives will no longer be amortized but will be subject to annual impairment tests. SFAS No. 142 is effective for fiscal years beginning after December 15, 2001. The Company will adopt the statement effective January 1, 2002. The adoption of this standard has no impact on the Company's consolidated results of operations and financial position. In 2001, the FASB issued SFAS No. 143, "Accounting for Asset Retirement Obligations" ("SFAS No. 143"). SFAS No. 143 addresses accounting and reporting for obligations associated with the retirement of tangible long-lived assets and the associated asset retirement costs. The statement is effective for fiscal years beginning after June 15, 2002. The Company is currently assessing the impact, if any, of this standard. In 2001, the FASB issued Statement of Financial Accounting Standards No. 144, "Accounting for the Impairment or Disposal of Long-Lived Assets" ("SFAS No. 144"). This statement is effective for fiscal years beginning after December 15, 2001 and replaces SFAS No. 121. The Company will adopt this statement for long-lived assets and asset disposals, whether previously held and used or newly acquired on January 1, 2002. SFAS No. 144 requires that long-lived assets be measured at the lower of carrying amount or fair value less cost to sell, whether reported in continuing operations or discontinued operations. Discontinued operations will no longer be measured at net realizable value or include amounts for operating losses that have not yet occurred. This statement expands the definition of a discontinued operation from a segment of business to a component of an entity that has been disposed of or is classified as held for sale and can be clearly distinguished, operationally and for reporting purposes, from the rest of the entity. The results of operations of a component classified as held for sale shall be reported in discontinued operations in the period incurred. The Company has not yet determined what the effect of adoption, if any, will be on its consolidated results of operations and financial position. 4. MAJOR CUSTOMERS The Company sold oil and gas production representing more than 10% of its oil and gas revenues for the year ended December 31, 2001 to El Paso Industrial Energy (25%), Shell Oil Company (13%), KN Energy (12%) and KN Midcon Texas Pipeline Operator, Inc. (11%); for the year ended December 31, 2000, to Shell Oil Company (15%) and PG&E Texas Industrial Energy L.P. (11%); and for the year ended December 31, 1999, to Shell Oil Company (30%). El Paso Industrial Energy, KN Energy, KN Midcon Texas Pipeline Operator, Inc. and PG&E Texas Industrial Energy L.P. purchase production from properties in the Onshore segment. Shell Oil Company purchases oil production from the Mudi Field in the International segment. Because alternative purchasers of oil and gas are readily available, the Company believes that the loss of any of its purchasers would not have a material adverse effect on the financial results of the Company. 5. COMMON STOCK TRANSACTIONS Under the terms of the Company's Series B 8% Cumulative Perpetual Preferred Stock, the Company may not declare or pay any dividend or make any other distribution on its common stock, unless all dividends due upon the Series B Preferred Stock have been paid or provided for. 38 EEX CORPORATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued) Early in 1998, EEX entered into two forward purchase facilities to repurchase shares of its common stock. EEX initiated several transactions under these facilities, which allow for settlement, at EEX's option, by paying cash in exchange for physical delivery of the shares to EEX, or on a net basis in either shares of EEX common stock or in cash. As of the end of August 2000, EEX settled these two transactions by paying $8.7 million, of which $7.6 million ($5 million in 1999 and $2.6 million in 2000) was previously deposited and classified as restricted cash, for physical delivery of 796,532 shares to EEX. These shares are recorded as treasury shares in the Consolidated Balance Sheet. 6. PREFERRED STOCK TRANSACTION On December 22, 1998, EEX entered into a Purchase Agreement ("Agreement") which provides that the Company would receive $150 million and issue to the Purchaser 1,500,000 shares of Series B 8% Cumulative Perpetual Preferred Stock and Warrants to acquire 21 million shares of the Company's Common Stock. On January 8, 1999, the transaction was closed and EEX issued the Preferred Stock and Warrants in exchange for $150 million. Each share of Preferred Stock has a stated value of $100 and a current dividend rate of 8% per year, payable quarterly. The 8% dividend rate will be adjusted to a market rate, not to exceed 18%, after seven years or earlier occurrence of certain events including a Change of Control (as defined in the Agreement). Prior to any adjustment of the dividend rate, the Company may, at the Company's option, accrue dividends or pay them in cash, shares of Preferred Stock or shares of Common Stock. After any adjustment of the dividend rate, dividends must be paid in cash. The Preferred Stock is entitled to a liquidation preference of $100 per share plus accrued and unpaid dividends. The Preferred Stock may be redeemed, in whole but not in part, by the Company at any time for cash at the stated value plus accrued and unpaid dividends. Until any adjustment of the dividend rate, holders of the Preferred Stock will be entitled to cast an aggregate of eight million votes on matters voted upon by the Common Stock holders, and to a separate class vote on certain matters affecting the Preferred Stock. EEX has entered into a Registration Rights Agreement to register under the Securities Act of 1933, and maintain the effectiveness of the registration of the resale of the Preferred Shares, the Warrants and any Common Stock acquired by Purchaser pursuant to the Warrants. Under the terms of the Agreement, the Purchaser has the right to add a member to the Company's Board of Directors and did so in January 1999. The Purchaser may continue the membership on the Company's Board of Directors if certain conditions are maintained. In the event of a Change of Control occurring prior to the sixth anniversary of the closing of the transaction, the Purchaser has the right to exchange all or part of the Preferred Stock and Warrants proportionally for EEX Common Stock at the rate of 18.6047 shares of Common Stock for each share of Preferred Stock (and proportionate number of Warrants), provided that the Company may, under certain circumstances, pay a portion of the exchange in cash. The exercise price of the Warrants and the exchange formula related to a Change in Control may be adjusted upon the occurrence of certain events described in the anti- dilution provisions of the Warrants. The Warrants were issued in three series, each exercisable for $12 per share of Common Stock: (a) Series A Warrants to acquire 10.5 million shares, exercisable for 10 years; (b) Series B Warrants to acquire 2.5 million shares, exercisable for 7 years, and (c) Series C Warrants to acquire 8 million shares, exercisable for 7 years. The Series A and Series B Warrants are exercisable for cash or by utilizing shares of Preferred Stock at the stated value on a gross or net basis. The Series C Warrants are exercisable only as a stock appreciation right (entitled to receive the cash difference between the exercise price and the market price of the Common Stock on the trading day prior to the date of exercise), unless the Company, prior to July 30, 2002, elects to allow the Series C Warrants to be exercised for cash or by utilizing shares of Preferred Stock at the stated value on a gross or net basis. 39 EEX CORPORATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued) The purchasers agreed to standstill provisions for 10 years that restrict their purchases of additional shares of Common Stock, prohibit sales by the purchasers of Common Stock or Warrants to any person or group that would beneficially own more than 10% (5% in the case of a competitor of the Company) of the outstanding Common Stock after the sale, prohibits the purchasers from proposing business combinations involving the Company or soliciting proxies, and limits the purchasers' aggregate voting rights to one vote less than 20% of the aggregate number of votes entitled to be cast on any matter by holders of Common Stock or any other class of capital stock. EEX paid in-kind dividends and the Liquidation Preference on the Preferred Stock is as follows:
Amount of Number of Liquidation Dividends Preferred Preference Year (In millions) Shares Issued (In millions) ---- ------------- ------------- ------------- 2001............................... $14.5 144,652 $189.9 2000............................... $13.4 133,636 $175.5 1999............................... $12.1 121,173 $162.1
7. EXTRAORDINARY ITEM In December 2001, the Company recorded an extraordinary gain of approximately $6 million pre-tax ($4 million after-tax) relating to the purchase at a discount of approximately $23 million principal amount of notes that are secured by the FPS and related infrastructure. The funds used to purchase the notes were borrowed under the Company's revolving credit facility. The Company may consider repurchasing notes in the future at a discount but currently does not have the funds to accomplish this repurchase. 8. TESORO ACQUISITION In December 1999, the Company acquired certain oil and gas properties and pipeline assets by purchasing stock and membership interests in corporations and limited liability companies. The Company acquired (i) all of the member interests in four limited liability companies which, together, owned all of the partnership interests of EEX E&P Company, L.P., "E&P L.P.", owner of the oil and gas assets ("Oil and Gas Interests"), and (ii) all of the issued and outstanding stock of two corporations which, together, owned all of the partnership interests in EEX Pipeline Company, L.P., which owns partnership interests in pipeline and gathering systems ("Pipeline Interests"). EEX closed the acquisition at a net cost of $219 million. EEX Operating LLC ("EEX Operating") acquired the Pipeline Interests. The Oil and Gas Interests were acquired by EEX Reserves Funding LLC ("ERF"), a limited liability company half-owned by subsidiaries of the Company, EEX Operating (49%) and EEX Capital, Inc. (1%), and half-owned by an affiliate of Enron Corp. The Company has fully consolidated ERF, the limited liability companies owning E&P L.P. partnership interests, E&P L.P., EEX Natural Gas Company, EEX Gathering Company and EEX Pipeline Company, L.P. The affiliate of Enron Corp.'s 50% equity interest in ERF is reflected in the balance sheet as Minority Interest. The Company entered into a call option to purchase the affiliate of Enron Corp.'s equity interest in ERF for the lesser of $5 million or the fair market value of the third party's interest, provided that the fair market value shall not exceed the equity percentage represented by the affiliate of Enron Corp.'s interest in the oil and gas reserves of E&P L.P. This call option is payable in either cash or common stock of EEX Corporation, or a combination of cash and EEX Corporation common stock, at the Company's option. The call option becomes exercisable when the forward sale described below terminates, and expires five years after it becomes exercisable. 40 EEX CORPORATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued) E&P L.P. entered into a $105 million forward sale agreement with an affiliate of Enron Corp. for approximately 50 billion cubic feet equivalent of production from E&P L.P. through December 2004 that was prepaid upon the close of the purchase transaction (See Note 12). At December 31, 2001, the Company has loaned approximately $150 million to ERF. The loan is in the form of a subordinated convertible note that at the Company's option is convertible into ERF units. The note does not require or permit any cash principal payment or any cash interest payment until all of E&P L.P.'s obligations under the Gas Sales Obligation have been satisfied in full. The convertible note will accrete in value at a rate of 11.5% per annum, compounded quarterly, commencing on March 31, 2000. Beginning January 1, 2005, interest will accrue at a rate of 14.5% per annum and will be payable in cash quarterly commencing on March 1, 2005 until the principal amount is paid or made available for payment. The transaction described above has been accounted for using the purchase method of accounting and has been included in the EEX Consolidated Financial Statements since December 17, 1999. 9. ASSET IMPAIRMENTS Statement of Financial Accounting Standards No. 121, "Accounting for the Impairment of Long-Lived Assets and for Long-Lived Assets to Be Disposed Of," ("SFAS No. 121") provides for the recognition of losses when events or changes in circumstances indicate that the carrying value of long-lived assets may not be realized. When there is evidence that the cost of such assets may not be realized based upon such events, changed circumstances or periodic evaluation, SFAS No. 121 requires the carrying value of the subject long-lived asset to be reduced to its fair value. The process by which the Company assesses its oil and gas properties under SFAS No. 121 starts with a comparison of the carrying value of an asset to its estimated future undiscounted net cash flow ("Future Value"). These net cash flows are prepared by the Company. The reserves are audited by its independent petroleum consultant, Netherland, Sewell & Associates, Inc. This analysis uses a multi-year market based commodity price forecast in effect at yearend 2001. The initial prices used in this analysis for 2002 annual cash flows were $21.00 per barrel of oil and $2.742 per million British Thermal Units of gas. This analysis is generally prepared at a field level or field-group level. The fields or groups reflect the lowest level for which cash flows are reasonably and separately identifiable and for which the assets possess common operational infrastructure and geographic proximity. Where insufficient Future Value is projected to recover the carrying value of an asset, a determination of fair value is made. Fair value is estimated for most oil and gas properties by discounting the annual net cash flows at a rate of 10% per annum. The carrying value of the asset is reduced to its estimated fair value. Assets held for sale are carried at the lower of cost or estimated net realizable value. At the end of the third quarter of 2001, EEX compared the carrying value of the FPS and Pipelines to the estimated returns generated from a proposal that EEX submitted to lease these assets to a third party. No impairment was indicated based upon that proposal. This original proposal was subsequently modified in the first quarter of 2002 to compete with alternative processing and transportation options available to the prospective lessees. This modified proposal significantly reduced the expected returns to EEX and generated an impairment indicator for the asset. The $152 million carrying value of the FPS and Pipelines was impaired to a fair market value of $70 million to reflect these modified proposals and values management believes could be received in an orderly sale of the assets. 41 EEX CORPORATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued) On December 31, 2001, EEX impaired two significant onshore U.S. properties and EEX recorded a pre-tax charge of $29 million, of which $23 million was attributable to the production payment resulting from the Encogen obligation, due to lower gas prices in effect at yearend than those experienced during the prior year. Also on December 31, 2001, EEX impaired the value of its Tuban Block assets by $16 million (pre-tax). EEX received an acceptable bid for its Indonesian subsidiaries in December 2001. This impairment reflects the difference between the agreed sales price and book value at closing, currently estimated to occur in the second quarter of 2002. The impairment also includes a discount incorporated in the sales price associated with certain receivables. Based upon the resulting fair value at June 30, 2000, the carrying value of the Mudi Field was reduced and a pre-tax charge of $12 million for impairment was recorded for oil and gas properties located in the International business segment, primarily due to a decrease in planned production rates and the impact of higher commodity prices under the production sharing agreement. Based upon the resulting fair values at December 31, 1999, the carrying value of long-lived assets was reduced and a pre-tax charge of $26 million for impairment was recorded for oil and gas properties located in the Onshore/Shelf business segment, primarily due to downward reserve revisions and higher abandonment cost estimates. 10. SUPPLEMENTAL CASH FLOW INFORMATION Cash paid for interest, net of amounts capitalized, was $31 million in 2001, $33 million in 2000 and $12 million in 1999. There were no cash income taxes or refunds in 2001 and 2000. In 1999, there were refunds of $0.1 million. The Statement of Cash Flows for the year ended December 31, 2001 reflects the termination of the capital lease and assumption of the secured notes as a non-cash transaction. The Statement of Cash Flows for the year ended December 31, 2001 also reflects the impact of the adoption of SFAS No. 133, which resulted in approximately a $27 million non-cash increase to shareholders' equity. During 2000, EEX settled two forward purchase facilities to repurchase shares of its common stock by paying $8.7 million, of which $7.6 million ($5 million in 1999 and $2.6 million in 2000) was previously deposited and classified as restricted cash, for physical delivery of 796,532 shares to EEX. The Statement of Cash Flows for the year ended December 31, 2000 reflects the $5 million paid in 1999 as a non-cash transaction in 2000 when the transaction settled. On December 17, 1999, EEX closed the Tesoro acquisition at a net cost of $215 million. The purchase price was adjusted for estimated working capital changes between the effective date and the closing date. The timing of these working capital balances resulted in an adjusted cash purchase price of $212 million as of December 31, 1999. This amount is reflected in the Consolidated Statement of Cash Flows as the Tesoro acquisition, net. In 2000, the Company made final settlement of the purchase price with Tesoro. 11. BORROWINGS AND CREDIT AGREEMENTS EEX has a $325 million revolving credit facility with a group of banks that matures on June 27, 2002, of which $325 million was outstanding at December 31, 2001, all of which is classified as a current liability. The credit available was reduced from $350 million by amendment in February 2002. The revolving credit agreement limits, at all times, total debt, as defined, to the lesser of 60% of capitalization, as defined, or $1 billion, and prohibits liens on property except under certain circumstances. At yearend, EEX's debt to capital ratio is greater 42 EEX CORPORATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued) than the limit of 60%. The lenders have agreed to amend the loan agreement to increase the ratio to 72% and waive the covenant breach. The amendment and waiver will expire April 30, 2002. The opinion of the independent auditors on the financial statements in this annual report contains a report modification for a going concern uncertainty. The report modification will cause a breach of another covenant. The interest rate ranges from the London Inter-Bank Offered Rate (LIBOR) plus 0.55% to 1.30% per annum, plus a facility fee of 0.20% to 0.45% per annum, depending upon the capitalization ratio. A portion of the funds available under the revolving credit line may be borrowed on a short-term basis at current money market rates. The principal payments under the secured notes are payable in annual installments due January 2 of each year (except 2006) with the final installment due in 2009. Prepayment of the notes prior to 2006 may require the Company to pay make-whole premiums. The annual interest rate on the secured notes is 7.54%. The following is a summary of the principal amounts by year of maturity under the revolving credit agreement and the secured notes at December 31, 2001:
Principal (In thousands) -------------- 2002.......................................................... $338,579 2003.......................................................... 14,642 2004.......................................................... 15,789 2005.......................................................... 14,840 2006.......................................................... -- Thereafter.................................................... 55,493 -------- Total....................................................... $439,343 ========
The following is a summary of interest and other financing costs (in thousands):
2001 2000 1999 ------- ------- ------- Interest costs incurred............................. $29,736 $33,586 $17,686 Interest capitalized................................ -- -- -- ------- ------- ------- Interest charged to expense......................... $29,736 $33,586 $17,686 ======= ======= =======
12. GAS SALES OBLIGATION In December 1999, E&P L.P. entered into a $105 million forward sale agreement with an affiliate of Enron Corp. for approximately 50 billion cubic feet equivalent of production from E&P L.P. through December 2004 that was prepaid upon the close of the purchase transaction. The affiliate of Enron Corp. receives an adjusted index price monthly for the committed volume. In the event production is not delivered, the obligation will be settled with a cash payment from E&P L.P. The affiliate of Enron Corp. also has a lien on the E&P L.P. oil and gas properties as security in the event the committed volumes are not delivered or cash payment is not made. The forward sale agreement also enables E&P L.P. to act as the Enron affiliate's agent to market the committed production. E&P L.P., at its discretion, may terminate the prepayment obligation by paying the affiliate of Enron Corp. a predetermined amount plus make-whole of the hedges assumed by the purchaser in the agreement. The prepayment has been recorded as a Gas Sales Obligation in the Consolidated Balance Sheet. Payments under this obligation will be amortized on the interest method through final pay out using an interest rate of 9.5%.
Average Payments Bcf Realized Price/ Year (In millions) Delivered MMBtu ---- ------------- --------- --------------- 2001................................. $23.6 14 $2.45 2000................................. $21.5 13 $2.51
43 EEX CORPORATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued) 13. LEASE COMMITMENTS During the second quarter 2001, the Company purchased the lessor's equity interest in the capital lease related to the FPS and Pipelines. The lease was terminated and EEX assumed the lessor's debt secured by the FPS and Pipelines. Refer to Note 11 concerning the debt assumed. Amortization of assets recorded under the capital leases is included in depletion, depreciation and amortization expense. EEX also leases buildings and office space under noncancellable operating leases that expire at various dates through December 2005. Estimated future minimum payments under noncancellable operating leases with initial or remaining terms of one year or more at December 31, 2001 are as follows (in thousands):
Operating Leases --------- 2001............................................................... $3,801 2002............................................................... 2,316 2003............................................................... 716 2004............................................................... 408 ------ Total............................................................ $7,241 ======
Rental expenses incurred under all operating leases totaled $3.5 million, $2.7 million, and $1.8 million, in 2001, 2000, and 1999, respectively. 14. MINORITY INTERESTS As described in Note 8, the affiliate of Enron Corp.'s 50% equity interest in ERF is reflected in the Consolidated Balance Sheet as Minority Interest. In December 1999, the Company entered into a call option to purchase the affiliate of Enron Corp.'s equity interest in ERF for the lesser of $5 million or the fair market value of the affiliate of Enron Corp.'s interest, provided that the fair market value shall not exceed the equity percentage represented by the affiliate of Enron Corp.'s interest in the oil and gas reserves of E&P L.P. Because of this call option, the affiliate of Enron Corp.'s equity interest will not exceed $5 million, an amount reached during the third quarter of 2000. The call option is payable in either cash or common stock of EEX Corporation, or a combination of cash and EEX Corporation common stock, at the Company's option and is exercisable at any time after the termination of the forward sale between the affiliate of Enron Corp. and E&P L.P., but terminates five years after the date after the termination of the forward sale contract. 15. STOCK PLANS The Company's Revised and Amended 1996 Stock Incentive Plan (the "1996 SIP"), provides for awards to officers, directors and key employees of restricted stock, stock options to purchase shares of common stock of EEX, or a combination of both. EEX has reserved a total of 1.3 million shares of its common stock for issuance under the 1996 SIP. Options granted under the 1996 SIP have an exercise price of not less than the fair market value of the common stock on the grant date. Options granted under the 1996 SIP become exercisable over three to seven 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. 44 EEX CORPORATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued) The following is a summary of stock option activity under the 1996 SIP:
Weighted Weighted Number of Average Average Shares Exercise Price Fair Value --------- -------------- ---------- Options outstanding December 31, 1998..................... 1,020,666 $31.02 Granted............................... 85,910 $ 6.56 $4.51 Canceled.............................. (374,914) $30.20 --------- ------ Options outstanding December 31, 1999..................... 731,662 $28.58 Granted............................... 718,600 $ 3.69 $2.70 Canceled.............................. (682,468) $27.91 --------- ------ Options outstanding December 31, 2000..................... 767,794 $ 5.88 Granted............................... -- -- -- Exercised............................. (15,602) $ 3.53 Canceled.............................. (58,898) $ 3.53 --------- ------ Options outstanding December 31, 2001..................... 693,294 $ 6.13 ========= ======
The following is a summary of 1996 SIP stock options outstanding at December 31, 2001:
Range of Exercise Prices ---------------------------------- $3.53-$6.56 $29.25-$43.50 Total ----------- ------------- -------- Options outstanding..................... 644,210 49,084 693,294 Weighted average remaining contractual life, in years......................... 9 5 9 Weighted average exercise price......... $ 4.11 $ 32.65 $ 6.13 Number exercisable...................... 272,025 49,084 321,109 Weighted average exercise price......... $ 4.63 $ 32.65 $ 8.91
A summary of restricted stock award activity follows:
Number of Shares -------------------------- 2001 2000 1999 ------- -------- ------- Outstanding--Beginning of year................... 328,674 551,419 168,667 Awarded........................................ 95,801 10,900 399,343 Restrictions lifted............................ (66,270) (146,911) (5,022) Canceled....................................... (27,075) (86,734) (11,569) ------- -------- ------- Outstanding--End of year......................... 331,130 328,674 551,419 ======= ======== =======
The weighted average grant date fair value per share of restricted stock awarded during 2001, 2000 and 1999 was $4.59, $5.15 and $3.60, respectively. Fair value is equal to the common stock fair market value on the grant date. In 1998, the Company adopted the 1998 Stock Incentive Plan ("1998 SIP") for directors, officers and eligible full-time employees. The 1998 SIP provides for awards of restricted stock, stock options and stock appreciation rights, and 2.5 million shares of common stock are reserved for issuance. Option terms and 45 EEX CORPORATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued) restrictions on restricted stock may be set by the Compensation Committee of the Board of Directors (the "Committee"), but the exercise price may be no less than the fair market value on the date of the grant. Options granted under the 1998 SIP become exercisable over three years and expire after ten years. The following is a summary of basic stock option activity under the 1998 SIP:
Weighted Weighted Number of Average Average Shares Exercise Price Fair Value --------- -------------- ---------- Options outstanding December 31, 1998..................... 325,733 $12.27 Granted............................... 1,376,867 $ 5.97 $4.11 Canceled.............................. (205,823) $ 7.37 --------- ------ Options outstanding December 31, 1999..................... 1,496,777 $ 7.15 Granted............................... 142,244 $ 2.87 $2.10 Canceled.............................. (282,987) $ 7.27 --------- ------ Options outstanding December 31, 2000..................... 1,356,034 $ 6.67 Granted............................... 99,600 $ 4.59 $3.36 Canceled.............................. (149,269) $ 7.47 --------- ------ Options outstanding December 31, 2001..................... 1,306,365 $ 6.42 ========= ======
The following is a summary of 1998 SIP stock options outstanding at December 31, 2001:
Range of Exercise Prices ------------------------------------ $2.81-$6.00 $11.16-$15.47 Total ----------- ------------- ---------- Options outstanding................... 1,135,341 171,024 1,306,365 Weighted average remaining contractual life, in years....................... 8 8 8 Weighted average exercise price....... $ 5.44 $ 12.92 $ 6.42 Number exercisable.................... 837,192 171,024 1,008,216 Weighted average exercise price....... $ 5.26 $ 12.92 $ 6.56
A summary of restricted stock award activity follows:
Number of Shares ------------------------ 2001 2000 1999 ------- ------- ------ Outstanding--Beginning of year...................... 250,169 68,400 -- Awarded........................................... 27,000 238,568 68,400 Restrictions lifted............................... (67,200) (26,099) -- Canceled.......................................... -- (30,700) -- ------- ------- ------ Outstanding--End of year............................ 209,969 250,169 68,400 ======= ======= ======
The weighted average grant date fair value per share of restricted stock awarded during 2001, 2000 and 1999 was $4.55, $2.75, and $2.81, respectively. Fair value is equal to the common stock fair market value on the grant date. 46 EEX CORPORATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued) In 1997, the Company adopted the 1997 Non-Officer Stock Option Plan ("1997 SOP") for eligible employees who are not directors or officers and non- employees. In December 1999, the 1997 SOP was amended to include restricted stock grants. The Committee may set option terms and restrictions on restricted stock, but the exercise price may be no less than the fair market value of the common stock on the grant date. EEX has reserved a total of 0.5 million shares for issuance under the 1997 SOP. Options become exercisable over three years and expire after ten years. A summary of stock option activity under the 1997 SOP follows:
Weighted Weighted Number of Average Average Shares Exercise Price Fair Value --------- -------------- ---------- Options outstanding December 31, 1998...................... 145,333 $27.15 Granted................................ 248,200 $ 2.86 $1.96 Canceled............................... (129,199) $26.99 -------- ------ Options outstanding December 31, 1999...................... 264,334 $ 4.39 Granted................................ 8,500 $ 3.35 $2.45 Canceled............................... (10,967) $10.75 -------- ------ Options outstanding December 31, 2000...................... 261,867 $ 4.11 Granted................................ -- -- -- Canceled............................... -- -- -------- ------ Options outstanding December 31, 2001...................... 261,867 $ 4.11 ======== ======
The following is a summary of 1997 SOP stock options outstanding at December 31, 2001:
Range of Exercise Prices ---------------------------- $2.72-$6.44 $32.25 Total ----------- ------- -------- Options outstanding........................... 250,200 11,667 261,867 Weighted average remaining contractual life, in years..................................... 9 6 9 Weighted average exercise price............... $ 2.80 $ 32.25 $ 4.11 Number exercisable............................ 161,815 11,667 173,482 Weighted average exercise price............... $ 2.78 $ 32.25 $ 4.76
A summary of restricted stock award activity follows:
Number of Shares ---------------------- 2001 2000 1999 ------- ------- ---- Outstanding--Beginning of year........................ 25,000 -- -- Awarded............................................. 180,000 50,000 -- Restrictions lifted................................. (25,000) (25,000) -- Canceled............................................ -- -- -- ------- ------- --- Outstanding--End of year.............................. 180,000 25,000 -- ======= ======= ===
The weighted average grant date fair value per share of restricted stock awarded during 2001 and 2000 was $4.59 and $2.81, respectively. Fair value is equal to the common stock fair market value on the grant date. 47 EEX CORPORATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued) In 1996, the Company adopted the 1996 Employee Stock Option Plan ("1996 SOP"). Stock options were granted to eligible employees who were not officers or directors to purchase shares of EEX common stock that have an exercise price of not less than the fair market value of the common stock on the grant date. The shares were granted in accordance with a formula based upon salary to current employees and newly hired employees. The Plan was amended in December 1997 to allow the grant of options upon terms set by the Committee. EEX reserved a total of 0.5 million shares for issuance under this plan. Options become exercisable over three to seven years and expire after ten years. The ability to grant new options under the 1996 SOP expired December 31, 1998. A summary of stock option activity under the 1996 SOP follows:
Weighted Weighted Number of Average Average Shares Exercise Price Fair Value --------- -------------- ---------- Options outstanding December 31, 1998...................... 420,976 $27.63 Granted................................ -- -- -- Canceled............................... (368,938) $27.42 -------- ------ Options outstanding December 31, 1999...................... 52,038 $28.37 Granted................................ -- -- -- Canceled............................... (28,575) $26.64 -------- ------ Options outstanding December 31, 2000...................... 23,463 $30.48 Granted................................ -- -- -- Canceled............................... (7,117) $27.56 -------- ------ Options outstanding December 31, 2001...................... 16,346 $31.75 ======== ======
The following is a summary of stock options outstanding under the 1996 SOP at December 31, 2001:
Range of Exercise Prices ---------------------------------- $9.19-$10.31 $32.06-$33.00 Total ------------ ------------- ------- Options outstanding..................... 850 15,496 16,346 Weighted average remaining contractual life, in years......................... 8 6 6 Weighted average exercise price......... $9.87 $ 32.96 $ 31.75 Number exercisable...................... 850 15,496 16,346 Weighted average exercise price......... $9.87 $ 32.96 $ 31.75
On December 7, 1999, the Committee initiated an offer to certain holders of stock options with exercise prices greater than $20.00 under the 1996 SIP, the 1996 SOP and the 1997 SOP. If accepted by the holder, the offer provided that, effective December 7, 1999, the designated options would be exchanged for restricted stock granted under the 1996 SIP and the 1998 SIP. The amount of the restricted stock was computed using the Black Scholes options pricing model. The forfeiture restrictions on the restricted stock lapse as to one- third of the grant annually beginning December 7, 2000. The effect of this exchange is shown in the tables above. The restricted stock under the exchange was not issued at December 31, 1999. Total compensation cost recognized in income for 2001, 2000 and 1999 for stock based employee compensation awards was immaterial. Had compensation cost for the Company's plans been determined based 48 EEX CORPORATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued) 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 (in thousands, except per share data):
2001 2000 1999 --------- -------- --------- Net (Loss) Applicable to Common Shareholders As reported, after extraordinary item.... $(160,446) $(10,418) $ (99,914) Pro forma, after extraordinary item...... $(162,453) $(12,676) $(104,555) Basic and Diluted Net (Loss) Per Common Share As reported, after extraordinary item.... $ (3.85) $ (0.25) $ (2.37) Pro forma, after extraordinary item...... $ (3.89) $ (0.30) $ (2.48)
The effects of applying SFAS 123 in this pro forma disclosure are not indicative of future amounts as additional awards in future years are anticipated. Fair value of options was calculated by using the Black Scholes options pricing model using the following weighted average assumptions:
2001 2000 1999 ---- ---- ---- Risk free interest rate.................................... 6.00% 6.25% 6.10% Expected volatility........................................ 61% 56% 49% Expected dividend yield.................................... None None None
16. FINANCIAL INSTRUMENTS AND RISK MANAGEMENT The Company's operations involve managing market risks related to changes in commodity prices and interest rates. Derivative financial instruments, specifically swaps, futures, options and other contracts, are used to reduce and manage those risks. Commodity Hedging Activities--The Company addresses market risk by selecting instruments whose value fluctuations correlate strongly with the underlying commodity being hedged. The Company enters into swaps, options, collars and other derivative contracts to hedge the price risks associated with a portion of anticipated future oil and gas production. While the use of hedging arrangements limits the downside risk of adverse price movements, it may also limit future gains from favorable movements. 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 expiration or exchanged for physical delivery contracts. The Company enters into the majority of its hedging transactions with one counterparty and a netting agreement is in place with that counterparty. 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, 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. Effective January 1, 2001, the Company adopted SFAS No. 133. The cumulative effect of adopting this standard was a decrease to stockholders' equity of approximately $20 million, all of which would be reclassified into earnings during the next twelve months. Due to significant price declines during the year 2001, the net loss related to oil and gas financial hedging activities that was reclassified to revenues to match the underlying sales transaction being hedged was only $0.2 million for the year ended December 31, 2001. For the years ended December 31, 2000 and 1999, net losses related to oil and gas financial hedging activities of $20.3 million and $1.9 million, respectively, were reclassified to revenues to match the underlying sales transactions being hedged. 49 EEX CORPORATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued) At December 31, 2001, EEX had outstanding natural gas swaps that were entered into as hedges extending through December 31, 2003 to exchange payments on 31,335 BBtu of natural gas. At December 31, 2001, the weighted average strike price and market price per MMBtu of natural gas was $3.746 and $2.960, respectively. At December 31, 2001, the Company estimated, using a NYMEX price strip as of that date, that the fair market value represented a net current asset of approximately $19.4 million and a net noncurrent asset of approximately $5.2 million and accumulated other comprehensive income of approximately $24.6 million. The Company estimates that approximately $19.4 million will be reclassified into earnings during the next twelve months and approximately $5.2 million during the year 2003. The Company recognized no ineffectiveness in 2001. At December 31, 2001, EEX had outstanding natural gas collars that were entered into as hedges extending through June 30, 2002 to exchange payments on approximately 3 Bcf of natural gas. At December 31, 2001, the weighted average floor and ceiling strike price and market price per MMBtu of natural gas was $3.613, $5.896 and $2.631, respectively. At December 31, 2001, the Company estimated, using a NYMEX price strip as of that date, that the fair market value represented a net current asset and accumulated other comprehensive income of approximately $2.7 million. The Company estimates this amount will be reclassified into earnings during the next six months. The Company recognized no ineffectiveness in 2001. As of December 31, 2001, the Company was not a party to any hedging contracts with respect to its current or future crude oil production. 17. INCOME TAXES Provision (Benefit) for Income Taxes (in thousands):
2001 2000 1999 --------- ------- --------- Current: Federal...................................... $ -- $ -- $ -- Foreign...................................... -- -- (317) State........................................ -- -- 220 --------- ------- --------- Total...................................... -- -- (97) Deferred--Federal.............................. 20,118 1,586 6,988 --------- ------- --------- Total provision (benefit).................. $ 20,118 $ 1,586 $ 6,891 ========= ======= ========= Reconciliation of Income Taxes (Benefit) computed at the Federal Statutory Rate to Provision for Income Taxes (Benefit): Income (Loss) before income taxes: Domestic..................................... $(126,839) $ 8,570 $(100,998) Foreign...................................... (2,617) (4,039) 20,092 --------- ------- --------- Total...................................... $(129,456) $ 4,531 $ (80,906) ========= ======= ========= Income taxes (benefit) computed at the federal statutory rate of 35%......................... $ (45,310) $ 1,586 $ (28,317) Percentage depletion......................... -- -- -- Foreign taxes................................ -- -- (317) State taxes.................................. -- -- 220 Valuation allowance on deferred tax asset.... 65,388 (88) 35,294 Other--net................................... 40 88 11 --------- ------- --------- Provision for income taxes (benefit)....... $ 20,118 $ 1,586 $ 6,891 ========= ======= =========
50 EEX CORPORATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued) The deferred tax effect of the difference in financial accounting basis and income tax basis of EEX's assets and liabilities at December 31, 2001 and 2000 is as follows (in thousands):
2001 2000 ----------------------------- ----------------------------- Total Current Noncurrent Total Current Noncurrent --------- ------- ---------- --------- ------- ---------- Deferred Tax Assets (Liabilities): Property, plant and equipment............ $ 37,134 $ -- $ 37,134 $ 14,667 $ -- $ 14,667 Employee benefit obligations.......... (172) -- (172) 1,399 -- 1,399 Accruals and allowances........... 2,176 1,665 511 3,071 2,206 865 Foreign corporations.. 1,325 -- 1,325 409 -- 409 Net operating loss.... 127,061 -- 127,061 104,592 -- 104,592 Valuation allowance... (167,524) -- (167,524) (102,086) -- (102,086) --------- ------ --------- --------- ------ --------- Net deferred tax asset.............. $ -- $1,665 $ (1,665) $ 22,052 $2,206 $ 19,846 ========= ====== ========= ========= ====== =========
- -------- Note: The current portion is included in other current assets in the consolidated balance sheets. The Company maintains a valuation allowance to reduce the calculated deferred tax asset to net realizable value in accordance with SFAS No. 109. In 2001, EEX reduced the deferred tax asset to zero due to the uncertainty regarding the Company's liquidity and ability to replace its revolving credit facility. The anticipated earnings benefit from further realization of the additional tax basis has not been fully recognized at this time and is included in the valuation allowance of $168 million at December 31, 2001 for the Company's deferred tax asset. As of December 31, 2001, the Company had approximately $363 million of U.S. net operating loss carryforwards ("NOLs"). The NOLs have expiration dates ranging from 2003 through 2021. 18. EMPLOYEE BENEFIT PLANS Most of the Company's employees participate in a noncontributory defined benefit pension plan. Accrued retirement costs are funded based upon applicable requirements of federal law and deductibility for federal income tax purposes. Employees hired prior to July 1, 1989 are eligible for certain medical benefits when they retire. Medical benefits are not funded in advance. Prior to ENSERCH's August 5, 1997 spin-off (see Note 1), EEX's cost for pension and retiree medical benefits was based on allocations from ENSERCH plans. An agreement providing for the spin-off of the pension assets to an EEX plan became the subject to a dispute between ENSERCH's successor and EEX. The dispute was resolved in January 2001. While the dispute was pending and up to June 2001, the assets remained in trust with ENSERCH's successor. Therefore, in 2000, EEX's costs for these benefit plans were based on EEX's allocated pension plan assets, employees and retirees based upon information provided by ENSERCH's successor and the pension plan assets and liabilities for accrued benefits were estimated by EEX based upon such information. In June 2001, the allocated pension plan assets were transferred to EEX's plan that was adopted effective as of January 1, 1999 and provides substantially the same benefits as provided by the ENSERCH plan. The assets are held in a trust account with investments consisting primarily of domestic equity and fixed income funds. For pension benefits, the "benefit obligation" is the projected benefit obligation. For post-retirement benefits, the "benefit obligation" is the accumulated post-retirement benefit obligation. 51 EEX CORPORATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued) Employee Benefit Plan Disclosures (in thousands):
Post-Retirement Pension Benefits Benefits ------------------ ---------------- 2001 2000 2001 2000 -------- -------- ------- ------- Assumptions as of December 31: Discount rate used in determining benefit obligation.................... 7.25% 7.75% 7.25% 7.75% Expected return on Plan assets......... 9.00% 9.00% Rate of compensation increases......... 4.00% 4.00% Changes in Benefit Obligation: Benefit obligation as of beginning of period................................ $(21,334) $(19,487) $(6,431) $(7,003) Service cost........................... (478) (486) (3) (3) Interest cost.......................... (1,562) (1,521) (491) (500) Actuarial liability gain (loss)........ (972) (668) (648) 277 Participants contribution.............. -- -- (147) (166) Benefits paid.......................... 892 828 1,061 964 -------- -------- ------- ------- Benefit obligation as of December 31.................................. $(23,454) $(21,334) $(6,659) $(6,431) ======== ======== ======= ======= Change in Plan Assets: Fair value of Plan assets as of beginning of period................... $ 17,360 $ 17,698 Actual return on assets................ (817) 368 Employer contributions................. 4,876 -- Benefits paid.......................... (770) (706) -------- -------- Fair value of Plan assets as of December 31......................... $ 20,649 $ 17,360 ======== ======== Reconciliation of Funded Status: Funded status.......................... $ (2,805) $ (3,973) $(6,659) $(6,431) Unrecognized net obligation............ -- -- 2,936 3,209 Unrecognized actuarial (gain).......... 3,005 (195) 270 (379) -------- -------- ------- ------- Accrued benefit cost as of December 31.................................. $ 200 $ (4,168) $(3,453) $(3,601) ======== ======== ======= ======= Components of Net Periodic Benefit Cost: Service cost--benefits earned during the period............................ $ 478 $ 486 $ 3 $ 3 Interest cost on projected benefit obligation............................ 1,562 1,521 491 500 Expected return on assets.............. (1,419) (1,581) -- -- Amortization--net obligation........... -- -- 273 273 Amortization--unrecognized loss........ 7 4 -- -- -------- -------- ------- ------- Net periodic benefit cost............ $ 628 $ 430 $ 767 $ 776 ======== ======== ======= =======
For measurement purposes, a 5.5% annual rate of increase in the per capita cost of covered health care benefits was assumed for 2001. The rate is assumed to remain at that level thereafter. Assumed health care cost trend rates have a significant effect on the amounts reported for the health care plans. A one-percentage point change in assumed health care cost trend rates would have the following effects (in thousands):
1-Percentage 1-Percentage Point Point Increase Decrease ------------ ------------ Effect on total of service and interest cost for 2001............................................ $ 40 $ (35) Effect on yearend 2001 post-retirement benefit obligation...................................... $601 $(516)
52 EEX CORPORATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued) Investment Plan--At December 31, 2001, EEX provided a defined contribution pension plan, which permits pre-tax employee contributions and was available to substantially all employees of the Company. The Company's share of costs under the plan was $0.1 million, $0.2 million, and $0.2 million in 2001, 2000 and 1999, respectively. The Company matches up to 60% of the first 6% of employee contributions. 19. COMMITMENTS AND CONTINGENCIES EEX is involved in a number of legal and administrative proceedings incident to the ordinary course of its business. In the opinion of management, based on the advice of counsel and current assessment, any liability to EEX relative to these ordinary course proceedings will not have a material adverse effect on EEX's operations or financial condition. The operations and financial position of EEX continue to be affected from time to time in varying degrees by domestic and foreign political developments as well as legislation and regulations pertaining to restrictions on oil and gas production, imports and exports, natural gas regulation, tax increases, environmental regulations and cancellation of contract rights. Both the likelihood and overall effect of such occurrences on the Company vary greatly and are not predictable. EEX has taken and will continue to take into account uncertainties and potential exposures in legal and administrative proceedings and in other areas when periodically establishing accounting reserves. In the fourth quarter of 1998, EEX signed a contract with a major drilling company to provide and operate an offshore drilling rig for use in Deepwater drilling activities. The contract covers a basic period of three years at an average operating day rate of approximately $135,000 and commenced in July 1999. In November 2001, EEX entered into a joint venture agreement with a third party to drill the Devil's Island well, utilizing the rig at its full day rate. Upon completion of the Devil's Island well, if the rig is not used to sidetrack the Devil's Island well and EEX is not able to farmout the rig, the Company will stack the rig for the remainder of the contract. Assuming the rig is returned to EEX April 30, 2002, there will be approximately 60 days remaining under the contract at a total cost of approximately $9 million. 20. FIXED-PRICE PHYSICAL DELIVERIES In January 2001, EEX adopted SFAS No. 133. This accounting standard requires that EEX mark to market its hedge positions and report the result as an adjustment to shareholders' equity as other comprehensive income. To mitigate the result of implementation of SFAS No. 133, in December 2000, EEX converted a portion of its existing swaps and collars into fixed-price physical delivery contracts. During 2001, EEX delivered approximately 8 Bcf of natural gas at an average price of $2.85 per MMBtu. Effective December 3, 2001, EEX terminated all remaining fixed-price delivery contracts due to the declaration of bankruptcy by the counterparty. 21. SUPPLEMENTARY BALANCE SHEET INFORMATION Major accounts in certain line items of the Consolidated Balance Sheets are (in thousands):
2001 2000 ------- ------- Other current assets: Prepaid costs related to Mudi Field (net of 2001 impairment)............................................. $ 6,195 $ 9,030 Deferred hedging......................................... -- 6,394 Other.................................................... 4,013 7,054 ------- ------- Total.................................................. $10,208 $22,478 ======= =======
53 EEX CORPORATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued) 22. NEW ACCOUNTING STANDARDS In 2001, the Financial Accounting Standards Board ("FASB") issued Statements of Financial Accounting Standards No. 141, "Business Combinations" ("SFAS No. 141") and No. 142, "Goodwill and Other Intangible Assets" ("SFAS No. 142"). SFAS No. 141 requires the use of the purchase method of accounting for all business combinations initiated after June 30, 2001. The adoption of this statement had no impact on the Company's consolidated results of operations and financial position. Under SFAS No. 142, goodwill and intangible assets deemed to have indefinite lives will no longer be amortized but will be subject to annual impairment tests. SFAS No. 142 is effective for fiscal years beginning after December 15, 2001. The Company will adopt the statement effective January 1, 2002. The adoption of this standard has no impact on the Company's consolidated results of operations and financial position. In 2001, the FASB issued Statement of Financial Accounting Standards No. 143, "Accounting for Asset Retirement Obligations" ("SFAS No. 143"). SFAS No. 143 addresses accounting and reporting for obligations associated with the retirement of tangible long-lived assets and the associated asset retirement costs. The statement is effective for fiscal years beginning after June 15, 2002. The Company is currently assessing the impact, if any, of this standard. In 2001, the FASB issued Statement of Financial Accounting Standards No. 144, "Accounting for the Impairment or Disposal of Long-Lived Assets" ("SFAS No. 144"). This statement is effective for fiscal years beginning after December 15, 2001 and replaces SFAS No. 121. The Company will adopt this statement for long-lived assets and asset disposals, whether previously held and used or newly acquired on January 1, 2002. SFAS No. 144 requires that long-lived assets be measured at the lower of carrying amount or fair value less cost to sell, whether reported in continuing operations or discontinued operations. Discontinued operations will no longer be measured at net realizable value or include amounts for operating losses that have not yet occurred. This statement expands the definition of a discontinued operation from a segment of business to a component of an entity that has been disposed of or is classified as held for sale and can be clearly distinguished, operationally and for reporting purposes, from the rest of the entity. The results of operations of a component classified as held for sale shall be reported in discontinued operations in the period incurred. The Company has not yet determined what the effect of adoption, if any, will be on its consolidated results of operations and financial position. 54 EEX CORPORATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued) 23. SEGMENT INFORMATION Segment information has been prepared in accordance with Statement of Financial Accounting Standards No. 131, Disclosures About Segments of an Enterprise and Related Information. EEX has determined that its reportable segments are those that are based on the Company's method of internal reporting. EEX has four reportable segments, which are primarily in the business of natural gas and crude oil exploration and production: Onshore, Deepwater Operations, Deepwater FPS/Pipelines, and International. The accounting policies of the segments are the same as those described in the summary of significant accounting policies. EEX's reportable segments are managed separately because of their geographic locations. Financial information by operating segment is presented below (in thousands):
Deepwater ------------------------ Onshore(a) Operations FPS/Pipelines International Other(b) Total ---------- ---------- ------------- ------------- -------- --------- 2001: Total Revenues.......... $151,976 $ -- $ -- $49,360 $ 5,548 $ 206,884 Production and operating costs.................. 21,870 -- 932 13,895 -- 36,697 Exploration costs....... 27,550 19,623 -- 2,200 -- 49,373 Depletion, depreciation and amortization (c)... 68,760 -- 89,708 35,019 1,856 195,343 Other costs............. 14,831(d) -- 9 -- 11,621 26,461 -------- -------- --------- ------- -------- --------- Operating Income (Loss)................. 18,965 (19,623) (90,649) (1,754) (7,929) (100,990) Interest Income......... -- -- -- -- 1,270 1,270 Interest and other financing costs........ (6,988) -- (12,010) -- (10,738) (29,736) -------- -------- --------- ------- -------- --------- Income (Loss) before income taxes........... $ 11,977 $(19,623) $(102,659) $(1,754) $(17,397) $(129,456) ======== ======== ========= ======= ======== ========= Long-Lived Assets....... $379,934 $ 66,447 $ 70,055 $18,154 $ 3,065 $ 537,655 ======== ======== ========= ======= ======== ========= Additions to Long-Lived Assets................. $138,036 $ 9,597 $ 13,561 $ 8,651 $ 517 $ 170,362 ======== ======== ========= ======= ======== ========= 2000: Total Revenues.......... $220,621 $ -- $ -- $53,958 $(12,167) $ 262,412 Production and operating costs.................. 24,312 -- 1,245 13,655 -- 39,212 Exploration costs....... 23,667 7,788 -- 2,325 -- 33,780 Depletion, depreciation and amortization (c)... 60,639 -- 4,510 39,304 1,712 106,165 Other costs............. 11,696(d) -- 1 -- 32,937 44,634 -------- -------- --------- ------- -------- --------- Operating Income (Loss)................. 100,307 (7,788) (5,756) (1,326) (46,816) 38,621 Interest Income......... -- -- -- -- 1,447 1,447 Interest and other financing costs........ (10,103) -- (14,129) -- (9,354) (33,586) -------- -------- --------- ------- -------- --------- Income (Loss) before income taxes........... $ 90,204 $ (7,788) $ (19,885) $(1,326) $(54,723) $ 6,482 ======== ======== ========= ======= ======== ========= Long-Lived Assets....... $363,804 $ 89,504 $ 146,092 $35,691 $ 4,457 $ 639,548 ======== ======== ========= ======= ======== ========= Additions to Long-Lived Assets................. $118,048 $ 41,208 $ 6,450 $14,432 $ 1,082 $ 181,220 ======== ======== ========= ======= ======== ========= 1999: Total Revenues.......... $116,118 $ -- $ -- $54,601 $ 6,655 $ 177,374 Production and operating costs.................. 23,241 -- -- 16,097 -- 39,338 Exploration costs....... 12,034 70,386 -- 3,949 -- 86,369 Depletion, depreciation and amortization (c)... 78,531 -- 5,400 10,148 1,323 95,402 Other costs............. 5,366(d) -- -- -- 20,293 25,659 -------- -------- --------- ------- -------- --------- Operating Income (Loss)................. (3,054) (70,386) (5,400) 24,407 (14,961) (69,394) Interest Income......... -- -- -- -- 6,224 6,224 Interest and other financing costs........ (765) -- (14,361) -- (2,560) (17,686) -------- -------- --------- ------- -------- --------- Income (Loss) before income taxes........... $ (3,819) $(70,386) $ (19,761) $24,407 $(11,297) $ (80,856) ======== ======== ========= ======= ======== ========= Long-Lived Assets....... $432,015 $ 47,782 $ 144,150 $60,638 $ 5,912 $ 690,497 ======== ======== ========= ======= ======== ========= Additions to Long-Lived Assets................. $304,018 $ 52,595 $ 15,533 $14,797 $ 1,331 $ 388,274 ======== ======== ========= ======= ======== =========
- -------- (a) In December 2000, the Company sold its interests in substantially all of its Gulf of Mexico Shelf production. As part of this sale, the Company retained the rights to deeper, non-producing horizons in ten of the blocks sold. All activities prior to sale date related to the Gulf of Mexico Shelf properties are included in the Onshore segment. (b) Includes primarily Cogeneration Plant Operations, General and Administrative, gains/loss on hedging and sale of assets. (c) Depletion, depreciation and amortization includes asset impairments of $127 million, $12 million and $26 million in 2001, 2000 and 1999, respectively (see Note 9). (d) Includes taxes other than income. 55 EEX CORPORATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued) 24. SUPPLEMENTARY OIL AND GAS INFORMATION (UNAUDITED) Oil and Gas Producing Activities--The following tables set forth information relating to oil and gas producing activities of EEX. Reserve data for natural gas liquids attributable to leasehold interests owned by the Company are included in oil and condensate.
2001 2000 --------- --------- Capitalized Costs: Proved oil and gas properties........................... $ 658,610 $ 646,934 Floating Production System and Pipelines................ 258,081 242,817 Unproved oil and gas properties......................... 58,316 65,512 Accumulated depletion, depreciation and amortization.... (440,417) (320,173) --------- --------- Total net capitalized cost............................ $ 534,590 $ 635,090 ========= =========
2001 2000 1999 ----------------- ---------------- ---------------- Non- Non- U.S. Non-U.S. U.S. U.S. U.S. U.S. -------- -------- -------- ------- -------- ------- Costs Incurred: Property acquisition costs: Proved................... $ 33,949 $ -- $ 28,688 $ -- $238,749 $ 4,523 Unproved................. 4,403 12 6,421 53 4,767 -- Exploration costs.......... 40,043 1,257 60,901 2,325 79,618 4,143 Development costs.......... 113,685 8,639 83,125 14,380 79,091 10,069 -------- ------ -------- ------- -------- ------- Total.................. $192,080 $9,908 $179,135 $16,758 $402,225 $18,735 ======== ====== ======== ======= ======== =======
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. The disclosure excludes interest expense, corporate overhead and gains and losses from hedging (in thousands).
2001 2000 1999 ------------------ ---------------- ----------------- Non- Non- U.S. Non-U.S. U.S. U.S. U.S. U.S. -------- -------- -------- ------- -------- ------- Revenues................ $151,546 $49,360 $218,486 $53,958 $116,118 $54,601 Less: Production costs (a).. 37,629 13,895 36,742 13,655 28,607 16,097 Exploration costs..... 47,173 2,200 31,455 2,325 82,420 3,949 Depletion, depreciation and amortization(b)...... 158,468 35,019 64,389 39,304 83,931 10,148 Income tax effects (c).................. -- -- 30,065 -- -- 1,807 -------- ------- -------- ------- -------- ------- Results of operations......... $(91,724) $(1,754) $ 55,835 $(1,326) $(78,840) $22,600 ======== ======= ======== ======= ======== =======
- -------- (a) Includes severance, ad valorem and production taxes. (b) Includes pre-tax property impairments of $127 million, $12 million and $26 million in 2001, 2000 and 1999, respectively. (c) Amount includes $35.3 million for valuation allowance on deferred tax asset for 1999. 56 EEX CORPORATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued) Oil and Gas Reserves--The following table of estimated proved and proved developed reserves of oil and gas has been prepared utilizing estimates of yearend reserve quantities audited by Netherland, Sewell & Associates, Inc., independent petroleum consultants, for December 31, 2001, 2000 and 1999. Reserve estimates are inherently imprecise and estimates of new discoveries are more imprecise than those of producing oil and gas properties. Accordingly, the reserve estimates are expected to change as additional performance data becomes available.
Gas (MMcf) Oil (MBbls) (a) ------------------------- ----------------------- 2001 2000 1999 2001 2000 1999 ------- ------- ------- ------- ------ ------ U.S. Reserves: At January 1............ 382,609 362,813 203,551 14,437 5,702 6,431 Revisions of previous estimates.............. (16,303) 31,699 (10,658) 337 (212) (1,116) Extensions, discoveries and additions.......... 107,685 115,931 11,804 501 11,760 40 Purchases of minerals in place.................. -- -- 206,002 -- -- 2,305 Sales of minerals in place.................. (36,001) (72,689) (6,883) (11,083) (1,936) (619) Production.............. (43,003) (55,145) (41,003) (488) (877) (1,339) ------- ------- ------- ------- ------ ------ At December 31.......... 394,987 382,609 362,813 3,704 14,437 5,702 ======= ======= ======= ======= ====== ====== Proved Developed Reserves: At January 1............ 306,760 309,424 191,985 2,795 4,592 6,299 At December 31.......... 310,884 306,760 309,424 3,080 2,795 4,592 Minority interest at 12/31 total proved (b)......... 135,959 102,301 86,319 659 599 1,043 Minority interest at 12/31 proved developed (b)..... 100,414 89,222 65,073 599 535 584
- -------- (a) Includes natural gas liquids of 574 MBbls for 2001, 416 MBbls for 2000, and 427 MBbls for 1999. (b) Minority Interest amounts are included in the table above. See Note 8.
Oil (MBbls) ---------------------- 2001 2000 1999 ------ ------ ------ Non-U.S. Reserves: At January 1.......................................... 10,680 11,840 19,728 Revisions of previous estimates....................... 2,309 752 (4,657) Extensions, discoveries and additions................. -- -- -- Purchases of minerals in place........................ -- -- -- Sales of minerals in place............................ -- -- -- Production............................................ (2,133) (1,912) (3,231) ------ ------ ------ At December 31........................................ 10,856 10,680 11,840 ====== ====== ====== Proved Developed Reserves: At January 1.......................................... 8,423 9,896 15,831 At December 31........................................ 6,644 8,423 9,896
Standardized Measure of Discounted Future Net Cash Flows Relating to Proved Oil and Gas Reserve Quantities--The following table 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 oil and gas reserves, estimating future expenditures to develop proved reserves and estimating costs to produce the proved reserves based on average costs for the year. Prices used in the computations were: Gas (per Mcf) $2.61 in 2001, $9.52 in 2000 and $2.08 in 1999; Oil (per barrel) $19.84 in 2001, $26.80 in 2000 and $23.41 in 1999, except for contractually committed volumes. 57 EEX CORPORATION 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.
United Total States International --------- --------- ------------- Standardized Measure (in millions): 2001 Future cash inflows.................... $ 1,227.2 $ 1,032.8 $ 194.4 Future production and development costs................................. (553.0) (390.4) (162.6) Future income tax expense.............. (4.3) -- (4.3) --------- --------- ------- Future net cash flows.................. 669.9 642.4 27.5 10% annual discount.................... (280.7) (275.2) (5.5) --------- --------- ------- Standardized measure of discounted future net cash flows................. $ 389.2 $ 367.2 $ 22.0 ========= ========= ======= Minority interest (a).................. $ 121.8 $ 121.8 $ -- ========= ========= ======= 2000 Future cash inflows.................... $ 4,231.6 $ 3,967.8 $ 263.8 Future production and development costs................................. (1,130.0) (935.2) (194.8) Future income tax expense.............. (729.4) (716.0) (13.4) --------- --------- ------- Future net cash flows.................. 2,372.2 2,316.6 55.6 10% annual discount.................... (1,088.9) (1,079.8) (9.1) --------- --------- ------- Standardized measure of discounted future net cash flows................. $ 1,283.3 $ 1,236.8 $ 46.5 ========= ========= ======= Minority interest (a).................. $ 304.0 $ 304.0 $ -- ========= ========= ======= 1999 Future cash inflows.................... $ 1,166.5 $ 886.2 $ 280.3 Future production and development costs................................. (524.7) (314.8) (209.9) Future income tax expense.............. -- -- -- --------- --------- ------- Future net cash flows.................. 641.8 571.4 70.4 10% annual discount.................... (205.5) (197.9) (7.6) --------- --------- ------- Standardized measure of discounted future net cash flows................. $ 436.3 $ 373.5 $ 62.8 ========= ========= ======= Minority interest (a).................. $ 79.0 $ 79.0 $ -- ========= ========= ======= - -------- (a) Minority Interest amounts are included in the table above. See Note 8. 2001 2000 1999 --------- --------- ------------- Changes in Standardized Measure (in millions): Sales and transfers of oil and gas produced, net of production costs....... $ (148.1) $ (222.7) $(126.0) Changes in prices, net of production and future development costs................ (1,192.7) 1,358.5 68.0 Extensions, discoveries and improved recovery, less related costs............ 86.6 447.7 16.4 Purchases of minerals in place........... -- -- 181.6 Revisions of previous quantity estimates............................... (47.2) 99.0 (1.0) Sales of minerals in place............... (98.4) (498.4) (6.9) Accretion of discount.................... 128.3 43.6 27.6 Net change in income taxes............... 377.4 (380.7) -- Other.................................... -- -- 0.7 --------- --------- ------- Total.................................. $ (894.1) $ 847.0 $ 160.4 ========= ========= =======
58 EEX CORPORATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued) 25. SUBSEQUENT EVENTS Sale of Indonesian Assets--On March 11, 2002, EEX signed stock purchase agreements to sell all of the shares of two companies that own a 25% interest in the Tuban Block, onshore Java (includes Mudi Field), and a 15% interest in the Asahan Block, offshore Sumatra. These interests constitute all of EEX's assets in Indonesia. The agreements provide that the sale will be effective as of September 30, 2001 and that the purchase price of $34.5 million will be adjusted for the net cash flows received by EEX after the effective date. The agreements are subject to customary closing conditions and regulatory approvals of Indonesian authorities. EEX anticipates that the closing will take place in the second quarter of 2002. 59 QUARTERLY RESULTS (UNAUDITED) The results of operations of the Company by quarters are summarized below (in thousands, except per share data). In the opinion of the Company's management, all adjustments (consisting only of normal recurring accruals) necessary for a fair presentation have been made.
Quarter Ended ------------------------------------------- March 31 June 30 September 30 December 31 -------- ------- ------------ ----------- 2001: Revenues.......................... $59,262 $52,157 $48,490 $ 46,975 (Loss) Gain on Property Sales..... (302) (33) 29,176 (16,578) Impairment of Assets.............. -- -- -- 127,030 Operating Income (Loss)(a)........ 3,154 9,884 36,576 (150,604) Income (Loss) Before Extraordinary Item............................. (4,249) 2,382 19,978 (167,685) Net Income (Loss) Applicable to Common Shareholders.............. (7,759) (1,197) 16,326 (167,816) Net Income (Loss) Per Common Share--Basic Before Extraordinary Item....... $ (0.19) $ (0.03) $ 0.39 $ (4.11) Extraordinary Item.............. -- -- -- 0.09 ------- ------- ------- --------- Per Common Share................ $ (0.19) $ (0.03) $ 0.39 $ (4.02) ======= ======= ======= ========= Net Income (Loss) Per Common Share--Diluted Before Extraordinary Item....... $ (0.19) $ (0.03) $ 0.29 $ (4.11) Extraordinary Item.............. -- -- -- 0.09 ------- ------- ------- --------- Per Common Share................ $ (0.19) $ (0.03) $ 0.29 $ (4.02) ======= ======= ======= ========= 2000: Revenues.......................... $60,868 $62,279 $65,983 $ 73,282 (Loss) on Property Sales.......... (560) (1,729) (1,389) (3,552) Impairment of Assets.............. -- 12,200 -- -- Operating Income (Loss)(a)........ 14,743 (4,209) 12,575 15,512 Net Income (Loss) Applicable to Common Shareholders.............. 987 (16,187) (1,702) 6,484 Basic and Diluted Net Income (Loss) Per Common Share.......... $ 0.02 $ (0.38) $ (0.04) $ 0.16
- -------- (a) Operating Income (Loss) excluding interest and taxes. Item 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure None 60 PART III Item 10. Directors and Executive Officers of the Registrant The information required in this Item is incorporated by reference from EEX's definitive proxy statement to be filed pursuant to Regulation 14A within 120 days after yearend. Item 11. Executive Compensation The information required in this Item is incorporated by reference from EEX's definitive proxy statement to be filed pursuant to Regulation 14A within 120 days after yearend. Item 12. Security Ownership of Certain Beneficial Owners and Management The information required in this Item is incorporated by reference from EEX's definitive proxy statement to be filed pursuant to Regulation 14A within 120 days after yearend. Item 13. Certain Relationships and Related Transactions The information required in this Item is incorporated by reference from EEX's definitive proxy statement to be filed pursuant to Regulation 14A within 120 days after yearend. 61 PART IV Item 14. Exhibits, Financial Statement Schedules and Reports on Form 8-K (a)-1 Financial Statements The information required hereunder is set forth under "Report of Independent Auditors," "Consolidated Statement of Operations," "Consolidated Statement of Cash Flows," "Consolidated Balance Sheet," "Consolidated Statement of Shareholders' Equity," "Notes to Consolidated Financial Statements" and "Quarterly Results" included in Item 8. (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 Registrant, as amended. (1) 3.2 Bylaws of the Registrant, as amended. (1) 4.1 Form of Common Stock Certificate, incorporated by reference to Exhibit 4.1 to Registrant's Form 10-K for the year ended December 31, 1998. (2) 4.2 Form of Preferred Stock Certificate, incorporated by reference to Exhibit 4.2 to Registrant's Form 10-K for the year ended December 31, 1998. (2) 4.3 Rights Agreement dated as of September 10, 1996, between the Registrant and Harris Trust Company of New York as Rights Agent, incorporated by reference to Exhibit 10.21 to Registrant's Registration Statement on Form S-4 (No. 333-13241). (2) 4.4 First Amendment to Rights Agreement dated December 21, 1998, between the Registrant and Harris Trust Company of New York, as Rights Agent, incorporated by reference to Exhibit 4.4 to Registrant's Form 10-K for the year ended December 31, 1998. (2) 4.5 Statement of Resolution of Series B 8% Cumulative Perpetual Preferred Stock of the Registrant filed with the Secretary of State of Texas on January 7, 1999, incorporated by reference to Exhibit 4.5 to Registrant's Form 10-K for the year ended December 31, 1998. (2) 4.6 Form of Series A Warrant issued to Warburg, Pincus Equity Partners, L.P., and affiliates on January 7, 1999, incorporated by reference to Exhibit 4.6 to Registrant's Form 10-K for the year ended December 31, 1998. (2) 4.7 Form of Series B Warrant issued to Warburg, Pincus Equity Partners, L.P., and affiliates on January 7,1999, incorporated by reference to Exhibit 4.7 to Registrant's Form 10-K for the year ended December 31, 1998. (2) 4.8 Form of Series C Warrant issued to Warburg, Pincus Equity Partners, L.P., and affiliates on January 7, 1999, incorporated by reference to Exhibit 4.8 to Registrant's Form 10-K for the year ended December 31, 1998. (2) 10.1 Trust Indenture, Mortgage, Assignment of Lease and Security Agreement dated as of November 15, 1996, among Wilmington Trust Company, as Corporate Grantor Trustee, Thomas P. Laskaris, as Individual Grantor Trustee, The Bank of New York, as Corporate Indenture Trustee, Frederick W. Clark, as Individual Indenture Trustee, without exhibits and schedules. (1)
62 10.2 Pass Through Trust Agreement dated as of November 16, 1996, between Registrant and The bank of New York, as Trustee, without exhibits and schedules. (1) 10.3 Relevant Amendment dated August 2, 2001 among Registrant, Cooper Project, L.L.C., Wilmington Trust Company, as Corporate Grantor Trustee, John M. Beeson, Jr., as Individual Grantor Trustee, The Bank of New York, as Corporate Indenture Trustee, and Van Brown, as Individual Indenture Trustee, and The Bank of New York, as Pass Through Trustee under the Pass Through Trust Agreement. (1) 10.4 Amendment to Relevant Amendment dated August 24, 2001 among The Bank of New York, as Corporate Indenture Trustee, and Van Brown, solely as Individual Indenture Trustee. (1) 10.5 Credit Agreement, dated as of May 1, 1995, among Registrant 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 thereto, amended by First Amendment dated September 16, 1996, Second Amendment dated June 27, 1997, Third Amendment dated September 25, 1997, and Fourth Amendment dated December 15, 1997. Incorporated by reference to Exhibit 10.5 to Registrant's Form 10-K for the year ended December 31, 1997. (2) 10.6 Fifth Amendment dated March 31, 1999 to Credit Agreement, dated as of May 1, 1995, among Registrant as Borrower, Texas Commerce Bank National Association, as Administrative Agent, The Chase Manhattan Bank, N.A., as Syndication Agent and Book Runner and the Lenders now or thereafter parties thereto, incorporated by reference to Exhibit 10.5 to Registrant's Form 10-K for the year ended December 31, 1999. (2) 10.7 Sixth Amendment dated February 20, 2002 to Credit Agreement dated as of May 1, 1995 among Registrant as Borrower, each of the Lenders (as defined in the Credit Agreement), JPMorgan Chase Bank, as Administrative Agent, Auction Agent and as Book Runner for the Lenders, Bank One, NA as Syndication Agent, Citibank, N.A., as a Documentation Agent, Canadian Imperial Bank of Commerce, as a Documentation Agent and The Bank of New York, The Bank of Nova Scotia, Bankers Trust Company, Bank of America, N.A. and Royal Bank of Canada as co-agents. (1) 10.8 Tax Sharing Agreement, dated as of January 1, 1995, between ENSERCH and Enserch Exploration, Inc., incorporated by reference to Exhibit 10.21 to the Registration Statement of Enserch Exploration, Inc. on Form S-2 (No. 33-60461). (2) 10.9 Tax Allocation Agreement among ENSERCH, the Registrant and Texas Utilities Company, incorporated by reference to Annex A-3 to the Agreement and Plan of Merger filed as Exhibit 2 to the Registrant's Registration Statement on Form S-4 (No. 333-13241). (2) 10.10 1998 Amended and Restated Stock Incentive Plan, incorporated by reference to Exhibit A to Registrant's Proxy Statement dated April 19, 1999. (2) 10.11 Enserch Exploration, Inc. Revised and Amended 1996 Stock Incentive Plan, incorporated by reference to Annex A-2 to the Agreement and Plan of Merger filed as Exhibit 2 to the Company's Registration Statement on Form S-4 (No. 333-13241). (2) 10.12 Registrant's Deferred Compensation Plan effective as of July 1, 1997, incorporated by reference to Exhibit 10.12 to Registrant's Quarterly Report on Form 10-Q for the quarter ended September 30, 1997. (2) 10.13 First Amendment to Registrant's Deferred Compensation Plan dated as of November 1, 1998, incorporated by reference to Exhibit 10.11 to Registrant's Form 10-K for the year ended December 31, 1998. (2)
63 10.14 Second Amendment to Registrant's Deferred Compensation Plan dated December 8, 1998, incorporated by reference to Exhibit 10.12 to Registrant's Form 10-K for the year ended December 31, 1998. (2) 10.15 Deferred Compensation Plan for Directors, effective January 1, 1996, as amended February 11, 1997, incorporated by reference to Exhibit 10.14 to Registrant's Form 10-K for the year ended December 31, 1998. (2) 10.16 Form of Change of Control Agreement executed by certain executive officers of the Registrant, filed as Exhibit 10.20 to the Annual Report on Form 10-K for the year ended December 31, 1996 of Enserch Exploration, Inc. (2) 10.17 Form of Amendment to Change of Control Agreement executed by certain executive officers of the Company, incorporated by reference to Exhibit 10.16 to Registrant's Form 10-K for the year ended December 31, 1998. (2) 10.18 Form of Employment Agreement executed by certain executive officers of the Registrant, incorporated by reference to Exhibit 10.20 to the Annual Report on Form 10-K for the year ended December 31, 1996 of Enserch Exploration, Inc. (2) 10.19 Form of Amendment to Employment Agreement effective July 27, 1998 between Registrant and certain executive officers, incorporated by reference to Exhibit 10.18 to Registrant's Form 10-K for the year ended December 31, 1998. (2) 10.20 Second Amendment to Employment Agreement effective July 27, 1998, between Registrant and Thomas M Hamilton, incorporated by reference to Exhibit 10.19 to Registrant's Form 10-K for the year ended December 31, 1998. (2) 10.21 Form of Amendment to Restricted Stock Agreement effective July 27, 1998, between Registrant and certain executive officers, incorporated by reference to Exhibit 10.20 to Registrant's Form 10-K for the year ended December 31, 1998. (2) 10.22 Settlement Agreement, dated June 26, 2000, between EEX Corporation and Janice Hartrick, incorporated by reference to Exhibit 10.3 to Registrant's Quarterly Report on Form 10-Q for the quarter ended June 30, 2000. (2) 10.23 Employment Agreement, dated July 3, 2000, between EEX Corporation and Richard L. Edmonson, incorporated by reference to Exhibit 10.4 to Registrant's Quarterly Report on Form 10-Q for the quarter ended June 30, 2000. (2) 10.24 Floating Drilling Rig Requirement Offshore Drilling Contract dated October 15, 1998, between the Registrant and Global Marine Drilling Company for the "Glomar Arctic I" floating drilling unit, without appendices, incorporated by reference to Exhibit 10.21 to Registrant's Form 10-K for the year ended December 31, 1998. (2) 10.25 Purchase Agreement, dated as of December 22, 1998, by and among Registrant and Warburg, Pincus Equity Partners, L.P., a Delaware limited partnership, Warburg, Pincus Netherlands Equity Partners I, C.V., a Dutch limited partnership, Warburg, Pincus Netherlands Equity Partners II, C.V., a Dutch limited partnership and Warburg, Pincus Netherlands Equity Partners III, C.V., a Dutch limited partnership, incorporated by reference to Exhibit 99.1 to Registrant's Form 8-K dated December 22, 1998. (2) 10.26 Registration Rights Agreement dated January 8, 1999, by and among Registrant and Warburg, Pincus Equity Partners, L.P., and affiliates, incorporated by reference to Exhibit 10.23 to Registrant's Form 10-K for the year ended December 31, 1998. (2) 10.27 Natural Gas Prepaid Forward Sale Contract dated December 17, 1999 between EEX E&P Company, L.P. and Bob West Treasure L.L.C., incorporated by reference to Exhibit 99.5 to Registrant's Form 8-K dated December 17, 1999. (2)
64 10.28 First Amendment to Natural Gas Prepaid Forward Sale Contract, effective May 16, 2000, between EEX E&P Company, L.P. and Bob West Treasure L.L.C., incorporated by reference to Exhibit 10.1 to Registrant's Quarterly Report on Form 10-Q for the quarter ended June 30, 2000. (2) 10.29 Amended and Restated Call Agreement, dated May 16, 2000, between EEX Capital, Inc. and Bob West Treasure, L.L.C., incorporated by reference to Exhibit 10.2 to Registrant's Quarterly Report on Form 10-Q for the quarter ended June 30, 2000. (2) 10.30 Subordinated Convertible Note dated December 17, 1999, from EEX Reserves Funding LLC to EEX Corporation, incorporated by reference to Exhibit 99.7 to Registrant's Form 8-K dated December 17, 1999. (2) 10.31 EEX Corporation Undertaking dated December 17, 1999, incorporated by reference to Exhibit 99.8 to Registrant's Form 8-K dated December 17, 1999. (2) 10.32 Purchase and Sale Agreement dated August 30, 2001, between Registrant and Amerada Hess Corporation, without exhibits and schedules incorporated by reference to Exhibit 10.1 to Registrant's Quarterly Report on Form 10-Q for the quarter ended September 30, 2001. (2) 10.33 Stock Purchase Agreement dated March 11, 2002 by and among PT Medco Energi Internasional Tbk., EEX International, Inc., and Enserch Far East Ltd., without exhibits and schedules. (1) 21 Subsidiaries of the Registrant. (1) 23.1 Consent of Ernst & Young LLP. (1) 23.2 Consent of Netherland, Sewell & Associates, Inc. (1)
- -------- (1) Filed herewith. (2) Incorporated by reference. (b) Reports on Form 8-K None 65 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: EEX Corporation /s/ T. M Hamilton By: _________________________________ T. M Hamilton Chairman and President, Chief Executive Officer April 12, 2002 Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the registrant and in the capacities and on the dates indicated.
Signature Title Date --------- ----- ---- /s/ T. M Hamilton Chairman and President, April 12, 2002 ______________________________________ Chief Executive Officer T. M Hamilton /s/ R. S. Langdon Executive Vice President, April 12, 2002 ______________________________________ Finance and R. S. Langdon Administration, Chief Financial Officer /s/ J. T. Leary Vice President, Finance April 12, 2002 ______________________________________ and Treasurer J. T. Leary /s/ T. E. Coats Vice President, Planning April 12, 2002 ______________________________________ and Controller (Principal T. E. Coats Accounting Officer) /s/ F. S. Addy Director April 12, 2002 ______________________________________ F. S. Addy /s/ B. A. Bridgewater, Jr. Director April 12, 2002 ______________________________________ B. A. Bridgewater, Jr. /s/ F. M. Lowther Director April 12, 2002 ______________________________________ F. M. Lowther /s/ M. P. Mallardi Director April 12, 2002 ______________________________________ M. P. Mallardi /s/ H. H. Newman Director April 12, 2002 ______________________________________ H. H. Newman
66 EX-3.1 3 dex31.txt RESTATED ARTICLES OF INCORPORATION EXHIBIT 3.1 ARTICLES OF AMENDMENT TO THE RESTATED ARTICLES OF INCORPORATION OF EEX CORPORATION Pursuant to the provisions of Article 4.04 of the Texas Business Corporation Act, the undersigned corporation adopts the following Articles of Amendment to its Restated Articles of Incorporation: FIRST: The name of the corporation is EEX Corporation. SECOND: Article Four (A) of the Restated Articles of Incorporation of the corporation is hereby deleted and replaced in its entirety with the following: "(A) Authorized Capital Stock. (i) The aggregate number of shares of all classes of stock the Company shall have authority to issue is 160,000,000 consisting of and divided into: (a) one class of 150,000,000 shares of Common Stock, par value $0.01 per share (the "Common Stock"); and (b) one class of 10,000,000 shares of Preferred Stock, no par value (the "Preferred Stock"), which may be divided into and issued in one or more series, as hereinafter provided. (ii) Reverse Stock Split. Effective as of the close of business on the date of filing this amendment to the Restated Articles of Incorporation (the "Effective Time"), the filing of this amendment shall effect a reverse stock split (the "Reverse Stock Split") pursuant to which each three (3) shares of Common Stock of the corporation issued and outstanding, shall be combined into one (1) validly issued, fully paid and nonassessable share of Common Stock of the corporation. The number of authorized shares, the number of shares of treasury stock and the par value of the Common Stock shall not be affected by the Reverse Stock Split. Each stock certificate that prior to the Effective Time represented shares of Common Stock shall, following the Effective Time, represent the number of shares into which the shares of Common Stock represented by such certificate shall be combined. Fractional shares that occur as a result of the foregoing shall be purchased by the corporation based upon the closing price reported for the Common Stock on the New York Stock Exchange on the date of filing this amendment." THIRD: This amendment to the Restated Articles of Incorporation was adopted by the shareholders of the corporation on December 8, 1998. FOURTH: The number of shares of the corporation outstanding at the time of such adoption was 127,150,427; and the number of shares entitled to vote thereon was 127,150,427. FIFTH: The number of shares voted for such amendment was 97,771,506; and the number of shares voted against such amendment was 19,490,902. Dated December 8, 1998. EEX CORPORATION By: /s/ J. K. Hartrick ----------------------------- J. K. Hartrick Senior Vice President, General Counsel and Corporate Secretary ARTICLES OF AMENDMENT TO THE RESTATED ARTICLES OF INCORPORATION OF EEX CORPORATION Pursuant to the provisions of Article 4.04 of the Texas Business Corporation Act, the undersigned corporation adopts the following Articles of Amendment to its Restated Articles of Incorporation: FIRST: The name of the corporation is EEX Corporation. SECOND: Article Four (A) of the Restated Articles of Incorporation of the corporation is hereby deleted and replaced in its entirety with the following: "(A) Authorized Capital Stock. (i) The aggregate number of shares of all classes of stock the Company shall have authority to issue is 160,000,000 consisting of and divided into: (a) one class of 150,000,000 shares of Common Stock, par value $0.01 per share (the "Common Stock"); and (b) one class of 10,000,000 shares of Preferred Stock, no par value (the "Preferred Stock"), which may be divided into and issued in one or more series, as hereinafter provided. (ii) Reverse Stock Split. Effective as of the close of business on the date of filing this amendment to the Restated Articles of Incorporation (the "Effective Time"), the filing of this amendment shall effect a reverse stock split (the "Reverse Stock Split") pursuant to which each three (3) shares of Common Stock of the corporation issued and outstanding, shall be combined into one (1) validly issued, fully paid and nonassessable share of Common Stock of the corporation. The number of authorized shares, the number of shares of treasury stock and the par value of the Common Stock shall not be affected by the Reverse Stock Split. Each stock certificate that prior to the Effective Time represented shares of Common Stock shall, following the Effective Time, represent the number of shares into which the shares of Common Stock represented by such certificate shall be combined. Fractional shares that occur as a result of the foregoing shall be purchased by the corporation based upon the closing price reported for the Common Stock on the New York Stock Exchange on the date of filing this amendment." THIRD: This amendment to the Restated Articles of Incorporation was adopted by the shareholders of the corporation on December 8, 1998. FOURTH: The number of shares of the corporation outstanding at the time of such adoption was 127,150,427; and the number of shares entitled to vote thereon was 127,150,427. FIFTH: The number of shares voted for such amendment was 97,771,506; and the number of shares voted against such amendment was 19,490,902. Dated December 8, 1998. EEX CORPORATION By: (s) J. K. Hartrick ---------------------------------- J. K. Hartrick Senior Vice President, General Counsel and Corporate Secretary RESTATED ARTICLES OF INCORPORATION OF EEX CORPORATION ARTICLE 1 SECTION ONE EEX Corporation, a Texas corporation (the "Company") formerly named Enserch Exploration, Inc. and formerly named Lone Star Energy Plant Operations, Inc., pursuant to the provisions of Article 4.07 of the Texas Business Corporation Act, as amended, hereby adopts Restated Articles of Incorporation without amendments as set forth below. SECTION TWO The Restated Articles of Incorporation accurately copy the Articles of Incorporation and all amendments and supplements thereto that are in effect immediately prior hereto (collectively, the "Old Articles"), including the Statement of Resolution filed on September 11, 1996 establishing and designating the $200 Series A Junior Participating Preferred Stock, but except that the number of directors currently constituting the Board of Directors and the names and addresses of the persons now serving as directors is inserted in lieu of similar information in the Old Articles and the name of each incorporator is omitted. SECTION THREE The Restated Articles of Incorporation were adopted by resolution of the Board of Directors of the Company on February 24, 1998. SECTION FOUR The Old Articles are hereby superseded by the following Restated Articles of Incorporation, which accurately copy the entire text thereof except as above set forth: 1.01 RESTATED ARTICLES OF INCORPORATION OF EEX CORPORATION ARTICLE ONE The name of the corporation (the "Company") is EEX Corporation. ARTICLE TWO The period of its duration is perpetual. ARTICLE THREE The purposes for which the Company is organized are: (1) To engage in all phases of the gas and oil business and related activities, including without limitation engaging in exploration, drilling, development, and production of gas and oil properties; (2) To store, transport, buy and sell, gas, oil, salt, brine and other mineral solutions and liquefied minerals; (3) To explore for, produce, purchase and sell, store, process and manufacture, transport and distribute gas, oil and all other minerals; (4) To manufacture, produce, purchase or otherwise acquire, sell or dispose of, distribute, mortgage, pledge, lease, repair, install, operate, deal in and with, whether as principal or agent, products, goods, appliances, wares, merchandise, fixtures, plants, structures, machinery, and materials of every kind and description, to lend money for the carrying out of such purposes, and to take and hold real and personal property for the payment of such funds so loaned; (5) To engage in the business of operation and maintenance of cogeneration and other power production projects; and (6) To transact any or all lawful business for which corporations may be incorporated under the Texas Business Corporation Act, as amended and in effect from time to time (the "TBCA"). ARTICLE FOUR (A) Authorized Capital Stock. The aggregate number of shares of all classes of stock the Company shall have authority to issue is 410,000,000 consisting of and divided into: (i) one class of 400,000,000 shares of Common Stock, par value $0.01 per share (the "Common Stock"); and (ii) one class of 10,000,000 shares of Preferred Stock, no par value (the "Preferred Stock"), which may be divided into and issued in one or more series, as hereinafter provided. (B) Series. The Preferred Stock may be divided into and issued in, at any time and from time to time, one or more series as the Board of Directors shall determine pursuant to the authority hereby vested in it. The Board of Directors shall have the authority to establish series of unissued shares of Preferred Stock, at any time and from time to time, by fixing and determining the designations, preferences, limitations and relative rights of the shares of the series, subject to and within the limitations of the TBCA and the Articles of Incorporation, including without limitation the following: (a) the number of shares constituting the series and the distinctive designation of that series; (b) the dividend rate on shares of the series, the dividend payment dates, whether dividends shall be cumulative (and, if so, from which date or dates), non-cumulative, or partially cumulative, and the relative rights of priority, if any, of payment of dividends on the shares of the series; (c) the amount payable to the holders of shares of the series upon any voluntary or involuntary liquidation of the Company; (d) the preference in the assets of the Company over any other class, classes or series of shares upon the voluntary or involuntary liquidation of the Company; (e) whether the shares of the series are redeemable at the option of the Company, the shareholder or another person or upon occurrence of a designated event and, if so, the price payable upon redemption of shares of the series and the terms and conditions on which such shares are redeemable; (f) the provisions of the sinking fund, if any, for the redemption or purchase of shares of the series; (g) the voting rights, if any, of the shares of the series; (h) the terms and conditions, if any, on which such shares may be converted, at the option of the Company, the shareholder or another person or upon occurrence of a designated event, into shares of any other class or series; (i) the terms and conditions, if any, on which such shares may be exchanged, at the option of the Company, the shareholder or another person or upon occurrence of a designated event, for shares, obligations, indebtedness, evidences of ownership, rights to purchase securities or other securities of the Company or one or more other domestic or foreign corporations or other entities or for other property or for any combination of the foregoing; and (j) any other special rights and qualifications, limitations or restrictions permitted by the TBCA to be granted to or imposed on the series. Any of the designations, preferences, limitations and relative rights of the shares of any series so established may be made dependent upon facts ascertainable outside the Articles of Incorporation, which facts may include future acts of the Company, provided that the manner in which such facts shall operate upon the designations, preferences, limitations and relative rights of the shares of any series shall be set forth in the resolution or resolutions establishing the series. All shares within the same series of Preferred Stock shall be identical except as to the date of issue and the dates from which dividends on shares of the series issued on different dates will cumulate, if cumulative. The Board of Directors shall have the authority to increase or decrease the number of shares within each series of Preferred Stock; provided, that the Board of Directors may not decrease the number of shares within a series to less than the number of shares within such series that are then outstanding. (C) Preemptive Rights. No shareholder of the Company shall by reason of the shareholder's holding shares of any class or series have any preemptive or preferential right to purchase or subscribe to any shares of any class or series of the Company, now or hereafter to be authorized, or any notes, debentures, bonds or other securities convertible into or carrying options or warrants to purchase shares of any class or series, now or hereafter to be authorized, whether or not the issuance of any such shares, or such notes, debentures, bonds or other securities, would adversely affect the dividend or voting rights of such shareholders, other than such rights, if any, as the Board of Directors in its discretion may fix; and the Board of Directors may issue shares of any class or series of the Company, or any notes, debentures, bonds or other securities convertible into or carrying options or warrants to purchase shares of any class or series, without offering any such shares of any class or series, either in whole or in part, to the existing shareholders of any class or series. (D) Subordination of Common Stock. The Common Stock shall be subject and subordinate to the rights, privileges and preferences of any series of Preferred Stock to the extent set forth in the resolution or resolutions of the Board of Directors establishing the series. (E) Other Provisions Applicable to Capital Stock. (a) Each outstanding share of Common Stock shall be entitled to one vote on each matter submitted to a vote at a meeting of shareholders, except as otherwise provided by the TBCA or as set forth in the resolution or resolutions of the Board of Directors establishing any series of Preferred Stock. (b) At each election for directors of the Company ("Directors"), every shareholder entitled to vote at such election shall have the right to vote the number of shares owned by such shareholder for as many persons as there are Directors to be elected and for whose election such shareholder has a right to vote; provided that cumulative voting in the election for Directors is prohibited. (c) In the event of any dissolution, liquidation or winding up of the Company, but subject to the rights of the holders of any series of Preferred Stock, holders of Common Stock shall be entitled to receive pro rata all of the remaining assets of the Company available for distribution to its shareholders. (d) Subject to the rights of the holders of Preferred Stock as set forth in the resolution or resolutions of the Board of Directors establishing any series of Preferred Stock, dividends may be paid upon Common Stock to the exclusion of Preferred Stock out of any assets of the Company available therefor. __________________________ As adopted by the Board of Directors of the Company effective September 11, 1996: "RESOLVED, that pursuant to the authority conferred upon the Board of Directors of this Company by the provisions of the Restated Articles of Incorporation of this Company, the Board of Directors hereby creates a new series of Preferred Stock of the Company which shall consist of 1,000,000 shares of no par value, which shall be designated and known as $200 Series A Junior Participating Preferred Stock, and that in addition to the preferences, rights, voting powers and the restrictions or qualifications of all shares of Preferred Stock regardless of series, described and expressed in the Restated Articles of Incorporation of the Company, the Board of Directors hereby declares that the shares of the $200 Series A Junior Participating Preferred Stock shall have the terms, conditions, rights and preferences, as follows: 1. Designation. The shares of such series shall be designated "$200 Series A Junior Participating Preferred Stock" (herein called "Series A Preferred Stock"). 2. Number. The number of shares of Series A Preferred Stock shall be 1,000,000, which number may be increased or decreased by resolution adopted by the Board of Directors: provided, however, that no decrease shall reduce the number of authorized shares of Series A Preferred Stock to less than the number of shares then issued and outstanding plus the number of shares issuable upon the exercise of outstanding rights, options for warrants or upon conversion of outstanding securities issued by the Company. 3. Dividends. Subject to the rights of the holders of any shares of any other series of Preferred Stock (or any similar stock) of the Company with respect to dividends, but in preference to the holders of shares of the Common Stock, par value $0.01 per share (the "Common Stock"), the Company or of any other class or series of stock of the Company ranking junior to the Series A Preferred Stock, the holders of shares of Series A Preferred Stock shall be entitled to receive, when, as and if declared by the Board of Directors out of funds legally available for the purpose, dividends for each Quarterly Dividend Period (as hereinafter defined) equal (rounded to the nearest cent) to the greater of (a) $20 or (b) subject to the provision for adjustment hereinafter set forth, 200 times the aggregate per share amount of all cash dividends, and 200 times the aggregate per share amount (payable in cash, based upon the fair market value at the time the non-cash dividend or other distribution is declared as determined in good faith by the Board of Directors) of all non-cash dividends or other distributions other than a dividend payable in shares of Common Stock or a subdivision of the outstanding shares of Common Stock (by reclassification or otherwise), declared (but not withdrawn) on the Common Stock during the immediately preceding Quarterly Dividend Period, or, with respect to the first Quarterly Dividend Period, since the first issuance of any share or fraction of a share of Series A Preferred Stock. In the event the Company shall at any time after September 10, 1996 (the "Rights Declaration Date") (i) declare any dividend on Common Stock payable in shares of Common Stock, (ii) subdivide the outstanding Common Stock, or (iii) combine the outstanding Common Stock into a smaller number of shares, then in each such case the amount to which holders of shares of Series A Preferred Stock were entitled immediately prior to such event under clause (b) of the preceding sentence shall be adjusted by multiplying such amount by a fraction the numerator of which is the number of shares of Common Stock outstanding immediately after such event and the denominator of which is the number of shares of Common Stock that were outstanding immediately prior to such event. As used herein "Quarterly Dividend Period" shall mean a period of three months which shall commence on February 1, May 1, August 1 and November 1 in each year (or in the case of original issuance, from the date of original issuance) and shall end on and include the day next preceding the first date of the next Quarterly Dividend Period. The first day of each such Quarterly Dividend Period shall be the dividend payment date for the regular quarterly dividend payable for the preceding Quarterly Dividend Period, except that the first dividend on shares of Series A Preferred Stock shall be payable on the quarterly payment date next succeeding the expiration of 30 days after the date of initial issue of any shares of the Series A Preferred Stock. Dividends on the Series A Preferred Stock, if any, shall be cumulative so that no dividend (other than a dividend payable in Common Stock) or other distribution shall be paid or declared or made on, and no amounts shall be applied to the purchase or redemption of, the Common Stock or any other class of stock ranking junior to the Series A Preferred Stock as to dividends or assets unless (i) full cumulative dividends for all past Quarterly Dividend Periods have been paid or declared and set apart for payment, and full cumulative dividends for then current Quarterly Dividend Period shall have been or simultaneously therewith shall be paid and declared on outstanding Series A Preferred Stock, and (ii) after giving effect to such payment of dividend, other distribution, purchase or redemption, the aggregate capital of the Company applicable to all capital stock outstanding ranking junior to the Series A Preferred Stock as the dividends or assets plus the consolidated surplus of the Company and its subsidiaries shall exceed the aggregate amount payable on involuntary dissolution, liquidation or winding up of the Company on all shares of the Series A Preferred Stock and all stock ranking prior to on a parity with the Series A Preferred Stock as the dividends or assets to be outstanding after the payment of such dividend, other distribution, purchase or redemption. Determinations made with respect to the declaration and payment of dividends and other distributions shall be made in accordance with the provisions of the Texas Business Corporation Act, as amended and in effect at the time (the "TBCA"). 4. Liquidation. In the event of any voluntary or involuntary liquidation, dissolution or winding up of the Company, the holders of the Series A Preferred Stock shall, subject to the prior and superior rights of the holders of any shares of any other series of Preferred Stock (or any similar stock) of the Company, be entitled to receive the greater of (a) $200 per share, or (b) an amount per share, subject to the provision for adjustment hereinafter set forth, equal to 200 times the aggregate amount to be distributed per share to holders of Common Stock, plus in either instance accrued dividends to the date of distribution, whether or not earned or declared. In the event the Company shall at any time after the Rights Declaration Date (i) declare any dividend on Common Stock payable in shares of Common Stock, (ii) subdivide the outstanding Common Stock, or (iii) combine the outstanding Common Stock into a smaller number of shares, then in each such case the amount to which holders of shares of Series A Preferred Stock were entitled immediately prior to such event pursuant to clause (b) of the preceding sentence shall be adjusted by multiplying such amount by a fraction the numerator of which is the number of shares of Common Stock outstanding immediately after such event and the denominator of which is the number of shares of Common Stock that were outstanding immediately prior to such event. No distribution shall be made to the holders of shares of Common Stock or any other stock ranking junior to the Series A Preferred Stock upon liquidation, distribution or winding up, unless, prior thereto, the holders of Shares of Series A Preferred Stock shall have received the amounts set forth above. If the assets available for distribution to holders of shares of Series A Preferred Stock shall not be sufficient to pay in full the amounts so determined to be payable on all shares of the Series A Preferred Stock in the event of such voluntary or involuntary dissolution, liquidation or winding up, as the case may be, then assets available for payment shall be distributed ratably among the holders of the Series A Preferred Stock of all series in accordance with the amounts so determined to be payable on the shares of each series in the event of voluntary or involuntary dissolution, liquidation or winding up, as the case may be, in proportion to the full preferential amounts to which they are respectively entitled. After payment to the holders of the Series A Preferred Stock of the full preferential amounts hereinbefore provided for, the holders of Series A Preferred Stock will have no other rights or claims to any of the remaining assets of the Company either upon distribution of such assets or upon dissolution, liquidation or winding up. The sale of all or substantially all of the property of the Company to, or the merger or consolidation of the Company into or with, any other corporation, or the purchase or redemption by the Company of any shares of its Preferred Stock, or its Series A Preferred Stock or its Common Stock or any other class of its stock shall not be deemed to be a distribution of assets or a dissolution, liquidation or winding up for the purpose of this paragraph. 5. Optional Redemption. So long as full cumulative dividends on all outstanding shares of Series A Preferred Stock for all dividend periods ending on or prior to the date fixed for redemption shall have been paid or declared and set apart for payment and subject to any applicable requirements of Texas law and the rights of the holders of any shares of any other series of Preferred Stock (or any similar stock) of the Company, the Company shall have the option to redeem the whole or any part of the Series A Preferred Stock at any time on at least 30 days notice in accordance with the provisions of the procedures for redemptions set forth in the TBCA at a redemption price equal to the greater of (a) $200 and (b), subject to the provision for adjustment hereinafter set forth, 200 times the "current per share market price" of the Common Stock on the date of mailing of the notice of redemption, together with unpaid accumulated dividends to the date of such redemption. In the event the Company shall at any time after the Rights Declaration Date (i) declare any dividend on Common Stock payable in shares of Common Stock, (ii) subdivide the outstanding Common Stock or (iii) combine the outstanding Common Stock into a smaller number of shares, then in each such case the amount to which holders of shares of Series A Preferred Stock were otherwise entitled immediately prior to such event under the preceding sentence shall be adjusted by multiplying such amount by a fraction the numerator of which is the number of shares of Common Stock outstanding immediately after such event and the denominator of which is the number of shares of Common Stock that were outstanding immediately prior to such event. The "current per share market price" on any date shall be deemed to be the average of the closing price per share of such Common Stock for the 10 consecutive "trading days" (as such term is hereinafter defined) immediately prior to such date. The closing price for each day shall be the last sale price, regular way, or, in case no such sale takes place on such day, the average of the closing bid and asked prices, regular way, in either case as reported in the principal consolidated transaction reporting system with respect to securities listed or admitted to trading on the New York Stock Exchange or, if the Common Stock is not listed or admitted to trading on the New York Stock Exchange, as reported in the principal consolidated transaction reporting system with respect to securities listed or admitted to trading on the principal national securities exchange on which the Common Stock is listed or admitted to trading or, if the Common Stock is not listed or admitted to trading on any national securities exchange, the last quoted price or, if not so quoted the average of the high bid and low asked prices in the over-the-counter market, as reported by the National Association of Securities Dealers, Inc. Automated Quotations System ("NASDAQ") or such other system then in use or, if on any such date the Common Stock is not quoted by any such organization, the average of the closing bid and asked prices as furnished by a professional market maker making a market in the Common Stock selected by the Board of Directors of the Company. If on such date no such market maker is making a market in the Common Stock, the fair value of the Common Stock on such date as determined in good faith by the Board of Directors of the Company shall be used. The term "trading day" shall mean a day on which the principal national securities exchange on which the Common Stock is listed or admitted to trading is open for transaction of business or, if the Common Stock is not listed or admitted to trading on any national securities exchange, a Monday, Tuesday, Wednesday, Thursday or Friday on which banking institutions in the State of New York are not authorized or obligated by law or executive order to close. 6. Treasury Shares. So long as any shares of the Series A Preferred Stock are outstanding, shares of the Series A Preferred Stock which are purchased, redeemed or otherwise acquired by the Company shall not be reissued, or otherwise disposed of, as shares of Series A Preferred Stock. 7. Conversion. Other than as set forth above, the Series A Preferred Stock shall not have any conversion or exchange rights. 8. Voting Rights. A) Each share of Series A Preferred Stock shall entitle the holder thereof to 200 votes on all matters submitted to a vote of the shareholders of the Company. In the event the Company shall at any time after the Rights Declaration Date, (i) declare any dividend on Common Stock payable in shares of Common Stock, (ii) subdivide the outstanding Common Stock, or (iii) combine the outstanding Common Stock into a smaller number of shares, then in each such as the number of votes to which holders of shares of Series A Preferred Stock were entitled immediately prior to such event shall be adjusted by multiplying such number by a fraction, the numerator of which is the number of shares of Common Stock outstanding immediately after such event and the denominator of which is the number of shares of Common Stock that were outstanding immediately prior to such event. (B) The Series A Preferred Stock shall have no voting rights other than the voting rights set forth herein, in the Restated Articles of Incorporation of the Company or as otherwise provided by Texas law. 9. Consolidation, Merger, etc. In case the Company shall enter into any consolidation, merger, combination or other transaction in which the shares of Common Stock are exchanged for or converted or changed into other stock or securities, cash and/or other property, then in any such case proper provision shall be made so that each share of Series A Preferred Stock shall at the same time be similarly exchanged for or converted or changed into an amount per share, subject to the provision for adjustment hereinafter set forth, equal to 200 times the aggregate amount of stock, securities, cash and/or any other property (payable in kind), as the case may be, for which or into which each share of Common Stock is exchanged for or converted or changed. In the event the Company shall at any time after the Rights Declaration Date (i) declare any dividend on Common Stock payable in shares of Common Stock (ii) subdivide the outstanding Common Stock, or (iii) combine the outstanding Common Stock into a smaller number of shares, then in each such case the amount set forth in the preceding sentence with respect to the exchange or conversion or change of shares of Series A Preferred Stock shall be adjusted by multiplying such amount by a fraction, the numerator of which is the number of shares of Common Stock outstanding immediately after such event and the denominator of which is the number of shares of Common Stock that were outstanding immediately prior to such event. 10. Amendment. No change shall be made in any of the rights or preferences of the Series A Preferred Stock at the time outstanding without the affirmative vote of at least two-thirds of the votes entitled to be cast with respect to the shares of the Series A Preferred Stock outstanding on the record date for such meeting in addition to any other vote, if any, as may be required for such change under the applicable provisions of the Restated Articles of Incorporation and the laws of the State of Texas at the time applicable thereto." ARTICLE FIVE The street address of the Company's registered office is 2500 City West Blvd., Suite 1400, Houston, Texas 77042, and the name of its registered agent at that address is Janice K. Hartrick. ARTICLE SIX (A) Number. The number of Directors constituting the Board of Directors of the Company shall be fixed from time to time by the Board of Directors by the affirmative vote of not less than a majority of the Continuing Directors (as defined in Article Ten) but shall not be less than three (3), subject to such rights to elect additional Directors under such specified circumstances as may be granted to holders of Preferred Stock, (B) Required Vote to Elect Directors. With respect to the election of Directors, the act of the shareholders electing the Directors shall be a vote of the holders of a majority of the outstanding shares entitled to vote in the election of Directors. (C) Term. Directors shall hold office until their respective successors shall have been elected and qualified. (D) Removal. Directors may be removed from office, with or without cause, only by the affirmative vote of the holders of not less than a majority of the outstanding shares entitled to vote in the election of Directors, if notice of the intention to act upon such matter shall have been given in the notice calling for the meeting. (E) Vacancies; Increase in Number of Directors. Subject to such rights to elect Directors under specified circumstances as may be granted to holders of Preferred Stock, newly created directorships resulting from any increase in the number of Directors and any vacancies on the Board of Directors resulting from death, resignation, disqualification, removal or other reason shall be filled solely by the affirmative vote of a majority of the Continuing Directors, even though less than a quorum of the Board of Directors. No decrease in the number of Directors constituting the Board of Directors shall shorten the term of any incumbent Director. (F) Current Directors. The number of Directors constituting the Board of Directors is five (5), subject to being increased or decreased as set forth above. The names and addresses of the persons who are to serve as Directors and their classification are:
Name Address ---- ------- T. M Hamilton 2500 City West Blvd., Suite 1400, Houston, Texas 77042 F. S. Addy 2500 City West Blvd., Suite 1400, Houston, Texas 77042 B. A. Bridgewater, Jr. 2500 City West Blvd., Suite 1400, Houston, Texas 77042 F. M. Lowther 2500 City West Blvd., Suite 1400, Houston, Texas 77042 M. P. Mallardi 2500 City West Blvd., Suite 1400, Houston, Texas 77042
ARTICLE SEVEN To the fullest extent permitted by law, a Director shall not be liable to the Company or its shareholders for monetary damages for any act or omission in his capacity as a Director. Any repeal or modification of this Article shall be prospective only and shall not adversely affect any limitation of the personal liability of a Director existing at the time of the repeal or modification. The provisions of this Article shall not be deemed to limit or preclude indemnification of a Director by the Company for any liability of a Director that has not been eliminated by the provisions of this Article. ARTICLE EIGHT (A) Power to Alter, Amend or Repeal Bylaws. The power to alter, amend, suspend or repeal the Bylaws or to adopt new Bylaws shall be vested in, and shall require the affirmative vote of not less than a majority of the Continuing Directors (as defined in Article Ten); provided that any Bylaw or amendment thereto as adopted by the Board of Directors may be altered, amended, suspended or repealed by the affirmative vote of the holders of not less than 66 2/3% of the outstanding Voting Stock (as defined in Article Ten) or a new Bylaw in lieu thereof may be adopted by vote of such shareholders. No Bylaw that has been altered, amended or adopted by such a vote of the shareholders may be altered, amended or repealed by vote of the Directors until two years shall have expired since such action by such vote of shareholders. (B) Bylaw Stock Ownership Restrictions. The Board of Directors shall have the power and authority, from time to time, to adopt, alter or amend the Bylaws to add or amend such provisions as in their judgment may be necessary or appropriate to ensure that the Company and its shareholders satisfy the citizenship or other requirements imposed by any federal or state law relating to the ownership, possession or leasing of gas, oil or other minerals, land, vessels or any other property, licenses or rights of any nature whatsoever in which the Company or any of its subsidiaries may have or hereafter have, or seek to have, any right or interest. Without limiting such general powers, the Board of Directors shall have the power and authority, from time to time, to adopt, alter or amend the Bylaws to add or amend provisions that for such purpose impose restrictions on the transfer or registration of transfer of the shares of the Company, including without limitation restrictions that: (1) obligate the holders of the restricted shares to offer to the Company or to any other holders of shares of the Company or to any other person or to any combination of the foregoing, a prior opportunity, to be exercised within a reasonable time, to acquire the restricted shares; (2) provide that the Company or the holders of any class of shares of the Company must consent to any proposed transfer of the restricted shares or approve the proposed transferee of the restricted shares before the transfer may be effected; (3) prohibit the transfer of the restricted shares to designated persons or classes of persons; or (4) maintain any tax or other status or advantage to the Company. ARTICLE NINE (A) No Shareholder Written Consent Action. Any action required or permitted to be taken by the shareholders of the Company must be effected at a duly called annual or special meeting of such holders and may not be effected by any consent in writing by such holders. (B) Special Meetings of Shareholders. Subject to such rights to call special meetings of shareholders under specified circumstances as may be granted to holders of Preferred Stock, special meetings of shareholders may be called only by the Chairman of the Board or the President of the Company, at the request in writing or by vote of not less than a majority of the Continuing Directors (as defined in Article Ten) or at the request of the holders of not less than 50% of the outstanding shares entitled to vote at the meeting, and not by any other persons. Any request for a special meeting made by the Board of Directors shall state the purpose or purposes of the proposed meeting, and business transacted at the meeting shall be confined to the objects stated in the notice of the meeting. ARTICLE TEN In addition to any other vote of shareholders required by the TBCA, the Articles of Incorporation or otherwise, the affirmative vote of the holders of not less than 80% of the outstanding shares of "Voting Stock" (as hereinafter defined) of the Company, including the affirmative vote of the holders of not less than 50% of the outstanding shares of Voting Stock not "Beneficially Owned"(as hereinafter defined), directly or indirectly, by any "Related Person" (as hereinafter defined), shall be required for the approval or authorization of any "Business Combination" (as hereinafter defined) in which any Related Person has an interest (except proportionately as a shareholder of the Company); provided, that the 50% voting requirement referred to above shall not be applicable if the Business Combination is approved by the affirmative vote of the holders of not less than 90% of the outstanding shares of Voting Stock; provided further that the 80% requirement referred to above shall not be applicable if: (1) The Board of Directors by a vote of not less than a majority of the "Continuing Directors" (as hereinafter defined) then holding office (a) expressly approved in advance the acquisition of outstanding shares of Voting Stock that resulted in the Related Person becoming a Related Person or (b) approved the Business Combination prior to the Related Person involved in the Business Combination having become a Related Person; (2) The Business Combination is solely between the Company and another corporation, 100% of the Voting Stock of which is owned, directly or indirectly, by the Company; or (3) All of the following conditions have been met: (a) the Business Combination is a merger or consolidation, the consummation of which is proposed to take place within one (1) year after the date of the transaction that resulted in the Related Person becoming a Related Person and the cash or fair market value of the property, securities or other consideration to be received per share by holders of Common Stock in the Business Combination is not less than the highest per share price (with appropriate adjustments for recapitalizations and for stock splits, reverse stock splits and share dividends, and including any brokerage commissions, transfer taxes and soliciting dealer fees) paid by the Related Person in acquiring any of its holdings of Common Stock; (b) the consideration to be received by such holders is either cash or, if the Related Person shall have acquired the majority of its holdings of Common Stock with a form of consideration other than cash, the same form of consideration with which the Related Person acquired such majority; (c) after such Related Person has become a Related Person and prior to consummation of such Business Combination: (i) except as approved by a majority of the "Continuing Directors" (as hereinafter defined), there shall have been no failure to declare and pay at the regular date therefor any full quarterly dividends (whether or not cumulative) on any outstanding shares of Preferred Stock, (ii) there shall have been no reduction in the annual rate of dividends paid per share on the Company's Common Stock (adjusted as appropriate for recapitalizations and for stock splits, reverse stock splits and share dividends) except as approved by a majority of the Continuing Directors, (iii) such Related Person shall not have become the Beneficial Owner of any additional shares of Voting Stock of the Company except as part of the transaction that resulted in such Related Person becoming a Related Person, and (iv) such Related Person shall not have received the benefit, directly or indirectly (except proportionately as a shareholder), of any loans, advances, guarantees, pledges or other financial assistance or any tax credits or other tax advantages provided by the Company, whether in anticipation of or in connection with such Business Combination or otherwise; and (d) a proxy statement, that complies with the requirements of the "Exchange Act" (as hereinafter defined) and the rules and regulations thereunder (or any subsequent provisions replacing the Exchange Act, rules or regulations), shall be mailed to all shareholders of record not less than forty (40) days prior to the consummation of the Business Combination for the purpose of soliciting shareholder approval of the Business Combination and shall contain at the front thereof, in a prominent place, any recommendations as to the advisability (or inadvisability) of the Business Combination that the Continuing Directors, or any of them, may choose to state and, if deemed advisable by a majority of the Continuing Directors, an opinion of a reputable investment banking firm as to the fairness (or unfairness) of the terms of such Business Combination from the point of view of the remaining shareholders of the Company (such investment banking firm to be selected by a majority of the Continuing Directors and to be paid a reasonable fee for its services by the Company upon receipt of such opinion). For the purposes of this Article: "Affiliate," when used to indicate a relationship to a specified person, shall mean a person that directly, or indirectly through one or more intermediaries, controls, or is controlled by, or is under common control with, the specified person. "Associate," when used to indicate a relationship with a specified person, shall mean (a) any corporation, partnership or other organization of which the specified person is an officer or partner or is, directly or indirectly, the Beneficial Owner of five percent or more of any class of equity securities, (b) any trust or other estate in which the specified person has a substantial beneficial interest or as to which the specified person serves as trustee or in a similar fiduciary capacity, (c) any relative or spouse of the specified person, or any relative of that spouse, who has the same home as the specified person or who is a director or officer of the Company or any of its parents or Subsidiaries, and (d) any person who is a director or officer of the specified person or any of its parents or subsidiaries (other than the Company or any Subsidiary of the Company). "Beneficial Owner" and "Beneficially Own," when used with reference to any Voting Stock, shall mean (a) that the person or any of its Affiliates or Associates beneficially owns, directly or indirectly, within the meaning of Rule 13d-3 under the Exchange Act as in effect on September 10, 1996; (b) that the person or any of its Affiliates or Associates has (i) the right to acquire (whether that right is exercisable immediately or only after the passage of time and whether that right is contingent or absolute) pursuant to any agreement, arrangement or understanding or upon the exercise of conversion rights, exchange rights, warrants or options, or otherwise, or (ii) the right to vote pursuant to any agreement, arrangement or understanding (but neither that person nor any such Affiliate or Associate shall be deemed to be the Beneficial Owner of any shares of Voting Stock solely by reason of a revocable proxy granted with respect to shares for a particular meeting of shareholders pursuant to a public solicitation of proxies for that meeting, if neither that person nor any such Affiliate or Associate is otherwise deemed the Beneficial Owner of those shares); or (c) that are beneficially owned, directly or indirectly, within the meaning of Rule 13d-3 under the Exchange Act as in effect on September 10, 1996 by any other person with which the person or any of its Affiliates or Associates has any agreement, arrangement or understanding for the purpose of acquiring, holding, voting (other than solely by reasons of a revocable proxy given in response to public proxy or consent solicitation made pursuant to the applicable rules under the Exchange Act) or disposing of any shares of Voting Stock; provided, however, that in the case of any employee stock ownership or similar plan of the Company or of any Subsidiary in which the beneficiaries thereof possess the right to vote any shares of Voting Stock held by that plan, no such plan and no trustee with respect thereto (or any Affiliate of that trustee), solely by reason of that capacity as trustee, shall be deemed for the purposes hereof to Beneficially Own any shares of Voting Stock held under any such plan. "Business Combination" shall mean (a) any merger, consolidation or share exchange involving the Company or a Subsidiary, (b) any sale, lease, exchange, mortgage, pledge, transfer or other disposition of all or any "Substantial Part" (as hereinafter defined) of the assets either of the Company (including without limitation any voting securities of a Subsidiary) or of a Subsidiary, (c) any sale, lease, exchange, transfer or other disposition of assets having a fair market value of $5,000,000 or more to the Company or a Subsidiary, (d) the issuance or transfer by the Company or a Subsidiary (other than by way of a pro rata distribution to all shareholders) of any securities of the Company or a Subsidiary, (e) any reclassification of securities (including any reverse stock split) or recapitalization by the Company, the effect of which would be to increase the voting power (whether or not currently exercisable) of a Related Person, (f) any plan or proposal for the liquidation or dissolution of the Company, (g) any series or combination of transactions having, directly or indirectly, the same effect as any of the foregoing, and (h) any agreement, contract or other arrangement providing, directly or indirectly, for any of the foregoing. "Continuing Director" shall mean any member of the Board of Directors who is not an Affiliate or Associate of a Related Person and who was a member of the Board of Directors immediately prior to the time that the Related Person became a Related Person, and any successor to a Continuing Director who is not an Affiliate or Associate of the Related Person and is recommended to succeed a Continuing Director by a majority of Continuing Directors then serving as members of the Board of Directors. Provisions hereof requiring approval by Continuing Directors shall not be deemed satisfied unless there is at least one Continuing Director. "Exchange Act" shall mean the Securities Exchange Act of 1934, as amended from time to time. "other consideration to be received," for purposes of subparagraph (3) of this Article, shall include without limitation Common Stock retained by the Company's existing public shareholders in the event of a Business Combination in which the Company is the surviving corporation. "person" shall mean any individual, sole proprietorship, partnership, joint venture, trust, unincorporated organization, association, limited liability company, corporation, company, institution, entity, party or governmental authority. "Related Person" shall mean and include any person or "group" of persons (as such term is used in Regulation 13D-G under the Exchange Act), and each Affiliate and Associate of any such person, that individually or collectively is the Beneficial Owner in the aggregate of not less than 10% of the outstanding Voting Stock, other than the Company or any employee benefit plan(s) sponsored by the Company. "Subsidiary" shall mean, with respect to any person, a person in which the person directly or indirectly owns at least a majority of the outstanding voting securities or other equity interests having the power, under ordinary circumstances, to elect a majority of the directors, or otherwise to direct the management and policies, of such person, and any person that is affiliated with such person. "Substantial Part" shall mean more than 5% of the book value of the total assets of the person in question as of the end of the most recently completed fiscal year or, in the case of Voting Stock of a Subsidiary, 10% or more of the outstanding shares of such Subsidiary's Voting Stock. "Voting Stock" shall mean all outstanding shares of capital stock of the Company or other person entitled to vote generally in the election of Directors, considered for the purposes of this Article as a single class. If the Company has Voting Stock entitled to more or less than one vote for any such share, each reference in this Article to a proportion or percentage of shares of Voting Stock shall be calculated by reference to the portion or percentage of votes entitled to be cast by the holders of such shares. For the purpose of this Article, a majority of the Continuing Directors shall have the power to determine, on the basis of information known to them, of: (a) the number of shares of Voting Stock of which any person is the Beneficial Owner, (b) whether a person is a Related Person, (c) whether a person is an Affiliate or Associate of another person, (d) whether a person has an agreement, arrangement or understanding with another as to the matters referred to in the definition of Beneficial Owner herein, (e) whether the assets subject to any Business Combination constitute a Substantial Part, (f) whether any Business Combination is one in which a Related Person has an interest (except proportionately as a shareholder of the Company), (g) the fair market value of property other than cash or stock, (h) the highest per share price in accordance with this Article, (i) whether the applicable conditions set forth in this Article have been met with respect to any Business Combination, and (j) such other matters with respect to which a determination is required under this Article. A majority of the Continuing Directors then in office shall have the right to demand that any person who those Directors reasonably believe is a Related Person (or holds of record shares of Voting Stock Beneficially Owned by any Related Person) supply the Company with complete information about (a) the record owner(s) of all shares Beneficially Owned by the persons who those Directors reasonably believe is a Related Person, (b) the number of, and class or series of, shares Beneficially Owned by any such person who those Directors reasonably believe is a Related Person and held of record by each such record owner and the number(s) of the stock certificates(s) evidencing such shares and (c) any other factual matter relating to the applicability or effect of this Article as may reasonably be requested of such person, and that person shall furnish that information within ten days after receipt of the demand. ARTICLE ELEVEN The provisions set forth in Articles Six, Eight and Nine hereof may not be amended, altered, changed, repealed or rescinded in any respect unless such action is approved by the affirmative vote of the holders of not less than 75% of all shares of "Voting Stock" (as defined in Article Ten), considered for purposes of this Article as one class; the amendment, alteration, change, repeal or recision of this Article and Article Ten hereof shall require both such 75% vote and the affirmative vote of the holders of not less than 50% of such Voting Stock, excluding the vote of any shares owned by a "Related Person" (as defined in Article Ten), if any (such 50% voting requirement shall not be applicable if such amendment, alteration, change, repeal or recision is approved by the affirmative vote of the holders of not less than 90% of such Voting Stock). The voting requirement contained in this Article and in Articles Six, Eight, Nine and Ten hereof shall be in addition to voting requirements imposed by law, other provisions of these Articles of Incorporation or any designation of preferences in favor of certain classes or series of classes of shares of capital stock of the Company. EXECUTED as of the 24/th/ day of February, 1998. EEX CORPORATION By: (s) J. K. Hartrick ----------------------------------- J. K. Hartrick Senior Vice President, General Counsel and Secretary EX-3.2 4 dex32.txt BYLAWS Exhibit 3.2 Bylaws of Eex Corporation a Texas corporation PURPOSE AND SCOPE OF BYLAWS These Bylaws shall constitute the private laws of EEX CORPORATION, a corporation duly incorporated under the laws of the State of Texas (herein called the "Company"), for the administration and regulation of the affairs of the Company. 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 the Company, 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 Company shall be at such place in the State of Texas, and the registered agent of the Company at the registered office shall be such person or corporation as the Board of Directors may from time to time designate. Section 2. The Company 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 Company may require. ARTICLE II Meetings of Shareholders Section 1. All meetings of the shareholders shall be held at the registered office of the Company 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 at such hour and on such date in May of each year as the Board of Directors may from time to time designate for the purpose of the election 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 only be called by the Chairman of the Board or the President, at the request in writing or by vote of not less than a majority of the Continuing Directors (as defined in Article Ten of the Restated Articles of Incorporation of the Company) of the Board of Directors, or the holders of not less than 50% of all the outstanding shares entitled to vote at the meetings, and not by any other persons. 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, 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 Company, with postage thereon prepaid. Section 5. The officer or agent having charge of the stock transfer books for shares of the Company 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 Company 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 holders, 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 Bylaws of EEX Corporation As amended February 20, 2002 Page 2 of 17 authorized attorney-in-fact. No proxy shall be valid after eleven (11) months from the date of its execution unless otherwise provided in the proxy. All proxies shall be revocable unless expressly provided therein to be irrevocable and are coupled with an interest and shall be filed with the Corporate Secretary of the Company 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 or the Articles of Incorporation, 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 majority of all outstanding shares entitled to vote in the election of Directors, unless in each case the question is one upon which, by express provision of the statutes or of the Articles of Incorporation or of these Bylaws, a different vote is required, in which case such express provision shall govern and control the decision of such question. The shareholders present at a duly organized meeting may continue to transact business until adjournment, notwithstanding the withdrawal of enough shareholders to leave less than a quorum. Section 10. The Chairman shall preside at all meetings of the shareholders. In his absence, the President or an officer of the Company designated by the Board of Directors shall preside and perform the duties of the Chairman at such meeting. He shall appoint two inspectors of voting to serve at each such meeting. Before acting at any meeting, the inspectors shall be sworn faithfully to execute their duties with strict impartiality and according to the best of their ability. The inspectors shall determine the number of shares outstanding, the voting power of each, the shares represented at the meeting, the existence of a quorum, the qualification of the voters, the authenticity, validity and effect of proxies, receive votes and ballots, hear and determine all challenges and questions in any way arising in connection with the vote, count and tabulate all votes and determine and announce the result of the voting. Section 11. At an annual meeting of the shareholders, only such business shall be conducted as shall have been properly brought before the meeting. To be properly brought before an annual meeting, business must be specified in the notice of meeting (or any supplement thereto) given by or at the direction of the Board, otherwise properly brought before the meeting by or at the direction of the Board, or otherwise properly brought before the meeting by a shareholder. In addition to any other applicable requirements, for business to be properly brought before an annual meeting by a shareholder, the shareholder must have given timely notice thereof in writing to the Corporate Secretary. To be timely, a shareholder's notice must be delivered to or mailed and received at the principal executive offices of the Company, not less than fifty (50) days nor more than seventy-five (75) days prior to the meeting; provided, however, that in the event that less than sixty-five (65) days' notice or prior public disclosure of the date of the meeting is given or made to shareholders, notice by the shareholder to be timely must be so received not later than the close of business on the 15th day following the day on which such notice of the date of the annual meeting was mailed or Bylaws of EEX Corporation As amended February 20, 2002 Page 3 of 17 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 Company which are beneficially owned by the shareholder, and (iv) any material interest of the shareholder in such business. Notwithstanding anything in these 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 Directors of the Company 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 Company 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 Company 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 Company 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 Regulation 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 Company which are beneficially owned by the shareholder. The Company may require any proposed nominee to furnish such other information as may reasonably be required by the Company to determine the eligibility of such proposed nominee to serve as Director of the Company. No person shall be eligible for election as a Director of the Company unless nominated in accordance with the procedures set forth herein. Bylaws of EEX Corporation As amended February 20, 2002 Page 4 of 17 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 powers of the Company shall be exercised under the authority of, and the business and affairs of the Company shall be managed under the direction of, its Board of Directors who may 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 number of Directors constituting the board of Directors of the Company shall be fixed from time to time by the Board of Directors by the affirmative vote of not less than a majority of the Continuing Directors (as defined in Article Ten of the Restated Articles of Incorporation of the Company), but shall not be less than three (3), subject to such rights to elect additional Directors under such specified circumstances as may be granted to holders of Preferred Stock. Directors need not be shareholders or residents of the State of Texas. A person shall be ineligible to be a Director of the Company after the date of the annual meeting of shareholders of the Company that occurs after such person's seventy-second birthday. Unless he shall resign or become ineligible, each Director shall hold office until his successors shall be elected and shall qualify. The Directors shall be classified with respect to the time for which they shall severally hold office by dividing them into three classes, which classes shall consist of an equal, or as near to equal as possible, number of Directors. At the 1998 annual meeting of shareholders, the Director or Directors of the first class shall be elected for a term expiring at the next annual meeting of shareholders to be held in 1999; the Director or Directors of the second class shall be elected for a term expiring at the next annual meeting of shareholders to be held in 2000; and the Director or Directors of the third class shall be elected for a term expiring at the next annual meeting of shareholders to be held in 2001. At each annual meeting, commencing with the annual meeting in 1998, the successor or successors to the class of directors whose term shall expire in that year shall be elected to hold office for the term of three years, so that the term of one class of Directors shall expire in each year. Any increase or decrease in the number of Directors constituting the Board of Directors shall be apportioned among the classes so as to maintain the number of directors in each class as near as possible to one-third the whole number of Directors as so adjusted. 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. Bylaws of EEX Corporation As amended February 20, 2002 Page 5 of 17 Section 4. Any Director may be removed only for cause at any special meeting of the shareholders by the affirmative vote of the holders of record of not less than 66-2/3% of the shares then entitled to vote at an election of Directors, if notice of the intention is act upon such matter shall have been given in the notice calling for such meeting. Any vacancy occurring in the Board of Directors shall 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; provided that the Board of Directors may not fill more than two such directorships between annual meetings of shareholders. A Director elected to fill a vacancy shall hold office for the remaining term of the class to which such directorship is assigned. Any directorship to be filled by reason of an increase in the number of Directors as provided in Section 2 hereof shall be filled solely by the affirmative vote of not less than a majority of the continuing Directors for a term of office continuing until the next annual meeting 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 Company in the manner permitted by Article 4.12 of the Act; (3) approving a plan of merger or share exchange of the Company; (4) recommending to the shareholders the sale, lease, or exchange of all or substantially all of the property and assets of the Company otherwise than in the usual and regular course of its business; (5) recommending to the shareholders a voluntary dissolution of the Company or a revocation thereof, (6) amending, altering, or repealing the Bylaws of the Company or adopting new Bylaws of the Company; (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 Company or members or alternate members of any such committee; (11) fixing the compensation of any member o 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 Company. Bylaws of EEX Corporation As amended February 20, 2002 Page 6 of 17 MEETINGS OF THE BOARD OF DIRECTORS Section 6. The Directors of the Company may hold their meetings, both regular and special, either within or without the State of Texas. Section 7. The first meeting of each newly elected Board of Directors shall be held without further notice immediately following the annual meeting of shareholders, and at the same place, unless by unanimous consent of the Directors then elected and serving such time or place shall be changed. Section 8. Regular meetings of the Board of Directors may be held with or without notice at such time and place as shall from time to time be determined by the Board of Directors. Section 9. Special meetings of the Board of Directors may be called on twenty-four (24) hours' notice to each Director, or such shorter period of time as the person calling the meeting deems appropriate in the circumstances, either personally, or by mail, or by telegram; special meetings shall be called by the Chairman or, in the event of the inability of the Chairman to act, the President or the Corporate Secretary in like manner and on like notice on the written request of two Directors. Neither the business to be transacted at, nor the purpose of, any special meeting need be specified in a notice or waiver of notice. Section 10. At all meetings of the Board of Directors, the presence of a majority of the number of Directors constituting the Board of 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 the Directors, the Directors present thereat may adjourn the meeting from time to time, without notice other than announcement at the meeting, until a quorum is present. Section 11. 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 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 Company. Any notice required or permitted to be Bylaws of EEX Corporation As amended February 20, 2002 Page 7 of 17 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 Company under the provisions of the statutes or of the Articles of Incorporation, or of these Bylaws, a waiver thereof in writing signed by the person or persons entitled to such notice, whether before or after the time stated in such notice, shall be equivalent to the giving of such notice. Attendance of a Director at a meeting shall constitute a waiver of notice of such meeting, except when a Director attends a meeting for the express purpose, in writing filed at the meeting, of objecting to the transaction of any business on the grounds that the meeting is not lawfully called or held. ARTICLE V Officers Section 1. The officers of the Company shall be a Chairman, a President, one or more Executive Vice Presidents, Senior Vice Presidents or Vice Presidents, a General Counsel, a Controller, a Corporate Secretary and a Treasurer, all of whom shall be elected by the Board of Directors. Any two or more offices may be held by the same person. Each such officer shall have such authority and perform such duties in the management of the Company as may be determined by resolution of the Board of Directors. Section 2. The Board of Directors may elect or appoint such other officers and agents as it shall deem necessary, who shall hold their offices for such term and who shall have such authority and perform such duties as may be prescribed by the Board of Directors or the Chairman. The power to appoint such other officers and agents may be delegated by the Board of Directors to the Chairman to the extent the Board may delineate by resolution. Section 3. Each officer of the Company 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 Company will be served thereby, but such removal shall be without prejudice to the contract rights, if any, of the person so removed. Election or appointment of an officer or agent shall not of itself create contract rights. Section 4. The Chairman shall be the chief executive officer of the Company. 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 Company and its affairs. Section 5. The President shall be the chief operating officer of the Company. He shall, Bylaws of EEX Corporation As amended February 20, 2002 Page 8 of 17 subject to the direction of the Chairman, have responsibility for such operations and functions assigned to him; and in the absence of the Chairman, shall preside at all meetings of the shareholders and at all meetings of the Board of Directors. Section 6. Each Executive Vice President shall have such powers and responsibilities, and shall perform such duties, as delineated by the Board or by the Chairman. They shall be directly responsible to such officer as the Chairman may from time to time prescribe. Section 7. 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. He shall be responsible to the Chairman in said performance. Section 8. Other Senior Vice Presidents shall have such powers and responsibilities, and shall perform such duties, as delineated by the Board or by the Chairman. They shall be directly responsible to such officer as the Chairman may from time to time prescribe. Section 9. The General Counsel shall have general control over all matters of a legal nature concerning the Company and shall perform such duties as delineated by the Board or by the Chairman. He shall be directly responsible to the Chairman in said performance. Section 10. Each Vice President shall have such powers and responsibilities, and shall perform such duties, as may be delineated by the Board or the Chairman. They shall be directly responsible to such officer as the Chairman may from time to time prescribe. Section 11. The Controller shall be in general control of the accounts of the Company, 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 perform such other duties as the Board or Chairman may from time to time prescribe. Section 12. 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 Company and shall in general perform all the duties incident to the office of Secretary of a Company. He shall act as Transfer Agent of the Company 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 may from time to time prescribe. Section 13. The Treasurer shall have custody of all the funds and securities of the Company and shall keep full and accurate accounts of receipts and disbursements. He may endorse checks, notes and other obligations on behalf of the Company for collection and shall deposit the same, together with all monies and other valuable effects, to the credit of the Company in banks or Bylaws of EEX Corporation As amended February 20, 2002 Page 9 of 17 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 may from time to time designate and shall perform all duties incident to the office of Treasurer of a Company or as the Board or Chairman shall designate. Section 14. The Board of Directors may appoint one or more Assistant Corporate Secretaries, Assistant Treasurers and Assistant Controllers and such other appointive officers as may be appropriate and required. They shall be directly responsible to such officer and shall perform such duties as the Board or Chairman may from time to time designate. ARTICLE VI Certificates Representing Shares Section 1. The shares of stock of the Company shall be deemed personal estate, and shall be transferable only on the books of the Company in such manner as these Bylaws prescribe. Section 2. Every shareholder in the Company 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 Company shall be numbered and shall be entered in the books of the Company as they are issued. They shall exhibit the holder's name and number of shares, and shall be signed by the Chairman, the President or a Vice President, and the Treasurer or an Assistant Treasurer and bear the corporate seal; but the signatures of such officers and the seal of the Company 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 Company. Section 4. The Board of Directors may direct a new certificate representing shares to be issued in place of any certificate theretofore issued by the Company 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 Company 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 Company 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. Transfers of shares of stock shall be made on the books of the Company only by the person named in the certificate or by attorney, lawfully constituted in writing, and upon surrender Bylaws of EEX Corporation As amended February 20, 2002 Page 10 of 17 of the certificate therefor. Section 6. The Board of Directors may close the stock transfer books of the Company for a period not to exceed sixty (60) days for the purpose of determining shareholders entitled to notice of or to vote at any meeting of shareholders or any adjournment thereof, or entitled to receive payment of any distribution and share dividend, or in order to make a determination of shareholders for any purpose, provided that if such books shall be closed for the purpose of determining shareholders entitled to notice of or to vote at a shareholders' meeting, such books shall be closed for at least ten (10) days immediately preceding such meeting. In lieu of so closing the stock transfer books, the Board of Directors may fix a date in advance, not exceeding sixty (60) days preceding the date of any meeting of shareholders, or the date for the payment of any distribution and share dividend or the date for the allotment of rights, or the date when any change or conversion or exchange of capital stock shall go into effect, as a record date for the respective determination of the shareholders entitled to notice of, and to vote at, any such meeting, or entitled to receive payment of any such distribution and share dividend, or to any such allotment of rights, or to exercise rights in respect of any such change, conversion or exchange of capital stock and in such case such shareholders and only such shareholders as shall be shareholders of record on the date so fixed shall be entitled to such notice of, and to vote at, such meeting, or to receive payment of such distribution and share dividend, or to receive such allotment of rights, or to exercise such rights, as the case may be, notwithstanding any transfer of any shares of stock on the books of the Company 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 Company shall be entitled to treat the holder of record of any share or 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 other evidence of indebtedness of the Company shall be signed by the Chairman, the President or any Vice President and the Treasurer or an Assistant Treasurer and shall bear the corporate seal and when so executed shall be binding upon the Company, but not otherwise. The seal of the Company 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 Company 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 Company's officers authorized to execute such security may be facsimile. Section 9. 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 Company shall cease to be an officer of the Company for any reason before the same has been issued or delivered by the Company, 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 Bylaws of EEX Corporation As amended February 20, 2002 Page 11 of 17 had been placed thereon had not ceased to be such officer. ARTICLE VII Deeds and Other Instruments of Conveyance Section 1. Deeds and other instruments of the Company conveying land or any interest in land shall be signed by the Chairman, the President or a Vice President or attorney-in-fact of the Company 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 Company, but not otherwise. ARTICLE VIII Checks, Drafts and Bills of Exchange Section 1. The Chairman or the President of the Company may from time to time establish General Bank Accounts, Depository Bank Accounts, and such Special Bank Accounts as in the judgment of either of them may be needed in carrying on and dispatching the business of the Company. All checks, drafts and bills of exchange issued in the name of the Company and calling for the payment of money out of said General Accounts, Depository Accounts, or Special Accounts of the Company shall be signed by the Controller or Assistant Controller, or such agents and employees as the Chairman or the President may from time to time designate and authorize to sign for the Controller, and countersigned by the Treasurer or any Assistant Treasurer, or such agents and employees as the Chairman or the President may from time to time designate and authorize to sign for the Treasurer; and when so designated by the Chairman or the President, the signature of the Treasurer or an Assistant Treasurer may be affixed by the use of a check-signing machine; provided that for the purpose of transferring funds from any bank or depository at which the Company has funds on deposit to any other bank or depository of the Company for credit to the Company'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 Company, is hereby authorized, and such checks shall require no signature other than the name of the Company printed at the lower right corner; and further provided that checks, drafts and bills of exchange issued in the name of the Company in the amount of $25,000.00 or less need bear only one signature and that being the signature of the Treasurer or an Assistant Treasurer, affixed either manually or by the use of a check-signing machine, or the manual signature of such agents and employees as the Chairman or the President may from time to time designate and authorize to sign for the Treasurer; and provided further that checks and drafts issued in the name of the Company 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 Bylaws of EEX Corporation As amended February 20, 2002 Page 12 of 17 or the President may from time to time designate and authorize to sign for the Treasurer; and provided further that checks and drafts issued in the name of the Company and calling for payment of money out of Special Bank Accounts established for the payment of dividends need bear only one signature and that being the signature of the Treasurer or an Assistant Treasurer, affixed either manually or by the use of a check-signing machine, or the manual signature of such agents and employees as the Chairman or the President may from time to time designate and authorize to sign for the Treasurer; and further provided that no person authorized to sign checks or drafts may sign a check or draft payable to himself. When in such applicable manner, but not otherwise, every check, draft or bill of exchange issued in the name of the Company and calling for the payment of money out of the General Bank Accounts, Depository Bank Accounts, and Special Bank Accounts of the Company 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 Company, from accounts of the Company to accounts of subsidiaries and affiliates, from accounts of the Company for the purpose of investment of corporate funds, and from accounts of the Company for the payment of dividends, the Treasurer or an Assistant Treasurer, or such agents and employees as the Chairman or the President may from time to time designate and authorize, may make such transfer of funds by bank wire transfers through oral or written instructions; and for the purpose of transferring funds from accounts of the Company to accounts of other third parties, the Company may make such transfers by electronic funds transfer, irrespective of amount, when authorized by oral, computer-generated or written instructions which are given by any two of the Treasurer, an Assistant Treasurer, the Controller, an Assistant Controller, or such other agents or employees as the Chairman and President may from time to time authorize to act for the Treasurer or Controller. Section 2. The Treasurer of the Company 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 Company, 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 Company according to their wording, tenor and effect when signed by either the Treasurer of the Company or by such agent or employee of the Company 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 Company as may be designated by the Chairman or the President of the Company; and further provided that checks and drafts issued in the name of the Company 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. Bylaws of EEX Corporation As amended February 20, 2002 Page 13 of 17 ARTICLE X Distributions and Share Dividends Section 1. Distributions and share dividends upon the outstanding shares of the Company, 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 Company subject to the provisions of the Articles of Incorporation. ARTICLE XI Reserves Section 1. There may be created by resolution of the Board of Directors out of the earned surplus of the Company 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 Company, or for such other purpose as the Directors shall think beneficial to the Company, and the Directors may modify or abolish any such reserve in the manner in which it was created. ARTICLE XII Seal Section 1. The Company's seal shall have inscribed thereon the name of the Company 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 Company shall indemnify, and advance or reimburse reasonable expenses incurred by, any person who (1) is or was a director or officer of the Company or (2) while a director or officer of the Company, its divisions or subsidiaries, is or was serving at the request of the Company, 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 Company may or is required to grant indemnification to, or advance or reimburse reasonable expenses incurred by, a director under the Act. The Company, pursuant to a resolution adopted by the Board of Directors, may indemnify any such persons to such Bylaws of EEX Corporation As amended February 20, 2002 Page 14 of 17 further extent as permitted by law. Section 2. The Company, pursuant to a resolution adopted by the Board of Directors, may indemnify, and advance or reimburse reasonable expenses incurred by, any other person to the fullest extent permitted under the Act. Section 3. Action by the Board of Directors to amend, modify or terminate ARTICLE XIII, Section 1 or Section 2, 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 Section 1 or Section 2, as the case may be, of this ARTICLE XIII 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, and shall require the approval of, the majority of Continuing Directors then in office; provided, however, that any Bylaw or Amendment thereto as adopted by the Board of Directors may be altered, amended, suspended or repealed by the vote of the holders of 662/3% of the shares entitled to vote for the election of Directors or a new Bylaw in lieu thereof may be adopted by vote of such shareholders. No Bylaw which has been altered, amended or adopted by such a vote of the shareholders may be altered, amended, suspended or repealed by vote of the Directors until two years after such action by vote of the shareholders. ARTICLE XV Restrictions on Foreign Ownership Section 1. The purpose of this Article XV is to limit ownership and control of shares of any class of capital stock of the Company by persons who are not Eligible Citizens in order to permit the Company 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 Company, 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 Company 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. Any transfer, or attempted or purported transfer, of any shares of any class of Bylaws of EEX Corporation As amended February 20, 2002 Page 15 of 17 capital stock issued by the Company 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 Company or of any interest or right therein will, until such condition no longer exists, be void and will be ineffective as against the Company and the Company will not recognize the purported transferee as a shareholder of the Company 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. No shares of the outstanding capital stock of the Company 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 Company so long as such condition exists. Section 4. If at any time (i) the Company 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 Company has an interest or (ii) if, in the opinion of the Board of Directors, the Company'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 Company (or, in the case of a shareholder which is a Company, partnership or association, of any shareholder, owner, partner or member of such shareholder), the Company may redeem the shares held by such shareholder at the then Current Market Price and upon such terms as shall be determined by the Board of Directors, in their sole discretion. Section 5. "Current Market Price" per share of capital stock of the Company 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 Company, partnership or other entity) whose ownership, holding or control of shares in the Company would not, by reason of such person's citizenship or the citizenship of its members or owners or otherwise, (1) disqualify the Company 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, or (2) violate any other qualifications as the Board of Directors deems in its reasonable discretion are necessary or appropriate to permit the Company and its Subsidiaries to engage in any other business activities for which there may be qualifications or restrictions on shareholders of the Company 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 Company, 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 Bylaws of EEX Corporation As amended February 20, 2002 Page 16 of 17 interest in, and the voting power over, the Company is held by Eligible Citizens, that the Company'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 Company, the last reported sales price regular way or, in case no such reported sale takes place on such day, the average of the closing bid and asked prices regular way for such day, in each case on the principal national securities exchange on which the shares of such class of capital stock are listed or admitted to trading or, if not listed or admitted to trading, the last sale price regular way for such shares as published by NASDAQ, or if such last price is not so published by NASDAQ or if no such sale takes place on such day, the mean between the closing bid and asked prices for such shares as published by NASDAQ or in the absence of any of the foregoing, the fair market value as determined by the Board of Directors. "Subsidiary" means any Company more than 50% of the outstanding capital stock of which is owned by the Company or any Subsidiary of the Company. "U.S. Mineral Lessee" means any Company 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. Bylaws of EEX Corporation As amended February 20, 2002 Page 17 of 17 EX-10.1 5 dex101.txt TRUST INDENTURE AGREEMENT Conformed Copy Exhibit 10.1 ================================================================================ TRUST INDENTURE, MORTGAGE, ASSIGNMENT OF LEASE AND SECURITY AGREEMENT (1996-A) among WILMINGTON TRUST COMPANY, as Corporate Grantor Trustee THOMAS P. LASKARIS, as Individual Grantor Trustee The Bank of New York, as Corporate Indenture Trustee FREDERICK W. CLARK, as Individual Indenture Trustee Dated as of November 15, 1996 ================================================================================ TABLE OF CONTENTS
Page ARTICLE I DEFINITIONS................................................................................................. 5 SECTION 1.01. Definitions......................................................................................... 5 ARTICLE II THE SECURED NOTES........................................................................................... 6 SECTION 2.01. Secured Notes....................................................................................... 6 SECTION 2.02. Payments from Indenture Estate Only................................................................. 7 SECTION 2.03. Method of Payment................................................................................... 7 SECTION 2.04. Note Register....................................................................................... 9 SECTION 2.05. Registered Owners................................................................................... 9 SECTION 2.06. Transfer, Exchange and Replacement of Notes......................................................... 9 SECTION 2.07. New Notes; Payment of Expenses...................................................................... 11 SECTION 2.08. Additional Notes.................................................................................... 11 SECTION 2.09. Termination of Interest in Indenture Estate......................................................... 15 SECTION 2.10. Equally and Ratably Secured......................................................................... 15 SECTION 2.11. CUSIP or CINS Numbers............................................................................... 15 ARTICLE III REDEMPTION AND REFUNDING.................................................................................... 16 SECTION 3.01. Generally........................................................................................... 16 SECTION 3.02. Mandatory Redemption................................................................................ 16 SECTION 3.03. [Intentionally Omitted]............................................................................. 19 SECTION 3.04. Assumption of Obligations of the Grantor Trustee by the Lessee...................................... 19 SECTION 3.05. Refunding........................................................................................... 22 SECTION 3.06. Grantor Trustee's and Owner Participant's Option to Redeem or Purchase Secured Notes................ 22 SECTION 3.07. Deposited Redemption or Purchase Moneys............................................................. 24 SECTION 3.08. Acquisition of Secured Notes........................................................................ 25 SECTION 3.09. Condition to Redemption and Refunding............................................................... 25 SECTION 3.10. Notice of Certain Redemptions....................................................................... 25 ARTICLE IV RECEIPT, DISTRIBUTION AND APPLICATION OF INCOME FROM THE INDENTURE ESTATE................................... 27 SECTION 4.01. Basic Rent Distribution............................................................................. 27 SECTION 4.02. Certain Distributions............................................................................... 28 SECTION 4.03. Distributions After Indenture Event of Default...................................................... 29 SECTION 4.04. Application of Payments on Secured Notes............................................................ 31
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Page ---- SECTION 4.05. Application of Payments According to Applicable Operative Document Provisions....................... 31 SECTION 4.06. Amounts Received for Which No Provision Is Made..................................................... 33 SECTION 4.07. Payment Procedures.................................................................................. 33 ARTICLE V COVENANTS OF GRANTOR TRUSTEE; CERTAIN AGREEMENTS; INDENTURE EVENTS OF DEFAULT; REMEDIES OF INDENTURE TRUSTEE................................................................................................. 34 SECTION 5.01. Covenants of Grantor Trustee; Certain Agreements.................................................... 34 SECTION 5.02. Indenture Event of Default.......................................................................... 36 SECTION 5.03. Certain Rights...................................................................................... 38 SECTION 5.04. Remedies............................................................................................ 40 SECTION 5.05. Suit; Possession; Title; Sale of Indenture Estate................................................... 43 SECTION 5.06. Remedies Cumulative................................................................................. 47 SECTION 5.07. Discontinuance of Proceedings....................................................................... 47 SECTION 5.08. Waiver of Past Defaults............................................................................. 48 SECTION 5.09. No Action Contrary to Lessee's Rights Under the Lease............................................... 48 SECTION 5.10. Rights of Holders of Secured Notes.................................................................. 48 SECTION 5.11. Limitation on Suits by Holders...................................................................... 49 SECTION 5.12. Trustee May File Proofs of Claim.................................................................... 49 ARTICLE VI DUTIES OF THE INDENTURE TRUSTEE............................................................................. 50 SECTION 6.01. Certain Actions..................................................................................... 50 SECTION 6.02. Action Upon Instructions............................................................................ 50 SECTION 6.03. Release of Lien of Indenture........................................................................ 51 SECTION 6.04. Indemnification..................................................................................... 52 SECTION 6.05. No Implied Duties................................................................................... 53 SECTION 6.06. Duties to Remove Certain Liens...................................................................... 53 SECTION 6.07. No Action Except Under Operative Documents or Instructions.......................................... 53 SECTION 6.08. Certain Rights of the Grantor Trustee and the Owner Participant..................................... 54 SECTION 6.09. Filing of Financing and Continuation Statements..................................................... 55 SECTION 6.10. Furnishing of Notices............................................................................... 55 SECTION 6.11. Taxes; Withholdings; Information Reporting.......................................................... 56 ARTICLE VII THE INDENTURE TRUSTEE AND THE GRANTOR TRUSTEE............................................................... 56 SECTION 7.01. Acceptance of Trusts and Duties..................................................................... 56
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Page ---- SECTION 7.02. Absence of Duties Except as Specified............................................................... 57 SECTION 7.03. No Representations or Warranties.................................................................... 57 SECTION 7.04. No Segregation of Moneys; No Interest; Investments.................................................. 58 SECTION 7.05. Reliance; Agents; Advice of Counsel................................................................. 58 SECTION 7.06. No Compensation from Holders or Indenture Estate.................................................... 59 SECTION 7.07. Right of the Indenture Trustee to Perform Covenants, Etc............................................ 60 SECTION 7.08. Moneys for Payments in Respect of Notes to be Held in Trust......................................... 60 SECTION 7.09. Disposition of Moneys Held for Payments of Notes.................................................... 61 ARTICLE VIII SUCCESSOR TRUSTEES AND ADDITIONAL TRUSTEES................................................................ 61 SECTION 8.01. Notice of Successor Grantor Trustees................................................................ 61 SECTION 8.02. Resignation of Indenture Trustee; Appointment of Successor.......................................... 61 SECTION 8.03. Co-Trustees and Separate Trustees................................................................... 63 ARTICLE IX SUPPLEMENTS AND AMENDMENTS TO THIS INDENTURE AND OTHER DOCUMENTS............................................ 66 SECTION 9.01. Indenture Supplements Without Consent of Holders.................................................... 66 SECTION 9.02. Supplements and Amendments to Indenture with Consent of Holders of Notes............................ 68 SECTION 9.03. Execution of Indenture Supplement, Amendments, Etc.................................................. 73 SECTION 9.04. Effect of Indenture Supplement...................................................................... 74 SECTION 9.05. Reference in Secured Notes to Indenture Supplements................................................. 74 SECTION 9.06. Notices of Indenture Supplements and Amendments, Etc................................................ 74 SECTION 9.07. Lessee Rights....................................................................................... 74 ARTICLE X MISCELLANEOUS................................................................................................ 75 SECTION 10.01. Termination of Indenture........................................................................... 75 SECTION 10.02. No Legal Title to Indenture Estate in Holders...................................................... 75 SECTION 10.03. Power of Attorney.................................................................................. 75 SECTION 10.04. Regarding the Grantor Trustee...................................................................... 76 SECTION 10.05. Notices............................................................................................ 77 SECTION 10.06. Severability of Provisions......................................................................... 77 SECTION 10.07. No Oral Modification or Continuing Waivers......................................................... 77
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Page ---- SECTION 10.08. Successors and Assigns............................................................................. 78 SECTION 10.09. Headings; Table of Contents........................................................................ 78 SECTION 10.10. Normal Commercial Relations........................................................................ 78 SECTION 10.11. Governing Law...................................................................................... 78 SECTION 10.12. Execution.......................................................................................... 78 SECTION 10.13. Security Agreement................................................................................. 79 SECTION 10.14. Benefits of Indenture.............................................................................. 79 SECTION 10.15. Personal Property.................................................................................. 79 SECTION 10.16. Individual Indenture Trustee....................................................................... 79 SECTION 10.17. Special Louisiana Provisions....................................................................... 79 Appendix A.............Definitions Schedule 1.............Description of Undivided Interest in Production System Schedule 2.............Resolution Exhibit A..............Form of Secured Note Exhibit B..............Principal Amounts of Secured Notes, Interest Rate and Amortization Schedule Exhibit C..............Relevant Amendment Exhibit D..............Form of Indenture Supplement Exhibit E..............Form of Relevant Date Supplement Exhibit F..............N/A Exhibit G ............ Form of Naval Mortgage
iv TRUST INDENTURE, MORTGAGE, ASSIGNMENT OF LEASE AND SECURITY AGREEMENT (1996-A) BE IT KNOWN, that on the date hereinafter set forth, before me, the undersigned Notary Public, duly commissioned and qualified in and for the State of New York, and in the presence of the undersigned, competent witnesses, personally came and appeared: WILMINGTON TRUST COMPANY, a Delaware banking corporation, not in its individual capacity, except as expressly provided herein, but solely as Corporate Grantor Trustee under the Trust Agreement (together with its successors and permitted assigns, the "Corporate Grantor Trustee") represented herein by its undersigned, James P. Lawler, appearing herein by resolution of its Board of Directors, a certified copy of which is annexed hereto as Schedule 2, Thomas P. Laskaris, an individual, not in his individual capacity, except as expressly provided herein, but solely as Individual Grantor Trustee under the Trust Agreement (together with his successors and permitted assigns, the "Individual Grantor Trustee"; together with the Corporate Owner Trustee, the "Grantor Trustee"), The Bank of New York, a New York banking corporation, not in its individual capacity, except as expressly provided herein, but solely as Corporate Indenture Trustee (together with its successors and permitted assigns, the "Corporate Indenture Trustee"), and Frederick W. Clark, an individual, not in his individual capacity, except as expressly provided herein, but solely as Individual Indenture Trustee (together with his successors and permitted assigns, the "Individual Indenture Trustee"; together with the Corporate Indenture Trustee, the "Indenture Trustee") who each being duly sworn, did declare and say as follows: W I T N E S S E T H : WHEREAS, the Owner Participant, Laskaris and the Corporate Grantor Trustee have heretofore entered into the Trust Agreement, whereby, among other things, Laskaris and the Trust Company each in its or his capacity as Grantor Trustee thereunder has declared a certain trust for the use and benefit of the Owner Participant, subject, however, to the Lien of this Indenture, and the Grantor Trustee is authorized and directed to execute and deliver this Indenture; WHEREAS, the Grantor Trustee, desires by this Indenture, to provide among other things (i) for the issuance by the Grantor Trustee to the Pass Through Trustee the Secured Notes specified in Exhibit A hereto upon payment by such Pass Through Trustee of the principal amount of such Secured Notes, and (ii) for the assignment, mortgage and pledge by the Grantor Trustee to the Indenture Trustee, as part of the Indenture Estate hereunder, among other things, of all of the right, title and interest of the Grantor Trustee, other than Excepted Payments, in, to and under, as the case may be, the Undivided Interest, the Lease, the Head Lease, the Assignment and Assumption Agreement, the Agency and Support Agreement, the Ship Mortgage and all payments and other amounts received thereunder, other than Excepted Payments, in accordance with the terms thereof, as security for, among other things, the Grantor Trustee's obligations to the Indenture Trustee, the Loan Participants and the other Holders and for the benefit and security of the Loan Participants and such Holders; WHEREAS, all things have been done to make the Secured Notes, when executed by the Grantor Trustee and authenticated, issued and delivered hereunder, the legal, valid, binding and enforceable obligations of the Grantor Trustee in accordance with their terms; and WHEREAS, all things necessary to make this Indenture the legal, valid, binding and enforceable obligation of the Grantor Trustee, for the uses and purposes herein set forth, in accordance with its terms, have been done and performed and have happened, and the Indenture Trustee has duly accepted the trust created hereby and as evidence thereof has joined in the execution hereof; NOW, THEREFORE, THIS TRUST INDENTURE, MORTGAGE, ASSIGNMENT OF LEASE AND SECURITY AGREEMENT, WITNESSETH, that, to secure (i) the prompt payment when and as due and payable of the principal of, Make-Whole Amount, if any, and interest on, all the Secured Notes from time to time Outstanding hereunder and of all other amounts payable to the Holders (whether as Holders or Loan Participants) hereunder, under the Secured Notes and under the other Operative Documents (other than the Tax Indemnity Agreement and other than Section 12 of the Participation Agreement), (ii) the performance and observance by the Grantor Trustee of all the provisions, covenants and agreements for the benefit, directly or indirectly, of the Indenture Trustee or the Holders herein, in the Participation Agreement, in the Secured Notes and in the other Operative Documents (other than the Tax Indemnity Agreement), and (iii) the performance and observance by the Owner Participant of its covenants and agreements for the benefit, directly or indirectly, of the Indenture Trustee or the Holders in the Operative Documents (other than the Tax Indemnity Agreement) (the obligations described in the above clauses (i), (ii) and (iii) collectively, the "Indenture Indebtedness"), and for the uses and purposes and subject to the terms and provisions hereof, and in consideration of the premises and of the covenants herein contained and of the acceptance of the Secured Notes by the Holders thereof: GRANTING CLAUSE The Grantor Trustee, for valuable consideration, and in order to secure the payment and performance of the Indenture Indebtedness, hereby agrees to irrevocably mortgage, hypothecate and pledge unto the Indenture Trustee and to create a security interest in, to and for the benefit of the Corporate Indenture Trustee or, to the extent set forth in Section 8.03 below, the Individual Indenture Trustee, and upon delivery 2 of Indenture Supplement No. 1, shall have irrevocably mortgaged, hypothecated, and pledged unto the Indenture Trustee and created a security interest to and for the benefit of the Corporate Indenture Trustee or, to the extent set forth in Section 8.03 below, the Individual Indenture Trustee, all of the right, title and interest of the Grantor Trustee in and to the following property, rights and privileges, other than Excepted Payments, now owned or in the future acquired by the Grantor Trustee or in which the Grantor Trustee now has or may in the future acquire any estate, right, title or interest (which collectively, excluding Excepted Payments but including all property hereafter subjected to the Lien of this Indenture, shall constitute the "Indenture Estate"), to wit: (a) the Undivided Interest described in Schedule 1, including without limitation the Lessor's Share of any Component or Replacement Component or Modification to the Production System which, pursuant to the terms of the Lease, are the property of the Grantor Trustee; (b) the Assignment and Assumption Agreement, Head Lease, the Ship Mortgage, and all rights, powers and remedies of the Grantor Trustee pursuant thereto, whether arising thereunder or by statute, at law, in equity or otherwise; (c) the Lease including, without limitation, (i) all amounts of Rent, insurance proceeds and requisition, indemnity or other payments of any kind for or with respect to any asset leased or subleased thereunder, (ii) all right of the Grantor Trustee to exercise any election or option, or to give any notice, consent, waiver or approval under or in respect of the Lease, or to accept any surrender or enter into any modification thereof, as the case may be, and (iii) all rights, powers and remedies of the Grantor Trustee pursuant to the Lease, whether arising thereunder or by statute, at law, in equity or otherwise, including, without limitation, the right to possession of any asset demised thereunder; (d) the Agency and Support Agreement, including without limitation (i) all amounts payable thereunder, (ii) all right of the Grantor Trustee to exercise any election or option, or to give any notice, consent, waiver or approval under or in respect of the Agency and Support Agreement, or to accept any surrender or enter into any modification thereof, as the case may be, and (iii) all rights, powers and remedies of the Grantor Trustee pursuant to the Agency and Support Agreement, whether arising thereunder or by statute, at law, in equity or otherwise; (e) all moneys and securities now or hereafter paid or deposited or required to be paid or deposited to or with the Indenture Trustee pursuant to any term of any Operative Document, and held or required to be held by the Indenture Trustee hereunder; 3 (f) to the extent assignable, any and all permits, certificates, approvals and authorizations, however characterized, issued or in any way furnished in connection with the Undivided Interest, whether necessary or not for the operation and use of the Undivided Interest; (g) all the tolls, rents, issues, profits, products, revenues and other income of the property subjected or required to be subjected to the Lien of this Indenture; and (h) all rights or property which may be received upon the exercise of any remedy or option contained in any of the above-described instruments and all proceeds in whatever form of all or any part of any of the foregoing; EXCLUDING, HOWEVER, from the foregoing grant, and thereby from the Lien of this Indenture and from the Indenture Estate any and all Excepted Payments; and SUBJECT to the rights of the Grantor Trustee and the Owner Participant hereunder; TO HAVE AND TO HOLD the aforesaid property unto the Corporate Indenture Trustee, or the Individual Indenture Trustee, as the case may be, its or his successors and assigns, for the benefit and security of the Holders, without any priority of any one Secured Note over any other except as expressly provided herein with respect to Additional Notes, and for the uses and purposes and subject to the terms and conditions set forth in this Indenture. This Indenture is a mortgage given to secure the payment and performance of the Indenture Indebtedness and this Indenture is also intended to operate as, among other things, a security agreement and an assignment of leases and rents. It is expressly agreed that anything contained in this Indenture to the contrary notwithstanding, the Grantor Trustee shall remain liable under the Lease and the other Operative Documents to perform all of the obligations of the Grantor Trustee thereunder, all in accordance with and pursuant to the terms and provisions of each thereof, and the Holders and, except as expressly provided herein, the Indenture Trustee shall have no obligation or liability under any Operative Document by reason of or arising out of this Indenture. None of the Indenture Trustee or any Holder shall be required or obligated in any manner to perform or fulfill any obligation of the Grantor Trustee under or pursuant to any Operative Document or, except as herein expressly provided, to make any payment, or to make any inquiry as to the nature or sufficiency of any payment received by them, or to present or file any claim, or to take any action to collect or enforce the payment of any amounts which may have been assigned to them or to which they may be entitled at any time. Accordingly, the Grantor Trustee and the Indenture Trustee 4 hereby agree for themselves and for the benefit and security of the Holders as follows: ARTICLE I DEFINITIONS SECTION 1.01. Definitions. Unless otherwise defined herein, for the purposes hereof, capitalized terms used herein and not otherwise defined shall have the meanings assigned to them in Appendix A. References in this Indenture to Sections, subsections, paragraphs, Schedules, Appendices and Exhibits are to Sections, subsections and paragraphs in, and Schedules, Appendices and Exhibits to, this Indenture unless otherwise indicated. ARTICLE II THE SECURED NOTES SECTION 2.01. Secured Notes. (a) Generally. Except for Secured Notes issued pursuant to Section 2.06 or 2.08, Secured Notes may be issued only on the Closing Date. On the Closing Date, the Secured Notes to be issued on such Date pursuant to Section 2.2 of the Participation Agreement shall be duly executed by the Grantor Trustee by manual or facsimile signature, duly authenticated and made available for delivery by the Corporate Indenture Trustee and registered in the name of the Loan Participant to which such Secured Note is being issued and shall have attached thereto the Amortization Schedule for such Secured Note. Receipt by the Corporate Indenture Trustee of Secured Notes duly executed by the Grantor Trustee shall be accompanied by an Officer's Certificate of the Grantor Trustee instructing the Corporate Indenture Trustee to authenticate, register and make available for delivery such Secured Notes on the Closing Date. (b) The Secured Notes shall: (i) be limited in aggregate original principal amount to the amount specified in Exhibit B hereto; (ii) be issuable only as registered Secured Notes in denominations of at least $1,000, or if the remaining principal amount thereof shall be less than $1,000, such remaining principal amount; (iii) be dated the Closing Date; (iv) bear interest on the unpaid principal amount thereof from the date of such Secured Notes at the rate specified in 5 Exhibit B (computed on the basis of a 360-day year consisting of twelve 30- day months); (v) be due and payable as to principal and interest as specified herein and therein; (vi) be prepayable only as provided in Article III; and (vii) be substantially of the tenor and in the form set forth in Exhibit A. (c) Each Secured Note shall be signed on behalf of the Corporate Grantor Trustee by a Responsible Officer of the Corporate Grantor Trustee, and on behalf of the Individual Grantor Trustee, by Laskaris, manually or in facsimile. No Secured Note shall be secured by or entitled to any benefit under this Indenture, or be valid for any purpose, unless there appears thereon a certificate of authentication executed by or on behalf of the Corporate Indenture Trustee by the manual or facsimile signature of a Responsible Officer of the Corporate Indenture Trustee, and such certificate on any Secured Note shall be conclusive evidence that such Secured Note has been duly authenticated and made available for delivery hereunder. SECTION 2.02. Payments from Indenture Estate Only. All payments of principal, Make-Whole Amount, if any, and interest to be made by the Grantor Trustee and, except as otherwise provided in the Operative Documents, all payments of any other amounts payable by or on behalf of the Grantor Trustee under the Secured Notes and this Indenture, shall be made only from the income and proceeds from the Indenture Estate, and only to the extent that the Indenture Trustee shall have received sufficient income or proceeds from the Indenture Estate to make such payments in accordance with the terms hereof. Each Holder, by its acceptance of a Secured Note, agrees that it will look solely to the income and proceeds from the Indenture Estate to the extent available for payment as herein provided and that (a) none of the Grantor Trustee or the Indenture Trustee (whether in its individual or trust capacity) shall be personally liable to such Holder for any amounts payable under the Secured Notes, nor, except as specifically provided herein or in the other Operative Documents, for any amounts payable or any liability under this Indenture and (b) the Owner Participant shall not be liable to the Indenture Trustee or to any Holder under any circumstances for any reason whatsoever except to the extent expressly provided herein or in any other Operative Document. SECTION 2.03. Method of Payment. (a) The principal of, and Make-Whole Amount, if any, and interest, on each Secured Note shall be payable in immediately available funds, the receipt of which has been confirmed by a Responsible Officer of the Corporate Indenture Trustee (which shall be done promptly upon receipt thereof) on or before 6 1:00 p.m., New York time, at the place of receipt, on the due date therefor, to the Corporate Indenture Trustee at the corporate trust office of the Corporate Indenture Trustee. Amounts so received by the Indenture Trustee shall be paid by the Indenture Trustee to each Holder on the due date therefor without any presentment or surrender of any Secured Note held by such Holder by whichever of the following methods shall be specified by prior written notice from such Holder to the Indenture Trustee: (i) by transferring prior to 2:00 p.m., New York City time, on such date, such payment to such Holder in immediately available funds by crediting the amount to be distributed to such Holder to any account maintained by such Holder with the Indenture Trustee or (ii) by initiating a wire transfer prior to the time set forth in clause (i) of this Section 2.03(a) of such amount in immediately available funds to a banking institution designated in such notice with bank wire transfer facilities for the account of such Holder, in all cases without any presentment or surrender of any Secured Note, except that on the date of the final maturity thereof (whether at scheduled maturity, upon prepayment, acceleration or otherwise), payment of principal of such Secured Note shall be made only upon presentation and surrender of such Secured Note at the corporate trust office of the Corporate Indenture Trustee. In the event the Indenture Trustee shall fail to make any payment as provided in the preceding sentence after its receipt of funds at the place and on or before the time specified in this Section 2.03(a), the Corporate Indenture Trustee in its individual capacity agrees to compensate each Holder for loss of use of funds in an amount equal to the interest (computed at the then prevailing rate of overnight Permitted Investments) which could have been earned on such funds had they been timely paid to such Holder. (b) Whenever any payment to be made hereunder or pursuant to the terms of any Secured Note shall be stated to be due on a day which is not a Business Day, such payment shall be due and payable on the next succeeding Business Day with the same force and effect as if made on such scheduled date and (provided such payment is timely made on such succeeding Business Day) no interest shall accrue on the amount of such payment from and after such scheduled date. (c) If payment of any installment of principal payable in accordance with the terms hereof and of the Secured Notes is not paid in full when due, whether as scheduled or upon acceleration and whether before or after the maturity date of the Secured Notes, such overdue amount of principal shall (to the extent not prohibited by applicable law) bear interest, payable on demand, for each day from and including the date payment thereof was due to the actual date of payment, at the Overdue Rate. (d) Subject to Section 6.11, the Holder of any Secured Note shall be entitled to the principal of, and Make-Whole Amount, if any, and interest on such Secured Note free from all rights of set-off or counterclaims of the Grantor Trustee, the Indenture Trustee or any prior 7 Holder of such Secured Note. Nothing set forth in this Section 2.03(d) shall impair the right of the Grantor Trustee to receive a return from the Indenture Trustee of any amount intentionally overpaid by the Grantor Trustee in respect of a Secured Note. SECTION 2.04. Note Register. The Indenture Trustee shall cause to be kept at the Corporate Indenture Trustee's corporate trust office a register (the "Note Register") for the registration of Secured Notes and for the registration of transfer of Secured Notes. The Note Register shall be maintained by the Corporate Indenture Trustee, and the names and addresses of the registered Holders of the Secured Notes, transfers of the Secured Notes and the names and addresses of the transferees of the Secured Notes shall be entered in the Note Register under such reasonable regulations as the Corporate Indenture Trustee may prescribe. Each Loan Participant shall be provided reasonable opportunity to inspect the Note Register from time to time. SECTION 2.05. Registered Owners. The Grantor Trustee and the Indenture Trustee shall deem and treat any registered Holder as the absolute owner of any Secured Note held by such Holder, as indicated in the Note Register, for the purpose of receiving payment of all amounts payable with respect to such Secured Note and for all other purposes, and neither the Grantor Trustee nor the Indenture Trustee shall be affected by any notice to the contrary. All such payments so made shall be valid and effectual to satisfy and discharge the liability of the Grantor Trustee upon such Secured Note to the extent of the sum or sums so paid. SECTION 2.06. Transfer, Exchange and Replacement of Notes. (a) Secured Notes may be transferred only on the Note Register. Any secured Note may be transferred on the Note Register if such Secured Note is surrendered for cancellation at the corporate trust office of the Corporate Indenture Trustee and is accompanied by an instrument of transfer in form and substance reasonably satisfactory to the Corporate Indenture Trustee, which Secured Note or Secured Notes shall be canceled by the Indenture Trustee. A new Secured Note or Secured Notes of the same series, duly executed by the Grantor Trustee and registered in the name of the transferee or transferees in a principal amount or amounts equal to the principal amount of such transferred Secured Note, shall be duly authenticated by the Corporate Indenture Trustee and delivered to the transferee or transferees named by the Holder of such transferred Secured Note in exchange for such transferred Secured Note. Promptly after registration of the transfer of any Secured Note, the Corporate Indenture Trustee shall give notice thereof to the Lessee and the Grantor Trustee specifying the name and address for notices of the transferee or transferees. (b) Any Secured Note may be exchanged for a new Secured Note if such Secured Note to be so exchanged is surrendered for cancellation at the corporate trust office of the Corporate Indenture Trustee and is accompanied by the request of the Holder thereof specifying 8 the denomination of the new Secured Note (which shall be in denominations of at least $1,000 or if less, the then unpaid principal amount thereof) to be issued in exchange therefor. Upon instructions from the Indenture Trustee, the Grantor Trustee shall deliver to the Indenture Trustee a new Secured Note, hereunder in replacement therefor, duly executed by the Grantor Trustee and registered in the name of such Holder in the denominations so requested and in an aggregate principal amount equal to the aggregate principal amount of such Secured Note to be so exchanged, and such new Secured Note shall be duly authenticated by the Corporate Indenture Trustee and delivered by the Corporate Indenture Trustee to such Holder in exchange for such Secured Note to be so exchanged, which Secured Note shall be canceled by the Corporate Indenture Trustee. (c) If any Secured Note shall become mutilated or be destroyed, lost or stolen, upon request of the Holder thereof, a new Secured Note, duly executed by the Grantor Trustee and registered in the name of such Holder of like tenor and principal amount as the Secured Note so mutilated, destroyed, lost or stolen, shall be duly authenticated and delivered by the Corporate Indenture Trustee to such Holder in exchange for such Secured Note, if mutilated, or in substitution for such Secured Note, if destroyed, lost or stolen. In the case of a mutilated Secured Note, such Secured Note shall be surrendered for cancellation at the corporate trust office of the Corporate Indenture Trustee and shall be canceled by the Corporate Indenture Trustee. In the case of a destroyed, lost or stolen Secured Note, the Holder thereof shall furnish to the Grantor Trustee and the Indenture Trustee (i) evidence to their reasonable satisfaction of the destruction, loss or theft of such Secured Note and ownership thereof, and (ii) such security or indemnity as may be reasonably required by them to save them harmless; provided that if the affected Holder is a Pass Through Trustee, the written agreement of such Holder to indemnify the Grantor Trustee and the Indenture Trustee (in their respective individual and trust capacities) with respect to such destroyed, lost or stolen Secured Note, together with written notice of ownership and destruction, loss or theft thereof, shall satisfy the conditions of this sentence. SECTION 2.07. New Notes; Payment of Expenses. (a) Each new Secured Note (a "New Note") issued pursuant to Section 2.06 upon transfer of, in exchange for or in substitution for a Secured Note (an "Old Note") shall be dated as of the transfer date of such Old Note. The Indenture Trustee shall mark on each New Note (i) the date to which principal and interest have been paid on the applicable Old Note and (ii) all payments and prepayments of principal made on such Old Note which are allocable to such New Note. Interest shall be deemed to have been paid on such New Note to the date to which interest was paid on the applicable Old Note, and all payments and prepayments of principal required to have been marked on such New Note, as provided in clause (ii) of the preceding sentence, shall be deemed to have been made thereon. All New Notes issued pursuant to Section 2.06 in exchange for or in substitution for or in lieu of Old Notes shall be valid obligations of the Grantor Trustee evidencing the same debt as such Old Notes and shall be 9 entitled to the benefits and security of this Indenture to the same extent as such Old Notes. Issuance of any New Note shall not for any purposes be deemed a further advance of funds to the Grantor Trustee and the perfection and priority of the security interest in the Indenture Estate applicable to such New Note shall for all purposes be the same as that applicable to the Secured Note replaced by such New Note. (b) Upon the issuance of a New Note or New Notes pursuant to Section 2.06, the Grantor Trustee may require from the party requesting such New Note or New Notes payment of a sum to reimburse the Grantor Trustee for, or to provide funds for, the payment of any tax or other governmental charge or any other charge or expense paid or payable with respect to such transfer by the Grantor Trustee or the Indenture Trustee, without any right of reimbursement under any Operative Document with respect to such payments. SECTION 2.08. Additional Notes. (a) So long as no Lease Event of Default or default of the nature set forth in paragraphs (a), (b), (c) or (g) of the definition of Lease Event of Default in Section 15 of the Lease, or Indenture Event of Default shall have occurred and be continuing, Additional Notes of one or more series may be issued under and secured by this Indenture at any time or from time to time, subject to the conditions hereinafter provided in this Section 2.08 and the conditions provided in Section 14.1 to the Participation Agreement, for the purpose of financing the Lessor's Share of the cost of any Non-Severable Modification or any Severable Modification required by law to the Production System as provided in Section 14 of the Participation Agreement. (b) Prior to the issuance of any Additional Notes pursuant to this Section 2.08, the Grantor Trustee shall have received from the Owner Participant and delivered to the Indenture Trustee, not less than forty-five (45) days prior to the proposed date of issuance of such Additional Notes, a request and authorization to issue Additional Notes (a "Request"), which Request shall include the amount of such Additional Notes, the proposed date of issuance of such Additional Notes, and other details with respect thereto which are not inconsistent with this Section 2.08. Such Additional Notes shall have a designation so as to distinguish such Additional Notes from the Initial Secured Notes and any other Additional Notes that may have been issued theretofore, but otherwise shall be substantially similar in form to the Initial Secured Notes, with such omissions therefrom, variations therein and additions thereto as shall be appropriate. Such Additional Notes shall not rank senior in any respect to other Secured Notes issued pursuant to the terms hereof but may rank junior in right of payment and security. (c) The terms, conditions and designations of such Additional Notes (which shall be consistent with the Request and with the terms of this Indenture and of the Participation Agreement and such terms, conditions and designations shall be in form and substance acceptable to 10 the Owner Participant, the Grantor Trustee and the Indenture Trustee) shall be set forth in a supplement to this Indenture, substantially in the form of Exhibit C, which shall be executed by the Grantor Trustee and the Indenture Trustee. Such indenture supplement shall set forth: (i) the text of such Additional Notes (which, except for the terms of payment thereof, shall be of substantially the same effect as the text of the Initial Secured Notes set forth in this Indenture, with such changes as are consistent with and permitted by this Indenture and which in all events shall provide that such Additional Notes are never more than pari passu in priority of payment, in right of security and in all other respects with the Initial Secured Notes); (ii) the date of maturity of such Additional Notes (which shall be no later than the latest scheduled maturity date of the Secured Notes then Outstanding); (iii) the date from which, and the date or dates on which, interest is payable (which shall be Interest Payment Dates); (iv) the terms for the repayment of the principal amount of such Additional Notes (each regularly scheduled payment of principal shall be an Interest Payment Date); (v) the terms, if any, as to prepayment or redemption of such Additional Notes at the option of the Grantor Trustee, and as to the premium, if any, payable on any redemption or prepayment of such Additional Notes; and (vi) any other terms and agreements in respect thereof provided or permitted by this Trust Indenture or necessary to specify the terms and conditions on which such Additional Notes shall be issued. (d) Such Additional Notes shall be executed by the Grantor Trustee as provided in Section 2.01 and deposited with the Corporate Indenture Trustee for authentication and delivery, but before such Additional Notes shall be authenticated and delivered by the Corporate Indenture Trustee, there shall be delivered to or deposited with the Corporate Indenture Trustee the following: (i) the Request; (ii) such supplement to this Indenture, duly executed by the Grantor Trustee; (iii) a supplement to the Lease, duly authorized, executed and delivered by the Lessee and the Grantor Trustee, 11 providing for adjustments to the Basic Rent Percentages, Stipulated Loss Value Percentages and Termination Value Percentages, and the definition of Lessor's Cost under the Lease required to ensure that payments of such amounts will be adequate to provide for payments required hereunder and under the Secured Notes, after giving effect to the issuance of such Additional Notes, together with such instruments of conveyance, assignment and transfer, if any, necessary to subject such supplement to the Lease to the Lien and security interest of this Indenture and to perfect such Lien and security interest subject to no Liens other than Permitted Liens, and evidence as to the due recording or filing of each thereof or of financing or similar statements with respect thereto; (iv) such instruments of conveyance, assignment and transfer (including, without limitation, contractors' waivers) duly executed and delivered by the respective parties thereto, and such evidence of the due filing thereof or of financing statements or other collateral documents with respect thereto, as may be required to convey to the Grantor Trustee all property included in the Lessor's Share of such Modification, if any, and to subject such property to the Lien of this Indenture, subject to no Liens except Permitted Liens; (v) originals or certified copies of all corporate actions necessary for the due and valid issue of such Additional Notes, the due and valid authorization, execution, delivery and performance by the Grantor Trustee of the supplement to this Indenture relating thereto, and the due and valid authorization, execution, delivery and performance by the Lessee and the Grantor Trustee of the supplement to the Lease and the creation of the Lien and security interest thereon referred to above, all of which corporate actions shall have been duly obtained and shall be in full force and effect; together with evidence as to the due occurrence of all such authorization, execution, delivery and performance; (vi) documentation, duly executed and delivered by the respective parties thereto whereby the proposed holders of the Additional Notes agree to be bound by the terms of the Operative Documents (including, without limitation, representations and covenants corresponding to those contained in Section 7 of the Participation Agreement); (vii) an Officer's Certificate of the Lessee certifying (1) as to the cost of the Lessor's Share of such Modification and (2) that all conditions precedent to the issuance of the Additional Notes contained in this Section 2.08 and in Section 14 of the Participation Agreement have been satisfied unless such conditions have been waived in writing by the Indenture Trustee and Grantor Trustee; and (viii) such opinions of counsel as are customary in 12 transactions of this type, including, without limitation, opinions as to the due authorization, execution, delivery and enforceability and the creation and perfection of the security interest in the Lessor's Share of such Modification (subject to usual or customary exceptions, qualifications and assumptions) of such supplement to this Indenture and such Additional Notes, and such other certificates and other documents as may be reasonably requested by the Indenture Trustee to evidence the validity and binding effect of such supplement to this Indenture and such Additional Notes and compliance with this Section 2.08. (e) When the documents referred to in Section 2.08(d) shall have been delivered to or deposited with the Indenture Trustee and when such Additional Notes described in the Request and the supplement to this Indenture have been executed by the Grantor Trustee as required by this Indenture, the Corporate Indenture Trustee shall authenticate and deliver such Additional Notes in the manner described in such Request, but only upon payment to the Grantor Trustee of the sum or sums specified in such Request, whereupon the Grantor Trustee shall pay such sum or sums to the Lessee. SECTION 2.09. Termination of Interest in Indenture Estate. A Holder shall have no further interest in, or other right with respect to, the Indenture Estate upon the payment of principal of, Make-Whole Amount, if any, and interest on, any Secured Notes held by such Holder and all other sums payable to such Holder hereunder and under such Secured Notes with respect to any such Secured Notes. SECTION 2.10. Equally and Ratably Secured. Except as otherwise expressly provided in this Indenture, all Secured Notes at any time Outstanding under this Indenture shall be equally and ratably secured by this Indenture without preference, priority or distinction on account of the designation, date, time of issue or maturity of such Secured Notes. All Additional Notes at any time Outstanding under this Indenture shall be equally and ratably secured by this Indenture without preference, priority or distinction on account of the designation date, time of issue or maturity of such Additional Notes. SECTION 2.11. CUSIP or CINS Numbers. The Grantor Trustee in issuing the Secured Notes may use "CUSIP" or CINS numbers (if then generally in use), and, if so, the Indenture Trustee shall use "CUSIP" or CINS numbers, as the case may be, in notices of redemption as a convenience to Holders; provided that any such notice may state that no representation is made as to the correctness of such numbers either as printed on the Secured Notes or as contained in any notice of a redemption and that reliance may be placed only on the other identification numbers printed on the Secured Notes, and any such redemption shall not be affected by any defect in or omission of 13 such numbers. The Grantor Trustee will promptly notify the Indenture Trustee of any change in the CUSIP and CINS numbers. ARTICLE III REDEMPTION AND REFUNDING SECTION 3.01. Generally. The Secured Notes may not be redeemed or prepaid except to the extent and in the manner expressly permitted or required by this Indenture. Except as otherwise expressly provided in this Indenture, any amount prepaid in partial redemption of the Secured Notes Outstanding shall be distributed by the Indenture Trustee to all Holders ratably, without priority of any Holder over any other Holder, in the proportion that the principal amount of Secured Notes held by such Holder bears to the principal amount of all Secured Notes then Outstanding. SECTION 3.02. Mandatory Redemption. (a) Casualty Redemption. If an Event of Loss pursuant to Section 12 of the Lease shall occur as to which a Stipulated Loss Value payment is due under such Section 12, then the Grantor Trustee shall redeem the Secured Notes Outstanding, without the Make-Whole Amount or any other premium, on the date on which such Stipulated Loss Value is paid by the Lessee pursuant to the Lease (the date of any such redemption hereunder being a "Casualty Redemption Date"), as follows: (i) if an Event of Loss described in Section 12.2(a) of the Lease shall have occurred and a Stipulated Loss Value payment is due and owing under the Lease, the entire unpaid principal amount of the Secured Notes Outstanding on such Casualty Redemption Date shall be redeemed at a redemption price equal to 100% of the unpaid principal amount of such Secured Notes, together with any accrued and unpaid interest thereon to such Casualty Redemption Date; and (ii) if an Event of Loss described in Section 12.2(b) of the Lease and a Stipulated Loss Value payment for less than the full Undivided Interest is due and owing under the Lease, such of the unpaid principal amount of the Secured Notes Outstanding on such Casualty Redemption Date (assuming, only for purposes of this calculation, that if such Casualty Redemption Date is coincident with an Installment Payment Date or a Maturity Date, the scheduled principal payment due, if any, on such Casualty Redemption Date on the Secured Notes is paid prior to the time the Redemption Price is calculated pursuant to this Section 3.02(a)(ii) and applied to principal in accordance with Section 4.01) as shall be equal to the product of (x) the entire unpaid principal amount of the Secured Notes Outstanding on such Casualty Redemption Date (assuming, only for purposes of this calculation, that if such Casualty Redemption Date is coincident with an Installment Payment Date or a Maturity Date, the scheduled principal payment due, if any, on such Casualty Redemption Date on the Secured Notes is paid prior to the time the Redemption Price is calculated pursuant to this Section 3.02(a)(ii) and applied to principal in accordance with Section 4.01) and (y) a fraction, the numerator of which 14 shall be the Original Cost of the Significant Portion of the Undivided Interest suffering such Event of Loss and the denominator of which shall be Lessor's Cost), at a redemption price equal to 100% of such unpaid principal amount of the Secured Notes to be redeemed on such Casualty Redemption Date pursuant to the terms of this Section 3.02(a)(ii), together with any accrued and unpaid interest thereon to such Casualty Redemption Date (assuming, only for purposes of this calculation, that if such Casualty Redemption Date is coincident with an Interest Payment Date, the interest due on such Interest Payment Date is paid prior to the time the Redemption Price is calculated pursuant to this Section 3.02(a)(ii) and applied to interest in accordance with Section 4.01); provided that each Holder of a Secured Note shall receive, as to the principal thereof, the same portion of such Redemption Price in its entirety as the principal value of such Secured Note at such Casualty Redemption Date represents of the total value of the principal value of all Secured Notes at such Casualty Redemption Date. (b) Early Termination Redemption. In the event that the Lease is terminated with respect to the Undivided Interest or a Significant Portion thereof pursuant to Section 7 of the Lease, the Grantor Trustee shall redeem on the applicable Termination Date (the date of any redemption under this Section 3.02(b) being herein called a "Termination Redemption Date") (i) if the termination is with respect to the Undivided Interest, the entire unpaid principal amount of the Secured Notes Outstanding on such Termination Redemption Date, at a redemption price equal to 100% of such unpaid principal amount of such Secured Notes, together with any accrued and unpaid interest thereon to such Termination Redemption Date plus, in the event any of the Secured Notes is redeemed prior to the Premium Termination Date applicable to such Secured Note, a premium, equal to the Make-Whole Amount, if any, with respect to such Secured Note and otherwise without premium and (ii) if the termination is with respect to a Significant Portion of the Undivided Interest, such of the unpaid principal amount of the Secured Notes Outstanding on such Termination Redemption Date (assuming, only for purposes of this calculation, that if such Termination Redemption Date is coincident with an Installment Payment Date or a Maturity Date, the scheduled principal payment due, if any, on such Termination Redemption Date on the Secured Notes is paid prior to the time the Redemption Price is calculated pursuant to this Section 3.02(b)(ii) and applied to principal in accordance with Section 4.01) as shall be equal to the product of (x) the entire unpaid principal amount of the Secured Notes Outstanding on such Termination Redemption Date (assuming, only for purposes of this calculation, that if such Termination Redemption Date is coincident with an Installment Payment Date or a Maturity Date, the scheduled principal payment due, if any, on such Termination Redemption Date on the Secured Notes is paid prior to the time the Redemption Price is calculated pursuant to this Section 3.02(b)(ii) and applied to principal in accordance with Section 4.01) and (y) a fraction, the numerator of which shall be the Original Cost of such Significant Portion and the denominator of which shall be Lessor's Cost, at a redemption price equal to 100% of the unpaid principal amount of the Secured Notes 15 to be redeemed on such Termination Redemption Date pursuant to the terms of this Section 3.02(a)(ii), together with any accrued and unpaid interest thereon to such Termination Redemption Date (assuming, only for purposes of this calculation, that if such Termination Redemption Date is coincident with an Interest Payment Date, the interest due on such Interest Payment Date is paid prior to the time the Redemption Price is calculated pursuant to this Section 3.02(b)(ii) and applied to interest in accordance with Section 4.01) plus, in the case of a redemption pursuant to this Section 3.02(b)(ii) prior to the Premium Termination Date applicable to such Secured Note, a premium, equal to the Make-Whole Amount, if any, with respect to the portion of such Secured Note which is to be so redeemed and otherwise without premium; provided that each Holder of a Secured Note shall receive, as to the principal thereof, the same portion of such Redemption Price in its entirety as the principal value of such Secured Note at such Casualty Redemption Date represents of the total value of the principal value of all Secured Notes at such Termination Redemption Date. (c) Purchase Redemption. (i) In the event that the Lessee shall purchase the Lessor's Interest in the Undivided Interest pursuant to Section 6.1(c), 6.1(d), 6.1(e) or 6.1(f) of the Lease prior to the date of expiration of the Basic Lease Term, and the Lessee shall not have assumed the obligations of the Grantor Trustee under the Secured Notes pursuant to Section 11.6 of the Participation Agreement or purchased the Lessor's Interest in the Undivided Interest pursuant to Sections 16.1 and l6.2 of the Participation Agreement, the Grantor Trustee shall redeem on the date of purchase (the date of any redemption under this Section 3.02(c) being herein called a "Purchase Redemption Date"), the entire unpaid principal of the Secured Notes Outstanding on such Purchase Redemption Date at a redemption price equal to 100% of the unpaid principal amount of the Secured Notes together with any accrued and unpaid interest thereon to such Purchase Redemption Date plus, in the case of each Secured Note redeemed prior to the Premium Termination Date applicable to such Secured Note, a premium equal to the Make-Whole Amount, if any, with respect to such Secured Note and otherwise without premium. (d) Special Redemption. If the Grantor Trustee or the Owner Participant has drawn on the Letter of Credit (or any other letter of credit naming the Lessor and/or the Owner Participant as a beneficiary as contemplated by Section 10.14 of the Participation Agreement) or received payment under the Surety Bond (or any other surety bond held by the Lessor and/or the Owner Participant as contemplated by Section 10.14 of the Participation Agreement), and the Lessee shall not have assumed the obligations of the Grantor Trustee under the Secured Notes pursuant to Section 11.6 of the Participation Agreement, then the Grantor Trustee shall redeem the Secured Notes Outstanding, on the date on which the remaining portion of Stipulated Loss Value is required to be paid by the Lessee pursuant to the Lease (the date of any such redemption hereunder being a "Special Redemption Date"), at a redemption price equal to 100% of the unpaid principal amount of such Secured Notes, together with any 16 accrued and unpaid interest thereon to such Special Redemption Date but without the Make-Whole Amount or any other premium. SECTION 3.03. [Intentionally Omitted]. SECTION 3.04. Assumption of Obligations of the Grantor Trustee by the Lessee. In the event that the Lessee shall have elected to assume all of the rights and obligations of the Grantor Trustee under this Indenture in respect of the Secured Notes in connection with the purchase by the Lessee of the Lessor's Interest in the Undivided Interest pursuant to Section 6.1(c), (d), (e), (f) or (g) of the Lease or pursuant to Section 16.2(d) of the Participation Agreement (the date of any such assumption being referred to hereinafter as the "Relevant Date") and, if on or prior to the Relevant Date: (a) the Lessee shall have delivered to the Indenture Trustee an Officer's Certificate of the Lessee, dated the Relevant Date, stating that the Lessee has paid to the Grantor Trustee all amounts required to be paid to the Grantor Trustee pursuant to the Lease, in connection with such purchase or termination and assumption; (b) no Indenture Event of Default after giving effect to the Relevant Amendment (as defined below) shall have occurred and be continuing immediately subsequent to such purchase or termination, or assumption and the Indenture Trustee shall have received an Officer's Certificate, dated the Relevant Date, of the Lessee to such effect; (c) the Indenture Trustee shall have received a (i) supplement to this Indenture, substantially in the form of Exhibit E (the "Relevant Date Supplement"), duly executed by the Lessee, which shall provide that the Lessee agrees that it is acquiring, subject to the security interest and Lien thereon granted to the Indenture Trustee under this Indenture and the Ship Mortgage, all of Lessor's right, title and interest in and to the Undivided Interest, as provided in Section 2 of the form of Relevant Date Supplement attached as Exhibit E and (ii) a ship mortgage, substantially in the form attached as Exhibit G (the "New Ship Mortgage"); (d) the Indenture Trustee shall have received, on or prior to the Relevant Date, evidence of all filings, recordings and other action referred to in the opinion of counsel referred to below; and (e) the Indenture Trustee shall have received opinions of counsel as are customary for transactions of this type, subject to usual or customary qualifications, exceptions and assumptions, and shall include opinions, subject to such qualifications, exceptions and assumptions, to the effect that, after giving effect to the 17 Relevant Amendment (as defined below): (i) on the Relevant Date, this Indenture, as supplemented by the Relevant Date Supplement and as amended by the Relevant Amendment and the Secured Notes issued thereunder constitute the legal, valid and binding obligations of the Lessee, enforceable against the Lessee in accordance with their terms, except as the same may be limited by applicable bankruptcy, insolvency, reorganization, moratorium or similar laws affecting the rights of creditors generally and by general principles of equity, and except as limited by applicable laws which may affect the remedies provided for in this Indenture as so supplemented, which laws, however, do not in the opinion of such counsel make the remedies provided for in this Indenture inadequate for the practical realization of the rights and benefits provided for in this Indenture as so supplemented; and (ii) the Liens of this Indenture on the Undivided Interest and the New Ship Mortgage have been perfected and creates a security interest in the Indenture Estate and all filings and recordings and other action necessary or appropriate to perfect the interests of the Indenture Trustee have been accomplished; then, simultaneously with the delivery of such documents, the Indenture Trustee shall execute and deliver the Relevant Date Supplement, and automatically and without the requirement of further action by any person, effective as of the Relevant Date: (x) this Indenture shall be deemed to have been amended as provided for in Exhibit C hereto (the "Relevant Amendment"); and (y) the Grantor Trustee shall be released from all of its obligations under this Indenture in respect of the Secured Notes or otherwise (other than any obligations or liabilities of the Grantor Trustee in its or his individual capacity incurred on or prior to the Relevant Date or arising out of or based upon events occurring on or prior to the Relevant Date, which obligations and liabilities shall remain the sole responsibility of the Grantor Trustee) and there shall be immediately distributed any funds then being retained hereunder that are distributable to the Grantor Trustee or the Owner Participant. SECTION 3.05. Refunding. (a) Subject to the terms and conditions of Section 15 of the Participation Agreement, the Grantor Trustee from time to time may after January 2, 2001, take such steps as may be necessary to refund or refinance in whole all Outstanding Secured Notes at the redemption price equal to 100% of the unpaid principal amount of the Secured Notes to be redeemed pursuant to this Section 3.05, together with any accrued and unpaid interest thereon to the date of redemption plus, in the case of a redemption prior to the Premium 18 Termination Date applicable to such Secured Notes, a premium equal to the Make- Whole Amount, if any, with respect to such Secured Notes and otherwise without premium. (b) The terms, conditions and designations of any such Refunding Secured Notes (to the extent not inconsistent with this Indenture) shall be set forth in a supplement to this Indenture reasonably satisfactory to the Indenture Trustee and the Grantor Trustee (a "Refunding Indenture") which shall be executed by the Grantor Trustee and the Indenture Trustee. (c) The Corporate Indenture Trustee shall authenticate and deliver Refunding Secured Notes in accordance with the provisions of any Refunding Indenture upon receipt by the Indenture Trustee of the following: (i) a counterpart of the applicable Refunding Indenture duly executed by the Grantor Trustee; and (ii) any opinions, certificates or additional documents as reasonably shall be required to be delivered to or deposited with the Indenture Trustee by the applicable Refunding Indenture, Section 15 of the Participation Agreement or for transactions of this type. SECTION 3.06. Grantor Trustee's and Owner Participant's Option to Redeem or Purchase Secured Notes. In the event that (a) at any time one or more Lease Events of Default shall have occurred and any such Lease Event of Default shall have continued for a period of less than 270 days, during which time the Secured Notes could but shall not have been accelerated pursuant to Section 5.04, or (b)(i) the Indenture Trustee has given the Grantor Trustee or the Owner Participant notice of the intent to accelerate the Secured Notes pursuant to Section 5.04, (ii) the Secured Notes shall have been accelerated pursuant to Section 5.04 but not yet paid or (iii) at any time one or more Lease Events of Default shall have occurred and any such Lease Event of Default shall have continued for a period of 270 days or more during which time the Secured Notes could, but shall not have been, accelerated pursuant to Section 5.04, the Grantor Trustee or the Owner Participant may, at its option, give at least 30 days' prior irrevocable notice to the Indenture Trustee that it will redeem (or purchase in lieu of redemption) all Secured Notes then Outstanding, which redemption or purchase shall be at a redemption or purchase price equal to 100% of the unpaid principal amount of such Secured Notes, together with any accrued and unpaid interest thereon, plus in the case of any redemption or purchase pursuant to clause (a) above prior to the applicable Premium Termination Date a premium equal to the Make-Whole Amount, if any, with respect to such Secured Notes but otherwise without premium. On or prior to the Business Day preceding the Redemption Date set forth in the notice, the Grantor Trustee or the Owner Participant will deposit with the Indenture Trustee an amount sufficient 19 to redeem or purchase at the applicable Redemption Price all Secured Notes then Outstanding (including, in the case of a redemption or purchase pursuant to clause (a) above, a good faith estimate of the premium computed as provided for herein) plus an amount equal to all other sums then due and payable to a Loan Participant hereunder, and to pay the Indenture Trustee all amounts then due it hereunder, which funds shall be held by the Indenture Trustee as provided in Section 7.04. Upon the giving of such notice and the receipt by the Indenture Trustee of such deposit, the Indenture Trustee shall deem all instructions received from the Grantor Trustee or the Owner Participant as having been given by the Loan Participants of 100% of the Outstanding principal amount of Secured Notes for all purposes of this Indenture. If such notice is given, the Grantor Trustee further agrees that it will deposit or cause to be deposited with the Indenture Trustee, on or prior to the Business Day preceding the applicable Redemption Date, whether or not an Indenture Event of Default is then continuing, funds sufficient, when added to the funds already held by the Indenture Trustee for such purpose, to redeem or purchase at the applicable Redemption Price (including the premium actually payable in respect thereof computed as provided for herein), on such Redemption Date all Secured Notes then Outstanding, to pay all other sums then due and payable to a Loan Participant hereunder and to pay the Indenture Trustee all amounts then due it hereunder. In the event the Grantor Trustee shall have given any such notice to purchase or redeem, unless the Grantor Trustee shall have consented thereto, the Indenture Trustee shall not during the period from such notice to the Redemption Date specified therein institute any new remedy or proceeding in respect of any new remedy under this Indenture, and the Indenture Trustee shall, to the extent the same may be accomplished without prejudicing the rights of the Indenture Trustee hereunder, take such actions and forbear from taking actions, in each case sufficient to maintain the status quo with respect to any pending remedies or proceedings in respect thereof being then pursued hereunder; provided, however, that in no event shall the Indenture Trustee sell or assign any portion of the Indenture Estate during the period from such notice to the Redemption Date specified therein. In the event the Grantor Trustee shall have given any such notice to purchase or redeem, and the Grantor Trustee has deposited with the Indenture Trustee the amounts required to be deposited pursuant to this Section 3.06, then on the Redemption Date, each Loan Participant will be deemed to sell, assign, transfer and convey to the Grantor Trustee or its designee (without recourse or warranty of any kind other than of title to the Secured Notes so conveyed) all of the right, title and interest of such Loan Participant in and to the Secured Note held by such Loan Participant. On and after such Redemption Date and receipt of amounts required to be deposited pursuant to this Section 3.06, the Indenture Trustee shall no longer treat the former Loan Participants as the "Loan Participants", except for purposes of the Loan Participants' right to receive their respective portions of the amounts paid to the Indenture Trustee as aforesaid and all other amounts due to such Loan Participants hereunder and, to the extent secured hereby, under the Operative Documents with respect to acts, events, circumstances or conditions occurring or existing prior to such Redemption Date, and on 20 such date the Corporate Indenture Trustee shall register the transfer of ownership of the Secured Notes into the name of the Grantor Trustee or its designee. If the Grantor Trustee elects to purchase the Secured Notes under this Section 3.06, nothing herein, including the use of the terms "Redemption Date" and "Redemption Price," shall be deemed to result in a redemption of the Secured Notes. SECTION 3.07. Deposited Redemption or Purchase Moneys. Moneys held by the Indenture Trustee for the redemption or purchase of any Secured Note issued hereunder as provided in this Article III shall be held by the Indenture Trustee as a separate fund in trust for the account of the respective Holders of the Secured Notes to be redeemed, shall be invested in accordance with the provisions of Section 7.04 and shall be delivered to them respectively in accordance with Section 2.03 on the Redemption Date. Any amounts so held by the Indenture Trustee shall be deemed paid for purposes of Section 2.09, of all amounts of principal of, Make-Whole Amount, if any, and interest on, and all other amounts due and payable under any such Secured Notes, the Holders thereof shall be paid to such Holder's agent upon delivery of such Secured Notes to the Indenture Trustee for cancellation. SECTION 3.08. Acquisition of Secured Notes. The Grantor Trustee covenants that it will not, directly or indirectly, acquire or make any offer to acquire any Secured Note except pursuant to the provisions of this Indenture. SECTION 3.09. Condition to Redemption and Refunding. It shall be a condition to any redemption, refinancing or refunding of Secured Notes effected under this Article III other than under Section 3.06 that all amounts of principal of, Make-Whole Amount, if any, and interest on, and all other amounts then due and payable under the Secured Notes which are to be the subject of such redemption, refinancing or refunding, as the case may be, as well as all other amounts due and payable to the Holders of such Secured Notes as are to be the subject of such redemption, refinancing or refunding shall have been paid as specified herein or therein or in any other Operative Document. SECTION 3.10. Notice of Certain Redemptions. In connection with a redemption of any of the Secured Notes pursuant to Section 3.02 or Section 3.05, the Grantor Trustee shall give irrevocable (except with respect to redemption notices given pursuant to Section 3.02(b) which may be withdrawn) notice of such redemption at least 25 days and not more than 60 days prior to the Redemption Date to each Loan Participant of such Secured Notes to be redeemed, at such Loan Participant's address appearing in the Note Register. Any such notice of redemption shall state (including the CUSIP or CINS number, if any): (i) the Redemption Date (which shall be a Stipulated 21 Loss Value Determination Date; (ii) the applicable basis for determining the redemption price pursuant to Section 3.02 or Section 3.05 (the "Redemption Price"); (iii) that on the Redemption Date, the Redemption Price will become due and payable upon each such Secured Note, and that, if any such Secured Notes are then Outstanding, interest on such Secured Notes shall cease to accrue on and after such Redemption Date; and (iv) the place or places where such Secured Notes are to be surrendered for payment of the Redemption Price. SECTION 3.11. Termination of Head Lease. The Grantor Trustee shall notify the Indenture Trustee in writing at least 5 days before exercising its option to purchase the Undivided Interest pursuant to Section 10.2 of the Head Lease. With such notice the Grantor Trustee shall deliver to the Indenture Trustee: (a) a ship mortgage substantially in the form of the Ship Mortgage but securing the Indenture Indebtedness rather than the obligations of the Lessee under the Head Lease (the "Direct Ship Mortgage"); (b) on or prior to the Relevant Date, evidence of all filings, recordings and other action referred to in the opinion of counsel referred to below; and (c) opinions of counsel as are customary for transactions of this type, subject to usual or customary qualifications, exceptions and assumptions, and shall include opinions, subject to such qualifications, exceptions and assumptions, to the effect that, after giving effect to the execution and delivery of the Ship Mortgage and any necessary filings, recordings and other actions that: (i) the Direct Ship Mortgage constitutes the legal, valid and binding obligation of the Grantor Trustee, enforceable against the Grantor Trustee in accordance with its terms, except as the same may be limited by applicable bankruptcy, insolvency, reorganization, moratorium or similar laws affecting the rights of creditors generally and by general principles of equity, and except as limited by applicable laws which may affect the remedies provided for in the Direct Ship Mortgage, which laws, however, do not in the opinion of such counsel make the remedies provided for in the Direct Ship Mortgage inadequate for the practical realization of the rights and benefits provided for in the Direct Ship Mortgage; and 22 (ii) the Direct Ship Mortgage has been filed and creates a valid lien in the Platform and other property described therein and all filings and recordings and other action necessary or appropriate to make such lien valid against third parties have been accomplished. ARTICLE IV RECEIPT, DISTRIBUTION AND APPLICATION OF INCOME FROM THE INDENTURE ESTATE SECTION 4.01. Basic Rent Distribution. (a) Generally. Except as otherwise provided in Sections 4.01(c) and 4.03, each installment of Basic Rent (other than any portion thereof constituting an Excepted Payment), any payment of Supplemental Rent representing interest on overdue installments of Basic Rent (other than any portion thereof constituting an Excepted Payment) and any payment received by the Indenture Trustee as contemplated by Section 5.03 shall be promptly distributed by the Indenture Trustee on the date such payment is due from the Lessee (or as soon thereafter as such payment shall be received by the Indenture Trustee) in the following order of priority: first, in accordance with Section 4.04, so much of such installment or payment as shall be required to pay in full the aggregate amount of the payment or repayment of principal, interest and other amounts then due under all Secured Notes shall be distributed to the Holders of such Secured Notes ratably, without priority of one Holder over any other Holder, in the proportion that the amount of such payment or payments then due under each such Secured Note bears to the aggregate amount of the payments then due under all such Secured Notes; and second, subject to Section 4.01(c), the balance, if any, of such installment remaining thereafter shall be distributed to the Grantor Trustee for distribution pursuant to the Trust Agreement. (b) Application of Certain Amounts Held by the Indenture Trustee upon Certain Defaults. If as a result of any default by the Lessee in the performance of its obligations under any Operative Document, the Indenture Trustee shall not have received for distribution on any Basic Rent Payment Date (or the Indenture Trustee shall be prevented from distributing on such date) the full amount then distributable pursuant to clause "first" of Section 4.01(a), the Indenture Trustee shall distribute any Rent, any proceeds of the Indenture Estate, and amounts described in Section 12.5 of the Lease then held by it or thereafter received by it (and any earnings thereon that constitute part of the Indenture Estate as provided in Section 7.04) to the Holders to the extent necessary to make all distributions then due pursuant to such clause "first". 23 (c) Retention of Amounts by the Indenture Trustee. If, at the time of receipt by the Indenture Trustee of an installment of Basic Rent (whether or not then overdue) or of payment of Supplemental Rent representing interest on any overdue installment of Basic Rent, the Indenture Trustee shall have Actual Knowledge that there shall have occurred and be continuing an Indenture Event of Default, the Indenture Trustee shall retain and not distribute any amount otherwise required to be distributed pursuant to clause "second" of Section 4.01(a), and (i) at such time as there shall not be continuing any Indenture Event of Default or (ii) on the first Business Day occurring more than 180 days after the receipt of such amount, whichever shall first occur, the Indenture Trustee shall distribute such amount pursuant to clause "second" of Section 4.01(a) unless prior thereto (1) the Indenture Trustee (as assignee of the Grantor Trustee) shall have given notice to declare the Lease to be in default in accordance with Section 16.1 thereof, (2) the Indenture Trustee shall have given notice to the Grantor Trustee pursuant to the first proviso to Section 5.04(a) of the Indenture Trustee's intent to declare the Secured Notes due and payable or (3) any of the Secured Notes shall have been declared or otherwise shall have become immediately due and payable pursuant to Section 5.04, in which case such amount shall be distributed by the Indenture Trustee forthwith in accordance with the terms of Section 4.03. SECTION 4.02. Certain Distributions. (a) Any payment received by the Indenture Trustee (i) pursuant to Section 12 of the Lease as a result of the occurrence of an Event of Loss, with respect to the Undivided Interest or a Significant Portion thereof, (ii) pursuant to Section 6 of the Lease as a result of the sale of the Lessor's right, title and interest in the Undivided Interest, (iii) upon the termination of the Lease with respect to the Undivided Interest or a Significant Portion thereof pursuant to Section 7 of the Lease, (iv) in connection with the refunding of the Secured Notes pursuant to Section 3.05, or (v) in connection with any drawing on a letter of credit or payment on a surety bond maintained pursuant to Section 4.02 of the Participation Agreement shall be distributed forthwith in the following order of priority: first, in the manner provided in clause "first" of Section 4.03; second, in the manner provided in clause "third" of Section 4.03 but only with respect to those Secured Notes to be redeemed pursuant to Section 3.02 as a result of such Event of Loss, sale, termination, drawing or payment, as the case may be; third, in the manner provided in clause "second" of Section 4.03; fourth, in the manner provided in clause "fourth" of Section 4.03; and 24 fifth, in the manner provided in clause "fifth" of Section 4.03. (b) The portion of each payment referred to in this Section 4.02 distributed to a Holder on account of principal, interest or the Make-Whole Amount, if any, on any Secured Note held by such Holder shall be applied by such Holder in payment of such Secured Note in accordance with the terms of Section 4.04. SECTION 4.03. Distributions After Indenture Event of Default. If (a) an Indenture Event of Default shall have occurred and be continuing, and (b)(i) the Indenture Trustee (as assignee of the Grantor Trustee) shall have given notice to declare the Lease to be in default pursuant to Section 16.1 thereof, (ii) the Indenture Trustee shall have given notice to the Grantor Trustee pursuant to the first proviso to Section 5.04(a) of the Indenture Trustee's intent to declare the Secured Notes due and payable or (iii) any of the Secured Notes shall have been declared or otherwise shall have become immediately due and payable pursuant to Section 5.04, then, to the extent that each such notice or declaration shall not have been rescinded or the Secured Notes shall remain immediately due and payable, (i)(A) all amounts (other than Excepted Payments) then held by the Indenture Trustee in accordance with Section 4.05 or 4.06 (in each case not excluded from the operation of this Section 4.03), (B) then otherwise held by the Indenture Trustee hereunder or (C) under any Operative Document (other than amounts held for its own account) (and, in each case, all earnings thereon that constitute part of the Indenture Estate as provided in Section 7.04), and (ii) all payments and amounts thereafter realized by the Indenture Trustee through the exercise of remedies hereunder or under any of the agreements assigned or pledged to the Indenture Trustee under this Indenture or otherwise as trustee under this Indenture (for purposes of this Section 4.03, all such amounts and payments held or realized being herein called "proceeds"), other than amounts expressly paid to it for its own account and other than Excepted Payments, shall be distributed forthwith by the Indenture Trustee as provided in the next sentence; provided, however, in the event of an Indenture -------- ------- Event of Default that is not a Lease Event of Default, any amounts held by the Indenture Trustee hereunder or under any Operative Document on behalf of or in trust for the Lessee, shall not, until and unless such amounts are applied against the Lessee's payment obligations under the Lease, be subject to distribution under Section 4.03. Distributions shall be made in the following order of priority: first, so much of such proceeds as shall be required to reimburse the Indenture Trustee for any unpaid fees for its services under this Indenture and any unreimbursed tax, expense (including reasonable legal fees) or other loss incurred by it (in each case to the extent reimbursable under the Operative Documents) shall be distributed to the Indenture Trustee for application to itself; 25 second, so much of the remaining proceeds as shall be required to reimburse the then existing or prior Holders for amounts paid or advanced by the Holders pursuant to Section 6.04 (to the extent not previously reimbursed), shall be distributed to the then existing and prior Holders as their respective interests may appear, and if the proceeds remaining are insufficient to pay all such amounts in full, they shall be distributed ratably, without priority of any recipient over any other recipient (except as otherwise expressly provided herein), in the proportion the aggregate amount due each such Person under this clause "second" bears to the aggregate amount and interest due all such Persons under this clause "second"; third, so much of the proceeds remaining as shall be required to pay in full the aggregate unpaid principal amount of each Secured Note then Outstanding and Make-Whole Amount, if any, and all accrued but unpaid interest thereon to the date of distribution, shall be distributed to the Holder of such Secured Note, and if the proceeds remaining are insufficient to pay all such amounts in full, they shall be distributed to all Holders ratably, without priority of any Holder over any other Holder (except as otherwise expressly provided herein), in the proportion that the aggregate amount due each such Holder under this clause "third" bears to the aggregate amount due all such Holders under this clause "third"; fourth, so much of the proceeds remaining as shall be required to pay to each Holder all other amounts that are secured hereby, that remain unpaid and that are payable pursuant to any provision of any Operative Document shall be distributed to such Holder for distribution to itself and its predecessors, as their respective interests may appear, and if the proceeds remaining are insufficient to pay all such amounts in full, they shall be distributed ratably, without priority of any Holder over any other Holder (except as otherwise expressly provided herein), in the proportion that the aggregate amount due each such Holder under this clause "fourth" bears to the aggregate amount due all such Holders under this clause "fourth"; and fifth, the balance, if any, of the proceeds remaining shall be distributed to the Grantor Trustee for distribution pursuant to the Trust Agreement. All amounts distributed to any Holder pursuant to clause "third" of this Section 4.03 shall be applied by such Holder in payment of the Secured Notes held by it in accordance with the terms of Section 4.04. SECTION 4.04. Application of Payments on Secured Notes. Each payment on a Secured Note shall be applied, first, to the payment of accrued interest on such Secured Note to the date of such payment, 26 second, to the payment of Make-Whole Amount, if any, on such Secured Note due on the date of such payment, third, to the payment of any principal on such Secured Note then due thereunder, and fourth, to the payment of the installments of principal remaining unpaid on such Secured Note in the inverse order of the installment due date thereof. SECTION 4.05. Application of Payments According to Applicable Operative Document Provisions. (a) Any payments or amounts (other than Excepted Payments) received by the Indenture Trustee, provision for the application of which is made in any Operative Document (including, without limitation, any provision providing that the Indenture Trustee shall hold such amount in trust for the Lessee), shall be applied promptly as provided in such Operative Document, unless (i) in the case of payments or amounts that would be payable to the Lessee upon satisfaction of any applicable conditions, a Lease Event of Default shall have occurred and be continuing at the time the Indenture Trustee receives such payment and the Indenture Trustee has Actual Knowledge of such Lease Event of Default, in which case the Indenture Trustee shall hold such payments and amounts as cash collateral security for the obligations of the Lessee under the Operative Documents and shall invest such payments and amounts in accordance with the terms of Section 7.04, and, subject to earlier distribution thereof by the Indenture Trustee under Section 4.03 if the Lease shall have been declared in default in accordance with Section 16.1 thereof, or under Section 4.01(b) (subject to Section 4.05(b)), such payments and amounts, and the proceeds of any investment thereof, shall be paid by the Indenture Trustee to the Lessee at such time as any applicable conditions shall have been satisfied and no Lease Event of Default shall be continuing, and (ii) in the case of any other payments and amounts that are not payable to the Lessee upon satisfaction of any applicable conditions in the other Operative Documents, an Indenture Event of Default shall have occurred and be continuing at the time the Indenture Trustee receives such payment and the Indenture Trustee has Actual Knowledge of such Indenture Event of Default, in which case the Indenture Trustee shall hold such payment as part of the Indenture Estate, as cash collateral security hereunder for the performance of the Indenture Indebtedness and on the earlier of the next Business Day on which no Indenture Event of Default shall have occurred and be continuing or the first Business Day occurring more than 180 days after the receipt of such payment, and, subject to any prior application of such payment pursuant to Section 4.01(b) or 4.03, the Indenture Trustee shall apply such payment, and the proceeds of any investment thereof, to the purpose for which it was made. (b) Notwithstanding any other provision of this Indenture to the contrary, and whether or not any such provision refers to this Section 4.05, any Excepted Payment or other amount expressly provided by the terms of this Indenture to be paid directly to the Grantor Trustee or to the Owner Participant shall be paid or distributed immediately by the Indenture Trustee to the Grantor Trustee or the Owner Participant, as the case may be. 27 SECTION 4.06. Amounts Received for Which No Provision Is Made. (a) Any payment received or amounts realized by the Indenture Trustee for which no provision as to the application thereof is made elsewhere in this Indenture or any other Operative Document shall be held by the Indenture Trustee as part of the Indenture Estate in a cash collateral account maintained under Section 7.04, and (b) all payments received and amounts realized by the Indenture Trustee under the Lease, including without limitation, Section 11.7(b) of the Lease, or otherwise with respect to the Undivided Interest, to the extent received or realized at any time after payment in full of the principal of and interest on all Secured Notes issued hereunder, as well as any other amounts remaining as part of or as proceeds of the Indenture Estate after payment in full of the principal of, Make-Whole Amount, if any, and interest on all such Secured Notes, shall be distributed forthwith by the Indenture Trustee in the order of priority set forth in Section 4.03, omitting clause "third" thereof. The Indenture Trustee shall give prompt notice to the Grantor Trustee and each Holder of the receipt of any moneys by the Indenture Trustee subject to the provisions of this Section 4.06. SECTION 4.07. Payment Procedures. All amounts which are distributable from time to time by the Indenture Trustee to the Grantor Trustee, the Owner Participant or any Holder shall be paid by the Indenture Trustee in immediately available funds promptly after such amounts become immediately available to it, and the Indenture Trustee shall not be obligated to see to the application of any such payment made by it. All payments made by the Indenture Trustee to the Owner Participant or to the Grantor Trustee shall be made in the manner and to the address set forth in Schedule 1 to the Participation Agreement or to such other address as may be specified from time to time by notice to the Indenture Trustee from the Owner Participant or the Grantor Trustee. ARTICLE V COVENANTS OF GRANTOR TRUSTEE; CERTAIN AGREEMENTS; INDENTURE EVENTS OF DEFAULT; REMEDIES OF INDENTURE TRUSTEE SECTION 5.01. Covenants of Grantor Trustee; Certain Agreements. (a) Subject to Section 2.02, the Grantor Trustee will duly and punctually perform and observe all covenants and conditions to be performed and observed by it pursuant to the terms of any Operative Document. Except as permitted by this Indenture or the terms of any Operative Document, the Grantor Trustee will take no action and will cooperate with the Indenture Trustee so as to permit no action to be taken by others which will release, or which may be construed as releasing, the Grantor Trustee or the Lessee from any of its or the Lessee's, as the case may be, obligations or liabilities under any Operative Document, or which may result in the termination, amendment or modification, or impair the validity, of any such Operative Document. 28 (b) If the Grantor Trustee has Actual Knowledge of any Indenture Event of Default, Indenture Default, Lease Event of Default or Event of Loss, the Grantor Trustee will give prompt written notice thereof to the Indenture Trustee, the Lessee and the Owner Participant if such notice shall not already have been given to such party. The notice shall set forth in reasonable detail the circumstances of such default or loss known to the Grantor Trustee. (c) [Intentionally Omitted.] (d) The Grantor Trustee does hereby warrant and represent that it has not assigned or pledged, and hereby covenants that except as provided in or permitted by the other Operative Documents it will not assign or pledge, so long as this Indenture shall remain in effect, any of the Grantor Trustee's right, title or interest hereby assigned to anyone other than the Indenture Trustee, and that the Grantor Trustee will not (other than in respect of Excepted Payments), except as provided in or permitted by this Indenture or any other Operative Document, (i) accept any payment from the Lessee, (ii) terminate or consent to the cancellation or surrender of the Lease or accept any prepayment of Rent under the Lease, (iii) enter into any agreement amending or supplementing any Operative Document, (iv) execute or grant any waiver or modification of, or consent under, the terms of any Operative Document, (v) settle or compromise any claim arising under any Operative Document, or (vi) submit or consent to the submission of any dispute, difference or other matter arising under or in respect of any Operative Document to arbitration thereunder. (e) The Grantor Trustee does hereby ratify and confirm the Lease, and does hereby agree that it will not, except as provided in or permitted by this Indenture or the terms of any other Operative Document, take or omit to take any action, the taking or omission of which might result in an alteration or impairment of the Lease or any other Operative Document, or of any of the rights created by the Lease or any Operative Document, or the assignment hereunder or thereunder, as the case may be. (f) The Corporate Grantor Trustee will, in its individual capacity and at its own cost and expense, promptly take such action as may be necessary to discharge any Lessor's Lien on any of the Grantor Trustee's estate, right, title or interest in the Trust Estate (including the Louisiana Trust Estate as defined in Section 8.03 hereof) so pledged or assigned or intended to be conveyed, pledged or assigned under this Indenture. (g) Until the release of the security interest in the Indenture Estate pursuant to Section 6.03, all payments due or to become due under any Operative Document to the Grantor Trustee that are part of the Indenture Estate shall be made directly to the Indenture Trustee or in accordance with the Indenture Trustee's instructions, and the Grantor Trustee shall give all notices as shall be required under each Operative Document to direct that such payments be made to the Indenture Trustee. 29 Promptly on receipt thereof, the Grantor Trustee will transfer to the Indenture Trustee any and all moneys from time to time received by it and constituting part of the Indenture Estate or otherwise assigned or pledged to the Indenture Trustee hereunder, in each case for application by the Indenture Trustee pursuant to this Indenture, except that the Grantor Trustee shall accept for distribution pursuant to the terms of the Trust Agreement any amounts distributed to it by the Indenture Trustee under this Indenture. (h) An executed counterpart of each amendment or supplement to the Trust Agreement shall be delivered within 20 Business Days after the execution thereof to the Indenture Trustee, provided that any amendment or supplement under which a successor trustee is appointed shall be mailed to the Indenture Trustee within 10 days after the execution thereof. The Lien of this Indenture or the Ship Mortgage shall not be affected by any amendment or supplement to the Trust Agreement or by any other action taken under or in respect of the Trust Agreement. Without the prior written consent of the Indenture Trustee, the Trust Agreement may not in any event be terminated or revoked by the Owner Participant prior to the termination of this Indenture. In the case of any appointment of a successor to any Grantor Trustee pursuant to the Trust Agreement or any merger, conversion, consolidation or transfer of all or substantially all of the corporate trust business of the Corporate Grantor Trustee pursuant to the Trust Agreement, the successor Grantor Trustee shall give prompt notice thereof to the Indenture Trustee. SECTION 5.02. Indenture Event of Default. "Indenture Event of Default" means any of the following events (whatever the reason for such Indenture Event of Default and whether such event shall be voluntary or involuntary or come about or be effected by operation of law or pursuant to or in compliance with any judgment, decree or order of any court or any Governmental Rule): (a) any Lease Event of Default (other than a Lease Event of Default arising from the failure of the Lessee to make an Excepted Payment) shall have occurred and be continuing; or (b) any payment of principal of, Make-Whole Amount, if any, or interest on any Secured Note shall not have been made when due and such default shall continue unremedied for ten (10) Business Days after the same shall have become due and payable; or (c) the failure by either of the Owner Participant or the Grantor Trustee, as the case may be, to perform or observe in any material respect any covenant or agreement to be performed or observed by it under this Indenture or any other Operative Document (other than the Tax Indemnity Agreement), (i) which failure shall continue for a period of thirty (30) days after the receipt by the Owner Participant or the Grantor Trustee of a notice from the Indenture Trustee or any Holder of a Secured Note specifying such 30 failure and requiring it be remedied or (ii) which failure, if such failure is remediable and the Owner Participant or the Grantor Trustee is diligently attempting to remedy such failure, shall continue for a period of 180 days after receipt of such notice; or (d) any representation or warranty made by either of the Owner Participant or the Grantor Trustee pursuant to Section 6 or 8, as the case may be, of the Participation Agreement shall prove to have been inaccurate in any material respect when made, unless such inaccurate representation or warranty shall not be material to the recipient at the time when the notice referred to below shall have been received by the Owner Participant or the Grantor Trustee or any material adverse impact thereof shall have been cured within thirty (30) days after receipt by the Owner Participant or the Grantor Trustee of a written notice thereof from the Indenture Trustee or any Holder of a Secured Note; provided that if such material adverse impact is remediable and the Owner Participant or Grantor Trustee is diligently attempting to remedy such impact, the Owner Participant or Grantor Trustee shall have 90 days after receipt of such written notice thereof to remedy any such material adverse impact; or (e) either of the Owner Participant or the Grantor Trustee shall commence a voluntary case or other proceeding seeking liquidation, reorganization or other relief with respect to itself or its debts under any bankruptcy, insolvency or other similar law now or hereafter in effect or seeking the appointment of a trustee, receiver, liquidator, custodian or other similar official of its or any substantial part of its property, or shall consent to any such relief or to the appointment or taking possession by any such official or agency in an involuntary case or other proceeding commenced against it, or shall make a general assignment for the benefit of creditors, or shall take any corporate action to authorize any of the foregoing, or an involuntary case or other proceeding shall be commenced against either of the Owner Participant or the Grantor Trustee seeking liquidation, reorganization or other relief with respect to it or its debts under any bankruptcy, insolvency or other similar law now or hereafter in effect or seeking the appointment of a trustee, receiver, liquidator, custodian or other similar official or agency of its or any substantial part of its part of its property, and such involuntary case or other proceeding shall remain undismissed and unstayed for a period of ninety (90) days, or if, under the provisions of any law providing for reorganization or winding-up of corporations which may apply to the Grantor Trustee or the Owner Participant, any court of competent jurisdiction shall assume jurisdiction, custody or control of the Indenture Estate, the Grantor Trustee or the Owner Participant or of any substantial part of its property and such jurisdiction, custody or control shall remain in force unrelinquished, unstayed or unterminated for a period of ninety (90) days. 31 SECTION 5.03. Certain Rights. (a) If the Lessee shall fail to make any payment of Basic Rent under the Lease when the same shall become due, and if such failure of the Lessee to make such payment of Basic Rent shall not constitute the fourth consecutive such failure or the seventh or subsequent cumulative such failure, then as long as no Indenture Event of Default (other than arising from a Lease Event of Default not involving any failure to make any payments to which the Indenture Trustee or any Loan Participant is entitled hereunder when due) shall have occurred and be continuing, the Owner Participant or the Grantor Trustee may (but need not), without consent or concurrence of the Indenture Trustee or any Holder, pay to the Indenture Trustee, in the manner provided in Section 2.03, for application in accordance with Section 4.01, at any time prior to the day which is the 11th day subsequent to the expiration of the grace period provided for in Section l5(a) of the Lease with respect to the payment of Basic Rent (and the Indenture Trustee shall not, without the prior written consent of the Grantor Trustee, declare the Lease in default pursuant to Section 16 thereof or exercise any of the rights, powers or remedies pursuant to such Section 16 or Section 5.04 hereof prior to the occurrence of such later date), an amount equal to such payment of Basic Rent sufficient to pay the principal and interest then due on the Secured Notes, together with any interest due thereon on account of the delayed payment thereof to the date of such payment in accordance with Section 2.03(c) hereof, and such payment by the Owner Participant or the Grantor Trustee shall be deemed to cure as of the date of such payment any Indenture Event of Default which arose from such failure of the Lessee (including any Lease Event of Default arising from the Lessee's failure to pay interest in respect of such overdue Basic Rent for the period commencing on the date of such payment), but such cure shall not relieve the Lessee of any of its obligations. If the Lessee shall fail to perform or observe any covenant, condition or agreement to be performed or observed by it under the Lease or any other Lease Event of Default shall exist (other than the failure to pay Basic Rent), and if (but only if) the performance or observance of such covenant, condition or agreement or the cure of such Lease Event of Default can be effected by the payment of money alone (it being understood that actions such as the obtaining of insurance can be so effected), then as long as no other Indenture Event of Default (other than those arising from a Lease Event of Default) shall have occurred and be continuing, the Owner Participant or the Grantor Trustee may (but need not), without consent or concurrence of the Indenture Trustee or any Holder, pay to the Indenture Trustee (or to such other person as may be entitled to receive the same), at any time prior to the day which is the later of (x) the 11th day subsequent to notice of such failure or such Lease Event of Default by the Indenture Trustee to the Grantor Trustee or the Owner Participant and (y) the 11th day subsequent to the expiration of the grace period, if any, provided with respect to such failure or such Lease Event of Default on the part of the Lessee in Section 15 of the Lease (and the Indenture Trustee shall not (without the prior written consent of the Grantor Trustee) declare the Lease in default pursuant to Section 16 thereof or exercise any of the rights, powers or remedies 32 pursuant to such Section 16 or Section 5.04 hereof prior to the occurrence of such later date), all sums necessary to effect the performance or observance of such covenant or agreement of the Lessee or to cure such Lease Event of Default, together with any interest due thereon on account of the delayed payment thereof to the date of such payment, and such payment by the Owner Participant or the Grantor Trustee shall be deemed to cure as of the date of such payment any Indenture Event of Default which arose from such failure of the Lessee or such Lease Event of Default (including any Lease Event of Default arising from the Lessee's failure to pay interest in respect of such overdue payment for the period commencing on the date of such payment), but such cure shall not relieve the Lessee of any of its obligations; provided that the Grantor Trustee and the Owner Participant, collectively, shall not be entitled to cure any such Lease Event of Default if the total amount outstanding and not reimbursed to such parties exceeds in the aggregate $10,000,000. (b) To the extent of any payment made by the Grantor Trustee or the Owner Participant pursuant to Section 5.03(a), the Grantor Trustee or the Owner Participant, as the case may be, shall be subrogated to the rights of the Holders hereunder to receive from the Indenture Trustee the payment of Basic Rent or other amount for which such payment was made by the Grantor Trustee or the Owner Participant, as the case may be, and the Grantor Trustee or the Owner Participant, as the case may be, shall be entitled to receive such payment from the Indenture Trustee upon receipt thereof by the Indenture Trustee; provided, however, that no such amount shall be paid to the Grantor Trustee or the Owner Participant, as the case may be, unless all principal of and interest on the Secured Notes then due and payable and any other amounts then due and payable under the Secured Notes and this Indenture shall have been paid in full and no Indenture Default shall have occurred and be continuing. (c) The Grantor Trustee, upon exercising cure rights under Section 5.03(a) or rights under Section 6.08(a)(iii) or under Section 18.1 of the Lease shall not obtain any Lien on any part of the Indenture Estate or Trust Estate (including the Louisiana Trust Estate) on account of such payment for the costs and expenses incurred in connection therewith nor shall any claims of the Grantor Trustee against the Lessee or any other Person for the repayment thereof impair the prior right and security interest of the Indenture Trustee in and to the Indenture Estate or otherwise related to the Indenture Estate. (d) If there shall occur an Indenture Event of Default pursuant to Section 5.02(a) arising as a result of a failure by the Lessee to make any payment of Rent when due, the Indenture Trustee shall so notify the Grantor Trustee in writing promptly upon such occurrence. SECTION 5.04. Remedies. (a) If an Indenture Event of Default shall have occurred and be continuing and so long as the same shall be unremedied, then and in every such case the Indenture Trustee, subject to Sections 5.03, 5.04(d), 5.05, 5.09, 6.01 and 6.08, may 33 exercise any or all of the rights and powers and pursue any and all of the remedies herein provided or available under applicable law; provided, however, the Indenture Trustee must give the Grantor Trustee at least 10 Business Days' (or 5 Business Days in the case of acceleration of the Secured Notes other than an automatic acceleration of the Secured Notes as provided in Section 5.04(c)) prior written notice of its intention to exercise remedies pursuant to this Section 5.04 (it being understood that such notice may be given concurrently with any notice of default given hereunder or under the Lease and prior to the expiration of any applicable grace periods). Notwithstanding any contrary provision herein, upon the occurrence and during the continuance of an Indenture Event of Default, the Indenture Trustee may exercise, subject to Sections 5.03(a), 5.05, 5.09, 5.10 and 6.08, all rights and remedies of the Grantor Trustee to the exclusion of the Grantor Trustee under the Lease (other than those rights and remedies to the extent relating to Excepted Payments), including without limitation the right to take possession of all or any part of the Indenture Estate and exclude the Grantor Trustee and all Persons (including the Lessee except to the extent of the Lessee's rights under the Agency and Support Agreement) claiming under the Grantor Trustee wholly or partly therefrom. In addition to and without limiting the foregoing, the Indenture Trustee, upon at least twenty-five (25) days' prior written notice to the Grantor Trustee and the Owner Participant, may invoke and exercise the power of sale and sell any or all of the Indenture Estate in the manner required by law at public auction, or in any other manner which shall be in accordance with applicable law, or, in lieu of sale pursuant to the power of sale, the Indenture Estate may be foreclosed, and the Indenture Trustee has and may exercise all rights and remedies of a secured party under the Uniform Commercial Code as in effect in any applicable jurisdiction or under Panamanian law, provided, however, that if an Indenture Event of Default has occurred and is continuing solely by virtue of one or more Lease Events of Default (at a time when no other Indenture Events of Default shall have occurred and be continuing), the Indenture Trustee shall not exercise foreclosure remedies under this Indenture without exercising material remedies seeking to dispossess the Lessee under the Lease, unless exercising such remedies under the Lease shall be prohibited by law, governmental authority or court order, in which case the Indenture Trustee shall not exercise foreclosure remedies under the Indenture until the expiration of a period of 180 days from the commencement of such prohibition; provided, further, that notwithstanding any provision herein to the contrary, the Indenture Trustee shall not sell, assign, transfer or deliver any of the Indenture Estate or take possession of the Indenture Estate unless the Secured Notes shall have been accelerated pursuant to Section 5.04(b) or 5.04(c); provided, further, that included in any such notice shall be a statement as to the Indenture Trustee's intention to foreclose the Lien of this Indenture under executory process pursuant to Title II of Book IV of the Louisiana Code of Civil Procedure and any other related provision of law as such provision may be amended from time to time. The Indenture Trustee shall notify the Grantor Trustee, the Owner Participant and the Lessee as soon as is reasonably practicable after its commencement of the exercise of any remedy pursuant to this Section 5.04. 34 (b) If an Indenture Event of Default (other than an Indenture Event of Default specified in Section 5.02(e) or an Indenture Event of Default of the type specified in Section 5.02(a) which arises as a result of any Lease Event of Default other than such Lease Event of Default as is specified in Section 15(f) of the Lease) shall have occurred and be continuing, then, subject to Sections 5.03, 6.01 and 6.08, the Indenture Trustee may at any time, by five (5) days' written notice to the Grantor Trustee, declare all (but not less than all) of the Secured Notes to be due and payable. Upon such declaration the unpaid principal of all Secured Notes then Outstanding, together with accrued but unpaid interest thereon and any other amounts due thereunder, but without the Make-Whole Amount or any other premium, shall immediately become due and payable without presentment, demand, protest or notice, all of which are hereby waived. (c) If an Indenture Event of Default of the type specified in Section 5.02(e), or an Indenture Event of Default of the type specified in Section 5.02(a) which arises as a result of any Lease Event of Default specified in Section 15(f) of the Lease shall have occurred and be continuing, the principal of all Secured Notes then Outstanding, together with accrued but unpaid interest thereon and any other amounts due thereunder, but without the Make-Whole Amount or any other premium, shall become and be due and payable automatically, without declaration, notice, demand or any other action on the part of the Indenture Trustee or any Holder, all of which are hereby waived. Each of Section 5.04(b) and this Section 5.04(c), however, is subject to the condition that, if at any time after the principal of the Secured Notes shall have become due and payable upon a declared or automatic acceleration thereof as provided herein, and before any judgment or decree for the payment of the money so due, or any portion thereof, shall be entered, all overdue payments of interest upon the Secured Notes and all other amounts payable under the Secured Notes (except the principal of the Secured Notes which by such declaration shall have become payable) shall have been duly paid, and every other Indenture Event of Default with respect to any covenant or provision of this Indenture shall have been cured, then in every such case a Majority in Interest of Holders of Notes, by written instrument filed with the Indenture Trustee, may (but shall not be obligated to) rescind and annul the Indenture Trustee's declaration and its consequences; but no such rescission or annulment shall extend to or affect any subsequent Event of Default or impair any right consequent thereon. (d) Notwithstanding any provision in any document or instruction that purports to require the Indenture Trustee to acquire title to any or all of the Indenture Estate upon foreclosure, or pursuant to instructions, the Indenture Trustee shall not be obligated to acquire any such title unless: (i) the Indenture Trustee is provided with such security or indemnity as it shall deem satisfactory to it, (ii) such acquisition of title complies with all applicable Operative Documents, laws, rules and regulations, which shall be evidenced by an opinion of counsel to such effect in form and substance satisfactory to the Indenture 35 Trustee and (iii) the Indenture Trustee shall have obtained such executed certificates, instruments or other documents, in accordance with its reasonable inquiries or requests. SECTION 5.05. Suit; Possession; Title; Sale of Indenture Estate. (a) The Grantor Trustee agrees that, if an Indenture Event of Default shall have occurred and be continuing and the Indenture Trustee shall be entitled to exercise remedies hereunder as provided in Section 5.04, the Indenture Trustee may take possession of all or any part of the Indenture Estate and may exclude the Grantor Trustee, and all Persons claiming under the Grantor Trustee, wholly or partly therefrom; provided, however, that at least 30 Business Days' prior notice of such taking of possession shall be given to the Grantor Trustee. If an Indenture Event of Default shall have occurred and be continuing and the Indenture Trustee shall be entitled to exercise remedies hereunder as provided in Section 5.04, at the request of the Indenture Trustee, the Grantor Trustee shall promptly execute and deliver to the Indenture Trustee such instruments of title and other documents as the Indenture Trustee may deem necessary or advisable to enable the Indenture Trustee or any agent or representative designated by the Indenture Trustee, at such time or times and place or places as the Indenture Trustee may specify, to obtain possession of all or any part of the Indenture Estate to which the Indenture Trustee shall at the time be entitled hereunder. If the Grantor Trustee shall for any reason fail to execute and deliver such instruments and documents after such request by the Indenture Trustee, the Indenture Trustee may (i) obtain a judgment conferring on the Indenture Trustee the right to immediate possession of any property comprising a portion of the Indenture Estate and requiring the Grantor Trustee to execute and deliver such instruments and documents to the Indenture Trustee, or (ii) pursue all or part of such property wherever it may be found, and the Indenture Trustee may enter any of the premises where such property or any portion thereof may be or is supposed to be and search for such property. All expenses of obtaining such judgment or of pursuing, searching for and taking such property shall, until paid, be secured by the Lien of this Indenture and the Ship Mortgage. (b) Upon every such taking of possession, the Indenture Trustee may make, from time to time and at the expense of the Indenture Estate, such expenditures for maintenance, insurance, repairs, replacements, alterations, additions and improvements to and of the Indenture Estate as it may deem proper. In each such case, the Indenture Trustee shall have the right to maintain, use, operate, store, lease, control or manage the Indenture Estate and to exercise all rights and power of the Grantor Trustee relating to the Indenture Estate as the Indenture Trustee shall deem to be in the best interest of the Holders. The Indenture Trustee shall be entitled to collect and receive directly all tolls, rents (including Rent), revenue, issues, income, products and profits of the Indenture Estate and every part thereof, other than Excepted Payments. Such tolls, rents (including Rent), revenue, issues, income, products and profits shall be applied (i) to pay the 36 expenses of the use, operation, storage, leasing, control, management or disposition of the Indenture Estate, (ii) to pay the expense of all maintenance, repairs, replacements, alterations, additions and improvements, (iii) to make all payments which the Indenture Trustee may be required or may elect to make, if any, for taxes, assessments, insurance or other proper charges upon the Indenture Estate or any portion thereof, including without limitation the employment of engineers and accountants to examine, inspect and make reports upon the properties and books and records of the Grantor Trustee, and (iv) to pay amounts owing in respect of the Secured Notes in accordance with the provisions thereof and hereof and to make all other payments which the Indenture Trustee may be required or authorized to make under any provision of this Indenture or the Ship Mortgage, as well as just and reasonable compensation for the services of the Indenture Trustee and of all Persons properly engaged and employed by the Indenture Trustee. (c) Any of the Indenture Trustee, any Holder, the Grantor Trustee or the Owner Participant may be a purchaser of the Indenture Estate or any portion thereof or any interest therein at any sale thereof, whether pursuant to foreclosure or power of sale or otherwise. The Indenture Trustee may apply against the purchase price thereof or the amount then due to it hereunder or under any of the Secured Notes secured hereby and any Holder may apply against the purchase price therefor the amount then due to it hereunder or under the Secured Notes held by such Holder, to the extent of such portion of the purchase price as it would have received had it been entitled to share in any distribution thereof. The Indenture Trustee or any Holder or any nominee of any such Holder shall acquire, upon any such purchase, good title to the property so purchased, free of the Lien of this Indenture and, to the extent permitted by applicable law, free of all rights of redemption in the Grantor Trustee in respect of the property so purchased. (d) Any sale or other conveyance of any of the Indenture Estate by the Indenture Trustee made pursuant to the terms of this Indenture or the Ship Mortgage, or the Lease shall bind the Grantor Trustee, the Holders and the Owner Participant and shall be effective to transfer or convey all right, title and interest of the Indenture Trustee, the Grantor Trustee, the Holders and the Owner Participant in and to such Indenture Estate or portion thereof, as the case may be. No purchaser or other grantee shall be required to inquire as to the authorization, necessity, expediency or regularity of such sale or conveyance, or as to the application of any sale or other proceeds with respect thereto by the Indenture Trustee. In the event of any such sale, the Grantor Trustee shall execute any and all such bills of sale, instruments of conveyance and assignment and other documents, and perform and do all other acts and things requested by the Indenture Trustee in order to permit continuation of such sale and to effectuate the transfer or conveyance referred to in the first sentence of this Section 5.05(d). The Grantor Trustee shall ratify and confirm any such sale or sales by executing and delivering to the Indenture Trustee or to such purchaser or purchasers all instruments as may reasonably be requested for such 37 purpose. Any such sale or sales made hereunder shall operate to divest all the estate, right, title, interest, claim and demand whatsoever, whether at law or in equity, of the Grantor Trustee in and to the properties and rights so sold, and shall be a perpetual bar both at law and in equity against the Grantor Trustee and against any and all persons claiming or who may claim the same, or any part thereof from, through or under the Grantor Trustee. Upon any sale or other disposition of the Indenture Estate by the Indenture Trustee, the Indenture Trustee will promptly account in writing, in reasonable detail, to the Grantor Trustee for the amount of such sale, the costs and expenses incurred in connection therewith and any surplus proceeds. (e) The Indenture Trustee shall, as a matter of right, be entitled to the appointment of a receiver or a keeper pursuant to the terms and provisions of La. R.S. 9:5136 et seq. (who may be the Indenture Trustee or any successor or nominee thereof), at any time after an Indenture Event of Default either before or after declaring due and payable the principal of all Secured Notes then Outstanding, together with accrued but unpaid interest thereon and any other amounts due thereunder, for all or any portion of the Indenture Estate, whether such receivership or keepership be incidental to a proposed sale of the Indenture Estate or the taking of possession thereof or otherwise, and the Grantor Trustee hereby consents to the appointment of such a receiver or keeper, and agrees that it will not oppose any such appointment. Any receiver or keeper appointed for all or any portion of the Indenture Estate shall be entitled in addition to any powers available under applicable law, to exercise all the rights and powers of the Indenture Trustee with respect to the Indenture Estate. (f) To the extent now or at any time hereafter enforceable under applicable law, the Grantor Trustee covenants that it will not (i) at any time, insist upon or plead, or in any manner whatsoever claim or take any benefit or advantage of any stay, extension, moratorium, any exemption from execution or sale or other similar law or from any law now or hereafter in force providing for the valuation or appraisement of the Indenture Estate or any part thereof, prior to any sale or sales thereof to be made pursuant to any provision herein contained, or prior to any applicable decree, judgment or order of any court of competent jurisdiction, nor (ii) after such sale or sales, claim or exercise any right under any statute now or hereafter made or enacted by any state or any right to have a portion of the Indenture Estate or the security for the Secured Notes marshalled or otherwise redeem the property so sold or any part thereof, and hereby expressly waives, for itself and on behalf of each and every Person who may claim through or under it, except decree or judgment creditors of the Grantor Trustee acquiring any interest in or title to the Indenture Estate or any part thereof subsequent to the date of this Indenture, all benefit and advantage of any such law or laws, and covenants that it will not invoke or use any such law or laws, but will suffer and permit the execution of every such power as though no such law or laws had been made or enacted. Nothing in this Section 5.05(f) shall be deemed to be a waiver by the Grantor Trustee of its rights under 38 Sections 5.03 or 5.04 hereof. The Indenture Trustee may maintain such a pleading, or, in any manner whatsoever, claim or take any benefit or advantage of or from any law now or hereafter in force even if it does not possess any of the Secured Notes or does not produce any of them in the proceeding. A delay or omission by the Indenture Trustee or any Holder in exercising any right or remedy accruing upon an Indenture Event of Default under this Indenture shall not impair the right or remedy or constitute a waiver of or acquiescence in such Indenture Event of Default. (g) The Indenture Trustee may adjourn from time to time any sale to be made under or by virtue of this Indenture for such sale or for such adjourned sale or sales, and, except as otherwise provided by any applicable provision of law, the Indenture Trustee, without further notice or publication, may make such sale at the time and place to which the same shall be so adjourned. (h) Any recovery of any judgment by the Indenture Trustee under the Secured Notes and any levy of any execution under any such judgment upon the Indenture Estate shall not affect in any manner or to any extent the security title and security interest conveyed hereby upon the Indenture Estate or any part thereof, or any conveyances, powers, rights and remedies or the Indenture Trustee hereunder, but such conveyances, powers, rights and remedies shall continue unimpaired as before. (i) Notwithstanding anything contained herein, so long as the Pass Through Trustee is a registered Holder, the Indenture Trustee is not authorized or empowered to acquire title to all or any portion of the Indenture Estate or take any action with respect to all or any portion of the Indenture Estate so acquired by it if such acquisition or action would cause the Pass Through Trust to fail to qualify as a "grantor trust" for federal income tax purposes. SECTION 5.06. Remedies Cumulative. Each and every right, power and remedy provided the Indenture Trustee specifically or otherwise in this Indenture shall be cumulative and shall be in addition to every right, power and remedy herein specifically provided or now or hereafter existing at law, in equity or otherwise. Each and every such right, power and remedy may be exercised from time to time and as often and in such order as may be deemed expedient by the Indenture Trustee, and the exercise or the beginning of the exercise of any such right, power or remedy shall not be construed to be a waiver of the right to exercise at the same time or thereafter any other right, power or remedy. No delay or omission by the Indenture Trustee in the exercise of any right or power or in the pursuit of any remedy shall impair any such right, power or remedy, or be construed to be a waiver of any Indenture Event of Default or to be an acquiescence therein. SECTION 5.07. Discontinuance of Proceedings. In case 39 the Indenture Trustee shall have instituted any proceeding to enforce any right, power or remedy under this Indenture by foreclosure, entry or otherwise, and such proceeding shall have been discontinued or abandoned for any reason or shall have been determined adversely to the Indenture Trustee, then and in every such case the Grantor Trustee, the Indenture Trustee and the Lessee shall, subject to any determination in such proceeding, be restored to their former positions and rights hereunder with respect to the Indenture Estate, and all right, powers and remedies of the Indenture Trustee shall continue as if no such proceeding had been instituted. SECTION 5.08. Waiver of Past Defaults. Upon written instruction of a Majority in Interest of Holders of Notes, the Indenture Trustee shall waive any Indenture Event of Default specified in such instruction and its consequences, and upon any such waiver such Indenture Event of Default shall cease to exist for every purpose of this Indenture; provided, however, that no such waiver shall extend to any subsequent or other Indenture Event of Default or impair any right or consequence thereof; and provided further, however, that in the absence of the written instruction of the Holders of all Secured Notes then Outstanding, the Indenture Trustee shall not waive any Indenture Event of Default arising from a default (i) in the payment of the principal of, Make-Whole Amount, if any, or interest on, or other amounts due under, any Secured Note then Outstanding, or (ii) in respect of a covenant or provision hereof which pursuant to the terms of Article IX cannot be modified or amended without the consent of each Holder of a Secured Note then Outstanding. SECTION 5.09. No Action Contrary to Lessee's Rights Under the Lease. Notwithstanding any other provision of any Operative Document, (i) unless a Lease Event of Default shall have occurred and be continuing and the Lease shall have been declared to be in default pursuant to Section 16.1 thereof, the Indenture Trustee shall not take or cause to be taken any action contrary to the Lessee's rights under the Lease, including without limitation the rights of the Lessee under Section 9.1 thereof and (ii) the Indenture Trustee shall not take or cause to be taken any action contrary to the rights of the Other Owner and its successors and assigns under Section 9.1 of the Lease. SECTION 5.10. Rights of Holders of Secured Notes. Notwithstanding any provision herein (including Section 5.11) to the contrary, the Holder of a Secured Note shall have the absolute and unconditional right to receive payment from the Indenture Estate of the principal of and interest on such Secured Note on the dates and as specified in such Secured Note, and to institute suit against the Grantor Trustee for the enforcement of any such payment, subject to Section 2.02, and such right shall not be impaired without the consent of such Holder. SECTION 5.11. Limitation on Suits by Holders. A Holder may pursue a remedy under this Indenture or under a Secured Note only if: 40 (i) the Holder gives to the Indenture Trustee written notice of a continuing Indenture Event of Default under this Indenture; (ii) the Holders of at least 25 percent (25%) of the Outstanding principal amount of the Secured Notes instruct the Indenture Trustee to pursue the remedy; (iii) such Holder or Holders offer to the Indenture Trustee indemnity satisfactory to the Indenture Trustee against any loss, liability or expense to be, or which may be, incurred by the Indenture Trustee in pursuing the remedy; (iv) the Indenture Trustee does not comply with the request within 60 days after receipt of the instructions and the offer of indemnity; and (v) during such 60-day period, a Majority in Interest of Holders do not give the Indenture Trustee an instruction inconsistent with the request. A Holder may not use this Indenture to prejudice the rights of another Holder or to obtain a preference or priority over another Holder. SECTION 5.12. Trustee May File Proofs of Claim. In case of the pendency of any receivership, insolvency, liquidation, bankruptcy, reorganization, arrangement, adjustment, composition or other judicial proceedings, or any voluntary or involuntary case under United States bankruptcy laws, as now or hereafter constituted, relative to the Grantor Trustee or the Lessee, if obligated on the Secured Notes, the Indenture Trustee (irrespective of whether the principal of the Secured Notes shall then be due and payable as therein expressed or by declaration or otherwise and irrespective of whether the Trustee shall have made any demand on the Grantor Trustee or the Lessee, as the case may be, for the payment of overdue principal, Make-Whole Amount, if any, or interest) shall be entitled and empowered, by intervention in such proceeding or otherwise, to file and prove a claim for the whole amount of principal (and the Make-Whole Amount, if any) and interest owing and unpaid in respect of the Secured Notes, to file such other papers or documents and to take such other actions, including participating as a member or otherwise in any official committee of creditors appointed in the matter, as may be necessary or advisable in order to have the claims of the Trustee and the Holders allowed in such judicial proceeding. ARTICLE VI DUTIES OF THE INDENTURE TRUSTEE 41 SECTION 6.01. Certain Actions. If the Indenture Trustee shall have Actual Knowledge of any Indenture Event of Default or any Indenture Default or any failure on the part of the Lessee to make any payment of Rent when due or any Event of Loss or any other material fact relating to the Undivided Interest, the Indenture Trustee shall (a) give prompt telephonic notice (promptly confirmed in writing) to the Grantor Trustee, the Owner Participant and the Lessee and (b) within 90 days after obtaining such Actual Knowledge, mail to each Holder, notice of all Indenture Events of Default unless, in each case, such Indenture Event of Default has been remedied before the giving of such notice and the Indenture Trustee has Actual Knowledge that such Indenture Event of Default has been so remedied; provided, however, that the failure by the Indenture Trustee to provide such notice shall not invalidate any actions subsequently taken by the Indenture Trustee in connection with such Indenture Event of Default. Except in the case of a default in the payment of the principal or interest on any Secured Note, the Indenture Trustee shall be protected in withholding the notice required under clause (b) above if and so long as Responsible Officers of the Indenture Trustee in good faith determine that withholding such notice is in the interest of the Holders. Notwithstanding any other provision hereof, the Indenture Trustee shall not be required to make any determination of materiality pursuant to Section 5.02(c) or (d). SECTION 6.02. Action Upon Instructions. (a) The Indenture Trustee shall, upon the written instruction at any time and from time to time of a Majority in Interest of Holders of Notes, give such notice, consent or direction or exercise such right, remedy or power hereunder or under the Lease or any other agreement constituting part of the Indenture Estate as shall be specified in such instruction; provided, however, that nothing set forth in this Section 6.02(a) shall entitle the Holders to cause the Indenture Trustee to give any notice or exercise any right, power or remedy that is not elsewhere authorized by, or is otherwise restricted or prohibited by, this Indenture. If the Indenture Trustee shall not have received instructions as above provided within twenty (20) calendar days after mailing of the notice pursuant to Section 6.01 to the Holders, the Indenture Trustee may take such action, or refrain from taking such action, but shall be under no duty to take or refrain from taking any action, with respect to such Indenture Default, Indenture Event of Default, Event of Loss or fact as it shall determine to be advisable and in the best interest of the Holders. If the Indenture Trustee receives any instructions after the expiration of the aforementioned twenty day period, the Indenture Trustee shall use its best efforts to conform any action being taken to comply with those instructions. (b) The Indenture Trustee shall not consent to the assignment by the Lessee of all or any material portion of its right, title and interest in, to and under the Lease, except (i) with respect to an assignment permitted under Section 14.2 of the Lease or (ii) upon the written instruction at any time and from time to time of a Majority in 42 Interest of Holders of Notes. Nothing set forth herein shall be construed to permit such assignment without the consent of the Grantor Trustee or to adversely affect any right of the Grantor Trustee. SECTION 6.03. Release of Lien of Indenture. (a) Release of Indenture Estate. Upon satisfaction of the conditions for termination of this Indenture set forth in Section 10.01, the Indenture Trustee, upon the written request of the Grantor Trustee, shall execute and deliver to, or as directed by, the Grantor Trustee, all appropriate instruments (in due form for recording or filing) releasing the Indenture Estate from the Lien of this Indenture, and the Indenture Trustee shall pay all moneys or other properties or proceeds held by it under this Indenture to the Grantor Trustee and shall give notice to the Lessee of such payment. The cost and expense associated with any action taken by the Indenture Trustee pursuant to the provisions of this Section 6.03(a) shall be borne by the Lessee. (b) Release of the Undivided Interest Upon Transfer. Upon any transfer by the Grantor Trustee of the Lessor's Interest in the Undivided Interest or a Significant Portion thereof pursuant to Section 6.1, 7, 11.7(b) or 12 of the Lease or any retention by the Grantor Trustee of the Lessor's Interest in the Undivided Interest pursuant to Section 7 of the Lease and receipt by the Indenture Trustee of all amounts of Rent therefor that constituted a part of the Indenture Estate due and payable by the Lessee and the concurrent redemption of Secured Notes as set forth in Sections 3.02 and 4.02 and the payment of any other amounts then due and owing hereunder, the Indenture Trustee, upon the written request of the Grantor Trustee, shall execute and deliver to, or as directed by, the Grantor Trustee, all appropriate instruments (in due form for recording or filing) releasing the Undivided Interest or such Significant Portion, as the case may be, and the Grantor Trustee's interest therein and all other property solely relating thereto and then constituting a portion of the Indenture Estate (or if not solely relating thereto, but such other property can be reasonably partitioned without undue burden or delay, such other property), as the case may be, from the Lien of this Indenture. The cost and expense associated with any action taken by the Indenture Trustee pursuant to the provisions of this Section 6.03(b) shall be borne by the Lessee. (c) Release of Lien upon Full Payment of Secured Notes. Upon payment in full of the principal of and interest on and all other amounts due and payable under the Secured Notes, and all other amounts due and payable to any Holder or the Indenture Trustee hereunder or, to the extent secured hereby, under any other Operative Document, the Indenture Trustee, upon the written request of the Grantor Trustee, shall execute and deliver to, or as directed by, the Grantor Trustee, all appropriate instruments (in due form for recording or filing) releasing the Undivided Interest, and the Lessor's Interest therein, and all other property relating thereto and then constituting a portion of the Indenture Estate from the Lien of this Indenture. The cost and expense associated with any action taken by the Indenture Trustee pursuant to the provisions of 43 this Section 6.03(c) shall be borne by the Lessee. SECTION 6.04. Indemnification. The Indenture Trustee shall not be required to take any action or refrain from taking any action instructed to be taken or refrained from being taken pursuant to Section 6.02 or under Article V unless the Indenture Trustee shall have been offered reasonable security or indemnity against any liability (including without limitation environmental liability), cost or expense (including without limitation the reasonable fees and expenses of counsel) which may be incurred in connection therewith, other than any such liability, cost or expense which results from the willful misconduct or gross negligence of the Indenture Trustee or from the failure of the Corporate Indenture Trustee to exercise ordinary care in distributing funds in accordance with the terms of the Operative Documents. Except with respect to actions required by the first sentence of Section 6.01 hereof, the Indenture Trustee shall be under no obligation to take any action under this Indenture and nothing contained in this Indenture shall require the Indenture Trustee to expend or risk the Indenture Trustee's own funds or otherwise incur any financial liability or any other liability (including without limitation environmental liability) in the performance of any of the Indenture Trustee's duties hereunder or in the exercise of any of the Indenture Trustee's rights or powers if it shall have reasonable grounds for believing that repayment of such funds or adequate security or indemnity against such risk or liability is not reasonably assured to it. The Indenture Trustee shall not be required to take any action under Section 6.02 or Article V, nor shall any other provision of this Indenture be deemed to impose a duty on the Indenture Trustee to take any action, if the Indenture Trustee shall have reasonably determined or been advised in writing by its counsel that such action is contrary to the terms hereof or of any other Operative Document, or is contrary to applicable law. SECTION 6.05. No Implied Duties. Except during the continuance of an Indenture Event of Default known to the Indenture Trustee, the Indenture Trustee need perform only those duties as are specifically set forth in this Indenture and no others and no implied duties or obligations of the Indenture Trustee shall be read into this Indenture. SECTION 6.06. Duties to Remove Certain Liens. The Corporate Indenture Trustee and the Individual Indenture Trustee, each in its individual capacity, shall comply with Section 11.4(a) of the Participation Agreement. SECTION 6.07. No Action Except Under Operative Documents or Instructions. The Grantor Trustee and the Indenture Trustee agree that they will not use, operate, store, lease, control, manage, sell, dispose of or otherwise deal with the Undivided Interest or any other part of the Indenture Estate except (a) in accordance with the terms of the Lease or the other Operative Documents or (b) in accordance with the 44 powers granted to, or the authority conferred upon, the Grantor Trustee and the Indenture Trustee pursuant to the express terms of this Indenture and the Trust Agreement. SECTION 6.08. Certain Rights of the Grantor Trustee and the Owner Participant. Notwithstanding any provision in this Indenture to the contrary: (a) each of the Grantor Trustee and the Owner Participant shall have the right, to the exclusion of the Indenture Trustee, whether or not an Indenture Event of Default is continuing and whether or not the Indenture Trustee has foreclosed on the Lien of the Indenture, (i) to receive Excepted Payments, (ii) to demand, collect, sue for or give any notice of default or Lease Event of Default with respect to Excepted Payments, (iii) prior to the foreclosure of the Lien of the Indenture and subject to Section 5.03(c), to declare the Lease in default in respect of Excepted Payments, (iv) to enforce the payment of Excepted Payments due and payable to it by appropriate judicial proceedings and to exercise other remedies as provided under any Operative Document to the extent and with respect to any portion of the Indenture Estate which shall have been released pursuant to the terms of this Indenture and (v) to exercise all rights with respect to Credit Support (or any letter of credit that names the Owner Participant or the Lessor as a beneficiary or any surety bond issued to the Owner Participant or the Lessor), including the right to receive all payments with respect thereto and to amend, supplement, waive or modify any agreements constituting Credit Support (or any letter of credit that names the Owner Participant or the Lessor as a beneficiary or any surety bond issued to the Owner Participant or the Lessor); provided that the rights referred to in this Section 6.08(a)(iii) and (iv) shall not be deemed to include the exercise of any remedies provided for in Section 16 of the Lease other than the remedies provided in Section 16.1(g) of the Lease and the right to proceed by appropriate court action or actions, either at law or in equity, to enforce performance by the Lessee of the applicable covenants or to recover damages for breach thereof; (b) at all times prior to the foreclosure of the Lien of the Indenture, whether or not an Indenture Event of Default is continuing, each of the Grantor Trustee and the Owner Participant shall have the right, but not to the exclusion of the Indenture Trustee, (i) to receive from the Lessee all notices, financial statements, certificates, opinions of counsel and other documents and information which the Lessee is permitted or required to give or furnish to the Grantor Trustee or the Owner Participant pursuant to the terms of any Operative Document, (ii) to retain all rights with respect to liability insurance which Section 13 of the Lease specifically confers upon the Grantor Trustee or the Owner Participant, or other insurance under Section 13.4 of the Lease 45 purchased for the benefit of the Grantor Trustee or the Owner Participant (subject, however to the provisions of the definition of "Excepted Payments") and (iii) to exercise inspection rights pursuant to Section 10.7 of the Participation Agreement and Section 11.2 of the Lease; (c) prior to the foreclosure of the Lien of the Indenture and whether or not an Indenture Event of Default shall have occurred and be continuing, the Grantor Trustee shall have the right, to the exclusion of the Indenture Trustee, to adjust Basic Rent Percentages, Stipulated Loss Value Percentages and Termination Value Percentages and the Early Buy-Out Percentage pursuant to Section 4 of the Lease but subject to the limitations set forth in Section 3.5 of the Lease; and (d) So long as no Indenture Event of Default shall have occurred and be continuing (subject to Section 9.02), the Grantor Trustee shall retain (to the exclusion of the Indenture Trustee) all rights of the "Lessor" under the Lease, other than the Indenture Trustee's right to receive any funds assigned to the Indenture Trustee under the terms of this Indenture. SECTION 6.09. Filing of Financing and Continuation Statements. The Indenture Trustee shall, at the expense of the Grantor Trustee, execute and file any continuation or similar statement or document delivered to it by the Grantor Trustee or the Lessee in a form reasonably satisfactory to the Indenture Trustee and proper for filing. SECTION 6.10. Furnishing of Notices. The Indenture Trustee will furnish to the Grantor Trustee and the Owner Participant, promptly, but in any event within 30 days, upon receipt thereof, a duplicate or copy of each report, notice, request, demand, instruction, certificate, financial statement or other instrument furnished to the Indenture Trustee hereunder or under any other Operative Document, unless such report, notice, request, demand, instruction, certificate, financial statement or other instrument is required to be furnished directly to the Grantor Trustee or the Owner Participant under any Operative Document. SECTION 6.11. Taxes; Withholdings; Information Reporting. The Indenture Trustee shall exclude and withhold from each distribution of principal and interest and other amounts due hereunder or under the Secured Notes any and all withholding taxes applicable thereto as required by law. The Indenture Trustee agrees (a) to act as such withholding agent and, in connection therewith, whenever any present or future taxes or similar charges are required to be withheld with respect to any amounts payable in respect of the Secured Notes or otherwise due hereunder, to withhold such taxes or charges and timely pay the same to the appropriate authority in the name of and on behalf of the Loan Participants, (b) that it will file any necessary withholding tax returns 46 or statements when due and (c) that, as promptly as possible after the payment of such withheld amounts, it will deliver to each Loan Participant appropriate documentation showing the payment of such withheld amounts, together with such additional documentary evidence as such Loan Participants may reasonably request from time to time. The Indenture Trustee agrees to file any other information reports as it may be required to file under United States law. No withholding or action with respect thereto hereunder shall constitute or give rise to any Indenture Event of Default or any other claims against the Owner Participant or the Grantor Trustee. Any tax withheld by the Indenture Trustee pursuant to this Section 6.11 shall be deemed for all purposes of this Indenture and the Secured Notes to have been paid to the Holder with respect to which such tax was withheld. ARTICLE VII THE INDENTURE TRUSTEE AND THE GRANTOR TRUSTEE SECTION 7.01. Acceptance of Trusts and Duties. The Indenture Trustee accepts the duties hereby created and applicable to it and agrees to perform the same upon the terms and conditions set forth in this Indenture and the Participation Agreement. The Corporate Indenture Trustee further agrees to receive and disburse all moneys constituting part of the Indenture Estate in accordance with the terms hereof. The Indenture Trustee shall not be answerable or accountable in its individual capacity under any circumstances, except (a) for its willful misconduct or gross negligence, (b) for its failure to exercise and use the care and skill in safeguarding the security held by it pursuant to the terms hereof that a prudent person would exercise or use under the circumstances in the conduct of his own affairs, (c) in the case of the inaccuracy of any representations or warranties made by the Indenture Trustee in its individual capacity and contained in the Participation Agreement or any other Operative Document or referred to by reference in Section 7.03 hereof, (d) as provided in Sections 2.03 and 6.06, (e) for any Tax based on or measured by any fees, commissions or compensation received by it for acting as trustee hereunder, or (f) except as otherwise expressly provided herein for its failure to use reasonable care in disbursing funds in accordance with the terms hereof. SECTION 7.02. Absence of Duties Except as Specified. Except in accordance with written instructions furnished pursuant to Section 6.01 or 6.02, and except as provided in, and without limiting the generality of, Sections 6.04, 6.05, 6.06 and 6.07, the Indenture Trustee shall have no duty (a) to record or file the Lease or this Indenture or any other document, or to maintain any such recording or filing, or to rerecord or refile any such document, (b) to effect or maintain any insurance required under the Lease with respect to the Undivided Interest, whether or not the Lessee shall be in default with respect thereto, (c) to discharge any Lien of any kind against any part of the Trust Estate (including the Louisiana Trust Estate) or the 47 Indenture Estate, or (d) to inspect the Undivided Interest at any time, or to ascertain or inquire as to the performance or observance of any of the Lessee's covenants pursuant to the terms of the Lease. SECTION 7.03. No Representations or Warranties. NEITHER THE GRANTOR TRUSTEE NOR THE INDENTURE TRUSTEE MAKES (IN ITS INDIVIDUAL OR TRUST CAPACITY) (a) ANY REPRESENTATION OR WARRANTY, WHETHER WRITTEN, ORAL, EXPRESS OR IMPLIED, AS TO THE VALUE, COMPLIANCE WITH SPECIFICATIONS, DURABILITY, OPERATION, CONSTRUCTION, PERFORMANCE, DESIGN OR CONDITION OF THE PRODUCTION SYSTEM OR ANY PART THEREOF, THE MERCHANTABILITY THEREOF OR THE FITNESS THEREOF FOR ANY PARTICULAR PURPOSE, TITLE TO THE PRODUCTION SYSTEM OR ANY COMPONENT OF THE PRODUCTION SYSTEM, THE QUALITY OF THE MATERIALS OR WORKMANSHIP THEREOF OR CONFORMITY THEREOF TO SPECIFICATIONS, OR THE PRESENCE OR ABSENCE OF ANY LATENT OR OTHER DEFECTS, WHETHER OR NOT DISCOVERABLE, OR ANY OTHER REPRESENTATION OR WARRANTY WHATSOEVER, EXPRESS OR IMPLIED, WITH RESPECT TO THE PRODUCTION SYSTEM, OR ANY COMPONENT OF THE PRODUCTION SYSTEM, or (b) any representation or warranty as to the validity, legality or enforceability of this Indenture, any of the other Operative Documents or the Secured Notes, or as to the correctness of any statement contained in any thereof, except as set forth in Sections 8 and 9 of the Participation Agreement and Section 7.3 of the Trust Agreement. SECTION 7.04. No Segregation of Moneys; No Interest; Investments. Any moneys paid to or retained by the Indenture Trustee pursuant to any provision hereof and not then required to be distributed to the Holders, the Lessee or the Grantor Trustee shall be deposited in a separate, interest bearing cash collateral account; provided that any payments received or applied hereunder by the Indenture Trustee shall be accounted for by the Indenture Trustee so that any portion thereof paid or applied pursuant hereto shall be identifiable as to the source thereof. Any amounts held by the Indenture Trustee pursuant to the express terms of this Indenture or any other Operative Document shall be invested and reinvested by the Indenture Trustee from time to time in Permitted Investments at the direction of (i) the Lessee if such amounts would be payable to the Lessee upon satisfaction of any applicable conditions; or (ii) the Owner Participant in the case of the remaining portion of such amounts; provided, however, that in the event there shall be continuing any Indenture Event of Default such directions may be given exclusively by a Majority in Interest of Holders of Notes. The Indenture Trustee shall have no liability for any loss resulting from any investment required to be made hereunder other than by reason of its own willful misconduct or negligence in failing to comply with such instructions. Any net income or gain realized as a result of any such investment or reinvestment shall be held as part of the Indenture Estate and shall be applied by the Indenture Trustee at the same time, on the same conditions and in the same manner as the amounts in respect of which such income or gain was realized are required to be distributed in accordance with the provisions hereof. Any 48 Permitted Investment may be sold or otherwise reduced to cash (without regard to maturity) by the Indenture Trustee whenever necessary to make any application as required by the terms of this Indenture or of any applicable Operative Document. SECTION 7.05. Reliance; Agents; Advice of Counsel. Neither the Grantor Trustee nor the Indenture Trustee (in their respective individual or trust capacities for the purposes of this Section 7.05) shall incur any liability to anyone in acting upon any signature, instrument, notice, resolution, request, consent, order, certificate, report, opinion, bond or other document or paper reasonably believed by it to be genuine and believed by it to be signed by the proper party or parties. Either of the Grantor Trustee or the Indenture Trustee may accept a copy of a resolution of the Board of Directors or other governing body of any party to the Participation Agreement or other Operative Agreement, certified by the Secretary or any Assistant Secretary thereof as duly adopted and in full force and effect, as conclusive evidence that such resolution has been duly adopted and that the same is in full force and effect. As to any fact or matter relating to the Lessee the manner of ascertainment of which is not specifically described herein, the Grantor Trustee and the Indenture Trustee may for all purposes hereof rely on an Officer's Certificate of the relevant party as to such fact or matter, and such Officer's Certificate shall constitute full protection to the Grantor Trustee or the Indenture Trustee (in its individual or trust capacities), as the case may be, for any action taken or omitted to be taken by it in good faith in reliance thereon. The Indenture Trustee shall assume, and shall be fully protected in assuming, that the Grantor Trustee is authorized by the Trust Agreement to enter into this Indenture and to take all action to be taken by the Grantor Trustee pursuant to the provisions hereof, and shall not inquire into the authorization of the Grantor Trustee with respect thereto. The Grantor Trustee shall assume, and shall be fully protected in assuming, that the Indenture Trustee is authorized to enter into this Indenture and to take all action to be taken by the Indenture Trustee pursuant to the provisions hereof, and shall not inquire into the authorization of the Indenture Trustee with respect thereto. In the administration of the trusts hereunder, the Indenture Trustee may execute any of the trusts or powers hereof and perform its powers and duties hereunder directly or through agents or attorneys and at the expense of the Indenture Estate may consult with counsel, accountants and other skilled Persons to be selected and retained by it, and the Indenture Trustee shall not be liable for anything done, suffered or omitted in good faith by it in accordance with the written advice or written opinion of any such counsel, accountant or other skilled Person acting within such Person's area of competence (so long as the Indenture Trustee shall have exercised due care in selecting such Person). SECTION 7.06. No Compensation from Holders or Indenture Estate. Notwithstanding any other provision hereof, the Indenture Trustee shall have no right against the Holders, the Grantor Trustee, the Owner Participant or, except as otherwise provided in Section 4.03, the Indenture Estate for any fee as compensation for its services hereunder. 49 SECTION 7.07. Right of the Indenture Trustee to Perform Covenants, Etc. If the Grantor Trustee or the Lessee shall fail to make any payment or perform any act required to be made or performed by it hereunder or under any Operative Document to which it is a party or if the Grantor Trustee or the Lessee shall fail to release any Lien affecting the Indenture Estate which it is required to release by the terms of this Indenture or any other Operative Document to which it is a party, the Indenture Trustee, after notice to and demand upon the Grantor Trustee or the Lessee and affording the Grantor Trustee and the Lessee a reasonable opportunity to cure, and without waiving or releasing any obligation or Lease Event of Default, may (but shall be under no obligation to) at any time thereafter make such payment or perform such act for the account of and at the expense of the Indenture Estate, and may enter upon any property for such purpose and take all such action with respect thereto as, in the Indenture Trustee's opinion, may be necessary or appropriate therefor. No such entry shall be deemed an eviction. All sums so paid by the Indenture Trustee and all costs and expenses including taxes (other than taxes based upon or measured by or determined by the income of the Indenture Trustee (including, without limitation, legal fees and expenses of counsel of its selection) so incurred, shall constitute additional indebtedness secured by this Indenture and shall be paid from the Indenture Estate to the Indenture Trustee on demand. The Indenture Trustee shall not be liable for any damages resulting from any such payment or action unless such damages shall be a consequence of willful misconduct or gross negligence on the part of the Indenture Trustee. SECTION 7.08. Moneys for Payments in Respect of Notes to be Held in Trust. In case the Holder of any Secured Note shall fail to present the same for payment on any date on which the principal thereof becomes payable, the Indenture Trustee may set aside in trust the moneys then due thereon uninvested and shall pay such moneys to any Holder of such Secured Note upon due presentation for surrender thereof in accordance with the provisions of this Indenture, subject to the provisions of Section 7.09. SECTION 7.09. Disposition of Moneys Held for Payments of Notes. Any money set aside under Section 7.08 and not paid to Holders under Section 7.08 shall be held by the Indenture Trustee in trust until the latest of (a) the date three years after the date of such setting aside, (b) the date all other Holders (other than other Holders for which the Indenture Trustee is holding such moneys pursuant to Section 7.08) of the Secured Notes shall have received full payment of all principal of and interest and other sums payable to them on such Secured Notes or the Indenture Trustee shall hold (and shall have notified such Persons that it holds) in trust an amount sufficient to make full payment thereof when due, and (c) the date the Grantor Trustee shall have fully performed and observed all its covenants and obligations contained in this Indenture with respect to the Secured Notes; and thereafter shall be paid to the Grantor Trustee by the Indenture Trustee who then shall be released from all further liability with respect to such moneys, and thereafter the 50 Holders of the Secured Notes in respect of which such moneys were so paid to the Grantor Trustee shall have no rights in respect thereof except to obtain payment of such moneys from the Grantor Trustee. ARTICLE VIII SUCCESSOR TRUSTEES AND ADDITIONAL TRUSTEES SECTION 8.01. Notice of Successor Grantor Trustees. In the case of any appointment of a successor to the Grantor Trustee pursuant to the Trust Agreement, or any merger, conversion or consolidation or transfer of substantially all of the corporate trust business of the Grantor Trustee, the successor Grantor Trustee shall give prompt written notice thereof to the Indenture Trustee. SECTION 8.02. Resignation of Indenture Trustee; Appointment of Successor. (a) The Indenture Trustee or any successor thereto may resign at any time without cause by giving at least thirty (30) days prior written notice to the Grantor Trustee, the Owner Participant, the Lessee and each Holder, such resignation to be effective upon the acceptance of the trusteeship by a successor Indenture Trustee as provided in Section 8.02(b); provided such resignation has no material effect on the Indenture Estate. In addition, a Majority in Interest of Holders of Notes may at any time remove the Indenture Trustee without cause by an instrument in writing delivered to the Grantor Trustee, the Owner Participant, the Lessee and the Indenture Trustee, such removal to be effective upon the acceptance of the trusteeship by a successor Indenture Trustee as provided in Section 8.02(b). In the case of the resignation or removal of the Indenture Trustee, the Grantor Trustee may appoint a successor Indenture Trustee reasonably satisfactory to the Owner Participant. If a successor Indenture Trustee shall not have been appointed within thirty (30) days of such notice of resignation or removal, the Indenture Trustee, the Grantor Trustee, the Owner Participant, the Lessee or a Majority in Interest of Holders may apply to any court of competent jurisdiction to appoint a successor Indenture Trustee qualified under Section 8.02(c) to act until such time, if any, as a successor shall have been appointed as above provided in this Section 8.02. The successor Indenture Trustee so appointed by such court shall immediately and without further act be superseded by any successor Indenture Trustee appointed as above provided in this Section 8.02. (b) Any successor Indenture Trustee, however appointed, shall execute and deliver to the Grantor Trustee and to the predecessor Indenture Trustee (with a copy to each Holder) an instrument accepting such appointment, and shall give the Owner Participant, the Holders and the Lessee written notice of such acceptance. Upon the execution and delivery of such instrument, such successor Indenture Trustee, without further act, shall become vested with all the estates, properties, rights, powers and duties of the predecessor Indenture Trustee hereunder with like effect as if originally named the Indenture Trustee herein. 51 Notwithstanding and without limiting the foregoing, the predecessor Indenture Trustee, upon the written request of the successor Indenture Trustee, shall execute and deliver an instrument transferring to such successor Indenture Trustee, upon the trusts herein expressed applicable to it, all the estates, properties, rights and powers of such predecessor Indenture Trustee, and such predecessor Indenture Trustee shall duly assign, transfer, deliver and pay over to such successor Indenture Trustee all moneys or other property then held by such predecessor Indenture Trustee hereunder. (c) There shall at all times be a Corporate Indenture Trustee hereunder which shall be a bank or trust company organized and doing business under the laws of the United States of America or of any State thereof, authorized under such laws to exercise corporate trust powers, subject to supervision or examination by Federal or State authority, having a combined capital and surplus of at least $100,000,000, regularly engaged in or having expertise in leveraged leasing. If such bank or trust company publishes reports of condition at least annually, pursuant to applicable law or to the requirements of the aforesaid supervising or examining authority, then for purposes hereof the combined capital and surplus of such bank or trust company shall be deemed to be its combined capital and surplus as set forth in its most recent report of condition so published. (d) Any corporation into which the Corporate Indenture Trustee may be merged or converted or with which it may be consolidated, or any corporation resulting from any merger, conversion or consolidation to which the Corporate Indenture Trustee shall be a party, or any corporation to which substantially all the corporate trust business of the Corporate Indenture Trustee may be transferred, shall, subject to the terms of paragraph (c) of this Section 8.02, be the Corporate Indenture Trustee under this Indenture without further act. SECTION 8.03. Co-Trustees and Separate Trustees. (a) In order to comply with the provisions of La. R.S. 9:1783 and other provisions of Louisiana law (to the extent the same may be applicable), the Corporate Indenture Trustee and the Grantor Trustee hereby appoint Frederick W. Clark, a resident of the State of New York, as the Individual Indenture Trustee hereunder. For such purposes, the Individual Indenture Trustee shall act as mortgagee, assignee and secured party solely with respect to that portion of the Indenture Estate subject to the laws of the State of Louisiana and as to which the Corporate Indenture Trustee is not qualified to act as mortgagee, assignee or secured party under such laws (the "Louisiana Indenture Estate"). Further, if at any time (i) the Grantor Trustee or any Holder shall have notified the Indenture Trustee in writing that it shall be necessary or prudent in order to conform to any law of any jurisdiction in which property shall be held subject to the Lien of this Indenture, (ii) the Indenture Trustee shall be advised by counsel that it is so necessary or prudent in the interest of the Holders, or (iii) a Majority in Interest of Holders of Notes in writing shall so request the Indenture Trustee and 52 the Grantor Trustee, in each case the Indenture Trustee and the Grantor Trustee shall notify the Lessee in writing of such event and shall execute and deliver all instruments and agreements necessary or proper either (x) to constitute another bank or trust company or one or more Persons approved by the Indenture Trustee and the Grantor Trustee, either to act as co-trustee or co-trustees of all or any portion of the Indenture Estate, jointly with the Indenture Trustee originally named herein or any successor or successors, or to act as separate trustee or trustees of all or any such portion of the Indenture Estate in each case with such rights, powers, duties and obligations as may be provided in such supplemental indenture or such instrument of appointment as the Indenture Trustee or a Majority in Interest of Holders of Notes may deem necessary or advisable, or (y) to clarify, add to or subtract from the rights, powers, duties and obligations theretofore granted any such additional or separate trustee, subject in each case to the remaining provisions of this Section 8.03. In the event that the Grantor Trustee shall not have joined in the execution of such instruments and agreements within fifteen (15) days after the receipt of a written request from the Indenture Trustee to do so, or if an Indenture Event of Default shall have occurred and be continuing, the Indenture Trustee may act under the foregoing provisions of this Section 8.03 without the concurrence of the Grantor Trustee; and the Grantor Trustee hereby appoints the Indenture Trustee its agent and attorney-in-fact to act for it under the foregoing provisions of this Section 8.03(a) in either of such contingencies. The Indenture Trustee may, in such capacity, execute, deliver and perform any such supplemental indenture, or any such instrument, as may be required for the appointment of any such co-trustee(s) or separate trustee(s) or for the clarification of, addition to or subtraction from the rights, powers, duties or obligations theretofore granted to any such co-trustee(s) or separate trustee(s). In case any co-trustee(s) or separate trustee(s) appointed under this Section 8.03(a) shall die, become incapable of acting, resign or be removed, all the assets, property, rights, powers, trusts, duties and obligations of such co-trustee(s) or separate trustee(s) shall revert to and shall vest in and may be exercised by the Indenture Trustee, to the extent permitted by law, until a successor, additional or separate trustee is appointed as provided in this Section 8.03(a). The reasonable cost and expense of any action taken by the Indenture Trustee or the Grantor Trustee pursuant to this Section 8.03(a) shall be borne by the Lessee; provided that the Lessee has received the notice referred to herein. (b) The Individual Indenture Trustee shall accept the benefits of the mortgages, assignments and security interest granted herein to the extent the same cover and affect the Louisiana Indenture Estate and, in such capacity, shall have full power and authority to foreclose the Lien hereof to the extent the same covers and affects the Louisiana Indenture Estate subject to the terms and provisions hereof; provided, further, that to the extent permitted from time to time by Louisiana law, the Individual Indenture Trustee shall confer with and obtain the concurrence of the Corporate Indenture Trustee prior to taking any such action. Every other co-trustee and separate trustee hereunder and, to the extent not inconsistent with the immediately preceding 53 sentence, the Individual Indenture Trustee, shall, to the extent permitted by law and except as otherwise expressly provided in any Operative Document, be appointed and act, and the Indenture Trustee and its successors shall act, subject to the following provisions and conditions: (i) the Secured Notes shall be authenticated and made available for delivery by the Corporate Indenture Trustee, and all powers, duties, obligations and rights conferred upon the Indenture Trustee in respect of the receipt, custody, control, payment and management of moneys, papers or securities, shall be exercised, solely by the Indenture Trustee; (ii) all other rights, powers, duties and obligations conferred or imposed upon the Indenture Trustee shall be conferred or imposed upon and exercised or performed by the Indenture Trustee and such co-trustee or co- trustees or separate trustee or trustees jointly, except to the extent that under any applicable law or in any jurisdiction in which any particular act or acts are to be performed, the Indenture Trustee shall be incompetent or unqualified to perform such act or acts, in which event such rights, powers, duties and obligations shall be exercised and performed by such co- trustee or co-trustees or separate trustee or trustees; but subject to the same limitations in any exercise of his, her or its power and authority as those to which the Indenture Trustee is subject under the terms of this Indenture; (iii) notwithstanding anything herein contained to the contrary, no power given hereby to, or which it is provided hereby may be exercised by, any such co-trustee or co-trustees or separate trustee or trustees, except jointly with, or with consent in writing of, the Indenture Trustee; (iv) no trustee hereunder shall be personally liable by reason of any act or omission of any other trustee hereunder; (v) the powers of any co-trustee(s) or separate trustee(s) appointed pursuant to this Section 8.03 shall not in any case exceed those of the Indenture Trustee hereunder; and (vi) the Grantor Trustee and the Indenture Trustee, at any time, by an instrument in writing executed by them jointly, may remove any such trustee, and in that case, by an instrument in writing executed by them jointly, may appoint a successor or successors to such co-trustee or co- trustees or separate trustee or trustees, as the case may be. In the event that the Grantor Trustee shall not have joined in the execution of any such instrument within fifteen (15) days after the receipt of a written request from the Indenture Trustee to do so, the Indenture Trustee shall have the power to remove any such co-trustee or separate 54 trustee and to appoint a successor co-trustee or separate trustee without the concurrence of the Grantor Trustee. In the event that the Indenture Trustee alone shall have appointed a separate trustee or trustees or co- trustee or co-trustees as above provided in this Section 8.03, it may at any time, by an instrument in writing, remove any such separate trustee or co-trustee, the successor to any such separate trustee or co-trustee so removed to be appointed by the Grantor Trustee and the Indenture Trustee, or by the Indenture Trustee alone, as provided in this Section 8.03. ARTICLE IX SUPPLEMENTS AND AMENDMENTS TO THIS INDENTURE AND OTHER DOCUMENTS SECTION 9.01. Indenture Supplements Without Consent of Holders. The Grantor Trustee and the Indenture Trustee, without the consent of any Holder and at any time and from time to time, may enter into one or more amendments or supplements to this Indenture, in form satisfactory to each of the Grantor Trustee and Indenture Trustee, for any of the following purposes: (a) to subject to the Lien of this Indenture additional property constituting part of the Indenture Estate pursuant to a supplement to this Indenture; (b) to correct or amplify the description of any property at any time subject to the Lien of this Indenture; (c) to add to the covenants of the Grantor Trustee for the benefit of the Holders or to surrender any right or power herein conferred upon the Grantor Trustee, the Owner Participant or the Lessee; (d) to cure any ambiguity, to correct or supplement any provision herein or in the Secured Notes which may be defective or inconsistent with any other provisions of this Indenture, provided that such action shall not adversely affect the interests of any Holder; (e) to provide for the assumption by the Lessee of the obligations of the Grantor Trustee hereunder in accordance with the terms and conditions applicable thereto specified in Section 3.04, including without limitation, such amendments to Exhibit C as may be necessary or desirable in order to effectuate such assumption and accomplish the purposes thereof (provided that such amendments to Exhibit C shall not adversely affect the interests of the Loan Participants); 55 (f) to evidence the succession of a new Grantor Trustee in accordance with the Trust Agreement or the succession of a new Indenture Trustee hereunder or the appointment or removal of any co-trustee or separate trustee thereunder or hereunder; (g) to convey, transfer, assign, mortgage or pledge any property to or with the Indenture Trustee or to make any other provisions with respect to matters or questions arising hereunder so long as such action shall not adversely affect the interests of the Loan Participants; (h) to add to the rights of the Loan Participants; (i) to include on the Secured Notes any legend as may be required by law; or (j) to provide for the establishment and issuance of (i) Additional Notes pursuant to Section 14 of the Participation Agreement or Section 2.08 or (ii) Refunding Secured Notes in connection with a refunding or refinancing pursuant to Section 15 of the Participation Agreement or Section 3.05. SECTION 9.02. Supplements and Amendments to Indenture with Consent of Holders of Notes. (a) Without the consent of a Majority in Interest of Holders of Notes, the respective parties to the Trust Agreement and the Operative Documents (other than the Tax Indemnity Agreement, the Letter of Credit and the Reimbursement Agreement) may not modify, amend or supplement any of such agreements, or give any consent, waiver, authorization or approval thereunder in each case other than with respect to matters relating solely to Excepted Payments, for the purpose of adding any provisions to or changing in any manner or eliminating any of the provisions thereof or of modifying in any manner the rights of the respective parties thereunder; provided, however, that the actions specified in Section 9.02(c) may be taken without the consent of the Indenture Trustee or any Holder. (b) Except as provided in Section 9.01 or 9.02(c) or 9.02(d), at any time and from time to time, with the consent of a Majority in Interest of Holders of Notes and upon the written request of the Grantor Trustee, the Indenture Trustee (x) shall execute an amendment or supplement to this Indenture for the purpose of adding provisions to, or changing in any manner or eliminating any of the provisions of, this Indenture, or (y) shall execute an amendment or supplement to, or give a consent, waiver, authorization or approval, for the purposes of adding any provisions to or changing in any manner or eliminating any of the provisions of, the Participation Agreement, or (z) shall consent to any amendment or supplement to, or give a consent, waiver, authorization or approval, for the purposes of adding any provisions to or changing in any manner or eliminating any of the provisions of, any of the other Operative Documents; provided, however, 56 that no such amendment or supplement to this Indenture, or consent, waiver, authorization, approval, amendment or supplement to the Participation Agreement or any such other Operative Document (whether pursuant to subsection (a) or (c) of this Section 9.02, and anything in such subsections or elsewhere in this Indenture to the contrary notwithstanding) shall, without the consent of each Holder of a Secured Note then Outstanding: (i) change the stated maturity of the principal of, or any installment of interest on, or any mandatory or optional repayment, purchase or redemption provision with respect to, any Secured Note, or change the principal amount thereof or any other amount payable in respect thereof or reduce the Make-Whole Amount, if any, or interest thereon, or change the place of payment where, or the coin or currency in which, any Secured Note or the interest thereon is payable; (ii) permit the creation of any Lien on the Indenture Estate not otherwise permitted hereunder or deprive any Holder of the benefit of the Lien of this Indenture upon the Indenture Estate, or any portion thereof, for the security of its Secured Notes; (iii) change the percentage of the aggregate principal amount of Secured Notes required to take or approve any action hereunder or under any other Operative Document; (iv) modify the definitions of "Indenture Default", "Indenture Event of Default", "Majority in Interest of Holders of Notes", "Lease Default" or "Lease Event of Default"; (v) modify the order of priorities in which distributions are to be made under Article IV; (vi) reduce the amount or change the time of any payment of Basic Rent, Stipulated Loss Value, Early Buy-Out Purchase Price or Termination Value, except as expressly permitted pursuant to the terms of the Lease or the Participation Agreement as executed on the date hereof, so that such payments would be insufficient to pay principal of and interest on the outstanding Secured Notes as they become due hereunder, or change any of the circumstances under which Stipulated Loss Value, Early Buy-Out Purchase Price or Termination Value is payable or reduce the amount or change the time or any of the circumstances of payment of Supplemental Rent pursuant to Section 3.2(b) of the Lease; (vii) [Intentionally Omitted]; (viii) modify, amend or supplement any of the provisions of this Section 9.02; 57 (ix) modify, amend or supplement the Lease, or consent to any assignment of the Lease (other than an assignment pursuant to Section 14.2 of the Lease), in either case releasing the Lessee from its obligations in respect of the payment of Basic Rent, Stipulated Loss Value, Early Buy-Out Purchase Price or Termination Value, or changing the absolute and unconditional character of such obligations as set forth in Section 3.6 of the Lease; or (x) adversely affect any indemnities in favor of any Holder as provided pursuant to the terms of any Operative Document, except as may be consented to by each Person adversely affected thereby. (c) Notwithstanding anything to the contrary contained in Section 9.02(b) (except as provided in the proviso to Section 9.02(b)), (x) without the necessity of the consent of any of the Holders or the Indenture Trustee, the Grantor Trustee may and (y) in the case of clauses (iii) and (iv) of this Section 9.02(c), without the consent of any of the Holders, the Indenture Trustee may: (i) so long as no Indenture Event of Default shall have occurred and be continuing, modify, amend or supplement the Lease, or give any consent, waiver, authorization or approval with respect thereto, except that without compliance with Section 9.02(b), the Grantor Trustee shall not modify, amend or supplement, or give any consent, waiver, authorization or approval for the purposes of adding any provisions to or changing in any manner or eliminating any of the provisions thereof or of modifying in any manner the rights of the respective parties thereunder, with respect to the following provisions of the Lease as originally executed: Section 2 (if the result thereof would be to shorten the term of the Lease to a period shorter than the period ending with the maturity date of the Secured Notes), Section 3.1, 3.2, Section 3.3, Section 3.5, Section 3.6, Section 6, Section 7 (except that the procedures for soliciting bids may be modified and further restrictions may be imposed on the ability of the Lessee to terminate the Lease pursuant to such Section 7), Section 9.1, Section 10, Sections 11.1 through 11.7 (other than Section 11.5(c)), Section 12, Section 13 (except that additional insurance requirements may be imposed on the Lessee), Section 14, Section 15, Section 16, Section 18.1, Section 19.3 and any definition of terms used in the Lease, to the extent that any modification of such definition would result in a modification of the Lease not permitted pursuant to this Section 9.02(b), provided that, subject to the next proviso, in the event an Indenture Event of Default shall have occurred and be continuing, the Indenture Trustee shall have all rights of the Grantor Trustee as "Lessor" under the Lease to modify, amend or supplement the Lease or give any consent, waiver, authorization or approval thereunder, for the 58 purpose of adding any provisions to or changing in any manner or eliminating any of the provisions thereof or of modifying in any manner the rights of the "Lessor" thereunder; provided further that, without the prior consent of the Grantor Trustee and the Owner Participant, and subject to the Indenture Trustee's rights to exercise remedies under Section 16 of the Lease without the prior consent of the Grantor Trustee, whether or not an Indenture Event of Default shall have occurred and be continuing, no such action shall be taken with respect to any of the provisions of Sections 1 (if any modification of a definition contained therein would result in a modification of the Lease not permitted by this proviso), 2, 3, 4, 5, 6, 7, 8, 10, 11, 12, 13 (except to increase the amounts or types of insurance the Lessee must provide thereunder at its expense), 14, 15, 16, 17, 18 and 19 of the Lease, or any other Section of the Lease to the extent such action shall affect the amount or timing of any amounts payable by the Lessee under the Lease as originally executed (or as subsequently modified with the consent of the Grantor Trustee) which, absent the occurrence and continuance of an Indenture Event of Default, would be distributable to the Grantor Trustee or the Owner Participant under Article IV; (ii) modify, amend or supplement the Trust Agreement, or give any consent, waiver, authorization or approval with respect thereto, except that without compliance with Section 9.02(b), the Grantor Trustee shall not modify, amend or supplement, or give any consent, waiver, authorization or approval for the purpose of adding any provisions to or changing in any manner or eliminating any of the provisions thereof or of modifying in any manner the rights of the respective parties thereunder, with respect to the following provisions of the Trust Agreement as originally executed: Section 1, Section 3.2, Section 3.3, Section 5.1, Section 9.1, Section 10, Section 11.1, Section 12.7 and any definition of terms used in the Trust Agreement, to the extent that any modification of such definition would result in a modification of the Trust Agreement not permitted pursuant to this Section 9.02(c), and in each case only to the extent any such action shall adversely impact the interests of the Holders; (iii) modify, amend or supplement the Participation Agreement, or give any consent, waiver, authorization or approval with respect thereto, except that without compliance with Section 9.02(b), the Grantor Trustee and the Indenture Trustee shall not modify, amend or supplement, or give any consent, waiver, authorization or approval for the purpose of adding any provisions to or changing in any manner or eliminating any of the provisions thereof or of modifying in any manner the rights of the respective parties thereunder, with respect to the following provisions of the Participation Agreement as originally executed: Section 2, Section 3, Section 4, Section 5, Section 6, Section 8, Section 10 (other than an amendment to add to the covenants of the Lessee), 59 Section 11.1, Section 11.2, Section 11.4, Section 11.6, Section 12 (insofar as such Section 12 relates to the Indenture Trustee, the Indenture Estate and the Holders) and, to the extent the Loan Participants would be adversely affected thereby, Section 15 and Section 16 and any definition of terms used in the Participation Agreement to the extent that any modification of such definition would result in a modification of the Participation Agreement not permitted pursuant to this Section 9.02(c); and (iv) modify, amend or supplement any of said agreements in order to cure any ambiguity, to correct or supplement any provisions thereof which may be defective or inconsistent with any other provision thereof or of any provision of this Indenture, or to make any other provision with respect to matters or questions arising thereunder or under this Indenture which shall not be inconsistent with the provisions of this Indenture, provided the making of any such other provision shall not adversely affect the interests of the Holders unless such provision corrects a mistake or cures an ambiguity. (d) The Indenture Trustee, without the consent of any Holder and at any time and from time to time, may enter into one or more amendments or supplements to the Participation Agreement, in form satisfactory to the Indenture Trustee, for any of the following purposes: (i) to add to the covenants of any other party thereto for the benefit of the Indenture Trustee or the Holders or to surrender any right or power therein conferred upon any other party thereto; (ii) to cure any ambiguity, or to correct or supplement any provision therein which may be defective or inconsistent with any other provisions thereof, provided that such action shall not adversely affect the interest of any Holder; (iii) to provide for the assumption by the Lessee of the obligations of the Grantor Trustee under this Indenture in accordance with the terms and conditions applicable thereto specified in Section 3.04, including without limitation, such amendments to Exhibit C to this Indenture or the Participation Agreement as may be necessary or desirable in order to effectuate such assumption and accomplish the purposes thereof (provided that such amendments to such Exhibit C or the Participation Agreement shall not adversely affect the interests of the Loan Participants); (iv) to evidence the succession of a new Grantor Trustee in accordance with the Trust Agreement or the succession of a new Indenture Trustee hereunder or the appointment or removal of any co-trustee or separate trustee thereunder or hereunder; 60 (v) to make any other provisions with respect to matters or questions arising under the Participation Agreement so long as such action shall not adversely affect the interests of the Loan Participants; (vi) to add to the rights of the Indenture Trustee or the Holders; or (vii) to provide for the establishment and issuance of (1) Additional Notes pursuant to Section 14 of the Participation Agreement or Section 2.08 or (2) Refunding Secured Notes in connection with a refunding or refinancing pursuant to Section 15 of the Participation Agreement or Section 3.05. (e) It shall not be necessary for Holders to approve the particular form of any proposed amendment or supplement to this Indenture, or any amendment, consent, waiver or other modification of any other Operative Document, but it shall be sufficient if such action shall approve the substance thereof. SECTION 9.03. Execution of Indenture Supplement, Amendments, Etc. In executing or accepting the additional trusts created by any amendment or supplement to this Indenture, or any amendment, consent, waiver or other modification permitted by this Article IX or the modifications thereby of the trusts created by this Indenture, each of the Indenture Trustee and the Grantor Trustee shall be entitled to receive, and (subject to Section 6.01 and Section 6.02) shall be fully protected in relying upon, an opinion of independent counsel stating that the execution of such amendment or supplement to this Indenture, or of such amendment, consent, waiver or modification, is authorized or permitted by this Indenture. Either of the Indenture Trustee or the Grantor Trustee may, but shall not be obligated to, enter into any such amendment or supplement to this Indenture which affects its own rights, duties or immunities under this Indenture or otherwise. SECTION 9.04. Effect of Indenture Supplement. Upon the execution of any amendment or supplement to this Indenture pursuant to this Article IX, this Indenture shall be modified in accordance therewith, and such amendment or supplement shall form a part of this Indenture for all purposes; and every Holder of a Secured Note theretofore or thereafter authenticated and delivered hereunder shall be bound thereby. SECTION 9.05. Reference in Secured Notes to Indenture Supplements. Secured Notes authenticated and delivered after the execution of any amendment or supplement pursuant to this Article IX may, and shall if required by the Indenture Trustee, bear a notation in form approved by the Indenture Trustee as to any matter provided for in such amendment or supplement. If the amendment or supplement to this Indenture shall so provide, new Secured Notes so modified as to conform, 61 in the opinion of the Indenture Trustee and the Grantor Trustee, to any such amendment or supplement may be prepared and executed by the Grantor Trustee and authenticated and delivered by the Corporate Indenture Trustee in exchange for outstanding Secured Notes. SECTION 9.06. Notices of Indenture Supplements and Amendments, Etc. Promptly after the execution by the Grantor Trustee and the Indenture Trustee of any amendment or supplement to this Indenture, or any amendment, consent, waiver or other modification pursuant to the provisions hereof, the Indenture Trustee shall send a conformed copy of such instrument to each Holder, the Lessee, the Grantor Trustee and the Owner Participant but the failure of the Indenture Trustee to send such a conformed copy shall not impair or affect the validity of such document. SECTION 9.07. Lessee Rights. Without the consent of the Lessee, no amendment or supplement to this Indenture or amendment, waiver or other modification of any provision of this Indenture shall alter or modify the provisions of Section 5.09 or this Section 9.07. ARTICLE X MISCELLANEOUS SECTION 10.01. Termination of Indenture. This Indenture and the trusts created hereby shall terminate, and this Indenture shall be of no further force or effect, upon the payment in full of the principal of and interest on and all other amounts due and payable under all Secured Notes and all other amounts due and payable to any Holder or the Indenture Trustee hereunder or, to the extent secured hereby, under any other Operative Document. The foregoing shall not impair any rights of a Holder in respect of indemnification or other claims which may be available against any party under the terms of any other Operative Document. Except as otherwise provided in the preceding sentence, this Indenture and the trusts created hereby shall continue in full force and effect in accordance with the terms hereof. SECTION 10.02. No Legal Title to Indenture Estate in Holders. No Holder shall have legal title to any part of the Indenture Estate. No transfer, by operation of law or otherwise, of any Secured Note or other right, title and interest of any Holder in and to the Indenture Estate or hereunder shall operate to terminate this Indenture or entitle such Holder or any successor or transferee of such Holder to an accounting or to the transfer to it of any legal title to any part of the Indenture Estate. SECTION 10.03. Power of Attorney. The Grantor Trustee does hereby constitute the Indenture Trustee its true and lawful attorney-in-fact, irrevocably and coupled with the interest of the Indenture Trustee created by this Indenture, so long as any Secured Notes are 62 Outstanding and so long as there are any other amounts due hereunder, under any other Operative Documents, or under the Secured Notes, with full power (in the name of and as attorney-in-fact for the Grantor Trustee or otherwise) to ask for, require, demand and receive any and all moneys and claims for moneys, and all other property, which now or hereafter constitutes part of the Indenture Estate, to endorse any checks or other instruments or orders in connection therewith and, to the extent permitted or contemplated by the Indenture or the other Operative Documents, to file any claims or to take any action, or to institute any proceedings, which the Indenture Trustee may deem to be necessary or advisable in the premises. The Grantor Trustee has directed the Indenture Trustee to make all necessary conveyances, assignments, transfers and deliveries of the Indenture Estate and any rights hereunder pursuant to the provisions of this Indenture, and for that purpose the Indenture Trustee may execute all necessary instruments of conveyance, assignment and transfer, and may substitute one or more persons with like power, and the Grantor Trustee hereby ratifies and confirms all that the Indenture Trustee, acting as its attorney, or any such substitute, shall lawfully do by virtue hereof and whether pursuant to the exercise of any remedies hereunder or otherwise. SECTION 10.04. Regarding the Grantor Trustee. (a) Except as expressly provided herein, all and each of the representations, warranties, undertakings and agreements herein made on the part of the Grantor Trustee are made and intended not as personal representations, warranties, undertakings and agreements by or for the purpose or with the intention of binding the Grantor Trustee personally but are made and intended for the purpose of binding only the Trust Estate (including the Louisiana Trust Estate), and this Indenture is executed and delivered by the Grantor Trustee solely in the exercise of the powers expressly conferred upon it as trustee under the Trust Agreement; and no personal liability or responsibility is assumed hereunder by, or at any time shall be enforceable against, the Grantor Trustee or any successor in trust on account of any representation, warranty, undertaking or agreement hereunder of the Grantor Trustee, either expressed or implied, all such personal liability, if any, being expressly waived by the Indenture Trustee; provided, however, that (a) the Indenture Trustee or any Person claiming by, through or under it, making claim hereunder, may subject to the terms and conditions hereof, look to the Indenture Estate for satisfaction of such liability or responsibility and (b) the Corporate Grantor Trustee and the Individual Grantor Trustee or its respective successor in trust, as applicable, shall be personally liable, jointly and severally, for its own and the Individual Grantor Trustee's gross negligence and willful misconduct and for the matters described in clauses (i) through (v) of the last sentence of Section 7.1 of the Trust Agreement. Subject to the terms and conditions hereof, each time a successor Grantor Trustee is appointed in accordance with the terms of the Trust Agreement, such successor Grantor Trustee shall, without further act, succeed to all the rights, duties, immunities and obligations of its predecessor Grantor Trustee hereunder and under the other Operative Documents, and the predecessor Grantor Trustee shall be released from all 63 further duties and obligations hereunder and under the other Operative Documents, all without the necessity of any consent or approval by the Indenture Trustee and without in any way altering the terms of this Indenture or such other Operative Documents or the obligations of the Indenture Trustee hereunder or thereunder. (b) As to the aggregate unpaid principal amount of Secured Notes Outstanding as of any date, the Grantor Trustee may rely on an Officer's Certificate of the Corporate Indenture Trustee. SECTION 10.05. Notices. All communications, notices and consents provided for in this Indenture shall be in writing and shall be given in the manner, and shall become effective in accordance with Section 17.3 of the Participation Agreement. SECTION 10.06. Severability of Provisions. Any provision of this Indenture which may be determined by competent authority to be invalid or unenforceable in any jurisdiction shall, as to such jurisdiction, be ineffective to the extent of such invalidity or unenforceability without invalidating or rendering unenforceable any remaining terms and provisions hereof, and any such invalidity or unenforceability in any jurisdiction shall not invalidate or render unenforceable such provision in any other jurisdiction. The parties shall negotiate in good faith to replace such provision with an appropriate legal provision. To the extent permitted by applicable law, the parties hereto waive any provision thereof that renders any term or provision hereof invalid or unenforceable in any respect. SECTION 10.07. No Oral Modification or Continuing Waivers. No term or provision of this Indenture or the Secured Notes may be changed, waived, discharged or terminated orally, but only by an instrument in writing signed by the party or the person against whom enforcement of the change, waiver, discharge or termination is sought; and any waiver of the terms hereof or of any Secured Note shall be effective only in the specific instance and for the specific purpose given. SECTION 10.08. Successors and Assigns. All covenants and agreements contained herein shall be binding upon each of the parties hereto and their respective successors and permitted assigns, and inure to the benefit of each of the parties hereto and their respective successors and permitted assigns, all as herein provided. Any request, notice, direction, consent, waiver or other instrument or action by any Holder shall bind the successors and assigns of such Holder. This Indenture and the Indenture Estate shall not be affected by any amendment or supplement to the Trust Agreement or by any other action taken under or in respect of the Trust Agreement, except as otherwise provided in or permitted by this Indenture. Each Holder by its acceptance of a Secured Note agrees to be bound by this Indenture and all provisions of the Operative Documents applicable to it. 64 SECTION 10.09. Headings; Table of Contents. The division of this Indenture into Articles, Sections, subsections and paragraphs, the provision of a table of contents and the insertion of headings are for convenience of reference only and shall not affect the construction or interpretation hereof. SECTION 10.10. Normal Commercial Relations. Notwithstanding anything contained in this Indenture to the contrary, any Participant, the Indenture Trustee, the Grantor Trustee, or bank or other affiliate of any such Person may conduct any banking or other financial transactions and have banking or other commercial relationships with the Lessee, fully to the same extent as if this Indenture were not in effect. SECTION 10.11. Governing Law. THIS INDENTURE SHALL BE GOVERNED BY, AND SHALL BE CONSTRUED IN ACCORDANCE WITH, THE INTERNAL LAWS OF THE STATE OF NEW YORK, WITHOUT REGARD TO CONFLICT OF LAWS PRINCIPLES EXCEPT TO THE EXTENT THAT THE INTERNAL LAWS OF ANY OTHER JURISDICTION MAY BE MANDATORILY APPLICABLE. SECTION 10.12. Execution. This Indenture may be executed in separate counterparts by the parties hereto, each of which, when so executed and delivered, shall be an original, but all such counterparts shall together constitute but one and the same instrument. SECTION 10.13. Security Agreement. This Indenture shall constitute a security agreement and, in addition to all other rights of the Indenture Trustee hereunder, the Indenture Trustee shall have for the benefit of the Holders all of the rights conferred upon secured parties by the UCC and any other similar legislation as from time to time in effect in any applicable jurisdiction. SECTION 10.14. Benefits of Indenture. Nothing in this Indenture, whether express or implied, shall be construed to give to any Person other than the parties hereto, the Holders and (to the extent expressly provided herein) the Owner Participant any legal or equitable right, remedy or claim under or in respect of this Indenture or the Secured Notes, and this Indenture shall be held for the sole and exclusive benefit of the parties hereto, the Holders and (to the extent expressly provided herein) the Owner Participant. SECTION 10.15. Personal Property. Notwithstanding the recording of this Indenture in the mortgage records of St. Mary Parishes, Louisiana, it is intended by the parties hereto that, the Undivided Interest and every portion thereof is moveable or personal property, and shall remain moveable or personal property, to the maximum extent permitted by law. To the maximum extent permitted by law, the parties agree that the Undivided Interest shall constitute moveable or personal 65 property and shall not become fixtures or otherwise become part of the real estate or immovable property underneath the Production System. SECTION 10.16. Individual Indenture Trustee. The Individual Indenture Trustee signs this Indenture to accept the duties and responsibility granted hereunder. SECTION 10.17. Special Louisiana Provisions. (a) The assignment of Lease and Rent provided in this Indenture is made pursuant to La. R.S. 9:4401 et seq. (b) Pursuant to the provisions of La. R.S. 9:5301 et seq., each of the Holders has appointed the Indenture Trustee as agent, fiduciary and mortgagee in the exercise of all of the Holder's rights and remedies under this Indenture. (c) The Secured Notes and other Indenture Indebtedness have not been paraphed for identification with this Indenture. (d) The taxpayer identification number of the Corporate Grantor Trustee is 51-6506274, and the taxpayer identification number of the Individual Grantor Trustee is 221-228535. The taxpayer identification number of the Corporate Indenture Trustee is 13-5160382 and the taxpayer identification number of the Individual Indenture Trustee is 156-343716. (e) The maximum amount of the Indenture Indebtedness that this Indenture (including the assignment of Lease and Rent contained herein) secures that may be outstanding at any time and from time to time is fixed at $1,000,000,000, and the maximum amount which the Indenture Trustee or the Holders may claim for damages that the Indenture Trustee or the Holders may suffer from a breach of any covenant, condition or agreement secured by this Indenture (other than for the payment of money) is fixed at $1,000,000,000. (f) For purposes of executory process, the Grantor Trustee acknowledges the Indenture Indebtedness secured hereby, whether now existing or to arise hereafter, and confesses judgment thereon if not paid when due. Upon the occurrence of an Indenture Event of Default and at any time thereafter so long as the same shall be continuing, and, so long as the Indenture Trustee has complied with all of its obligations hereunder, including those set forth in Section 5.04, in addition to all other rights and remedies granted to the Indenture Trustee hereunder, it shall be lawful for and the Grantor Trustee hereby authorizes the Indenture Trustee, without making a demand or putting the Grantor Trustee into default, such putting in default being expressly waived, to cause all and singular the Indenture Estate to be seized and sold after due process of law, the Grantor Trustee waiving the benefit of any and all laws or parts of laws relative to appraisement of property seized and sold under executory process or other legal process, and consenting that the 66 Indenture Estate be sold without appraisement, either in its entirety or in lots or parcels, as the Indenture Trustee may determine, to the highest bidder for cash or on such other terms as the Indenture Trustee in such proceeding may direct. The Indenture Trustee shall be granted all rights and remedies granted a mortgagee or secured party under applicable Louisiana law, including the Uniform Commercial Code in effect in the State of Louisiana. (g) The Grantor Trustee hereby waives: (i) the benefit of appraisement provided for in articles 2332, 2336, 2723 and 2724 of the Louisiana Code of Civil Procedure and all other laws conferring the same; (ii) the demand and three days notice of demand as provided in articles 2629 and 2721 of the Louisiana Code of Civil Procedure; and (iii) the three days delay provided for in articles 2331 and 2722 of the Louisiana Code of Civil Procedure. 67 THUS DONE AND PASSED on this 22 day of November, 1996, but effective for all purposes as of November 15, 1996, before me, the undersigned Notary Public, in and for the County of New York, State of New York, and in the presence of the undersigned competent witnesses, who have hereunto signed their names with the Corporate Grantor Trustee, the Individual Grantor Trustee, the Corporate Indenture Trustee, the Individual Indenture Trustee and me, said Notary, after reading of the whole. WITNESSES TO ALL SIGNATURES: WILMINGTON TRUST COMPANY, not in its individual capacity, except as expressly provided herein, but solely as Corporate Grantor Trustee /s/ James P. Lawler ---------------------------------------- By: James P. Lawler Its: Vice President THOMAS P. LASKARIS, not in his individual capacity, except as expressly provided herein, but solely as Individual Grantor Trustee /s/ Thomas P. Laskaris ---------------------------------------- Thomas P. Laskaris THE BANK OF NEW YORK, not in its individual capacity, except as expressly provided herein, but solely as Corporate Indenture Trustee /s/ Stephen J. Giurlando ---------------------------------------- By: Stephen J. Giurlando Its: Assistant Vice President FREDERICK W. CLARK, not in his individual capacity, except as expressly provided herein, but solely as Individual Indenture Trustee /s/ Frederick W. Clark ---------------------------------------- Frederick W. Clark 68 WITNESSES: /s/ Deepak Ghosh - ------------------------------- Name: Deepak Ghosh /s/ Chris R. Becker NOTARY PUBLIC - ------------------------------- Name: Chris R. Becker Name: /s/ Elizabeth Casagrande ---------------------------------- [NOTARY SEAL] My Commission Expires: Elizabeth Casagrande Notary Public, State of New York No. 43-4975014 Qualified in Richmond County Certificate Filed in New York County Commission Expires Nov. 26, 1996 69 EX-10.2 6 dex102.txt PASS THROUGH TRUST AGREEMENT Exhibit 10.2 ================================================================================ ENSERCH EXPLORATION, INC. and THE BANK OF NEW YORK, as Trustee PASS THROUGH TRUST AGREEMENT Dated as of November 15, 1996 $178,320,000 ----------- Enserch Exploration, Inc. 1996 Pass Through Trust 7.54% Pass Through Certificates, Series 1996 ================================================================================ TABLE OF CONTENTS -----------------
Page ---- ARTICLE I DEFINITIONS 2 Section 1.01. Definitions 2 Section 1.02. Compliance Certificates and Opinions 15 Section 1.03. Form of Documents Delivered to Trustee 16 Section 1.04. Acts of Holders 17 ARTICLE II ACQUISITION OF SECURED NOTES; ORIGINAL ISSUANCE OF CERTIFICATES 18 Section 2.01. Issuance of Certificates; Acquisition of Secured Notes 18 Section 2.02. Acceptance by Trustee 19 Section 2.03. Limitation of Powers 19 ARTICLE III THE CERTIFICATES 20 Section 3.01. Form, Denomination and Execution of Certificates 20 Section 3.02. Authentication of Certificates 24 Section 3.03. Temporary Certificates 25 Section 3.04. Registration of Transfer and Exchange of Certificates 25 Section 3.05. Mutilated, Destroyed, Lost or Stolen Certificates 26 Section 3.06. Persons Deemed Owners 27 Section 3.07. Cancellation 27 Section 3.08. Limitation of Liability for Payments 27 Section 3.09. Book-Entry Provisions for Global Certificates 28 Section 3.10. Restrictions on Transfer and Exchange of Certificates 30 Section 3.11. CUSIP Numbers 36 ARTICLE IV DISTRIBUTIONS; STATEMENTS TO CERTIFICATEHOLDERS 36 Section 4.01. Certificate Account and Special Payments Account 36 Section 4.02. Distributions from Certificate Account and Special Payments Account 37 Section 4.03. Statements to Certificateholders 39 Section 4.04. Investment of Special Payment Moneys 40
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Page ---- ARTICLE V ENSERCH EXPLORATION 40 Section 5.01. Maintenance of Corporate Existence 40 Section 5.02. Consolidation, Merger or Sale of Assets Permitted 41 Section 5.03. Annual Statements as to Compliance by Enserch Exploration 41 Section 5.04. Availability of Certain Information Concerning Enserch Exploration 42 Section 5.05. Notification of Certain Enserch Exploration Acquisitions of Certificates 42 Section 5.06. Representations and Warranties of Enserch Exploration 42 ARTICLE VI DEFAULT 44 Section 6.01. Events of Default 44 Section 6.02. Incidents of Sale of Secured Notes 45 Section 6.03. Judicial Proceedings Instituted by Trustee 46 Section 6.04. Control by Certificateholders 47 Section 6.05. Waiver of Defaults 48 Section 6.06. Undertaking to Pay Court Costs 48 Section 6.07. Right of Certificateholders to Receive Payments Not to Be Impaired 49 Section 6.08. Certificateholders May Not Bring Suit Except Under Certain Conditions 49 Section 6.09. Remedies Cumulative 50 ARTICLE VII THE TRUSTEE 51 Section 7.01. Certain Duties and Responsibilities 51 Section 7.02. Notice of Defaults 52 Section 7.03. Certain Rights of Trustee 53 Section 7.04. Not Responsible for Recitals or Issuance of Certificates 54 Section 7.05. May Hold Certificates 54 Section 7.06. Money Held in Trust 54 Section 7.07. Compensation and Reimbursement 54 Section 7.08. Corporate Trustee Required; Eligibility 56 Section 7.09. Resignation and Removal; Appointment of Successor 56 Section 7.10. Acceptance of Appointment by Successor 58 Section 7.11. Merger, Conversion, Consolidation or Succession to Business 59 Section 7.12. Maintenance of Agencies 60
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Page ---- Section 7.13. Money for Certificate Payments to Be Held in Trust 61 Section 7.14. Registration of Secured Notes in Trustee's Name 62 Section 7.15. Representations and Warranties of Trustee 62 Section 7.16. Withholding Taxes; Information Reporting 63 Section 7.17. Trustee's Liens 64 Section 7.18. Availability of Certain Information Concerning the Trust 64 ARTICLE VIII CERTIFICATEHOLDERS' LISTS AND REPORTS BY TRUSTEE 65 Section 8.01. Enserch Exploration to Furnish Trustee with Names and Addresses of Certificateholders 65 Section 8.02. Preservation of Information; Communication to Certificateholders 65 Section 8.03. Reports by Enserch Exploration 67 ARTICLE IX SUPPLEMENTAL TRUST AGREEMENTS 67 Section 9.01. Supplemental Trust Agreement Without Consent of Certificateholders 67 Section 9.02. Supplemental Trust Agreements with Consent of Certificateholders 68 Section 9.03. Documents Affecting Immunity or Indemnity 69 Section 9.04. Execution of Supplemental Trust Agreements 69 Section 9.05. Effect of Supplemental Trust Agreements 70 Section 9.06. Reference in Certificates to Supplemental Trust Agreements 70 ARTICLE X AMENDMENTS TO INDENTURES AND NOTE DOCUMENTS 70 Section 10.01. Amendments and Supplements to Indenture and Other Note Documents 70 ARTICLE XI TERMINATION OF TRUST 71 Section 11.01. Termination of the Trust 71
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Page ---- ARTICLE XII MISCELLANEOUS PROVISIONS 73 Section 12.01. Limitation on Rights of Certificateholders 73 Section 12.02. Certificates Nonassessable and Fully Paid 73 Section 12.03. Notices 73 Section 12.04. Governing Law 74 Section 12.05. Severability of Provisions 74 Section 12.06. Effect of Headings and Table of Contents 74 Section 12.07. Successors and Assigns 74 Section 12.08. Benefits of Trust Agreement 74 Section 12.09. Legal Holidays 75 Section 12.10. Counterparts 75
iv EXHIBIT A - Form of Pass Through Certificate EXHIBIT B - Form of Regulation S Transfer Restriction Certificate EXHIBIT C - Form of DTC Letter of Representations EXHIBIT D - Form of Certificate to be Delivered in Connection with Transfers Pursuant to Regulation S EXHIBIT E - Form of Transfer Certificate for Restricted Securities EXHIBIT F - Form of Accredited Investor Letter Schedule 1 - Form of Secured Notes (1996-A) to be Purchased Schedule 2 - Form of Secured Notes (1996-B) to be Purchased v This PASS THROUGH TRUST AGREEMENT, as it may be amended, supplemented or otherwise modified from time to time (the "Trust Agreement"), dated as of --------------- November 15, 1996 is made with respect to the formation of the Enserch Exploration 1996 Pass Through Trust, between Enserch Exploration, Inc., a Texas corporation ("Enserch Exploration"), and The Bank of New York, a New York ------------------- banking corporation, as Trustee. W I T N E S S E T H : - - - - - - - - - - WHEREAS, the Grantor Trustees (as such term and certain other capitalized terms used herein are defined below), acting on behalf of the Owner Participants, will lease the Undivided Interests from Enserch Holdings pursuant to the Head Leases; WHEREAS, the Grantor Trustees will issue, on a non-recourse basis, Secured Notes under the Indentures in order to pay Enserch Holdings its consideration under the Head Leases; WHEREAS, Enserch Exploration is contemporaneously herewith purchasing all right, title and interest of Enserch Holdings in and to the Head Leases pursuant to the Assignment and Assumption and Security Agreements; WHEREAS, the Grantor Trustees will sublease the Undivided Interests to Enserch Exploration pursuant to the Lease Transactions; WHEREAS, pursuant to the terms and conditions of this Trust Agreement and the Participation Agreements to be entered into by the Trustee simultaneously with the execution and delivery of this Trust Agreement, the Secured Notes are to be sold to the Trustee by each of the Grantor Trustees, and the Trustee shall purchase the Secured Notes and shall hold the Secured Notes in trust for the benefit of the Certificateholders; WHEREAS, the Trustee, upon the execution and delivery of this Trust Agreement, hereby declares the creation of this Trust for the benefit of the Certificateholders, and the initial Certificateholders as the grantors of the Trust and by their respective acceptances of the Certificates join in the creation of this Trust with the Trustee; and WHEREAS, to facilitate the sale of the Secured Notes to the Trustee and the purchase of the Secured Notes by the Trustee, Enserch Exploration is undertaking to perform certain administrative and ministerial duties hereunder and is also undertaking to pay the fees and expenses of the Trustee. NOW, THEREFORE, in consideration of the mutual agreements herein contained, and of the other good and valuable consideration the receipt and adequacy of which are hereby acknowledged, the parties hereto agree as follows: ARTICLE I DEFINITIONS Section 1.01. Definitions. (a) For all purposes of this Trust ----------- Agreement, except as otherwise expressly provided or unless the context otherwise requires: (1) the terms used herein that are defined in this Article have the meanings assigned to them in this Article, and include the plural as well as the singular; (2) all references in this Trust Agreement to designated "Articles", "Sections" and other subdivisions are to the designated Articles, Sections and other subdivisions of this Trust Agreement; and (3) the words "herein", "hereof" and "hereunder" and other words of similar import refer to this Trust Agreement as a whole and not to any particular Article, Section or other subdivision. (b) For all purposes of this Trust Agreement, the following capitalized terms have the following respective meanings: "Act": when used with respect to any Holder, has the meaning --- specified in Section 1.04. "Affiliate": of any specified Person, means any other Person which --------- directly or indirectly controls or is controlled by, or is under common control with, such specified Person. For the purposes of this definition, "control" means the possession, directly or indirectly, of the power to direct or cause the direction of the management and policies of such Person, whether through the ownership of voting securities, by contract or otherwise; and the terms "controlling" and "controlled" have meanings correlative to the foregoing. "Agent Member": has the meaning specified in Section 3.09. ------------ "Applicable Procedures": has the meaning specified in Section 3.10. --------------------- 2 "Assignment and Assumption and Security Agreements": means, ------------------------------------------------- collectively, the Assignment and Assumption Agreement, Mortgage and Security Agreement (1996-A) dated as of November 15, 1996 between Enserch Holdings and Enserch Exploration and the Assignment and Assumption Agreement, Mortgage and Security Agreement (1996-B) dated as of November 15, 1996 between Enserch Holdings and Enserch Exploration. "Authorized Agent": means any Paying Agent or Registrar. ---------------- "Business Day": means any day other than a Saturday, a Sunday, or a ------------ day on which commercial banking institutions are authorized or obligated by law, executive order, or governmental decree to be closed in New York, New York, the city and state in which the Corporate Trust Office of the Indenture Trustee is located or the city and state in which the Corporate Trust Office of the Trustee is located. "Cedel": has the meaning specified in Section 3.01(f). ----- "Certificate": means any one of the certificates executed and ----------- authenticated by the Trustee, substantially in the form of Exhibit A hereto. "Certificate Account (1996-A)": has the meaning assigned to such term ---------------------------- in Section 4.01(a). "Certificate Account (1996-B)": has the meaning assigned to such term ---------------------------- in Section 4.01(a). "Certificate Accounts": means, collectively, the Certificate Account -------------------- (1996-A) and the Certificate Account (1996-B). "Certificateholder or Holder": means the Person in whose name a --------------------------- Certificate is registered in the Register. "Closing Date": has the meaning specified in Section 2.4 of the ------------ Participation Agreements. "Commission": means the Securities and Exchange Commission, as from ---------- time to time constituted, created under the Securities Exchange Act of 1934. "Consideration": has the meaning specified in Section 2.01. ------------- 3 "Corporate Trust Office": with respect to the Trustee, the Grantor ---------------------- Trustees and the Indenture Trustee, means the office of such trustee in the city at which at any particular time its corporate trust business shall be principally administered. "Default": means any event which is, or after notice or lapse of time ------- or both would become, an Event of Default. "Depository": means an organization registered as a "clearing agency" ---------- pursuant to Section 17A of the Securities Exchange Act of 1934, as amended. "Direction": has the meaning specified in Section 1.04(c). --------- "Distribution Date": with respect to distributions of Scheduled ----------------- Payments, means each January 2 and July 2, commencing January 2, 1997 until payment of all the Scheduled Payments to be made under the Secured Notes has been made. "DTC": means The Depository Trust Company and any successor --- Depository. "Enserch Exploration": means Enserch Exploration, Inc., a Texas ------------------- corporation, or its successor in interest pursuant to Section 5.02. "Enserch Holdings": means Enserch Exploration Holdings, Inc., a ---------------- Delaware corporation. "Euroclear": has the meaning specified in Section 3.01. --------- "Event of Default": means, collectively, an Indenture Event of ---------------- Default (1996-A) and an Indenture Event of Default (1996-B). "Fractional Undivided Interest": means the fractional undivided ----------------------------- interest in the Trust that is evidenced by a Certificate. "Global Certificate": means the Restricted Global Certificate, any ------------------ Regulation S Global Certificate and any Unrestricted Global Certificate. "Grantor Trustee (1996-A)": means Wilmington Trust Company, not in ------------------------ its individual capacity but solely as Corporate Grantor Trustee and Thomas P. Laskaris, not in his individual capacity but solely as Individual Grantor Trustee, collectively, under the Trust Agreement (1996-A) dated as of November 15, 4 1996, between Wilmington Trust Company and the Owner Participant (1996-A); and any successor to the Grantor Trustee (1996-A) as such trustee. "Grantor Trustee (1996-B)": means Wilmington Trust Company, not in ------------------------ its individual capacity but solely as Corporate Grantor Trustee and Thomas P. Laskaris, not in his individual capacity but solely as Individual Grantor Trustee, collectively, under the Trust Agreement (1996-B) dated as of November 15, 1996, between Wilmington Trust Company and the Owner Participant (1996-B); and any successor to the Grantor Trustee (1996-B) as such trustee. "Grantor Trustees": means, collectively, the Grantor Trustee (1996-A) ---------------- and the Grantor Trustee (1996-B). "Head Lease (1996-A)": means the Head Lease Agreement (1996-A) dated ------------------- as of November 15, 1996, between Enserch Exploration and the Grantor Trustee (1996-A). "Head Lease (1996-B)": means the Head Lease Agreement (1996-B) dated ------------------- as of November 15, 1996, between Enserch Exploration and the Grantor Trustee (1996-B). "Head Leases": means, collectively, the Head Lease (1996-A) and the ----------- Head Lease (1996-B). "Holder": See Certificateholder. ------ "Initial Securities": means the Certificates originally issued on the ------------------ date hereof and any Certificates issued in exchange or replacement thereof pursuant to the terms of this Trust Agreement. "Indenture (1996-A)": means the Trust Indenture, Mortgage, Assignment ------------------ of Lease and Security Agreement (1996-A) dated as of November 15, 1996, between the Grantor Trustee (1996-A) and the Indenture Trustee (1996-A), as such Indenture may be amended or supplemented in accordance with its terms. "Indenture (1996-B)": means the Trust Indenture, Mortgage, Assignment ------------------ of Lease and Security Agreement (1996-B) dated as of November 15, 1996, between the Grantor Trustee (1996-B) and the Indenture Trustee (1996-B), as such Indenture may be amended or supplemented in accordance with its terms. "Indenture Event of Default (1996-A)": means any Indenture Event of ----------------------------------- Default (1996-A) (as such term is defined in the Indenture (1996-A)). 5 "Indenture Event of Default (1996-B)": means any Indenture Event of ----------------------------------- Default (1996-B) (as such term is defined in the Indenture (1996-B)). "Indenture Events of Default": means, collectively, the Indenture --------------------------- Events of Default (1996-A) and the Indenture Events of Default (1996-B). "Indenture Trustee (1996-A)": means The Bank of New York, a New York -------------------------- banking corporation, as Corporate Indenture Trustee under the Indenture (1996-A) and Frederick W. Clark, not in his individual capacity except as expressly provided in the Indenture (1996-A) but solely as Individual Indenture Trustee, and any successor to any such Indenture Trustee as such trustee. "Indenture Trustee (1996-B)": means The Bank of New York, a New York -------------------------- banking corporation, as Corporate Indenture Trustee under the Indenture (1996-B) and Frederick W. Clark, not in his individual capacity except as expressly provided in the Indenture (1996-B) but solely as Individual Indenture Trustee, and a successor to such Indenture Trustee as such trustee. "Indenture Trustees": means, collectively, the Indenture Trustee ------------------ (1996-A) and the Indenture Trustee (1996-B). "Indentures": means, collectively, the Indenture (1996-A) and the ---------- Indenture (1996-B). "Lease (1996-A)": means the Production System Lease Agreement dated -------------- as of November 15, 1996, between the Grantor Trustee (1996-A), as the lessor, and Enserch Exploration, as the lessee, as such Lease may be amended or supplemented in accordance with its terms. "Lease (1996-B)": means the Production System Lease Agreement dated -------------- as of November 15, 1996, between the Grantor Trustee (1996-B), as the lessor, and Enserch Exploration, as the lessee, as such Lease may be amended or supplemented in accordance with its terms. "Leases": means, collectively, the Lease (1996-A) and the Lease ------ (1996-B). "Lease Transaction": means the lease-leaseback transaction in respect ----------------- of the Undivided Interests between Enserch Exploration and the Grantor Trustee provided for in the Participation Agreements. 6 "Letter of Representations": means the agreement among Enserch ------------------------- Exploration, the Trustee and DTC substantially in the form attached hereto as Exhibit C. "Note Documents": means, with respect to any Secured Note, such -------------- Secured Note and the Indenture, the Participation Agreement, the Lease and the other Operative Documents (as defined in the Indenture under which such Secured Note was issued). "Officer's Certificate": means a certificate signed (i) in the case --------------------- of a corporation by the President, any Vice President or the Treasurer, of such corporation, (ii) in the case of a partnership by the Chairman of the Board, the President or any Vice President, the Treasurer or an Assistant Treasurer of a corporate general partner, and (iii) in the case of any Grantor Trustee or any Indenture Trustee, a certificate signed by a Responsible Officer of such Grantor Trustee or Indenture Trustee. "Opinion of Counsel": means an opinion in writing, signed by legal ------------------ counsel, who may be (a) the General Counsel, Assistant General Counsel or other appropriate internal counsel of Enserch Exploration or (b) such other counsel designated by Enserch Exploration, the Grantor Trustee or the Indenture Trustee, whether or not such counsel is an employee of any of them and who shall be reasonably acceptable to the Trustee. "Outstanding": when used with respect to the Certificates, means, as ----------- of the date of determination, all Certificates theretofore authenticated and delivered under this Trust Agreement, except: (i) Certificates theretofore canceled by the Registrar or delivered to the Trustee or the Registrar for cancellation; (ii) Certificates for which money in the full amount has been theretofore deposited with the Trustee or any Paying Agent in trust for the Holders of such Certificates as provided in Section 4.01 pending distribution of such money to the Certificateholders pursuant to the final distribution payment to be made pursuant to Section 11.01 hereof; and (iii) Certificates in exchange for or in lieu of which other Certificates have been authenticated and delivered pursuant to this Trust Agreement. 7 "Owner Participant (1996-A)": means the Owner Participant referred to -------------------------- in the Participation Agreement (1996-A) and any permitted successors and assigns. "Owner Participant (1996-B)": means the Owner Participant referred to -------------------------- in the Participation Agreement (1996-B) and any permitted successors and assigns. "Owner Participants": means, collectively, the Owner Participant ------------------ (1996-A) and the Owner Participant (1996-B). "Participation Agreement (1996-A)": means the Participation Agreement -------------------------------- (1996-A) dated as of November 15, 1996, among Enserch Exploration, the Owner Participant (1996-A), the Grantor Trustee (1996-A), the Indenture Trustee (1996-A) and the Trustee. "Participation Agreement (1996-B)": means the Participation Agreement -------------------------------- (1996-B) dated as of November 15, 1996 among Enserch Exploration, the Owner Participant (1996-B), the Grantor Trustee (1996-B), the Indenture Trustee (1996-B) and the Trustee. "Participation Agreements": means, collectively, the Participation ------------------------ Agreement (1996-A) and the Participation Agreement (1996-B). "Paying Agent": means the paying agent maintained and appointed ------------ pursuant to Section 7.12. "Permanent Regulation S Global Certificate": has the meaning assigned ----------------------------------------- in Section 3.01(f). "Permitted Government Investment": means obligations of the United ------------------------------- States of America for the payment of which the full faith and credit of the United States of America is pledged, maturing in not more than 60 days or such lesser time as is necessary for payment of any Special Payments on a Special Distribution Date. "Person": means any individual, corporation, limited liability ------ company, partnership, association, trust, unincorporated organization, or government or any agency or political subdivision thereof. "Physical Certificate": has the meaning assigned in Section 3.10. -------------------- 8 "Pool Balance": means, as of any date, the aggregate unpaid and ------------ undistributed principal amount of the Secured Notes on such date plus the amount of the principal payments on the Secured Notes held by the Trustee and not yet distributed. The Pool Balance as of any Distribution Date or Special Distribution Date, if any, shall be computed after giving effect to the payment of principal, if any, on the Secured Notes and distribution thereof to be made on that date. "Pool Factor": means, as of any date, the quotient (rounded to the ----------- seventh decimal place) computed by dividing (i) the Pool Balance by (ii) the aggregate original principal amount of the Certificates. The Pool Factor, as of any Distribution Date or Special Distribution Date, if any, shall be computed after giving effect to the payment of principal, if any, on the Secured Notes and distribution thereof to be made on that date. "QIB": means a "qualified institutional buyer," as defined in Rule --- 144A under the Securities Act. "Record Date": means (i) for Scheduled Payments to be distributed on ----------- any Distribution Date, other than the final distribution, the day (whether or not a Business Day) which is 15 days preceding such Distribution Date, and (ii) for Special Payments to be distributed on any Special Distribution Date, if any, other than the final distribution, the day (whether or not a Business Day) which is 15 days preceding such Special Distribution Date. "Register and Registrar": means the register maintained and the ---------------------- registrar appointed pursuant to Sections 3.04 and 7.12. "Regulation S Certificates Exchange Date": has the meaning provided --------------------------------------- in Section 3.01. "Regulation S Global Certificate": has the meaning specified in ------------------------------- Section 3.01. "Responsible Officer": When used with respect to the initial Trustee, ------------------- an initial Indenture Trustee or a Grantor Trustee means any officer in the Corporate Trust Office; when used with respect to any successor Trustee, or successor Indenture Trustee, means the chairman or vice-chairman of the board of directors or trustees, the chairman or vice-chairmen of the executive or standing committee of the board of directors or trustees, the president, the chairman of the committee on trust matters, any vice- president, any second vice-president, the secretary, any assistant secretary, the treasurer, any assistant treasurer, any 9 trust officer or assistant trust officer, the comptroller and any assistant comptroller; and, when used with respect to any Trustees and Indenture Trustees, also means any other officer of such Trustee or such Indenture Trustee customarily performing functions similar to those performed by any of the above designated officers and also means, when used with respect to the Trustees, Indenture Trustees or Grantor Trustees with respect to a particular corporate trust matter, any other officer to whom such matter is referred because of his knowledge of and familiarity with the particular subject. "Restricted Global Security": has the meaning specified in Section -------------------------- 3.01. "Restricted Period": has the meaning specified in Section 3.01. ----------------- "Restricted Securities": has the meaning specified in Section 3.10. --------------------- "Restricted Securities Legend": has the meaning specified in Section ---------------------------- 3.10. "Scheduled Payment": with respect to a Distribution Date, means any ----------------- payment (other than a Special Payment) of principal and interest on a Secured Note, due from the Grantor Trustee that issued such Secured Note, which payment represents the payment of a regularly scheduled installment of principal then due on such Secured Note, or the payment of regularly scheduled interest accrued on such Secured Note. "Secured Note (1996-A)": means any one of the Secured Notes (as --------------------- defined in the Indenture (1996-A)) described on Schedule 1 attached hereto, including any Secured Note (as so defined) issued under such Indenture in replacement or substitution therefor, held by the Trustee. "Secured Note (1996-B)": means any one of the Secured Notes (as --------------------- defined in the Indenture (1996-B)) described on Schedule 2 attached hereto, including any Secured Note (as so defined) issued under such Indenture in replacement or substitution therefor, held by the Trustee. "Secured Notes": means, collectively, the Secured Notes (1996-A) and ------------- the Secured Notes (1996-B). "Securities Act": means the Securities Act of 1933, as amended from -------------- time to time. 10 "Securities Exchange Act": means the Securities Exchange Act of 1934, ----------------------- as amended from time to time. "Special Distribution Date (1996-A)": means (i) with respect to the ---------------------------------- prepayment of any Secured Notes (1996-A), the 2nd day of the month on which such prepayment is scheduled to occur pursuant to the terms of the Indenture (1996-A) and (ii) with respect to any Special Payment (1996-A) relating to a Secured Note (1996-A) other than as described in clause (i) of the definition of Special Payment (1996-A), the earliest 2nd day of a month for which it is practicable for the Trustee to give notice pursuant to Section 4.02(c) 20 days prior thereto. "Special Distribution Date (1996-B)": means (i) with respect to the ---------------------------------- prepayment of any Secured Notes (1996-B), the 2nd day of the month on which such prepayment is scheduled to occur pursuant to the terms of the Indenture (1996-B) and (ii) with respect to any Special Payment (1996-B) relating to a Secured Note (1996-B) other than as described in clause (i) of the definition of Special Payment (1996-B), the earliest 2nd day of a month for which it is practicable for the Trustee to give notice pursuant to Section 4.02(c) 20 days prior thereto. "Special Distribution Dates": means, collectively, the Special -------------------------- Distribution Date (1996-A) and the Special Distribution Date (1996-B). "Special Payment (1996-A)": with respect to a Secured Note (1996-A), ------------------------ means (i) any payment of principal, Make-Whole Amount, if any, and interest on such Secured Note resulting from the prepayment of such Secured Note pursuant to Sections 3.02, 3.03, 3.05 or 3.06 of the Indenture (1996-A), (ii) any payment of principal and interest (including any interest accruing upon default) on, or any other amount in respect of, such Secured Note upon an Indenture Event of Default (1996-A) in respect thereof or upon the exercise of remedies under the Indenture (1996-A) relating to such Secured Note, (iii) any Scheduled Payment (1996-A) or any Special Payment (1996-A) referred to in clause (i) of this definition which is not in fact paid within five days of the Distribution Date (1996-A) or Special Distribution Date (1996-A) applicable thereto, or (iv) any proceeds from the sale of any Secured Note (1996-A) by the Trustee pursuant to Article VI hereof; and Special Payments (1996-A) means all of such Special Payments. "Special Payment (1996-B)": with respect to a Secured Note (1996-B), ------------------------ means (i) any payment of principal, Make-Whole Amount, if any, and interest on such Secured Note resulting from 11 the prepayment of such Secured Note pursuant to Sections 3.02, 3.03, 3.05 or 3.06 of the Indenture (1996-B), (ii) any payment of principal and interest (including any interest accruing upon default) on, or any other amount in respect of, such Secured Note upon an Indenture Event of Default (1996-B) in respect thereof or upon the exercise of remedies under the Indenture (1996-B) relating to such Secured Note, (iii) any Scheduled Payment (1996-B) or any Special Payment (1996-B) referred to in clause (i) of this definition which is not in fact paid within five days of the Distribution Date (1996-B) or Special Distribution Date (1996-B) applicable thereto, or (iv) any proceeds from the sale of any Secured Note (1996-B) by the Trustee pursuant to Article VI hereof; and Special Payments (1996-B) means all of such Special Payments. "Special Payments": means, collectively, the Special Payment (1996-A) ---------------- and the Special Payment (1996-B). "Special Payments Account (1996-A)": means the account or accounts --------------------------------- created and maintained pursuant to Section 4.01(b). "Special Payments Account (1996-B)": means the account or accounts --------------------------------- created and maintained pursuant to Section 4.01(b). "Special Payments Accounts": means, collectively, the Special ------------------------- Payments Account (1996-A) and the Special Payment Account (1996-B). "Specified Investments": means (i) direct obligations of the United --------------------- States of America and agencies thereof for which the full faith and credit of the United States is pledged, (ii) obligations fully guaranteed by the United States of America, (iii) certificates of deposit issued by, or bankers' acceptances of, or time deposits with, any bank, trust company or national banking association incorporated or doing business under the laws of the United States of America or one of the States thereof having combined capital and surplus and retained earnings of at least $500,000,000 (including the Indenture Trustee or Grantor Trustee if such conditions are met), (iv) commercial paper of companies, banks, trust companies or national banking associations incorporated or doing business under the laws of the United States of America or one of the States thereof and in each case having a rating assigned to such commercial paper by Standard & Poor's Corporation or Moody's Investors Services, Inc. (or, if neither such organization shall rate such commercial paper at any time, by any nationally recognized rating organization in the United States of America) equal to the highest rating assigned by such organization, and (v) purchase agreements with any financial institution having a 12 combined capital and surplus of at least $750,000,000 fully collateralized by obligations of the type described in clauses (i) through (iv) above; provided that if all of the above investments are unavailable, the entire amount to be invested may be used to purchase Federal Funds from an entity described in (iii) above; and provided further that no investment shall be eligible as a "Specified Investment" unless the final maturity or date of return of such investment is 91 days or less from the date of purchase thereof. "Temporary Regulation S Global Certificate": has the meaning provided ----------------------------------------- in Section 3.01. "Transfer Date": means the Closing Date as the term is defined in the ------------- Participation Agreement scheduled to occur on December 2, 1996, or if postponed in accordance with the Participation Agreement, the rescheduled Closing Date. "Trust": means the trust created by this Trust Agreement, the estate ----- of which consists of the Trust Property. "Trust Indenture Act": means the Trust Indenture Act of 1939, as ------------------- amended from time to time. "Trust Property": means the Secured Notes held as the property of the -------------- Trust created hereby and all monies at any time paid thereon and all monies due and to become due thereunder, funds from time to time deposited in the Certificate Account and the Special Payments Accounts and any proceeds of any of the foregoing, including without limitation from the sale by the Trustee pursuant to Article VI hereof of any Secured Note. "Trustee": means the institution executing this Trust Agreement as ------- Trustee, or its successor in interest, and any successor trustee appointed as provided herein. "Unrestricted Global Certificate": has the meaning provided in ------------------------------- Section 3.01. "Undivided Interests": means each of the Undivided Interests ------------------- described in the Participation Agreement (1996-A) and the Participation Agreement (1996-B). (c) Capitalized terms used but not defined herein shall have the meanings specified in the Participation Agreements. 13 Section 1.02. Compliance Certificates and Opinions. Upon any ------------------------------------ application or request by Enserch Exploration, any Grantor Trustee or any Indenture Trustee to the Trustee to take any action under any provision of this Trust Agreement, Enserch Exploration, such Grantor Trustee or such Indenture Trustee, as the case may be, shall furnish to the Trustee an Officers' Certificate stating that, in the opinion of the signers, all conditions precedent, if any, provided for in this Trust Agreement relating to the proposed action have been complied with and an Opinion of Counsel stating that in the opinion of such counsel all such conditions precedent, if any, have been complied with, except that in the case of any such application or request as to which the furnishing of such documents is specifically required by any provision of this Trust Agreement relating to such particular application or request, no additional certificate or opinion need be furnished. Every certificate or opinion with respect to compliance with a condition or covenant provided for in this Trust Agreement shall include: (1) a statement that each individual signing such certificate or opinion has read such covenant or condition and the definitions herein relating thereto; (2) a brief statement as to the nature and scope of the examination or investigation upon which the statements or opinions contained in such certificate or opinion are based; (3) a statement that, in the opinion of each such individual, he has made such examination or investigation as is necessary to enable him to express an informed opinion as to whether or not such covenant or condition has been complied with; and (4) a statement as to whether, in the opinion of each such individual, such condition or covenant has been complied with. Section 1.03. Form of Documents Delivered to Trustee. In any case -------------------------------------- where several matters are required to be certified by, or covered by an opinion of, any specified Person, it is not necessary that all such matters be certified by, or covered by the opinion of, only one such Person, or that they be so certified or covered by only one document, but one such Person may certify or give an opinion with respect to some matters and one or more other such Persons as to other matters and any such Person may certify or give an opinion as to such matters in one or several documents. Any Opinion of Counsel stated to be based on the opinion of other counsel shall be accompanied by a copy of such other opinion. 14 Where any Person is required to make, give or execute two or more applications, requests, consents, certificates, statements, opinions or other instruments under this Trust Agreement, they may, but need not, be consolidated and form one instrument. Section 1.04. Acts of Holders. (a) Any direction, consent, waiver --------------- or other action provided by this Trust Agreement to be given or taken by Holders may be embodied in and evidenced by one or more instruments of substantially similar tenor signed by such Holders in person or by an agent duly appointed in writing; and, except as herein otherwise expressly provided, such action shall become effective when such instrument or instruments are delivered to the Trustee and, where it is herein expressly required, to Enserch Exploration or the Indenture Trustees. Such instrument or instruments (and the action embodied therein and evidenced thereby) are herein sometimes referred to as the "Act" of the Holders signing such instrument or instruments. Proof of execution of any such instrument or of a writing appointing any such agent shall be sufficient for any purpose of this Trust Agreement and (subject to Section 7.01) conclusive in favor of the Trustee, Enserch Exploration and the Indenture Trustees, if made in the manner provided in this Section. (b) The fact and date of the execution by any Person of any such instrument or writing may be proved by the certificate of any notary public or other officer of any jurisdiction authorized to take acknowledgments of deeds or administer oaths that the Person executing such instrument acknowledged to him the execution thereof, or by an affidavit of a witness to such execution sworn to before any such notary or such other officer and where such execution is by an officer of a corporation or association or a member of a partnership, on behalf of such corporation, association or partnership, such certificate or affidavit shall also constitute sufficient proof of his authority. The fact and date of the execution of any such instrument or writing, or the authority of the Person executing the same, may also be proved in any other reasonable manner which the Trustee deems sufficient. (c) In determining whether the Holders of the requisite Fractional Undivided Interests of Certificates Outstanding have given any direction, consent or waiver (a "Direction"), under this Trust Agreement, Certificates owned by Enserch Exploration, the Grantor Trustees, the Owner Participants or any Affiliate of any such Persons shall be disregarded and deemed not to be Outstanding under this Trust Agreement for purposes of any such determination. In determining whether the Trustee shall be protected in relying upon any such Direction, only Certificates which the Trustee knows to be so owned shall be so disregarded. Notwithstanding the foregoing, (i) if any such Person owns 100% of the Certificates Outstanding, such Certificates shall not be so disregarded as aforesaid, and (ii) if any amount of Certificates so owned 15 by any such Person have been pledged in good faith, such Certificates shall not be disregarded as aforesaid if the pledgee establishes to the satisfaction of the Trustee the pledgee's right so to act with respect to such Certificates and that the pledgee is not Enserch Exploration, the Grantor Trustees, the Owner Participants or any Affiliate of any such Persons. (d) Any direction, consent, waiver or other action by the Holder of any Certificate shall bind the Holder of every Certificate issued upon the transfer thereof or in exchange therefor or in lieu thereof, whether or not notation of such action is made upon such Certificate. (e) Except as otherwise provided in Section 1.04(c), Certificates owned by or pledged to any Person shall have an equal and proportionate benefit under the provisions of this Trust Agreement, without preference, priority, or distinction as among all of the Certificates. ARTICLE II ACQUISITION OF SECURED NOTES; ORIGINAL ISSUANCE OF CERTIFICATES Section 2.01. Issuance of Certificates; Acquisition of Secured Notes. ------------------------------------------------------ The Trustee, simultaneously with the execution and delivery of this Trust Agreement, shall also execute and deliver the Participation Agreements, in the form delivered to the Trustee on or prior to the date of the execution and delivery hereof. Upon request of Enserch Exploration and the satisfaction of the closing conditions with respect to the Undivided Interests to be leased on the Transfer Date specified in the Participation Agreements, on the Transfer Date the Trustee shall execute, deliver and authenticate Certificates equaling in the aggregate the total aggregate principal amount of the Secured Notes purchased by the Trustee pursuant to the Participation Agreements on the Transfer Date and evidencing the entire ownership of the Trust; provided, that, -------- notwithstanding Section 1.02 hereof, such request need not be accompanied by an Opinion of Counsel. The Trustee shall issue and sell such Certificates on the Transfer Date, in authorized denominations and in such Fractional Undivided Interests, so as to result in the receipt of consideration in an amount equal to the aggregate principal amount of the Secured Notes to be purchased on the Transfer Date (the "Consideration"). The Trustee shall purchase, pursuant to the terms and conditions of the Participation Agreements, the Secured Notes on the Transfer Date at an aggregate purchase price equal to the amount of the Consideration so received. Except as provided in Section 3.05 hereof, 16 the Trustee shall not execute or deliver Certificates in excess of the aggregate amount specified in this paragraph. Section 2.02. Acceptance by Trustee. The Trustee, upon the execution --------------------- and delivery of this Trust Agreement, acknowledges its acceptance of all right, title, and interest in and to the Secured Notes acquired pursuant to Section 2.01 hereof and the Participation Agreements and declares that the Trustee holds and will hold such right, title, and interest, together with all other property constituting the Trust Property, for the benefit of all present and future Certificateholders, upon the trusts herein set forth. By its payment for and acceptance of each Certificate issued to it hereunder, each initial Certificateholder as grantor of the Trust thereby joins in the creation and declaration of the Trust. Section 2.03. Limitation of Powers. The Trust is constituted solely -------------------- for the purpose of making the investment in the Secured Notes, and, except as set forth herein, the Trustee is not authorized or empowered to acquire any other investments or engage in any other activities and, in particular, the Trustee is not authorized or empowered to do anything that would cause the Trust to fail to qualify as a "grantor trust" for federal income tax purposes (including, as subject to this restriction, acquiring the Undivided Interests by bidding the Secured Notes or otherwise, or taking any action with respect to the Undivided Interests once acquired). ARTICLE III THE CERTIFICATES Section 3.01. Form, Denomination and Execution of Certificates. (a) ------------------------------------------------ The Certificates shall be in fully registered form without interest coupons substantially in the form of Exhibit A hereto and shall contain such additional provisions, omissions, variations and insertions as are permitted by this Trust Agreement, and may have such letters, numbers or other marks of identification and such legends or endorsements printed, lithographed or engraved thereon, as may be required to comply with the securities laws of any jurisdiction, the rules of any Depository or any securities exchange on which the Certificates may be listed or to conform to any usage in respect thereof, or as may, consistently herewith, be prescribed by Enserch Exploration, the Trustee or by the officer executing such Certificates, such determination to be evidenced by the execution of the Certificates. The Certificates also shall be subject to the terms and conditions contained in this Trust Agreement. References herein to the "Certificates" shall be deemed to include the Restricted Global Certificate, the Temporary Regulation S Global Certificate, the Permanent Regulation S Global Certificate, any 17 Unrestricted Global Certificate and any Physical Certificates (each as defined below) along with any Certificates issued in exchange therefor, unless the context requires otherwise. (b) Definitive Certificates shall be printed, lithographed or engraved or produced by any combination of these methods or may be produced in any other manner permitted by the rules of any Depository or any securities exchange on which the Certificates may be listed, all as determined by the officer executing such Certificates, as evidenced by his execution of such Certificates. (c) The Certificates shall be initially issued in minimum denominations of $250,000, or integral multiples of $1,000 in excess thereof. At such time as the transfer restrictions contained in the Certificates and this Article III, are no longer applicable to a Certificate, the minimum denomination of such Certificate shall be reduced to $1,000, or integral multiples of $1,000 in excess thereof. (d) The Certificates shall be executed on behalf of the Trustee by manual or facsimile signature of a Responsible Officer of the Trustee. Certificates bearing the manual or facsimile signature of an individual who was, at the time when such signature was affixed, authorized to sign on behalf of the Trustee shall be valid and binding obligations of the Trustee, notwithstanding that such individual has ceased to be so authorized prior to the authentication and delivery of such Certificates or did not hold such office at the date of such Certificates. No Certificate shall be entitled to any benefit under this Trust Agreement, or be valid for any purposes, unless there appears on such Certificate a certificate of authentication substantially in the form set forth in Exhibit A hereto executed by the Trustee by manual signature, and such certificate of authentication upon any Certificate shall be conclusive evidence, and the only evidence, that such Certificate has been duly authenticated and delivered hereunder. All Certificates shall be dated the date of their authentication. (e) Certificates offered and sold in their initial distribution in reliance upon Rule 144A under the Securities Act shall be represented by a single, permanent global Certificate (the "Restricted Global Certificate") in ----------------------------- fully registered form, without interest coupons, substantially in the form required by this Article and in Exhibit A, with such Restricted Securities Legend and other legends as are provided for in Exhibit A. The Restricted Global Certificate shall be registered in the name of the Depository or a nominee of the Depository in the United States and shall represent the beneficial interests of Persons purchasing the Certificates in reliance on Rule 144A under the Securities Act. The Restricted Global Certificate shall be deposited on behalf of the purchasers of such Certificate with the Trustee, at its Corporate Trust Office, as custodian for the Depository. So long as the Depository or 18 its nominee is the registered owner of the Restricted Global Certificate, it shall be considered the Holder of the Certificate represented thereby for all purposes hereunder and under such Certificate. Neither Enserch Exploration nor any Paying Agent shall have any responsibility or liability for any aspect of the records relating to or payments made by the Depository on account of beneficial interests in the Restricted Global Certificate. Beneficial interests in the Restricted Global Certificate shall be transferred on the Depository's book-entry settlement system. The aggregate principal amount of the Restricted Global Certificate may from time to time be increased or decreased by adjustments made on the records of the Trustee, as custodian for the Depository or its nominee, as the case may be, as herein provided. In the event that an interest in the Restricted Global Certificate shall be transferred in accordance with Rule 144 or Regulation S under the Securities Act or pursuant to an effective registration statement under the Securities Act (unless the Holder thereof is Enserch Exploration or an "affiliate" of Enserch Exploration within the meaning of Rule 144) or pursuant to another available exemption under the Securities Act and in accordance with the provisions of this Trust Agreement, the Certificate representing such interest after such transfer shall no longer be required to bear the Restricted Securities Legend or be a Restricted Security and shall be and be referred to herein as an "Unrestricted Global Certificate." (f) Certificates offered and sold in their initial distribution in reliance on Regulation S under the Securities Act shall be issued initially in the form of a single temporary global Certificate in fully registered form, without coupons, substantially in the form set forth in Exhibit A, with such applicable legends as are provided for in Exhibit A (the "Temporary Regulation S ---------------------- Global Certificate"). Such Global Certificate shall be registered in the name - ------------------ of the Depository or its nominee and deposited with the Trustee, at its Corporate Trust Office, as custodian for such Depository, duly executed and authenticated by the Trustee as herein provided, for credit initially and during the Restricted Period (hereinafter defined) to the respective accounts of beneficial owners of interests in such Certificate (or to such other accounts as they may direct) at Morgan Guaranty Trust Company of New York, Brussels office, as operator of the Euroclear System ("Euroclear") or the depository for Centrale --------- de Livraison de Valeurs Mobilieres S.A. ("Cedel"). As used herein, the term ----- "Restricted Period," with respect to Global Certificates offered and sold in reliance on Regulation S, means the period of 40 consecutive days beginning on and including the later of (i) the day on which the Certificates are first offered to persons other than distributors (as defined in Regulation S) in reliance on Regulation S (according to a notice to Enserch Exploration and the Trustee by the underwriter, if any, of the offering of such Certificates and (ii) the Transfer Date. Except as otherwise provided herein or agreed by Enserch Exploration, no Regulation S Global Certificate shall be issued except as provided in this paragraph to 19 evidence Certificates offered and sold in their initial distribution in reliance on Regulation S under the Securities Act. At any time following the last day of the Restricted Period (the "Regulation S Certificates Exchange ---------------------------------- Date"), upon receipt by the Trustee and Enserch Exploration of a certificate - ---- substantially in the form of Exhibit B, a single permanent global Certificate in fully registered form substantially in the form set forth in Exhibit A (the "Permanent Regulation S Global Certificate;" and, together with the Temporary ----------------------------------------- Regulation S Global Certificate, the "Regulation S Global Certificate") duly ------------------------------- executed and authenticated by the Trustee as hereinafter provided shall be deposited on behalf of the beneficial owners thereof with a custodian for the Depository and will be registered in the name of the Depository or a nominee of the Depository located in a jurisdiction approved by Enserch Exploration for credit to the beneficial owners' respective accounts (or to such other accounts as they may direct) at Morgan Guaranty Trust Company of New York, Brussels office, as operator of Euroclear or the depository for Cedel or any other participant in the Depository. The Permanent Regulation S Global Certificate and any Certificates issued upon registration of transfer of or exchange for such Permanent Regulation S Global Security shall not be a Restricted Security and shall also be referred to herein as an "Unrestricted Global Certificate". The ------------------------------- aggregate principal amount of the Regulation S Global Certificate may from time to time be increased and decreased by adjustments made on the records of the Depository or its nominee, as the case may be, as herein provided. (g) Beneficial interests in the Regulation S Global Certificate may be (i) held through Euroclear or Cedel as participants in the Depository or (ii) subject to the rules and procedures of Euroclear or Cedel and the Depository, exchanged for, or transferred to a Person who takes delivery in the form of, an interest in the Restricted Global Certificate. Beneficial interests in the Restricted Global Certificate may be, subject to the rules and procedures of the Depository, exchanged for, or transferred to a Person who takes delivery in the form of an interest in an Unrestricted Global Certificate, only upon receipt by the Trustee of a written certification from the transferor substantially in the form of Exhibit E to the effect that such transfer is being made in accordance with Regulation S or Rule 144 under the Securities Act. Any beneficial interest in any Global Certificate that is transferred to a Person who takes delivery in the form of an interest in the other Global Certificate will, upon transfer, cease to be an interest in such Global Certificate and become an interest in the other Global Certificate and, accordingly, will thereafter be subject to all transfer restrictions and other procedures applicable to beneficial interests in such other Global Certificate for as long as it remains such an interest. Pass Through Certificates offered and sold in their initial distribution to a limited number of institutions that are accredited 20 investors (which are not qualified institutional buyers, as defined under Rule 144A) within the meaning of Rule 501(a)(1), (2), (3) or (7) under the Securities Act (and institutions in which all the equity owners are such accredited investors) (together referred to as "Institutional Accredited Investors") in ---------------------------------- transactions exempt from registration under the Securities Act shall be issued in definitive physical and fully registered form without interest coupons, substantially in the form set forth in this Article and in Exhibit A, with such applicable legends as are provided for in Exhibit A. Such Securities shall be delivered to such Institutional Accredited Investors only upon the execution and delivery to the Company and the underwriter(s), if any, of the offering of such Securities of a purchaser's letter, substantially in the form of Exhibit F hereto. Such Securities may not be exchanged for interests in a Global Security except as provided in Section 3.10. Section 3.02. Authentication of Certificates. The Trustee on the ------------------------------ Transfer Date will cause to be authenticated and make available for delivery, simultaneously with the sale, assignment, and transfer to the Trustee of the Secured Notes pursuant to Section 2.01 hereof and the Participation Agreement, Certificates duly authenticated by the Trustee, in authorized denominations equaling in the aggregate the aggregate principal amount of the Secured Notes so purchased and evidencing the entire ownership of the Trust. Section 3.03. Temporary Certificates. (a) Pending the preparation of ---------------------- definitive Certificates, the Trustee may execute, authenticate and deliver temporary Certificates which are printed, lithographed, typewritten, or otherwise produced, in any denomination, of the tenor of the definitive Certificates in lieu of which they are issued, with such appropriate insertions, omissions, substitutions and other variations relating to their temporary nature as the officer executing such temporary Certificates may determine, as evidenced by their execution of such temporary Certificates. (b) If temporary Certificates are issued, the Trustee will cause definitive Certificates to be prepared without unreasonable delay. After the preparation of definitive Certificates, the temporary Certificates shall be exchangeable for definitive Certificates upon surrender of the temporary Certificates at the Corporate Trust Office of the Trustee, or at the office or agency of the Trustee maintained in accordance with Section 7.12, without charge to the Holder. Upon surrender for cancellation of any one or more temporary Certificates, the Trustee shall execute, authenticate and deliver in exchange therefor definitive Certificates of authorized denominations of a like aggregate Fractional Undivided Interest. Until so exchanged, such temporary Certificates shall in all respects be entitled to the same benefits under this Trust Agreement as definitive Certificates. 21 Section 3.04. Registration of Transfer and Exchange of Certificates. ----------------------------------------------------- (a) The Trustee shall cause to be kept at the office or agency to be maintained by it in accordance with the provisions of Section 7.12 a register (the "Register") in which, subject to the provisions of this Section 3.04 and the Certificates, the Trustee shall provide for the registration of Certificates and of transfers and exchanges of Certificates as herein provided. The Trustee shall initially be the registrar (the "Registrar") for the purpose of registering Certificates and transfers and exchanges of Certificates as herein provided. (b) Subject to the other provisions of Article III, upon surrender for registration of transfer of any Certificate at the Corporate Trust Office or such other office or agency, the Trustee shall execute, authenticate and deliver, in the name of the designated transferee or transferees, one or more new Certificates in authorized denominations of a like aggregate Fractional Undivided Interest. At the option of a Certificateholder, Certificates may be exchanged for other Certificates of authorized denominations of a like aggregate Fractional Undivided Interest, upon surrender of the Certificates to be exchanged at any such office or agency. Whenever any Certificates are so surrendered for exchange, the Trustee shall execute, authenticate and deliver the Certificates that the Certificateholder making the exchange is entitled to receive. Every Certificate presented or surrendered for registration of transfer or exchange shall be duly endorsed or accompanied by a written instrument of transfer in form satisfactory to the Trustee and the Registrar duly executed by the Holder thereof or his attorney duly authorized in writing. (c) Subject to the other provisions of Article III, when Certificates are presented to the Registrar or a co-Registrar with a request to register the transfer or to exchange them for an equal principal amount of Certificates of other authorized denominations, the Registrar shall register the transfer or make the exchange as requested if its requirements for such transactions are met. To permit registrations of transfers and exchanges, the Trustee shall execute and authenticate Certificates at the Registrar's request. No service charge shall be made for any registration of transfer or exchange of the Certificates, but Enserch Exploration may require payment of a sum sufficient to cover any transfer tax or similar governmental charge payable in connection therewith. (d) All Certificates surrendered for registration of transfer and exchange shall be canceled by the Trustee. 22 Section 3.05. Mutilated, Destroyed, Lost or Stolen Certificates. If ------------------------------------------------- (a) any mutilated Certificate is surrendered to the Registrar, or the Registrar receives evidence to its satisfaction of the destruction, loss or theft of any Certificate and (b) there is delivered to the Registrar and the Trustee such security, indemnity or bond, as may be required by them to save each of them harmless, then, in the absence of notice to the Registrar or the Trustee that such Certificate has been acquired by a bona fide purchaser, the Trustee shall execute, authenticate and deliver, in exchange for or in lieu of any such mutilated, destroyed, lost or stolen Certificate, a new Certificate of like Fractional Undivided Interest with the same final Distribution Date. In connection with the issuance of any new Certificate under this Section 3.05, the Trustee shall require the payment of a sum sufficient to cover any tax or other governmental charge that may be imposed in relation thereto and any other expenses (including the fees and expenses of the Trustee and the Registrar) connected therewith. Any duplicate Certificate issued pursuant to this Section 3.05 shall constitute conclusive evidence of the appropriate Fractional Undivided Interest in the Trust, as if originally issued, whether or not the lost, stolen or destroyed Certificate shall be found at any time. Section 3.06. Persons Deemed Owners. Prior to due presentation of a --------------------- Certificate for registration of transfer, the Trustee, the Registrar, and any Paying Agent shall treat the Person in whose name any Certificate is registered as the owner of such Certificate for the purpose of receiving distributions pursuant to Section 4.02 and for all other purposes whatsoever, and neither Enserch Exploration, the Trustee, the Registrar, nor any Paying Agent shall be affected by any notice to the contrary. Section 3.07. Cancellation. All Certificates surrendered for payment ------------ or transfer or exchange shall, if surrendered to any Person party hereto other than the Registrar, be delivered by such Person to the Registrar for cancellation. The Registrar shall not be required to destroy the Certificates. No Certificates shall be authenticated in lieu of or in exchange for any Certificates canceled as provided in this Section, except as expressly permitted by this Trust Agreement. Section 3.08. Limitation of Liability for Payments. All payments or ------------------------------------ distributions made to Certificateholders under this Trust Agreement shall be made only from the Trust Property and only to the extent that the Trustee shall have sufficient income or proceeds from the Trust Property to make such payments in accordance with the terms of Article IV of this Trust Agreement. Each Holder of a Certificate, by its acceptance of such Certificate, agrees that it will look solely to the income and proceeds from the Trust Property to the extent available for distribution to the Holder thereof as provided in this Trust Agreement. 23 Nothing in this Trust Agreement shall be construed as an agreement, or otherwise creating an obligation, of Enserch Exploration to pay any of the principal, Make-Whole Amount, if any, and interest due from time to time under the Secured Notes or in respect of the Certificates. Section 3.09. Book-Entry Provisions for Global Certificates. (a) Any --------------------------------------------- Holder of a Global Certificate shall, by acceptance of such Global Certificate, agree that transfers of beneficial interests in such Global Certificate shall be effected only through a book entry system maintained by the Holder of such Global Certificate (or its agent), and that ownership of a beneficial interest in such Certificate shall be required to be reflected in a book entry. (b) Members of, or participants in, the Depository ("Agent Members") ------------- shall have no rights under this Trust Agreement with respect to any Global Certificate held on their behalf by the Depository, or the Trustee as its custodian, or under the Global Certificate and the Depository may be treated by Enserch Exploration, the Trustee and any Paying Agent as the absolute owner of such Global Certificate for all purposes whatsoever. Notwithstanding the foregoing, nothing herein shall prevent Enserch Exploration, the Trustee or any Paying Agent from giving effect to any written certification, proxy or other authorization furnished by the Depository or impair, as between the Depository and its Agent Members, the operation of customary practices governing the exercise of the rights of a holder of any Certificate. (c) Transfers of Global Certificates shall be limited to transfers of such Global Certificates in whole, but not in part, to the Depository, its successors or their respective nominees. Interests of beneficial owners in any Global Certificate may be transferred in accordance with the rules and procedures of the Depository and the provisions of this Trust Agreement. (d) The Holder of any Global Certificate may grant proxies and otherwise authorize any person, including Agent Members and persons that may hold interests through Agent Members, to take any action which a Holder is entitled to take under this Trust Agreement or the Certificates. (e) The Trustee shall enter into the Letter of Representations and fulfill its responsibilities thereunder. (f) The beneficial interests represented by any Global Certificate shall be issued as definitive certificated Certificates, without coupons, registered in the names of Holders or their nominees, rather than in global form, registered in the name of the Depository or its nominee, if (i) the Depository notifies the Trustee in writing that it is no longer able or willing to continue as Depository with respect to 24 the Certificates and a qualified successor is not appointed by the Trustee within ninety (90) days after receiving such notice, (ii) the Depository ceases to be a "clearing agency" registered under the Exchange Act and a qualified successor is not appointed by the Trustee within ninety (90) days after the Trustee becomes aware that the Depository is no longer so registered, (iii) Enserch Exploration, at its option, elects to terminate the book-entry system through the Depository or (iv) after the occurrence of an Event of Default, beneficial owners of Certificates evidencing Fractional Undivided Interests aggregating not less than a majority in interest in the Certificates represented by such Global Certificates advise the Trustee through the Depository in writing that the continuation of a book-entry system through the Depository with respect to the Certificates is no longer in such owners' best interests. Upon the occurrence of any of the events in clauses (i) through (iii) above, the Trustee shall, by forwarding notice to the Depository, be deemed to have notified all Persons who hold a beneficial interest in such Global Certificate through an Agent Member of the availability of definitive Certificates. (g) In connection with any transfer of a portion of the beneficial interests in any Global Certificate to beneficial owners pursuant to paragraph (f) of this Section, the Registrar shall reflect on its books and records the date and a decrease in the principal amount of such Global Certificate in an amount equal to the principal amount of the beneficial interest in the Global Certificate to be transferred, and Enserch Exploration shall execute, and the Trustee shall authenticate and deliver one or more Physical Certificates of like tenor and amount. In connection with the transfer of an entire Global Certificate to beneficial owners pursuant to paragraph (f) of this Section, such Global Certificates shall be deemed to be surrendered to the Trustee for cancellation, and the Trustee shall execute, authenticate and deliver to each beneficial owner identified by the Depository in exchange for its beneficial interest in such Global Certificate, as the case may be, an equal aggregate principal amount of Physical Certificates of authorized denominations. Any Physical Certificate delivered in exchange for an interest in a Global Certificate pursuant to this Section shall, except as otherwise provided in this Trust Agreement bear the Restricted Securities Legend. Section 3.10. Restrictions on Transfer and Exchange of Certificates. ---------------------------- ------------------------ (a) Except as otherwise provided herein, all Certificates to be issued hereunder shall be restricted securities ("Restricted Securities") within the --------------------- meaning of Rule 144 under the Securities Act and shall bear and be subject to the restrictions on transfer provided in the Restricted Securities Legend (the "Restricted Securities Legend") set forth on the Form of Certificates in Exhibit ---------------------------- A. In addition, in the event that a Restricted Security is sold outside the United States in compliance with Rule 904 under the Securities Act, any 25 Certificate issued upon registration of transfer of such Restricted Security shall continue to bear the Restricted Securities Legend set forth on the face of the Restricted Security, until such time as the transfer restrictions applicable to such Restricted Security shall cease and terminate as described below. The Holder of each Restricted Security, by such Holder's acceptance thereof, agrees to be bound by such restrictions on transfer. (b) Whenever any Restricted Security other than a Physical Certificate held by an Institutional Accredited Investor is presented or surrendered for registration of transfer or exchange for a Certificate registered in a name other than that of the Holder, such Restricted Security must be accompanied by a certificate in substantially the form set forth in Exhibit E hereto, dated the date of such surrender and signed by such Holder, as to compliance with such restrictions on transfer, upon which the Registrar and Trustee may rely as to its accuracy with respect to such Holder. (c) Notwithstanding any other provision of this Section 3.10, a properly completed certificate shall not be required in connection with any transfer of any Restricted Security through the facilities of the Depository or any other United States securities clearance and settlement organization, provided that such transfer does not require a change in the name (other than to another nominee of the Depository or such other securities clearance and settlement organization) in which such Restricted Security is then registered. (d) The restrictions imposed by this Section upon the transferability of any particular Restricted Security shall cease and terminate when such Restricted Security has been sold pursuant to an effective registration statement under the Securities Act or transferred pursuant to Rule 144 under the Securities Act (or any successor provision thereto) or pursuant to any other available exemption from registration under the Act, unless the Holder thereof is Enserch Exploration or an affiliate of Enserch Exploration within the meaning of Rule 144 (or such successor provision). Any Restricted Security as to which such restrictions on transfer shall have terminated may, upon surrender of such Restricted Security for exchange to the Registrar or Trustee in accordance with the provisions of this Section (accompanied, in the event that such restrictions on transfer have terminated by reason of a transfer pursuant to Rule 144 (or any successor provision) or pursuant to any other available exemption from registration under the Act, by an Opinion of Counsel reasonably acceptable to Enserch Exploration, addressed to Enserch Exploration and the Trustee and in form acceptable to Enserch Exploration, to the effect that the transfer of such Registered Security has been made in compliance with Rule 144 (or such successor provision) or pursuant to any other available exemption from registration under the Act), be exchanged for a new Certificate, of like tenor and 26 aggregate principal amount, which shall not bear the Restricted Securities Legend. Enserch Exploration shall promptly inform the Registrar and the Trustee in writing of the effective date of any registration statement registering the Certificates under the Securities Act. The Registrar and the Trustee shall not be liable for any action taken or omitted to be taken by it in good faith in accordance with the aforementioned Opinion of Counsel or registration statement. (e) If the holder of a beneficial interest in a Restricted Global Certificate wishes at any time to transfer such interest to a person who wishes to take delivery thereof in the form of a beneficial interest in a Regulation S Global Certificate, such transfer may be effected, subject to the rules and procedures of the Depository for such Global Certificate, Euroclear and Cedel, in each case to the extent applicable (the "Applicable ---------- Procedures"), only in accordance with the provisions of this Section. Upon ---------- receipt by the Trustee, as Registrar, at the Corporate Trust Office of (1) written instructions given in accordance with the Applicable Procedures from an Agent Member directing the Trustee to credit or cause to be credited to a specified Agent Member's account a beneficial interest in a Regulation S Global Certificate in a principal amount equal to that of the beneficial interest in the Restricted Global Certificate to be so transferred, (2) a written order given in accordance with the Applicable Procedures containing information regarding the account of the Agent Member (and the Euroclear or Cedel account, as the case may be) to be credited with, and the account of the Agent Member to be debited for, such beneficial interest and (3) appropriately completed certificates in substantially the form set forth in or contemplated by Exhibit D and Exhibit E given by the holder of such beneficial interest, the Trustee, as Registrar, shall instruct the Depository for such Certificates to reduce the principal amount of the Restricted Global Certificate, and to increase the principal amount of the Regulation S Global Certificate, by the principal amount of the beneficial interest in the Restricted Global Certificate to be so transferred, and to credit or cause to be credited to the account of the Person specified in such instructions (which shall be the Agent Member for Euroclear or Cedel or both, as the case may be) a beneficial interest in the Regulation S Global Certificate having a principal amount equal to the amount by which the principal amount of the Restricted Global Certificate was reduced upon such transfer. (f) In the case of a proposed transfer of interests in the Temporary Regulation S Global Certificate, the Trustee shall register the transfer of any such Certificate (x) if the proposed transferee is a Non-U.S. 27 Person within the meaning of Regulation S and the proposed transferor has delivered to the Trustee and Enserch Exploration certificates substantially in the form of Exhibit D and Exhibit E hereto or (y) if the proposed transferee is a QIB and the proposed transferor has delivered to the Trustee and Enserch Exploration a certificate substantially in the form of Exhibit E hereto to the effect that the sale has been made in compliance with the provisions of Rule 144A. If the proposed transferee is an Agent Member, upon receipt by the Trustee of the documents referred to in clause (y) above and instructions given in accordance with the Depository's and the Trustee's procedures, the Trustee shall reflect on its books and records the date and an increase in the principal amount of the Restricted Global Certificate in an amount equal to the principal amount of the Temporary Regulation S Global Certificate to be transferred, and the Trustee shall decrease the like amount of the Temporary Regulation S Global Certificate. (g) In the case of a transfer of a Certificate to any Institutional Accredited Investor which is not a QIB (excluding Non-U.S. Persons), the Registrar shall register the transfer of any Certificate whether or not such Certificate bears the Restricted Securities Legend, if (x) the requested transfer is at least three years after the later of the original issue date of the Restricted Certificates and the last date on which such Certificate was held by Enserch Exploration or an affiliate of Enserch Exploration or (y) the proposed transferee has delivered (i) to the Registrar a certificate substantially in the form of Exhibit F hereto and (ii) if requested by Enserch Exploration after consultation with the Trustee, an Opinion of Counsel reasonably acceptable to Enserch Exploration, addressed to Enserch Exploration and the Trustee in form and substance satisfactory to Enserch Exploration to the effect that such transfer has been made in compliance with an applicable exemption from the registration requirements of the Securities Act. The Registrar shall not be required to accept for registration of transfer or exchange any Restricted Security not so accompanied by a properly completed certificate and, if requested by Enserch Exploration, an Opinion of Counsel. If the proposed transferor is an Agent Member holding a beneficial interest in the Restricted Global Certificate, upon receipt by the Registrar of (x) the documents, if any, required by the preceding paragraph and (y) instructions given in accordance 28 with the Depository's and the Registrar's procedures, the Registrar shall reflect on its books and records the date and a decrease in the principal amount of the Restricted Global Certificate in an amount equal to the principal amount of the beneficial interest in the Restricted Global Certificate to be transferred, and the Trustee shall execute, authenticate and deliver, one or more Restricted Physical Certificates of like tenor and amount. (h) If the holder of a Physical Certificate that is a Restricted Security wishes at any time to transfer such Certificate to a person who wishes to take delivery thereof in the form of a beneficial interest in a Global Certificate, such transfer may be effected, subject to the Applicable Procedures, only in accordance with this Section. Upon receipt by the Trustee, as Registrar, at the Corporate Trust Office of (1) the Restricted Security to be transferred, (2) written instructions given in accordance with the Applicable Procedures from an Agent Member directing the Trustee to credit or cause to be credited to a specified Agent Member's account a beneficial interest in the Global Certificate, in a principal amount equal to the principal amount of the Restricted Security to be so transferred, (3) a written order given in accordance with the Applicable Procedures containing information regarding the account of the Agent Member (and, in the case of any transfer pursuant to Regulation S, the Euroclear or Cedel account for which such Agent Member's account is held or, if such account is held for Euroclear or Cedel, the Euroclear or Cedel account, as the case may be) to be credited with such beneficial interest and (4) an appropriately completed certificate in substantially the form set forth in Exhibit E, the Trustee, as Registrar, shall cancel the Restricted Security, and shall authenticate and deliver, a new Physical Certificate for the principal amount of the Restricted Security not so transferred, registered in the name of the Holder transferring such Restricted Security, and shall instruct the Depository for such Certificates to increase the principal amount of such Global Certificate, by the remaining principal amount of the Restricted Security so transferred, and to credit or cause to be credited to the account of the Person specified in such instructions (which, in the case of any increase of the principal amount of an Unrestricted Global Certificate as the result of a transfer pursuant to Regulation S, shall be the Agent Member for Euroclear or Cedel or both, as the case may be) a corresponding principal amount of the applicable Global Certificate. The transfer of a Restricted Security to a Person who wishes to take delivery thereof in the form of a beneficial interest in a Global Security other than a Restricted Global Certificate may be effected only in accordance with Regulation S or Rule 144 under the Securities Act. 29 (i) In the case of a transfer of interests in the Permanent Regulation S Global Certificate to U.S. Persons within the meaning of Regulation S, the Trustee shall give notice to Enserch Exploration of such proposed transfer, and thereupon register the transfer of any such Certificate without requiring any additional certification except to the extent that at the time of such transfer applicable law shall require otherwise. (j) By its acceptance of any Certificate bearing the Restricted Securities Legend, each Holder of such a Certificate acknowledges the restrictions on transfer of such Certificate set forth in this Trust Agreement and in the Restricted Securities Legend and agrees that it will transfer such Certificate only as provided in this Trust Agreement. The Registrar shall not register a transfer of any Certificate unless such transfer complies with the restrictions on transfer of such Certificate set forth in this Trust Agreement. In connection with any transfer of Certificates, each Holder agrees by its acceptance of the Certificates to furnish the Trustee and Enserch Exploration such certifications, legal opinions or other information as required by this Agreement to confirm that such transfer is being made pursuant to an exemption from, or a transaction not subject to, the registration requirements of the Securities Act; provided that the Trustee shall not be required to determine (but may rely on a determination made by Enserch Exploration with respect to) the sufficiency of any such certifications, legal opinions or other information. The Trustee shall retain copies of all letters, notices and other written communications received pursuant to this Article III. Enserch Exploration shall have the right to inspect and make copies of all such letters, notices or other written communications at any reasonable time upon the giving of reasonable written notice to the Trustee. (k) As used in this Article III, the term "transfer", for the purposes of determining compliance with the Securities Act, encompasses any sale, transfer or other disposition of any Certificates referred to herein except for , transfers from any Holder to an Affiliate of such Holder; provided, however, that such transferring Holder shall deliver a letter to -------- ------- the Trustee stating that the transferee is an Affiliate of such Holder. The Trustee shall be entitled to rely on and be fully protected in its reliance on such letter. Section 3.11. CUSIP Numbers. The Trustee in issuing the ------------- Certificates may use "CUSIP" and "CINS" numbers (if then generally in use), and the Trustee shall use CUSIP numbers or 30 CINS numbers, as the case may be, in notices of exchange as a convenience to Holders; provided that any such notice shall state that no representation is made as to the correctness of such numbers either as printed on the Certificates or as contained in any notice of exchange and that reliance may be placed only on the other identification numbers printed on the Certificates. ARTICLE IV DISTRIBUTIONS; STATEMENTS TO CERTIFICATEHOLDERS Section 4.01. Certificate Account and Special Payments Account. ------------------------------------------------ (a) The Trustee shall establish and maintain on behalf of the Certificateholders the Certificate Accounts with the Trustee as one or more non-interest-bearing accounts. The Trustee shall hold the Certificate Accounts in trust for the benefit of the Certificateholders, and shall make or permit withdrawals therefrom only as provided in this Trust Agreement. On each day when a Scheduled Payment is made under the Indenture (1996-A) to the Trustee, as holder of the Secured Notes issued under such Indenture, the Trustee upon receipt shall immediately deposit the aggregate amount of such Scheduled Payment in the Certificate Account (1996-A) (the "Certificate Account (1996-A)"). On each day when a Scheduled Payment is ----------------------------- made under the Indenture (1996-B) to the Trustee, as holder of the Secured Notes issued under such Indenture, the Trustee upon receipt shall immediately deposit the aggregate amount of such Scheduled Payment(1996-B) in the Certificate Account (1996-B) (the "Certificate Account (1996-B)"). ---------------------------- (b) The Trustee shall establish and maintain on behalf of the Certificateholders the Special Payments Accounts as one or more accounts, which shall be non-interest bearing except as provided in Section 4.04. The Trustee shall hold the Special Payments Accounts in trust for the benefit of the Certificateholders, and shall make or permit withdrawals therefrom only as provided in this Trust Agreement. On each day when a Special Payment (1996-A) (other than a Special Payment (1996-A) that represents the proceeds of any sale pursuant to Article VI hereof of a Secured Note (1996-A)) is made under the Indenture (1996-A) to the Trustee, as holder of the Secured Notes (1996-A) issued under such Indenture, the Trustee upon receipt shall immediately deposit the aggregate amount of such Special Payments (1996-A) in the Special Payments Account (1996-A). Upon the sale of any Secured Note (1996-A) by the Trustee pursuant to Article VI hereof and the realization of any proceeds thereof, the Trustee shall deposit the aggregate amount of such proceeds as a 31 Special Payment (1996-A) in the Special Payments Account (1996-A). On each day when a Special Payment (1996-B) (other than a Special Payment (1996-B) that represents the proceeds of any sale pursuant to Article VI hereof of a Secured Note (1996-B)) is made under the Indenture (1996-B) to the Trustee, as holder of the Secured Notes (1996-B) issued under such Indenture, the Trustee upon receipt shall immediately deposit the aggregate amount of such Special Payment (1996-B) in the Special Payments Account (1996-B). Upon the sale of any Secured Note (1996-B) by the Trustee pursuant to Article VI hereof and the realization of any proceeds thereof, the Trustee shall deposit the aggregate amount of such proceeds as a Special Payment (1996-B) in the Special Payments Account (1996-B). (c) The Trustee shall present to each Indenture Trustee each Secured Note issued under the Indenture to which such Indenture Trustee is a party on the date of its stated final maturity, or in the case of any Secured Note which is to be prepaid in whole pursuant to such Indenture, on the applicable prepayment date under such Indenture. Section 4.02. Distributions from Certificate Account and Special -------------------------------------------------- Payments Account. (a) On each Distribution Date or as soon thereafter as ---------------- the Trustee has confirmed receipt of the payment of the Scheduled Payments due on the Secured Notes on such date, the Trustee shall distribute out of all Certificate Accounts the entire amount deposited therein pursuant to Section 4.01(a). There shall be so distributed to each Certificateholder of record on the Record Date with respect to such Distribution Date (other than as provided in Section 11.01 concerning the final distribution) by (i) check mailed to such Certificateholder at the address appearing in the Register or (ii) upon application to the Trustee, by wire transfer in immediately available funds to an account maintained by the Certificateholder with a bank, such Certificateholder's pro rata share (based on the aggregate Fractional Undivided Interest held by such Certificateholder) of the aggregate amount in the Certificate Accounts. (b) On each Special Distribution Date with respect to any Special Payment or as soon thereafter as the Trustee has confirmed receipt of the Special Payments due on the Secured Notes or realized upon the sale of any Secured Note, the Trustee shall distribute out of the Special Payments Account related to such Secured Notes the entire amount of such Special Payment deposited therein pursuant to Section 4.01(b). There shall be so distributed to each Certificateholder of record on the Record Date with respect to such Special Distribution Date (other than as provided in Section 11.01 concerning the final distribution) by 32 (i) check mailed to such Certificateholder at the address appearing in the Register or (ii) upon application to the Trustee, by wire transfer in immediately available funds to an account maintained by the Certificateholder with a bank, such Certificateholder's pro rata share (based on the aggregate Fractional Undivided Interest held by such Certificateholder) of the aggregate amount in the Special Payments Account on account of such Special Payment. (c) The Trustee shall at the expense of Enserch Exploration cause notice of each Special Payment to be mailed to each Holder of a Certificate at his address as it appears in the Register. In the event of prepayment of Secured Notes, such notice shall be mailed not less than 20 days prior to the date any such Special Payment is scheduled to be distributed. In the case of any other Special Payments, such notice shall be mailed as soon as practicable after the Trustee has confirmed that it has received funds for such Special Payment. Notices mailed by the Trustee shall set forth: (i) the Special Distribution Date and the Record Date therefor (except as otherwise provided in Section 11.01); (ii) the amount of the Special Payment for each $1,000 face amount Certificate and the amount thereof constituting principal, premium, if any, and interest; (iii) the reason for the Special Payment; and (iv) if the Special Distribution Date is the same date as a Distribution Date, the total amount to be received on such date for each $1,000 face amount Certificate. If the amount of Make-Whole Amount payable upon the prepayment of an Secured Note has not been calculated at the time that the Trustee mails notice of a Special Payment, it shall be sufficient if the notice sets forth the other amounts to be distributed and states that any Make-Whole Amount received will also be distributed. If any redemption of the Secured Notes held in the Trust is canceled, the Trustee, as soon as possible after learning thereof, shall cause notice thereof to be mailed to each Certificateholder at its address as it appears on the Register. Section 4.03. Statements to Certificateholders. (a) On each -------------------------------- Distribution Date and Special Distribution Date, if any, the Trustee will include with each distribution to Certificateholders a statement, giving effect to such distribution to be made on such 33 Distribution Date or Special Distribution Date, as the case may be, setting forth the following information (per a $1,000 face amount Certificate as to (i) and (ii) below): (i) the amount of such distribution allocable to principal and the amount allocable to premium, if any; (ii) the amount of such distribution allocable to interest; and (iii) the Pool Balance and the Pool Factor. (b) Within a reasonable period of time after the end of each calendar year but not later than the latest date permitted by law, the Trustee shall furnish to each Person who at any time during such calendar year was a Certificateholder of record a statement containing the sum of the amounts determined pursuant to clauses (a)(i) and (a)(ii) with respect to the Trust for such calendar year or, in the event such Person was a Certificateholder of record during a portion of such calendar year, for the applicable portion of such year, and such other items as are readily available to the Trustee and which a Certificateholder shall reasonably request as necessary for the purpose of such Certificateholder's preparation of its Federal income tax returns. Such report and such other items shall be prepared on the basis of information supplied to the Trustee by the Agent Members and shall be delivered by the Trustee to such Agent Members to be available for forwarding by such Agent Members to beneficial owners of Certificates. Section 4.04. Investment of Special Payment Moneys. Any money received by the ------------------------------------ Trustee pursuant to Section 4.01(b) representing a Special Payment which is not to be promptly distributed shall, to the extent practicable, be invested in Permitted Government Investments by the Trustee pending distribution of such Special Payment pursuant to Section 4.02. Any investment made pursuant to this Section 4.04 shall be in such Permitted Government Investments having maturities not later than the date that such moneys are required to be used to make the payment required under Section 4.02 on the applicable Special Distribution Date and the Trustee shall hold any such Permitted Government Investments until maturity. The Trustee shall have no liability with respect to any investment made pursuant to this Section 4.04, other than by reason of its willful misconduct or negligence. All income and earnings from such investments shall be distributed on such Special Distribution Date as part of such Special Payment (and so identified in the statement prepared pursuant to Section 4.03(a)). ARTICLE V 34 ENSERCH EXPLORATION Section 5.01. Maintenance of Corporate Existence. Enserch ---------------------------------- Exploration, at its own cost and expense, will do or cause to be done all thing necessary to preserve and keep in full force and effect its corporate existence, rights and franchises, except as otherwise specifically permitted in Section 5.02; provided, however, that Enserch Exploration shall not be required to -------- ------- preserve any right or franchise if it shall determine that the preservation thereof is no longer desirable in the conduct of its business and that the loss thereof is not prejudicial in any material respect to the Certificateholders. Section 5.02. Consolidation, Merger or Sale of Assets Permitted. (a) ------------------------------------------------- Except as may occur in connection with the Enserch Transactions (as defined in the Participation Agreements) so long as any of the Secured Notes remain outstanding, Enserch Exploration shall not merge or consolidate with or into any other corporation under circumstances where Enserch Exploration is not the surviving corporation or sell, assign, convey, transfer, lease or otherwise dispose of all or substantially all of its assets as an entirety to any Person unless the conditions set forth in Section 10.4 of the Participation Agreements shall have been satisfied. (b) In case of any such merger, consolidation, sale, conveyance or other disposition and upon any such assumption by the successor corporation, such successor corporation shall succeed to and be substituted for Enserch Exploration hereunder with the same effect as if it had been named herein as the party of the first part and Enserch Exploration shall be fully released from any and all further obligations or liabilities hereunder from the time of such replacement. (c) The Trustee, subject to the provisions of Sections 7.01 and 7.02, may receive an Officers' Certificate of Enserch Exploration and an Opinion of Counsel to Enserch Exploration as conclusive evidence that any such consolidation, merger, sale or conveyance, and any such assumption complies with the provisions of this Section 5.02. Section 5.03. Annual Statements as to Compliance by Enserch --------------------------------------------- Exploration. Enserch Exploration covenants and agrees to deliver to the Trustee - ----------- on or before a date not more than 120 days after the end of each fiscal year ending after the date hereof, an Officers' Certificate of Enserch Exploration stating as to the officer signing such certificate, whether or not to the best of such officer's knowledge, Enserch Exploration, has kept, observed, performed and fulfilled each and every covenant of it in this Agreement contained and is in default in the performance and observance of any of the terms, provisions and 35 conditions hereof, and, if Enserch Exploration shall be in such default, specifying all such defaults and the nature thereof, of which such officer may have knowledge. Section 5.04. Availability of Certain Information Concerning Enserch ------------------------------------------------------ Exploration. So long as any of the Certificates are "restricted securities" - ----------- within the meaning of Rule 144(a)(3) under the Securities Act, Enserch Exploration, will, if it shall no longer be subject to Section 13 or 15(d) of the Securities and Exchange Act of 1934, as amended (the "Exchange Act") and is not exempt from reporting pursuant to Rule 12g3-2(b) under the Exchange Act, furnish to any Certificateholder upon request, copies of the information required to be delivered to Certificateholders or prospective purchasers of Certificates from Certificateholders in order to enable such Certificateholders to comply with Rule 144A under the Securities Act. Section 5.05. Notification of Certain Enserch Exploration ------------------------------------------- Acquisitions of Certificates. During the period of three years after the - ---------------------------- Closing Date, Enserch Exploration will not, and it will not permit any of its "affiliates" (as defined in Rule 144 under the Securities Act) to acquire any beneficial interest in any Certificate unless they notify the Trustee of such acquisition. The Trustee and all Certificateholders shall be entitled to rely without further investigation on any such notification (or the lack thereof). Section 5.06. Representations and Warranties of Enserch Exploration. ----------------------------------------------------- Enserch Exploration hereby represents and warrants that: (i) Enserch Exploration is a corporation duly organized, validly existing, and in good standing under the laws of the State of Texas; (ii) The execution, delivery, and performance of this Trust Agreement and the Participation Agreements has been duly authorized by all necessary corporation action on the part of Enserch Exploration; (iii) The execution and delivery by Enserch Exploration of this Trust Agreement and the Participation Agreements will not (a) violate any provision of any United States or Texas law or regulation governing the operations of Enserch Exploration or any order, writ, judgment, or decree of any court, arbitrator, or governmental authority applicable to Enserch Exploration or any of its assets, the violation of which would materially adversely affect the Trust Property or its ability to perform under this Trust Agreement or the Participation Agreements, (b) violate any provision of its charter documents or by-laws, or (c) contravene 36 any provision of, or constitute a default under, or result in the creation or imposition of any lien (other than Permitted Liens) on any properties included in the Trust Property pursuant to the provisions of any mortgage, indenture, contract or other agreement or instrument to which it is a party, which violation, default or lien could reasonably be expected to have a material adverse effect on Enserch Exploration's ability to perform its duties hereunder or thereunder; (iv) the execution, delivery and performance by Enserch Exploration of this Trust Agreement and the Participation Agreements will not require the authorization, consent, or approval of, the giving of notice to, the filing or registration with, or the taking of any other action in respect of, any United States or State governmental authority or agency regulating the operations of Enserch Exploration; and (v) this Trust Agreement and the Participation Agreements have been duly executed and delivered by Enserch Exploration and assuming the due authorization, execution and delivery hereof and thereof by the other parties hereto and thereto, constitute the legal, valid, and binding obligations of Enserch Exploration, enforceable in accordance with their respective terms, except as such enforceability may be limited by applicable bankruptcy, insolvency, reorganization, moratorium or similar laws affecting the rights of creditors generally and by the application of general principles of equity. ARTICLE VI DEFAULT Section 6.01. Events of Default. If any Indenture Event of Default ----------------- (1996-A) under Indenture (1996-A) shall occur and be continuing, then, and in each and every case, so long as such Indenture Event of Default (1996-A) shall be continuing, the Trustee may vote all of the Secured Notes (1996-A) held in the Trust, and upon the direction of the holders of Certificates evidencing Fractional Undivided Interests aggregating not less than a majority in interest in the Trust, the Trustee shall vote a corresponding majority of such Secured Notes (1996-A), in favor of directing the Indenture Trustee (1996-A) to declare the unpaid principal amount of the Secured Notes (1996-A) then outstanding and accrued interest thereon to be due and payable under, and in accordance with the provisions of, Indenture (1996-A). In addition, if an Indenture Event of Default (1996-A) shall have occurred and be continuing, the Trustee may in accordance with Indenture (1996-A) vote 37 the Secured Notes (1996-A) held in the Trust to direct the Indenture Trustee (1996-A) regarding the exercise of remedies provided in Article IV of Indenture (1996-A). If any Indenture Event of Default (1996-B) under Indenture (1996-B) shall occur and be continuing, then, and in each and every case, so long as such Indenture Event of Default (1996-B) shall be continuing, the Trustee may vote all of the Secured Notes (1996-B) held in the Trust, and upon the direction of the holders of Certificates evidencing Fractional Undivided Interests aggregating not less than a majority in interest in the Trust, the Trustee shall vote a corresponding majority of such Secured Notes (1996-B), in favor of directing the Indenture Trustee (1996-B) to declare the unpaid principal amount of the Secured Notes (1996-B) then outstanding and accrued interest thereon to be due and payable under, and in accordance with the provisions of, Indenture (1996-B). In addition, if an Indenture Event of Default (1996-B) shall have occurred and be continuing, the Trustee may in accordance with Indenture (1996- B) vote the Secured Notes (1996-B) held in the Trust to direct the Indenture Trustee (1996-B) regarding the exercise of remedies provided in Article IV of Indenture (1996-B). In addition, after any Event of Default shall have occurred and be continuing, the Trustee may in its discretion, and upon the direction of the Certificateholders evidencing Fractional Undivided Interests aggregating not less than a majority in interest in the Trust shall, by such officer or agent as it may appoint, subject to complying with the terms of the Indenture under which such Event of Default has occurred and the Secured Notes related to such Indenture, sell, convey, transfer and deliver such Secured Note or Secured Notes, without recourse to or warranty by the Trustee or any Certificateholder, to any Person. In any such case, the Trustee shall sell, assign, contract to sell or otherwise dispose of and deliver such Secured Note or Secured Notes in one or more parcels at public or private sale or sales, at any location or locations at the option of the Trustee, all upon such terms and conditions as it may reasonably deem advisable and at such prices as it may reasonably deem advisable, for cash. If the Trustee so decides or is required to sell or otherwise dispose of any Secured Note pursuant to this Section, the Trustee shall take such of the actions described above as it may reasonably deem most effectual to complete the sale or other disposition of such Secured Note, so as to provide for the payment in full of all amounts due on the Certificates. The Trustee shall give notice to Enserch Exploration promptly after any such sale. Notwithstanding the foregoing, any action taken by the Trustee under this Section shall not, in the reasonable judgment of the Trustee, be adverse to the best interests of the Certificateholders. Section 6.02. Incidents of Sale of Secured Notes. Upon any sale of ---------------------------------- all or any part of the Secured Notes made either under the 38 power of sale given under this Trust Agreement or otherwise for the enforcement of this Trust Agreement, the following shall be applicable: (1) Certificateholders and Trustee May Purchase Secured Notes. Any --------------------------------------------------------- Certificateholder, the Trustee in its individual or any other capacity or any other Person may bid for and purchase any of such Secured Notes, and upon compliance with the terms of sale, may hold, retain, possess and dispose of such Secured Notes in their or its or his own absolute right without further accountability. (2) Receipt of Trustee Shall Discharge Purchaser. The receipt of the -------------------------------------------- Trustee or of the officer making such sale shall be a sufficient discharge to any purchaser for his purchase money, and, after paying such purchase money and receiving such receipt, such purchaser or his personal representative or assigns shall not be obliged to see to the application of such purchase money, or be in any way answerable for any loss, misapplication or non-application thereof. (3) Application of Moneys Received upon Sale. Any moneys collected ---------------------------------------- by the Trustee upon any sale made either under the power of sale given by this Trust Agreement or otherwise for the enforcement of this Trust Agreement, shall be applied as provided in Section 4.02. Section 6.03. Judicial Proceedings Instituted by Trustee. ------------------------------------------ (a) Trustee May Bring Suit. If there shall be a failure to make ---------------------- payment of the principal of, premium, if any, or interest on any Secured Note, or if there shall be any failure to pay Rent (as defined in the applicable Lease) under such Lease when due and payable, then the Trustee, in its own name, and as trustee of an express trust, as holder of such Secured Notes or collateral assignee of such Lease, shall be, to the extent permitted by and in accordance with the terms of the Note Documents applicable to such Secured Note or Lease, entitled and empowered to institute any suits, actions or proceedings at law, in equity or otherwise, for the collection of the sums so due and unpaid on such Secured Notes or under such Lease any may prosecute any such claim or proceeding to judgment or final decree with respect to the whole amount of any such sums so due and unpaid. (b) Trustee May File Proofs of Claim; Appointment of Trustee as ----------------------------------------------------------- Attorney-in-Fact in Judicial Proceedings. The Trustee in its own name, or as - ---------------------------------------- trustee of an express trust, or as attorney-in-fact for the Certificateholders, or in any one or more of such capacities (irrespective of whether distributions on the Certificates shall then be 39 due and payable, or the payment of the principal on the Secured Notes shall then be due and payable, as therein expressed or by declaration or otherwise and irrespective of whether the Trustee shall have made any demand to the Indenture Trustee for the payment of overdue principal, premium (if any) or interest on the Secured Notes), shall be entitled and empowered to file such proofs of claim and other papers or documents as may be necessary or advisable in order to have the claims of the Trustee and of the Certificateholders allowed in any receivership, insolvency, bankruptcy, liquidation, readjustment, reorganization or any other judicial proceedings relative to any of Enserch Exploration or the Grantor Trustees or the Owner Participants, their respective creditors or property. Any receiver, assignee, trustee, liquidator, sequestrator (or similar official) in any such judicial proceeding is hereby authorized by each Certificateholder to make payments in respect of such claim to the Trustee, and in the event that the Trustee shall consent to the making of such payments directly to the Certificateholders, to pay to the Trustee any amount due to it for the reasonable compensation, expenses, disbursements and advances of the Trustee, its agents and counsel. Nothing contained in this Trust Agreement shall be deemed to give to the Trustee any right to accept or consent to any plan of reorganization or otherwise by action of any character in any such proceeding to waive or change in any way any right of any Certificateholder. Section 6.04. Control by Certificateholders. The Certificateholders ----------------------------- evidencing Fractional Undivided Interests aggregating not less than a majority in interest in the Trust shall have the right to direct the time, method and place of conducting any proceeding for any remedy available to the Trustee, or exercising any trust or power conferred on the Trustee under this Trust Agreement, including any right of the Trustee as holder of the Secured Notes, provided that: (1) such direction shall not be in conflict with any rule of law or with this Trust Agreement and would not involve the Trustee in personal liability or expense, (2) the Trustee shall not determine that the action so directed would be unjustly prejudicial to the Certificateholders not taking part in such direction, (3) the Trustee may take any other action deemed proper by the Trustee which is not inconsistent with such direction, and (4) if any Indenture Event of Default shall have occurred and be continuing, such direction shall not obligate the Trustee to vote more than a corresponding majority of the related Secured Notes held by the Trust in favor of directing any action by the Indenture Trustee with respect to such Indenture Event of Default. 40 Section 6.05. Waiver of Defaults. The Certificateholders evidencing ------------------ Fractional Undivided Interests aggregating not less than a majority in interest in the Trust may on behalf of the Certificateholders of all the Certificates waive any Default or Event of Default hereunder and its consequences or may instruct the Trustee in writing to waive any Default pursuant to Section 5.08 under any Indenture and its consequences, except a Default: (1) in the deposit of any Scheduled Payment or Special Payment under Section 4.01 or in the distribution of any payment under Section 4.02 on the Certificates, or (2) in the payment of the principal of, Make Whole Amount (as defined in such Indenture), if any, or interest on any Secured Notes, or (3) in respect of a covenant or provision hereof which under Article IX hereof cannot be modified or amended without the consent of the Certificateholder of each Outstanding Certificate affected. Upon any such waiver, such Default shall cease to exist with respect to this Trust Agreement, and any Event of Default arising therefrom shall be deemed to have been cured for every purpose of this Trust Agreement and any direction given by the Trustee on behalf of such Holders to the Indenture Trustee under the related Indenture shall be annulled with respect thereto; but no such waiver shall extend to any subsequent or other Default or Event of Default under the related Indenture or impair any right consequent thereon. Upon any such waiver, the Trustee shall vote the Secured Notes issued under the related Indenture to waive the corresponding Indenture Default or Indenture Event of Default. Section 6.06. Undertaking to Pay Court Costs. All parties to this ------------------------------ Trust Agreement, and each Certificateholder by his acceptance of a Certificate, shall be deemed to have agreed that any court may in its discretion require, in any suit, action or proceeding for the enforcement of any right or remedy under this Trust Agreement, or in any suit, action or proceeding against the Trustee for any action taken or omitted by it as Trustee hereunder, the filing by any party litigant in such suit, action or proceeding of an undertaking to pay the costs of such suit, action or proceeding, and that such court may, in its discretion, assess reasonable costs, including reasonable attorneys' fees, against any party litigant in such suit, action or proceeding, having due regard to the merits and good faith of the claims or defenses made by such party litigant; provided, however, that the provisions of this Section shall not apply -------- ------- to (a) any suit, action or proceeding instituted by any Certificateholder or group of Certificateholders evidencing Fractional Undivided Interests aggregating more than 10% of the Trust, (b) any 41 suit, action or proceeding instituted by any Certificateholder for the enforcement of the distribution of payments pursuant to Section 4.02 hereof on or after the respective due dates expressed herein or (c) any suit, action or proceeding instituted by the Trustee. Section 6.07. Right of Certificateholders to Receive Payments Not to ------------------------------------------------------ Be Impaired. Anything in this Trust Agreement to the contrary notwithstanding, - ----------- including without limitation Section 6.08 hereof, the right of any Certificateholder to receive distributions of payments required pursuant to Section 4.02 hereof on the Certificates when due, or to institute suit for the enforcement of any such payment on or after the applicable Distribution Date or Special Distribution Date, shall not be impaired or affected without the consent of such Certificateholder. Section 6.08. Certificateholders May Not Bring Suit Except Under -------------------------------------------------- Certain Conditions. A Certificateholder shall not have the right to institute - ------------------ any suit, action or proceeding at law or in equity or otherwise with respect to this Trust Agreement, for the appointment of a receiver or for the enforcement of any other remedy under this Trust Agreement, unless: (1) such Certificateholder previously shall have given written notice to the Trustee of a continuing Event of Default with respect to the related Secured Notes; (2) the Certificateholders evidencing Fractional Undivided Interests aggregating not less than a majority in interest of the Trust shall have requested the Trustee in writing to institute such action, suit or proceeding and shall have offered to the Trustee reasonable security or indemnity as provided in Section 7.03(e); (3) the Trustee shall have refused or neglected to institute any such action, suit or proceeding for 60 days after receipt of such notice, request and offer of reasonable security or indemnity; and (4) no direction inconsistent with such written request has been given to the Trustee during such 60-day period by the Certificateholders evidencing Fractional Undivided Interests aggregating not less than a majority in interest in the Trust. It is understood and intended that no one or more of the Certificateholders shall have any right in any manner whatever hereunder or under the Certificates to (i) surrender, impair, waive, affect, disturb or prejudice any property in the Trust Property or the lien of any Indenture on any property subject thereto, or the rights of the 42 Certificateholders or the holders of the Secured Notes, (ii) obtain or seek to obtain priority over or preference to any other such Holder or (iii) enforce any right under this Trust Agreement, except in the manner herein provided and for the equal, ratable and common benefit of all the Certificateholders subject to the provisions of this Trust Agreement. Section 6.09. Remedies Cumulative. Every remedy given hereunder to ------------------- the Trustee or to any of the Certificateholders shall not be exclusive of any other remedy or remedies, and every such remedy shall be cumulative and in addition to every other remedy given hereunder or now or hereafter given by statute, law, equity or otherwise. ARTICLE VII THE TRUSTEE Section 7.01. Certain Duties and Responsibilities. ----------------------------------- (a) Except during the continuance of an Event of Default, (1) the Trustee undertakes to perform such duties as are specifically set forth in this Trust Agreement, and no implied covenants or obligations shall be read into this Trust Agreement against the Trustee; and (2) in the absence of bad faith on its part, the Trustee may conclusively rely, as to the truth of the statements and the correctness of the opinions expressed therein, upon certificates or opinions furnished to the Trustee and conforming to the requirements of this Trust Agreement; but in the case of any such certificates or opinions which by any provision hereof are specifically required to be furnished to the Trustee, the Trustee shall be under a duty to examine the same to determine whether or not they conform to the requirements of this Trust Agreement. (b) In case an Event of Default has occurred and is continuing, the Trustee shall exercise such of the rights and powers vested in it by this Trust Agreement, and use the same degree of care and skill in their exercise, as a prudent man would exercise or use under the circumstances in the conduct of his own affairs. (c) No provision of this Trust Agreement shall be construed to relieve the Trustee of liability for its own negligent action, its own negligent failure to act, or its own willful misconduct, except that: 43 (1) this subsection shall not be construed to limit the effect of subsection (a) of this Section; (2) the Trustee shall not be liable for any error of judgment made in good faith by a Responsible Officer of the Trustee, unless it shall be proved that the Trustee was negligent in ascertaining the pertinent facts; (3) the Trustee shall not be liable with respect to any action taken or omitted to be taken by it in good faith in accordance with the direction of the Certificateholders evidencing Fractional Undivided Interests aggregating not less than a majority in interest in the Trust relating to the time, method and place of conducting any proceeding for any remedy available to the Trustee, or exercising any trust or power conferred upon the Trustee, under this Trust Agreement; and (4) no provision of this Trust Agreement shall require the Trustee to expend or risk its own funds in the performance of any of its duties hereunder, or in the exercise of any of its rights or powers, if it shall have reasonable grounds for believing that repayment of such funds or adequate indemnity against such risk is not reasonably assured to it. (d) whether or not herein expressly so provided, every provision of this Trust Agreement relating to the conduct or affecting the liability of or affording protection to the Trustee shall be subject to the provisions of this Section. Section 7.02. Notice of Defaults. As promptly as practicable after, ------------------ and in any event within 90 days after, the occurrence of any Default hereunder, the Trustee shall transmit by mail to Enserch Exploration, the related Grantor Trustee and the related Indenture Trustee in accordance with Section 12.03 and to all Certificateholders, as their names and addresses appear in the Register, notice of such Default hereunder known to the Trustee, unless such Default shall have been cured or waived; provided, however, that, except in the case of a -------- ------- Default in the payment of the principal of, premium, if any, or interest on any Secured Note, the Trustee shall be protected in withholding such notice if and so long as the board of directors, the executive committee or a trust committee of directors and/or Responsible Officers of the Trustee in good faith determine that the withholding of such notice is in the interests of the Certificateholders. 44 Section 7.03. Certain Rights of Trustee. Except as otherwise ------------------------- provided in Section 7.01: (a) the Trustee may rely and shall be protected in acting or refraining from acting in reliance upon any resolution, certificate, statement, instrument, opinion, report, notice, request, direction, consent, order, bond, debenture or other paper or document believed by it to be genuine and to have been signed or presented by the proper party or parties; (b) any request or direction of Enserch Exploration mentioned herein shall be sufficiently evidenced by a request; (c) whenever in the administration of this Trust Agreement the Trustee shall deem it desirable that a matter be proved or established prior to taking, suffering or omitting any action hereunder, the Trustee (unless other evidence be herein specifically prescribed) may, in the absence of bad faith on its part, rely upon an Officers' Certificate of Enserch Exploration, the related Grantor Trustee or the related Indenture Trustee; (d) the Trustee may consult with counsel of its selection and the advice of such counsel or any Opinion of Counsel shall be full and complete authorization and protection in respect of any action taken, suffered or omitted by it hereunder in good faith and in reliance thereon; (e) the Trustee shall be under no obligation to exercise any of the rights or powers vested in it by this Trust Agreement at the request or direction of any of the Certificateholders pursuant to this Trust Agreement, unless such Certificateholders shall have offered to the Trustee reasonable security or indemnity against the cost, expenses and liabilities which might be incurred by it in compliance with such request or direction; (f) the Trustee shall not be bound to make any investigation into the facts or matters stated in any resolution, certificate, statement, instrument, opinion, report, notice, request, direction, consent, order, bond, debenture or other paper or document; and (g) the Trustee may execute any of the trusts or powers hereunder or perform any duties hereunder either directly or by or through agents or attorneys and the Trustee shall not be responsible for any misconduct or negligence on the part of any agent or attorney appointed with due care by it hereunder. 45 Section 7.04. Not Responsible for Recitals or Issuance of ------------------------------------------- Certificates. The recitals contained herein and in the Certificates, except the - ------------ Trustee's certificates of authentication, shall not be taken as the statements of the Trustee, and the Trustee assumes no responsibility for their correctness. Other than pursuant to Section 7.15, the Trustee makes no representations as to the validity or sufficiency of this Trust Agreement, the Note Documents, the Indentures, the Secured Notes or the Certificates, except that the Trustee hereby represents and warrants that this Trust Agreement has been, and each Certificate will be, executed and delivered by one of its officers who is duly authorized to execute and deliver such document an its behalf. Section 7.05. May Hold Certificates. The Trustee, any Paying Agent, --------------------- Registrar or any other agent, in their respective individual or any other capacity, may become the owner or pledgee of Certificates and may otherwise deal with Enserch Exploration, the Grantor Trustees or the Indenture Trustees with the same rights it would have if it were not Trustee, Paying Agent, Registrar or such other agent. Section 7.06. Money Held in Trust. Money held by the Trustee or the ------------------- Paying Agent in trust hereunder need not be segregated from other funds except to the extent required herein or by law and neither the Trustee nor the Paying Agent shall have any liability for interest upon any such moneys except as provided for herein. Section 7.07. Compensation and Reimbursement. Enserch Exploration ------------------------------ hereby agrees: (1) to pay, or cause to be paid, to the Trustee from time to time the compensation set forth in the schedule agreed to by the Trustee and Enserch Exploration for all services rendered by it hereunder (which compensation shall not be limited by any provision of law in regard to the compensation of a trustee of an express trust); (2) except as otherwise expressly provided herein, to reimburse, or cause to be reimbursed, the Trustee upon its request for all reasonable out-of-pocket expenses, disbursements and advances, including taxes (other than taxes measured by the gross receipts or income of the Trustee), incurred or made by the Trustee in accordance with any provision of this Trust Agreement (including the reasonable compensation and the expenses and disbursements of its agents and counsel), except any such expense, disbursement or advance as may be attributable to its negligence, willful misconduct or bad faith or as may be incurred due to the Trustee's breach of its representations and warranties set forth in Section 7.04 or 7.15; 46 (3) to indemnify, or cause to be indemnified, the Trustee in accordance with Section 12.1 of the Participation Agreement; the Trustee shall notify Enserch Exploration promptly of any claim for which it may seek indemnity; and (4) to indemnify, or cause to be indemnified, the Trustee, solely in its individual capacity, for, and to hold it harmless against, any tax (other than for or with respect to any tax referred to in the next paragraph, provided that no indemnification shall be available with respect to any tax attributable to the Trustee's compensation for serving as such) incurred without negligence, willful misconduct or bad faith, on its part, arising out of or in connection with the acceptance or administration of this Trust, including any costs and expenses incurred in contesting the imposition of any such tax. The Trustee, in its individual capacity, shall notify Enserch Exploration promptly of any tax for which it may seek indemnity. Enserch Exploration shall defend against the imposition of such tax and the Trustee, in its individual capacity, shall cooperate in the defense. The Trustee, in its individual capacity, may have separate counsel with the consent of Enserch Exploration, and Enserch Exploration will pay the reasonable fees and expenses of such counsel. Enserch Exploration need not pay for any taxes paid, in settlement or otherwise, without its consent. In addition, the Trustee shall be entitled to reimbursement from, and shall have a lien prior to the Certificates upon, all property and funds held or collected by the Trustee in its capacity as Trustee for any tax incurred without negligence, bad faith or willful misconduct, on its part, arising out of or in connection with the acceptance or administration of this Trust (other than any tax attributable to the Trustee's compensation for serving as such), including any costs and expenses incurred in contesting the imposition of any such tax. If the Trustee reimburses itself for any such tax it will within 30 days mail a brief report setting forth the circumstances thereof to all Certificateholders as their names and addresses appear in the Register. Section 7.08. Corporate Trustee Required; Eligibility. There shall --------------------------------------- at all times be a Trustee hereunder which shall be a corporation organized and doing business under the laws of the United States of America or of any state, authorized under such laws to exercise corporate trust powers, having a combined capital and surplus of at least $100,000,000, and subject to supervision or examination by Federal or state authority. If such corporation publishes reports of condition at least annually, pursuant to law or to the requirements of the aforesaid supervising or examining authority, then for the purposes of this Section, the combined capital and surplus of such corporation shall be 47 deemed to be its combined capital and surplus as set forth in its most recent report of condition so published. If at any time the Trustee shall cease to be eligible in accordance with the provisions of this Section, it shall resign immediately in the manner and with the effect hereinafter specified in this Article. Section 7.09. Resignation and Removal; Appointment of Successor. (a) ------------------------------------------------- No resignation or removal of the Trustee and no appointment of a successor Trustee pursuant to this Article shall become effective until the acceptance of appointment by the successor Trustee under Section 7.10. (b) The Trustee may resign at any time by giving written notice thereof to Enserch Exploration, the Authorized Agents, the Grantor Trustee and the Indenture Trustee. If an instrument of acceptance by a successor Trustee shall not have been delivered to Enserch Exploration, the Grantor Trustees and the Indenture Trustees within 30 days after the giving of such notice of resignation, the resigning Trustee may petition any court of competent jurisdiction for the appointment of a successor Trustee. (c) The Trustee may be removed at any time by Act of the Holders of Certificates evidencing Fractional Undivided Interests aggregating not less than a majority in interest in the Trust delivered to the Trustee and to Enserch Exploration, the Grantor Trustees and the Indenture Trustees. (d) If at any time: (1) the Trustee shall cease to be eligible under Section 7.08 and shall fail to resign after written request therefor by Enserch Exploration, or by any such Certificateholder; or (2) the Trustee shall become incapable of acting or shall be adjudged a bankrupt or insolvent or a receiver of the Trustee or of its property shall be appointed or any public officer shall take charge or control of the Trustee or of its property or affairs for the purpose of rehabilitation, conservation or liquidation; then, in any case, (i) Enserch Exploration may remove the Trustee or (ii) subject to Section 6.06, any Certificateholder who has been a bona fide Holder of a Certificate for at least six months may, on behalf of himself and all others similarly situated, petition any court of competent jurisdiction for the removal of the Trustee and the appointment of a successor Trustee. If an instrument of acceptance by a successor Trustee shall not have been delivered to Enserch Exploration, the Grantor Trustees and the Indenture Trustees within 30 days after giving such 48 notice of removal, the removed Trustee may petition any court of competent jurisdiction for the appointment of a successor Trustee. (e) If a Responsible Officer of the Trustee shall obtain actual knowledge of an Avoidable Tax (as hereinafter defined) which has been or is likely to be asserted, the Trustee shall promptly notify Enserch Exploration and the Grantor Trustees thereof and shall, within 3O days of such notification, resign hereunder unless within such 3O-day period the Trustee shall have received notice that Enserch Exploration or the Grantor Trustees has agreed to pay such tax. Enserch Exploration shall promptly appoint a successor Trustee in a jurisdiction where there are no Avoidable Taxes. As used herein an Avoidable Tax means a state or local tax: (i) upon (w) the Trust, (x) the Trust Property, (y) Holders of the Certificates or (z) the Trustee for which the Trustee is entitled to seek reimbursement from the Trust Property, and (ii) which would be avoided if the Trustee were located in another state, or jurisdiction within a state, within the United States. A tax shall not be an Avoidable Tax if Enserch Exploration or the Grantor Trustees shall agree to pay, and shall pay, such tax. (f) If the Trustee shall resign, be removed or become incapable of acting, or if a vacancy shall occur in the office of the Trustee for any cause, Enserch Exploration shall promptly appoint a successor Trustee. If, within one year after such resignation, removal or incapability, or the occurrence of such vacancy, a successor Trustee shall be appointed by Act of the Holders holding Certificates evidencing Fractional Undivided Interests aggregating not less than a majority in interest in the Trust delivered to Enserch Exploration, the Grantor Trustees, the Indenture Trustees and the retiring Trustee, the successor Trustee so appointed shall, forthwith upon its acceptance of such appointment, become the successor Trustee and supersede the successor Trustee appointed as provided above. If no successor Trustee shall have been so appointed as provided above and accepted appointment in the manner hereinafter provided, any Certificateholder who has been a bona fide Holder of a Certificate for at least six months may, on behalf of himself and all others similarly situated, petition any court of competent jurisdiction for the appointment of a successor Trustee. (g) The successor Trustee shall give notice of the resignation and removal of the Trustee and appointment of the successor Trustee by mailing written notice of such event by first-class mail, postage prepaid, to the Holders of Certificates as their names and addresses appear in the Register. Each notice shall include the name of such successor Trustee and the address of its Corporate Trust Office. Section 7.10. Acceptance of Appointment by Successor. Every -------------------------------------- successor Trustee appointed hereunder shall execute, acknowledge and deliver to Enserch Exploration and to the retiring Trustee an 49 instrument accepting such appointment, and thereupon the resignation or removal of the retiring Trustee shall become effective and such successor Trustee, without any further act, deed or conveyance, shall become vested with all the rights, powers, trusts and duties of the retiring Trustee; but, on request of Enserch Exploration or the successor Trustee, such retiring Trustee shall execute and deliver an instrument transferring to such successor Trustee all the rights, powers and trusts of the retiring Trustee and shall duly assign, transfer and deliver to such successor Trustee all property and money held by such retiring Trustee hereunder, subject nevertheless to its lien, if any, provided for in Section 7.07. Upon request of any such successor Trustee, Enserch Exploration, the retiring Trustee and such successor Trustee shall execute and deliver any and all instruments containing such provisions as shall be necessary or desirable to transfer and confirm to, and for more fully and certainly vesting in, such successor Trustee all such rights, powers and trusts. No successor Trustee shall accept its appointment unless at the time of such acceptance such successor Trustee shall be qualified and eligible under this Article. Section 7.11. Merger, Conversion, Consolidation or Succession to -------------------------------------------------- Business. Any corporation into which the Trustee may be merged or converted or - -------- with which it may be consolidated, or any corporation resulting from any merger, conversion or consolidation to which the Trustee shall be a party, or any corporation succeeding to all or substantially all of the corporate trust business of the Trustee, shall be the successor of the Trustee hereunder, provided such corporation shall be otherwise qualified and eligible under this Article, without the execution or filing of any paper or any further act on the part of any of the parties hereto. In case any Certificates shall have been authenticated, but not delivered, by the Trustee then in office, any successor by merger, conversion or consolidation to such authenticating Trustee may adopt such authentication and deliver the Certificates so authenticated with the same effect as if such successor Trustee had itself authenticated such Certificates. Section 7.12. Maintenance of Agencies. (a) There shall at all times ----------------------- be maintained an office or agency where Certificates may be presented or surrendered for registration of transfer or for exchange, and for payment thereof and where notices and demands to or upon the Trustee in respect of the Certificates or of this Trust Agreement may be served. Such office or agency shall be initially at The Bank of New York, 101 Barclay Street, Floor 21 West, New York, New York 10286. Written notice of the location of each such other office or agency and of any change of location thereof shall be given by the Trustee to Enserch Exploration, the Grantor Trustees, the Indenture Trustees and the Certificateholders. In the event that no such office or agency shall be maintained or no such notice of location or of change of location shall be 50 given, presentations and demands may be made and notices may be served at the Corporate Trust Office of the Trustee. (b) There shall at all times be a Registrar and a Paying Agent hereunder. Each such Authorized Agent shall be a bank or trust company, shall be a corporation organized and doing business under the laws of the United States or any state, with a combined capital and surplus of at least $100,000,000, and shall be authorized under such laws to exercise corporate trust powers, subject to supervision by Federal or state authorities. The Trustee shall initially be the Paying Agent and, as provided in Section 3.04, Registrar hereunder. Each Registrar shall furnish to the Trustee, at stated intervals of not more than six months, and at such other times as the Trustee may request in writing, a copy of the Register. (c) Any corporation into which any Authorized Agent may be merged or converted or with which it may be consolidated, or any corporation resulting from any merger, consolidation or conversion to which any Authorized Agent shall be a party, or any corporation succeeding to substantially all of the corporate trust business of any Authorized Agent, shall be the successor of such Authorized Agent hereunder, if such successor corporation is otherwise eligible under this Section, without the execution or filing of any paper or any further act on the part of the parties hereto or such Authorized Agent or such successor corporation. (d) Any Authorized Agent may at any time resign by giving written notice of resignation to the Trustee, Enserch Exploration, the Grantor Trustees and the Indenture Trustees. Enserch Exploration may, and at the request of the Trustee shall, at any time terminate the agency of any Authorized Agent by giving written notice of termination to such Authorized Agent and to the Trustee. Upon the resignation or termination of an Authorized Agent or in case at any time any such Authorized Agent shall cease to be eligible under this Section (when, in either case, no other Authorized Agent performing the functions of such Authorized Agent shall have been appointed), Enserch Exploration shall promptly appoint one or more qualified successor Authorized Agents, reasonably satisfactory to the Trustee, to perform the functions of the Authorized Agent which has resigned or whose agency has been terminated or who shall have ceased to be eligible under this Section. Enserch Exploration shall give written notice of any such appointment made by it to the Trustee, the Grantor Trustees and the Indenture Trustees; and in each case the Trustee shall mail notice of such appointment to all Holders as their names and addressee appear on the Register. (e) Enserch Exploration agrees to pay, or cause to be paid, from time to time to each Authorized Agent the compensation as set forth in the schedule agreed to by each Authorized Agent and Enserch 51 Exploration for its services and to reimburse it for its reasonable expenses. Section 7.13. Money for Certificate Payments to Be Held in Trust. -------------------------------------------------- All moneys deposited with any Paying Agent for the purpose of any payment on Certificates shall be deposited and held in trust for the benefit of the Holders of the Certificates entitled to such payment, subject to the provisions of this Section. Moneys so deposited and held in trust shall constitute a separate trust fund for the benefit of the Holders of the Certificates with respect to which such money was deposited. The Trustee will cause each Paying Agent other than the Trustee to execute and deliver to it an instrument in which such Paying Agent shall agree with the Trustee, subject to the provisions of this Section, that such Paying Agent will: (1) hold all sums held by it for payments on Certificates in trust for the benefit of the Persons entitled thereto until such sums shall be paid to such Persons or otherwise disposed of as herein provided; (2) give the Trustee notice of any default by any obligor upon the Certificates in the making of any such payment; and (3) at any time during the continuance of any such default, upon the written request of the Trustee, forthwith pay to the Trustee all sums so held in trust by such Paying Agent. The Trustee may at any time, for the purpose of obtaining the satisfaction and discharge of this Trust Agreement or for any other purpose, direct any Paying Agent to pay to the Trustee all sums held in trust by such Paying Agent, such sums to be held by the Trustee upon the same trusts as those upon which such sums were held by such Paying Agent; and, upon such payment by any Paying Agent to the Trustee, such Paying Agent shall be released from all further liability with respect to such money. Section 7.14. Registration of Secured Notes in Trustee's Name. The ----------------------------------------------- Trustee agrees that all Secured Notes and Permitted Government Investments, if any, shall be issued in the name of the Trustee or its nominee and held by the Trustee, or, if not so held, the Trustee or its nominee shall be reflected as the owner of such Secured Notes or Permitted Government Investments, as the case may be, in the register of the issuer of such Secured Notes or Permitted Government Investments under the applicable provisions of the Uniform Commercial 52 Code in effect where the Trustee holds such Secured Notes or Permitted Government Investments, or other applicable law then in effect. Section 7.15. Representations and Warranties of Trustee. The Trustee ----------------------------------------- hereby represents and warrants that: (i) the Trustee is a banking corporation duly organized, validly existing, and in good standing under the laws of the State of New York; (ii) the Trustee has full power, authority and legal right to execute, deliver, and perform this Trust Agreement and the Participation Agreement and has taken all necessary action to authorize the execution, delivery, and performance by it of this Trust Agreement and the Participation Agreement; (iii) the execution, delivery and performance by the Trustee of this Trust Agreement and the Participation Agreement (a) will not violate any provision of any United States or New York law or regulation governing the banking and trust powers of the Trustee or any order, writ, judgment, or decree of any court, arbitrator, or governmental authority applicable to the Trustee or any of its assets, (b) will not violate any provision of the articles of association or by-laws of the Trustee, or (c) will not violate any provision of, or constitute, with or without notice or lapse of time or both, a default under, or result in the creation or imposition of any lien on any properties included in the Trust Property pursuant to the provisions of any mortgage, indenture, contract, agreement or other undertaking to which it is a party, which violation, default or lien could reasonably be expected to have an adverse effect on the Trustee's performance or ability to perform its duties hereunder or thereunder or on the transactions contemplated herein or therein; (iv) the execution, delivery and performance by the Trustee of this Trust Agreement and the Participation Agreement will not require the authorization, consent, or approval of, the giving of notice to, the filing or registration with, or the taking of any other action in respect of, any United States or State governmental authority or agency regulating the banking and corporate trust activities of the Trustee; and (v) this Trust Agreement and the Participation Agreement have been duly executed and delivered by the Trustee and constitute the legal, valid, and binding agreements of the Trustee, enforceable in accordance with their respective terms, provided that enforceability may be limited by applicable bankruptcy, insolvency, 53 reorganization, moratorium or similar laws affecting the rights of creditors generally and general principles of equity. Section 7.16. Withholding Taxes; Information Reporting. The Trustee, ---------------------------------------- as trustee of a grantor trust, shall exclude and withhold from each distribution of principal, premium, if any, and interest and other amounts due hereunder or under the Certificates any and all withholding taxes applicable thereto as required by law. The Trustee agrees to act as such withholding agent and, in connection therewith, whenever any present or future taxes or similar charges are required to be withheld with respect to any amounts payable in respect of the Certificates, to withhold such amounts and timely pay the same to the appropriate authority in the name of and on behalf of the holders of the Certificates, that it will file any necessary withholding tax returns or statements when due, and that, as promptly as possible after the payment thereof, it will deliver to each Holder of a Certificate appropriate documentation showing the payment thereof, together with such additional documentary evidence as such Holder may reasonably request from time to time. The Trustee agrees to file any other information reports as it may be required to file under United States law. Section 7.17. Trustee's Liens. The Trustee, in its individual --------------- capacity, agrees that it will at its own cost and expense promptly take any action as may be necessary to duly discharge and satisfy in full any mortgage, pledge, lien, charge, encumbrance, security interest or claim ("Trustee's --------- Liens") on or with respect to the Trust Property which is either (i) - ----- attributable to the Trustee in its individual capacity and which is unrelated to the transactions contemplated by this Trust Agreement, the Participation Agreement or the Note Documents, or (ii) which is attributable to the Trustee as trustee hereunder or in its individual capacity and which arise out of acts or omissions which are prohibited by this Trust Agreement. Section 7.18. Availability of Certain Information Concerning the -------------------------------------------------- Trust. The Trustee shall furnish to any Certificateholder upon request, copies - ----- of the information with respect to the Trust required to be delivered to Certificateholders or prospective purchasers of Certificates from Certificateholders in order to enable such Certificateholders to comply with Rule 144A under the Securities Act. ARTICLE VIII CERTIFICATEHOLDERS' LISTS AND REPORTS BY TRUSTEE Section 8.01. Enserch Exploration to Furnish Trustee with Names and ----------------------------------------------------- Addresses of Certificateholders. Enserch Exploration will - ------------------------------- 54 furnish to the Trustee within 15 days after each Record Date with respect to a Scheduled Payment, and at such other times as the Trustee may request in writing, within 30 days after receipt by Enserch Exploration of any such request, a list, in such form as the Trustee may reasonably require, of all information in the possession or control of Enserch Exploration as to the names and addresses of the Holders of Certificates, in each case as of a date not more than 15 days prior to the time such list is furnished; provided, however, that -------- ------- so long as the Trustee is the sole Registrar, no such list need be furnished; and provided further, however, that no such list need be furnished for so long as a copy of the Register is being furnished to the Trustee pursuant to Section 7.12(b). Section 8.02. Preservation of Information; Communication to --------------------------------------------- Certificateholders. (a) The Trustee shall preserve, in as current a form as is - ------------------ reasonably practicable, the names and addresses of Holders of Certificates contained in the most recent list furnished to the Trustee as provided in Section 7.12(b) or Section 8.01, as the case may be, and the names and addresses of Holders of Certificates received by the Trustee in its capacity as Registrar, if so acting. The Trustee may destroy any list furnished to it as provided in Section 7.12(b) or Section 8.01, as the case may be, upon receipt of a new list so furnished. (b) If three or more Holders of Certificates (such Holders hereinafter referred to as "applicants") apply in writing to the Trustee, and furnish to the Trustee reasonable proof that each such applicant has owned a Certificate for a period of at least six months preceding the date of such application, and such application states that the applicants desire to communicate with other Holders of Certificates with respect to their rights under this Trust Agreement or under the Certificates and is accompanied by a copy of the form of proxy or other communication which such applicants propose to transmit, then the Trustee shall, within 5 Business Days after the receipt of such application, at its election, either: (i) afford such applicants access to the information preserved at the time by the Trustee in accordance with Section 8.02(a), or (ii) inform such applicants as to the approximate number of Holders of Certificates whose names and addresses appear in the information preserved at the time by the Trustee in accordance with Section 8.02(a), and as to the approximate cost of mailing to such Certificateholders the form of proxy or other communication, if any, specified in such application. If the Trustee shall elect not to afford such applicants access to such information, the Trustee shall, upon the written request of such 55 applicants, mail to each Certificateholder whose name and address appear in the information preserved at the time by the Trustee in accordance with Section 8.02(a), a copy of the form of proxy or other communication which is specified in such request, with reasonable promptness after a tender to the Trustee of the material to be mailed and of payment, or provision for the payment, of the reasonable expenses of mailing, unless within five days after such tender, the Trustee shall mail to such applicants, together with a copy of the material to be mailed, a written statement to the effect that, in the opinion of the Trustee, such mailing would be contrary to the best interests of the Holders of Certificates or would be in violation of applicable law. Such written statement shall specify the basis of such opinion. If the applicants shall obtain a court order, after notice to the Trustee and opportunity for hearing, so directing the Trustee, the Trustee shall mail copies of such material to all such Certificateholders with reasonable promptness after the entry of such order and the renewal of the applicants' tender. (c) Every Holder of Certificates, by receiving and holding the same, agrees with Enserch Exploration and the Trustee that none of Enserch Exploration or the Trustee shall be held accountable by reason of the disclosure of any such information as to the names and addresses of the Holders of Certificates in accordance with Section 8.02(b), regardless of the source from which such information was derived, and that the Trustee shall not be held accountable by reason of mailing any material pursuant to a request made under Section 8.02(b). Section 8.03. Reports by Enserch Exploration. Enserch Exploration ------------------------------ will: (1) file with the Trustee the information required by Section 10.2 of the Participation Agreement; and (2) transmit by mail to all Certificateholders, as their names and addresses appear in the Register, within 3O days after the filing thereof with the Trustee, such summaries of any information documents and reports required to be filed by Enserch Exploration pursuant to paragraph (1) of this Section as may hereafter be required by rules and regulations prescribed from time to time by the Commission. ARTICLE IX SUPPLEMENTAL TRUST AGREEMENTS Section 9.01. Supplemental Trust Agreement Without Consent of ----------------------------------------------- Certificateholders. Without the consent of the Holder of any - ------------------ 56 Certificates, Enserch Exploration may, and the Trustee (subject to Section 9.03) shall, at any time and from time to time enter into one or more agreements supplemental hereto, in form satisfactory to the Trustee, for any of the following purposes: (1) to evidence the succession of another corporation to Enserch Exploration, and the assumption by any such successor of the covenants of Enserch Exploration, as applicable, herein contained; or (2) to add to the covenants of Enserch Exploration, for the benefit of the Holders of the Certificates, or to surrender any right or power herein conferred upon Enserch Exploration; or (3) to cure any ambiguity, to correct or supplement any provision herein which may be defective or inconsistent with any other provision herein or to make any other provisions with respect to matters or questions arising under this Trust Agreement; provided that any such action shall not adversely affect the interests of the Holders of the Certificates; or (4) to modify, eliminate or add to the provisions of this Trust Agreement to such extent as shall be necessary to qualify this Trust Agreement (including any supplemental agreement) under the Trust Indenture Act, or under any similar Federal statute hereafter enacted, and to add to this Trust Agreement such other provisions as may be expressly permitted by the Trust Indenture Act, excluding, however, the provisions referred to in Section 316(a)(2) of the Trust Indenture Act as in effect at the date as of which this instrument was executed or any corresponding provision in any similar Federal statute hereafter enacted. Section 9.02. Supplemental Trust Agreements with Consent of --------------------------------------------- Certificateholders. With the consent of the Holders of Certificates evidencing - ------------------ Fractional Undivided Interests aggregating not less than a majority in interest in the Trust, by Act of said Holders delivered to Enserch Exploration and the Trustee, Enserch Exploration may (with the consent of the Grantor Trustees, such consent not to be unreasonably withheld), and the Trustee (subject to Section 9.03) shall, enter into an agreement or agreements supplemental hereto for the purpose of adding any provisions to or changing in any manner or eliminating any of the provisions of this Trust Agreement or of modifying in any manner the rights and obligations of the Holders of the Certificates under this Trust Agreement; provided, however, that no such supplemental agreement shall, without -------- ------- the consent of the Holder of each Outstanding Certificate affected thereby: 57 (1) reduce in any manner the amount of, or delay the timing of, any receipt by the Trustee of payments on the Secured Notes or distributions that are required to be made herein on any Certificate, or change any date of payment on any Certificate, or change the place of payment where, or the coin or currency in which, any Certificate is payable, or impair the right to institute suit for the enforcement of any such payment or distribution on or after the Distribution Date or Special Distribution Date applicable thereto; or (2) permit the disposition of any Secured Note in the Trust Property except as permitted by this Trust Agreement, or otherwise deprive any Certificateholder of the benefit of the ownership of the Secured Notes in the Trust; or (3) reduce the percentage of the aggregate Fractional Undivided Interests of the Trust which is required for any such supplemental agreement, or reduce such percentage required for any waiver (of compliance with certain provisions of this Trust Agreement or certain defaults hereunder and their consequences) provided for in this Trust Agreement; or (4) modify any of the provisions of this Section or Section 6.05, except to increase any such percentage or to provide that certain other provisions of this Trust Agreement cannot be modified or waived without the consent of the Holder of each Certificate affected thereby. It shall not be necessary for any Act of Certificateholders under this Section to approve the particular form of any proposed supplemental agreement, but it shall be sufficient if such Act shall approve the substance thereof. Section 9.03. Documents Affecting Immunity or Indemnity. If in the ----------------------------------------- opinion of the Trustee any document required to be executed by it pursuant to the terms of Section 9.01 or 9.02 affects any interest, right, duty, immunity or indemnity in favor of the Trustee under this Trust Agreement, the Trustee may in its discretion decline to execute such document. Section 9.04. Execution of Supplemental Trust Agreements. In ------------------------------------------ executing, or accepting the additional trusts created by, any supplemental agreement permitted by this Article or the modifications thereby of the trusts created by this Trust Agreement, the Trustee shall be entitled to receive, and (subject to Section 7.01) shall be fully protected in relying upon, an Opinion of Counsel stating that the 58 execution of such supplemental agreement is authorized or permitted by this Trust Agreement. Section 9.05. Effect of Supplemental Trust Agreements. Upon the --------------------------------------- execution of any supplemental agreement under this Article, this Trust Agreement shall be modified in accordance therewith, and such supplemental agreement shall form a part of this Trust Agreement for all purposes; and every Holder of Certificates theretofore or thereafter authenticated and delivered hereunder shall be bound thereby. Section 9.06. Reference in Certificates to Supplemental Trust ----------------------------------------------- Agreements. Certificates authenticated and delivered after the execution of any - ---------- supplemental agreement pursuant to this Article may bear a notation in form approved by the Trustee as to any matter provided for in such supplemental agreement; and, in such case, suitable notation may be made upon Outstanding Certificates after proper presentation and demand. ARTICLE X AMENDMENTS TO INDENTURES AND NOTE DOCUMENTS Section 10.01. Amendments and Supplements to Indenture and Other Note ------------------------------------------------------ Documents. In the event that the Trustee, as holder of any Secured Note in - --------- trust for the benefit of the Certificateholders, receives a request for a consent to any amendment, modification, waiver or supplement under any Indenture or other Note Document or any Participation Agreement, which requires the consent of the Certificateholders, the Trustee shall forthwith send a notice of such proposed amendment, modification, waiver or supplement, to each Certificateholder registered on the Register as of such date. The Trustee shall request from the Certificateholders Directions as to (i) whether or not to direct the Indenture Trustee related to such Secured Note to take or refrain from taking any action which a holder of such Secured Note has the option to direct, (ii) whether or not to give or execute any waivers, consents, amendments, modifications or supplements as a holder of such Secured Note and (iii) how to vote such Secured Note if a vote has been called for with respect thereto. Provided such a request for Certificateholder Direction shall have been made, in directing any action or casting any vote or giving any consent as the holder of any Secured Note, the Trustee shall vote or consent with respect to such Secured Note in the same proportion as the Certificates were actually voted by Acts of Holders delivered to the Trustee prior to two Business Days before the Trustee directs such action or casts such vote or gives such consent. Notwithstanding the foregoing, but subject to Section 6.04, in the case that an Event of Default hereunder shall have occurred and be continuing, the Trustee may, but shall not be 59 obligated to, consent and notify the Indenture Trustee under the Indenture to which such Event of Default pertains of such consent to any amendment, modification, waiver or supplement under such Indenture or other Note Document. Notwithstanding anything else set forth in this Trust Agreement, until the Lease Termination Date, the Trustee shall not, without the express written consent of the respective Owner Participant, vote or consent to (i) any amendment or modification to Section 10.8 of the Participation Agreements, (ii) any other amendment or modification to the Participation Agreements or any other Operative Document, the effect of which would be to amend, modify or override Section 10.8 of the Participation Agreements or (iii) amend, modify or override this sentence. ARTICLE XI TERMINATION OF TRUST Section 11.01. Termination of the Trust. The respective obligations ------------------------ and responsibilities of Enserch Exploration and the Trustee created hereby and the Trust created hereby shall terminate upon the distribution to all Certificateholders of all amounts required to be distributed to them pursuant to this Trust Agreement and the disposition of all property held as part of the Trust Property; provided, however, that in no event shall the trust created -------- ------- hereby continue beyond the expiration of 21 years from the death of the last survivor of the descendants of William Jefferson Clinton, President of the United States, living on the date of this Trust Agreement. Notice of any termination, specifying the Distribution Date (or Special Distribution Date, as the case may be) upon which the Certificateholders may surrender their Certificates to the Trustee for payment of the final distribution and cancellation, shall be mailed promptly by the Trustee to Certificateholders not earlier than the 60th day and not later than the 20th day next preceding such final distribution specifying (A) the Distribution Date (or Special Distribution Date, as the case may be) upon which final payment of the Certificates will be made upon presentation and surrender of Certificates at the office or agency of the Trustee therein specified, (B) the amount of any such final payment, and (C) that the Record Date otherwise applicable to such Distribution Date (or Special Distribution Date, as the case may be) is not applicable, payments being made only upon presentation and surrender of the Certificates at the office or agency of the Trustee therein specified. The Trustee shall give such notice to the Registrar at the time such notice is given to Certificateholders. Upon presentation and surrender of the Certificates, the Trustee shall cause to be distributed to Certificateholders amounts distributable on such Distribution Date or 60 Special Distribution Date, as the case may be, pursuant to Section 4.02. In the event that all of the Certificateholders shall not surrender their Certificates for cancellation within six months after the date specified in the above-mentioned written notice, the Trustee shall give a second written notice to the remaining Certificateholders to surrender their Certificates for cancellation and receive the final distribution with respect thereto. In the event that any money held by the Trustee for the payment of distributions on the Certificates shall remain unclaimed for two years (or such lesser time as the Trustee shall be satisfied, after sixty days' notice from Enserch Exploration, is one month prior to the escheat period provided under applicable law) after the final distribution date with respect thereto, the Trustee shall pay to Indenture Trustees the appropriate amount of money relating to such Indenture Trustee and shall give written notice thereof to the Grantor Trustees, Enserch Exploration. ARTICLE XII MISCELLANEOUS PROVISIONS Section 12.01. Limitation on Rights of Certificateholders. The death ------------------------------------------ or incapacity of any Certificateholder shall not operate to terminate this Trust Agreement or the Trust, nor entitle such Certificateholder's legal representatives or heirs to claim an accounting or to take any action or commence any proceeding in any court for a partition or winding up of the Trust, nor otherwise affect the rights, obligations, and liabilities of the parties hereto or any of them. Section 12.02. Certificates Nonassessable and Fully Paid. ----------------------------------------- Certificateholders shall not be personally liable for obligations of the Trust, the Fractional Undivided Interests represented by the Certificates shall be nonassessable for any losses or expenses of the Trust or for any reason whatsoever, and Certificates upon authentication thereof by the Trustee pursuant to Section 3.02 are and shall be deemed fully paid. No Certificateholder shall have any right (except as expressly provided herein) to vote or in any manner otherwise control the operation and management of the Trust Property, the Trust established hereunder, or the obligations of the parties hereto, nor shall anything set forth herein, or contained in the terms of the Certificates, be construed so as to constitute the Certificateholders from time to time as partners or members of an association. Section 12.03. Notices. All demands, notices, and communications ------- hereunder shall be in writing, personally delivered or mailed by certified mail- return receipt requested, and shall be deemed to 61 have been duly given upon receipt, in the case of Enserch Exploration, at the following address: Enserch Exploration, Inc., ENSERCH Center, 300 South St. Paul Street, Dallas, Texas 75201, Attention: Treasurer, and, in the case of the Trustee, at the following address: 101 Barclay Street, Floor 21 West, New York, New York 10284, Attention: Corporate Trust Administration or, in each case, at such other address as shall be designated by such party in a written notice to the other parties. Any notice required or permitted to be given to a Certificateholder hereunder shall be mailed by first class mail, postage prepaid, at the address of such Holder as shown in the Register. Any notice so mailed within the time prescribed in this Trust Agreement shall be conclusively presumed to have been duly given, whether or not the Certificateholder received such notice. The Trustee shall promptly furnish Enserch Exploration with a copy of each demand, notice or written communication received by the Trustee hereunder from any Certificateholder, the Grantor Trustee or the Indenture Trustee. Section 12.04. Governing Law. THIS TRUST AGREEMENT AND THE ------------- CERTIFICATES SHALL BE GOVERNED BY, AND CONSTRUED IN ACCORDANCE WITH, THE INTERNAL LAWS OF THE STATE OF NEW YORK WITHOUT REGARD TO CONFLICT OF LAWS PRINCIPLES. Section 12.05. Severability of Provisions. If any one or more of the -------------------------- covenants, agreements, provisions, or terms of this Trust Agreement shall be for any reason whatsoever held invalid, then such covenants, agreements, provisions, or terms shall be deemed severable from the remaining covenants, agreements, provisions, or terms of this Trust Agreement and shall in no way affect the validity or enforceability of the other provisions of this Trust Agreement or the Trust, or of the Certificates or the rights of the Holders thereof. Section 12.06. Effect of Headings and Table of Contents. The Article ---------------------------------------- and Section headings herein and the Table of Contents are for convenience only and shall not affect the construction hereof. Section 12.07. Successors and Assigns. All covenants, agreements, ---------------------- representations and warranties in this Trust Agreement by the Trustee, Enserch Exploration shall bind and, to the extent permitted hereby, shall inure to the benefit of and be enforceable by their respective successors and assigns, whether so expressed or not. Section 12.08. Benefits of Trust Agreement. Nothing in this Trust --------------------------- Agreement or in the Certificates, express or implied, shall give to any person, other than the parties hereto and their successors hereunder, and the Holders of Certificates, any benefit or any legal or equitable right, remedy or claim under this Trust Agreement. 62 Section 12.09. Legal Holidays. In any case where any Distribution -------------- Date or Special Distribution Date relating to any Certificate shall not be a Business Day, then (notwithstanding any other provision of this Trust Agreement) payment need not be made on such date, but may be made on the next succeeding Business Day with the same force and effect as if made on such Distribution Date or Special Distribution Date, and no interest shall accrue during the intervening period. Section 12.10. Counterparts. For the purpose of facilitating the ------------ execution of this Trust Agreement and for other purposes, this Trust Agreement may be executed simultaneously in any number of counterparts, each of which counterparts shall be deemed to be an original, and all of which counterparts shall constitute but one and the same instrument. * * * * * 63 IN WITNESS WHEREOF, Enserch Exploration and the Trustee have caused this Trust Agreement to be duly executed by their respective officers and their respective seals, duly attested, to be hereunto affixed, all as of the day and year first above written. ENSERCH EXPLORATION, INC. By: /s/ Joseph T. Leary --------------------------------- Name: Joseph T. Leary Title: Vice President Finance and Treasurer SEAL Attest: /s/ R. L. Jay - ---------------------- Name: R. L. Jay Title: Asst. Corporate Secretary The Bank of New York, as Trustee By: /s/ Stephen J. Giurlando --------------------------------- Name: Stephen J. Giurlando Title: Assistant Vice President SEAL Attest: /s/ F. W. Clark - ---------------------- Name: F. W. Clark Title: Vice President 64 EX-10.3 7 dex103.txt RELEVANT AMENDMENT Exhibit 10.3 EXHIBIT C TO INDENTURE RELEVANT AMENDMENT LISTED BELOW ARE THE DOCUMENTS WHICH ARE AMENDED OR REPLACED BY THE RELEVANT AMENDMENT. THIS LIST IS FOR CONVENIENCE OF REFERENCE ONLY AND SHALL NOT AFFECT THE CONSTRUCTION OR INTERPRETATION OF THE RELEVANT AMENDMENT. Document Definitions Indenture Participation Agreement Pass Through Trust Agreement RELEVANT AMENDMENT BE IT KNOWN, that on the dates hereinafter set forth, before us, the undersigned Notaries Public, duly commissioned and qualified in and for the states indicated below, and in the presence of the undersigned, competent witnesses, personally came and appeared: EEX CORPORATION, a Texas corporation ("EEX"), COOPER PROJECT, L.L.C., a Delaware limited liability company, WILMINGTON TRUST COMPANY, a Delaware banking corporation, not in its individual capacity except to the extent expressly set forth herein but solely as Corporate Grantor Trustee under the Trust Agreement, JOHN M. BEESON, JR, not in his individual capacity except to the extent expressly set forth herein but solely as Individual Grantor Trustee under the Trust Agreement, THE BANK OF NEW YORK, not in its individual capacity, except as expressly provided herein, but solely as Corporate Indenture Trustee (the "Corporate Indenture Trustee"), and VAN BROWN, an individual, not in his individual capacity, except as expressly provided herein, but solely as Individual Indenture Trustee (the "Individual Indenture Trustee"; together with the Corporate Indenture Trustee, the "Indenture Trustee"), THE BANK OF NEW YORK, a New York banking corporation, not in its individual capacity except to the extent expressly set forth herein but solely as Pass Through Trustee under the Pass Through Trust Agreement, who each being duly sworn, did agree and consent effective as of August 2, 2001 as follows: WHEREAS, terms used herein and not otherwise defined shall have the respective meanings assigned to them in the Indenture; WHEREAS, section 3.04 of the Indenture and section 11.6 of the Participation Agreement provide for the execution and delivery of an amendment thereto substantially in the form of Exhibit C to the Indenture - Relevant Amendment, which Relevant C-1 Amendment shall amend the Indenture, the other Operative Documents and the Pass Through Trust Agreement will, subject to the satisfaction of the conditions specified in such Section 3.04 (including without limitation, the execution and delivery of the Relevant Date Supplement), effective as of the Relevant Date (provided that such amendments shall not constitute a waiver by any party to the Operative Documents of any claims or rights to indemnity such party has against any other party to the Operative Documents accrued in favor of such party prior to the Relevant Date arising under the Operative Documents as in existence prior to the Relevant Date) and so that: WHEREAS, the parties hereto hereby desire to amend the Indenture, the other Operative Documents and the Pass Through Trust Agreement so that: (A) (I) The following defined terms in Appendix A to each of the Indenture and the other Operative Documents and, to the extent applicable, in Section 1.01 of the Pass Through Trust Agreement shall read as follows: "Additional Notes" shall mean notes issued pursuant to Section 2.08 of the Indenture. "Appraisal Procedure" shall mean a procedure for determining any amount, value or period. Such procedure shall be commenced by the delivery of written notification by EEX to the Indenture Trustee, or by the Indenture Trustee to EEX, that it desires to obtain an appraisal with respect to such amount, value or period. If required by the terms of the applicable Operative Documents, such parties shall first attempt to agree on such matter. If such parties are unable to agree on such matter within the time period specified in the applicable Operative Document, or if such parties are not required to attempt to agree, such parties shall thereupon consult for the purpose of selecting a mutually acceptable Independent appraiser. If within 10 days from the date the parties are required to so consult, they are unable to agree upon the appointment of a mutually acceptable Independent appraiser, then each of such parties shall appoint an Independent appraiser, and such Independent appraisers shall jointly determine such matter. If one party does not so appoint an Independent appraiser, then the Independent appraiser appointed by the other shall determine such matter as the sole appraiser. If such two Independent appraisers cannot agree on such matter within 20 days, such matters shall be determined by such two Independent appraisers and a third Independent appraiser chosen within 10 days after such 20-day period by such two Independent appraisers or, if such three Independent appraisers fail to reach an agreement, the determination of the appraiser that differs most from the second highest determination shall be excluded (unless such difference is less than ten percent from either of the other determinations), the remaining two determinations shall be averaged (or all three shall be averaged, if the third determination is not discarded due to the preceding parenthetical) and such average shall constitute the determination of the appraisers. If such two Independent appraisers fail to agree upon the appointment of a third Independent appraiser within the allotted time period, such appointment shall be made by the New York City office of the C-2 American Arbitration Association or any organization successor thereto, upon the request of any such parties from a panel of arbitrators having familiarity with assets similar to the assets comprised by the Production System. The determination of the appraisers so chosen shall be given within 20 days of the appointment of such third appraiser. Fees and expenses of the appraisers appointed in connection with an Appraisal Procedure shall be paid by EEX. The timetable for any Appraisal Procedure shall be appropriately accelerated to meet the applicable deadlines set forth in any of the Operative Documents. "Business Day" shall mean any day other than a Saturday or Sunday or any other day on which banks located in New York, New York, Dallas, Texas, the city in which the Indenture Trustee Office is located, or, so long as any Pass Through Certificate is Outstanding, the city in which the corporate trust department of the Pass Through Trustee is located, are required or authorized to remain closed. "Event of Loss" shall mean any of the following events: (a) the (i) loss, theft, destruction or disappearance of, or (ii) occurrence of damage (which, in EEX's reasonable, good faith opinion, renders repair or replacement uneconomic) to, the Production System (or substantially the entirety of the Production System) or a Significant Portion thereof; (b) the permanent condemnation, confiscation or seizure of, or requisition of title to, the Production System or a Significant Portion thereof by any Governmental Authority; (c) the requisition of use of the Production System or a Significant Portion thereof by any Governmental Authority for a period beyond the latest maturity date of the Secured Notes; (d) the receipt of insurance proceeds based upon an actual or constructive total loss of the Production System or a Significant Portion thereof; (e) the parties to the Operating Agreement have determined, after January 1, 2001, to abandon the Production System or any Significant Portion thereof; (f) the parties to the Operating Agreement have determined, after the Closing Date and prior to January 2, 2001, and after EEX has taken all commercially reasonable steps to exercise its rights under the Operating Agreement to prevent such abandonment, to abandon the Production System or a Significant Portion thereof; (g) as a result of a change in any Governmental Rules or Governmental Actions, EEX is prohibited from using the Production System as a floating drilling and/or production system within the Gulf of Mexico; or (h) EEX sells, transfers, assigns or otherwise disposes of its entire interest in the Unit Area. An Event of Loss with respect to a Significant Portion of the Production System may constitute an Event of Loss with respect to the Production System. Such determination shall be made by EEX in its reasonable judgment. The date of an Event of Loss shall be the date EEX obtains Actual Knowledge of such event; provided that for the purposes of clause (c) above, no Event of Loss shall be deemed to have occurred until the latest scheduled maturity date of the Secured Notes. "Fair Market Rental Value" or "Fair Market Sales Value" of any property or service as of any date shall mean the cash rent or cash price that would be obtained in an arm's-length lease or sale, respectively, between an informed and willing buyer (under no compulsion to lease or purchase) and an informed and willing seller (under no C-3 compulsion to lease or sell) of the property or services in question and shall be determined on the basis that the Production System has been maintained in accordance with the requirements of Section 11 of Article XI of the Indenture (but otherwise on an "as-is" basis), as determined by an Independent appraiser applying methodologies consistent (after taking into account then current facts and circumstances) with those applied in connection with the Final Appraisal. "Indenture Supplement" shall mean any indenture supplement, substantially in the form of Exhibit D to the Indenture, that may be executed and delivered by EEX and the Indenture Trustee from time to time. "Independent" shall mean, when used with respect to any specified Person, a Person who (1) is in fact independent, (2) does not have any direct financial interest in EEX or any Affiliate and (3) is not connected with EEX or any Affiliate as an officer, employee, promoter, underwriter, trustee, partner, director or person performing similar functions. Whenever it is provided that any Independent Person's opinion or certificate shall be furnished to the Indenture Trustee, such Person shall be appointed by EEX and approved by the Indenture Trustee in the exercise of reasonable care and such opinion or certificate shall state that the signer has read this definition and that the signer is Independent within the meaning hereof. "Independent Investment Banker" shall mean an independent investment banking institution of national standing appointed by EEX; provided -------- that if the Indenture Trustee shall not have received written notice of such an appointment at least 10 days prior to the relevant Redemption Date, "Independent Investment Banker" shall mean such an institution appointed by the Indenture Trustee. "Outstanding", SECTION 1.01. (a) when used with respect to the Secured Notes, shall mean, as of the date of determination, all Secured Notes theretofore authenticated and delivered under the Indenture, except: (i) Secured Notes theretofore cancelled by the Indenture Trustee or delivered to the Indenture Trustee for cancellation; (ii) Secured Notes or portions thereof for whose payment or redemption money in the necessary amount has been theretofore deposited with the Indenture Trustee, provided that such Secured Notes are to be redeemed and notice of such redemption has been duly given and not revoked or otherwise withdrawn pursuant to the Indenture; and (iii) Secured Notes paid or in exchange for which or in lieu of which other Secured Notes have been authenticated and delivered pursuant to the Indenture; C-4 provided, however, that in determining whether the Holders of the requisite principal amount of Secured Notes Outstanding have given any request, demand, authorization, direction, notice, consent or waiver hereunder, Secured Notes owned by EEX or any Affiliate thereof, shall be disregarded and deemed not to be Outstanding, unless such Persons own 100% of the Secured Notes owned by all Persons, except that, in determining whether the Indenture Trustee shall be protected in relying upon any such request, demand, authorization, direction, notice, consent or waiver, only Secured Notes which the Indenture Trustee knows to be so owned shall be so disregarded. Secured Notes so owned which have been pledged in good faith may be regarded as Outstanding if the pledgee establishes to the satisfaction of the Indenture Trustee the pledgee's right so to act with respect to such Secured Notes and that the pledgee is not EEX, or any Affiliate thereof; and (b) when used with respect to Pass Through Certificates, shall mean, as of the date of determination, all Pass Through Certificates theretofore authenticated and delivered under the Pass Through Trust Agreement, except: (i) Pass Through Certificates theretofore cancelled by the Registrar or delivered to the Pass Through Trustee or the Registrar for cancellation; (ii) all of the Pass Through Certificates if money in the full amount required to make the final distribution payment to be made pursuant to Section 11.01 of the Pass Through Trust Agreement has been theretofore deposited with the Pass Through Trustee in trust for the Certificateholders as provided in Section 4.01 of the Pass Through Trust Agreement pending distribution of such money to the Certificateholders pursuant to such final distribution payment; and (iii) Pass Through Certificates in exchange for or in lieu of which other Pass Through Certificates have been authenticated and delivered pursuant to the Pass Through Trust Agreement. "Overdue Rate" shall mean a rate per annum equal to (i) with respect to amounts owing to any Loan Participant constituting payments or prepayments of the principal amount of the Secured Notes, the rate of interest on such Secured Notes and (ii) with respect to amounts owing to any Loan Participant not constituting payments or prepayments of the principal amount of the Secured Notes, a zero percent rate of interest. "Permitted Liens" shall mean (a) the respective rights and interests of EEX, the Indenture Trustee and the Holders, as provided in the Operative Documents, (b) Indenture Trustee's Liens, (c) Liens for Taxes either not delinquent or being contested in good faith and by appropriate proceedings, so long as such proceedings do not involve any material danger of the sale, forfeiture or loss of any part of, the Production System, the Trust Estate or the Indenture Estate, or title thereto or any interest therein or any material danger of the interference with the payment of principal or interest hereunder or any other amount due by EEX hereunder or under the Operative Documents to the C-5 Indenture Trustee or any Holder, (d) materialmen's, mechanics', workers', repairmen's, employees' or other like Liens, arising in the ordinary course of business, or arising in the course of constructing, repairing, equipping or installing, modifying or expanding the Production System or any part thereof, for amounts either not more than 60 days past due or being contested in good faith and by appropriate proceedings so long as such proceedings do not involve any material danger of the sale, forfeiture or loss of any part of the Production System, the Trust Estate or the Indenture Estate, or title thereto or any interest therein and any material danger of the interference with the payment of principal or interest hereunder or any other amount due by EEX hereunder or under the Operative Documents to the Indenture Trustee or any Holder, (e) Liens arising out of judgments or awards against EEX with respect to which at the time an appeal or proceeding for review is being prosecuted in good faith so long as such judgment, award or appeal does not involve any material danger of the sale, forfeiture or loss of any part of the Production System, the Trust Estate or the Indenture Estate, or title thereto or any interest therein or any material danger of the interference with the payment of principal or interest hereunder or any other amount due by EEX hereunder or under the Operative Documents to the Indenture Trustee or any Holder, (f) the rights and interests of any Governmental Authority of the United States pursuant to the Federal Leases, (g) Liens for current crew's wages, for general average or salvage (including contract salvage) or for wages of stevedores employed directly by EEX, MPTM, or the operator, agent or master of the Platform which in each case (A) are unclaimed or covered by insurance or (B) for amounts either not are than 60 days past due or being contested in good faith and by appropriate proceedings so long as such proceedings do not involve any material danger of the sale, forfeiture or loss of any part of the Production System, the Trust Estate or the Indenture Estate, or title thereto or any interest therein or any material danger of the interference with the payment of principal or interest hereunder or any other amount due by EEX hereunder or under the Operative Documents to the Indenture Trustee or any Holder, and Liens which, under the laws of Panama, take priority over a duly registered first naval mortgage and which are for amounts either not more than 60 days past due or being contested in good faith and by appropriate proceedings so long as such proceedings do not involve any material danger of the sale, forfeiture or loss of any part of the Production System, the Trust Estate or the Indenture Estate, or title thereto or any interest therein or any material danger of the interference with the payment of principal or interest hereunder or any other amount due by EEX hereunder or under the Operative Documents to the Indenture Trustee or any Holder, (h) Liens, assignments and subleases permitted by Section 14 of Article XI of the Indenture and the rights of any sublessee or any sublessor under any sublease permitted by Section 14 of the Lease, (i) the Operating Agreement and the rights of the Operator and the Other Owner thereunder and the rights of their successors, assigns or mortgagees (provided that nothing in the clause (i) shall permit EEX to grant or suffer to exist any Lien on the Production system other that (x) the rights of the "parties" under the Operating Agreement or (y) Liens described elsewhere in this definition), and (j) the respective rights and interests of the parties to the Other Operative Documents, as provided therein. C-6 "Relevant Amendment" shall have the meaning specified in Section 3.04 of the Indenture, as originally executed. "Relevant Date" shall have the meaning specified in Section 3.04 of the Indenture, as originally executed. "Responsible Officer", when used with respect to the Indenture Trustee or the Pass Through Trustee, shall mean an officer in its corporate trust administration department (or any successor group of the Indenture Trustee or the Pass Through Trustee, as the case may be) or any other officer customarily performing functions similar to those performed by any of the above designated officers and also shall mean, with respect to a particular corporate trust matter, any other officer to whom such matter is referred because of such officer's knowledge of and familiarity with the particular subject. "Severable Modification" shall mean any Modification to the Production System permitted under Section 11 of Article XI of the Indenture and which can be readily removed from the Production System without causing material damage to the Production System. "Undivided Interest" shall mean EEX's 40.139265588% undivided interest in the Production System. (II) The following defined term shall be added to each such Appendix A: "United States Government Obligations" means securities that are direct obligations of the United States of America for the payment of which its full faith and credit is pledged which are not callable or redeemable, and shall also include a depository receipt issued by a bank or trust company as custodian with respect to any such United States Government Obligation or a specified payment of interest on or principal of any such United States Government Obligation held by such custodian for the account of the holder of a depository receipt so long as such custodian is not authorized to make any deduction from the amount payable to the holder of such depository receipt from any amount received by the custodian in respect of the United States Government Obligation or the specific payment of interest on or principal of the United States Government Obligation evidenced by such depository receipt. (III) Section 1.01 of the Indenture shall read as follows: SECTION 1.01. Definitions. Unless otherwise defined herein, for ----------- the purposes hereof, terms used herein and not otherwise defined shall have the meanings assigned to them in Appendix A; provided, however, that (i) any reference to Lease Default or Lease Event of Default shall be deemed to be deleted and (ii) clause (c) of the definition of "Indenture Estate" shall be deemed to be deleted. References in this Indenture to Sections, subsections, paragraphs, Schedules, Appendices and Exhibits are C-7 to Sections, subsections and paragraphs in Articles I through XI of, and Schedules, Appendices and Exhibits to, this Indenture unless otherwise indicated. (B) (I) Section 2.01(c) of the Indenture shall read as follows: (d) Each Secured Note issued after the Relevant Date shall be signed on behalf of EEX by the Chairman, the President, any Senior Vice President, any Vice President, any Assistant Vice President, the Controller, the Treasurer or the Secretary (or any other officer or employee authorized in writing by one of the foregoing officers) of EEX, manually or in facsimile. No Secured Note shall be secured by or entitled to any benefit under this Indenture, or be valid for any purpose, unless there appears thereon a certificate of authentication executed by or on behalf of the Indenture Trustee by the manual or in facsimile signature of a Responsible Officer of the Indenture Trustee, and such certificate on any Secured Note shall be conclusive evidence that such Secured Note has been duly authenticated and delivered hereunder. Notwithstanding any provision to the contrary contained herein, any Secured Note issued after the Relevant Date shall be issued substantially in the form set forth in Exhibit A to Exhibit C hereto. (II) Sections 2.02 and 2.08 of the Indenture shall read as follows: SECTION 2.02. Payments from Indenture Estate and EEX. All payments -------------------------------------- of principal, Make-Whole Amount, if any, and interest to be made by EEX and, except as otherwise provided in the Operative Documents, all payments of any other amounts payable by or on behalf of EEX under the Secured Notes and this Indenture, shall be payable from the income and proceeds from the Indenture Estate, and shall be direct obligations of EEX. Each Holder, by its acceptance of a Secured Note, agrees that it will look solely to EEX, and the income and proceeds from the Indenture Estate to the extent available for payment as herein provided and that the Indenture Trustee (whether in its individual or trust capacity) shall not be personally liable to such Holder for any amounts payable under the Secured Notes, or, except as specifically provided herein or in the other Operative Documents, for any amounts payable or any liability under this Indenture. SECTION 2.08 Additional Notes. (a) So long as no Indenture Event ---------------- of Default or an Indenture Default described in Section 5.02(a) or (f) shall have occurred and be continuing, Additional Notes of one or more series may be issued under and secured by this Indenture at any time or from time to time, and subject to the conditions hereinafter provided in this Section 2.08, for the purpose of financing EEX's share of the cost of any Non-severable Modification or any Severable Modification required by law to the Production System or any Component thereof. (b) Prior to the issuance of any Additional Notes of any series pursuant to this Section 2.08, EEX shall have delivered to the Indenture Trustee, not less than forty-five (45) days prior to the proposed date of issuance of such Additional Notes, a request and authorization to issue Additional Notes (a "Request"), which Request shall include the amount of such Additional Notes, the proposed date of issuance of such Additional C-8 Notes, and other details with respect thereto which are not inconsistent with this Section 2.08. Such Additional Notes shall have a designation so as to distinguish such Additional Notes from the Initial Secured Notes and any other Additional Notes that may have been issued theretofore, but otherwise shall be substantially similar in form to Exhibit A attached hereto, with such omissions therefrom, variations therein and additions thereto as shall be appropriate. Such Additional Notes shall not rank senior in any respect to other Secured Notes issued pursuant to the terms hereof but may rank junior in right of payment and security. (c) The terms, conditions and designations of such Additional Notes (which shall be consistent with the Request and with the terms of this Indenture and such terms, conditions and designations shall be in form and substance acceptable to EEX and the Indenture Trustee) shall be set forth in a supplement to this Indenture, substantially in the form of Exhibit D, which shall be executed by EEX and the Indenture Trustee. Such Indenture supplement shall set forth: (i) the text of such Additional Notes (which, except for the terms of payment thereof, shall be of substantially the same effect as the text of the Initial Secured Notes set forth in this Indenture, with such changes as are consistent with and permitted by this Indenture and which in all events shall provide that such Additional Notes are never more than pari passu in priority of payment, in right of security and in all other respects with the Initial Secured Notes); (ii) the date of maturity of such Additional Notes (which shall be no later than the latest scheduled maturity date of the Secured Notes then Outstanding); (iii) the date from which, and the date or dates on which, interest is payable (which shall be Interest Payment Dates); (iv) the terms for the repayment of the principal amount of such Additional Notes (each regularly scheduled payment of principal shall be an Interest Payment Date); (v) the terms, if any, as to prepayment or redemption of such Additional Notes at the option of EEX, and as to the premium, if any, payable on any redemption or prepayment of such Additional Notes; and (vi) any other terms and agreements in respect thereof provided or permitted by this Trust Indenture or necessary to specify the terms and conditions on which such Additional Notes shall be issued. (d) Such Additional Notes shall be executed by EEX as provided in Section 2.01(c) and deposited with the Corporate Indenture Trustee for authentication and delivery, but before such Additional Notes shall be authenticated and delivered by the C-9 Indenture Trustee, there shall be delivered to or deposited with the Indenture Trustee the following: (i) the Request; (ii) such supplement to this Indenture, duly executed by EEX; (iii) such instruments as may be necessary to perfect the security interest in EEX's 60% undivided interest in such Modification under this Indenture; (iv) such evidence of the due filing of financing statements and other filings with respect to the Modification as may be required to subject such property to the Lien of this Indenture, subject to no Liens except Permitted Liens; (v) originals or certified copies of all corporate actions necessary for the due and valid issue of such Additional Notes, the due and valid authorization, execution, delivery and performance by EEX of the supplement to this Indenture relating thereto, and the creation of the Lien and security interest thereon referred to above, all of which corporate actions shall have been duly obtained and shall be in full force and effect; together with evidence as to the due occurrence of all such authorization, execution, delivery and performance; (vi) documentation, duly executed and delivered by the respective parties thereto whereby the proposed holders of the Additional Notes agree to be bound by the terms of the Operative Documents (including, without limitation, representations and covenants corresponding to those contained in Section 7 of the Participation Agreement); (vii) an Officer's Certificate of EEX certifying as to its share of the cost of such Modification and that all conditions precedent to the issuance of the Additional Notes contained in this Section 2.08 have been satisfied unless such conditions have been waived in writing by the Indenture Trustee; and (viii) such opinions of counsel as are customary in transactions of this type, including, without limitation, opinions as to the due authorization, execution, delivery and enforceability (subject to usual or customary exceptions, qualifications and assumptions) of such supplement to this Indenture and such Additional Notes, and such other certificates and other documents as may be reasonably requested by the Indenture Trustee to evidence the validity and binding effect of such supplement to this Indenture and such Additional Notes and compliance with this Section 2.08. (e) When the documents referred to in Section 2.08(d) shall have been delivered to or deposited with the Indenture Trustee and when such Additional Notes C-10 described in the Request and the supplement to this Indenture have been executed by EEX as required by this Indenture, the Indenture Trustee shall authenticate and deliver such Additional Notes in the manner described in such Request, but only upon payment to EEX of the sum or sums specified in such Request. SECTION 2.12. Certain References and Obligations. Notwithstanding ---------------------------------- any provision to the contrary contained herein, Sections 2.01, 2.03, 2.05, 2.06, 2.07 and 2.11 shall be deemed amended to provide that any reference to or obligation of the Grantor Trustee contained in such Sections shall after the Relevant Date be deemed to be a reference to or obligation of EEX. (C) Sections 3.02, 3.03, 3.04, 3.06, and 3.11 of the Indenture shall read as follows: SECTION 3.02. Mandatory Redemption. If an Event of Loss shall -------------------- occur with respect to the Production System or a Significant Portion thereof then, unless, in the case of an Event of Loss with respect to such a Significant Portion where such Significant Portion is rebuilt or replaced pursuant to Section 12.02 of Article XI, EEX shall redeem on the date of payment of the amount required to be paid as a result of such Event of Loss pursuant to Section 12.02 of Article XI (the date of any redemption under this Section 3.02 being herein called a "Casualty Redemption Date") (i) if the Event of Loss shall have occurred with respect to the Production System, the entire unpaid principal amount of the Secured Notes Outstanding on such Casualty Redemption Date, at a redemption price equal to 100% of such unpaid principal amount of such Secured Notes, together with any accrued and unpaid interest thereon to such Casualty Redemption Date and without Make-Whole Amount or any other premium and (ii) if the Event of Loss shall have occurred with respect to a Significant Portion of the Production System, such of the unpaid principal amount of the Secured Notes Outstanding on such Casualty Redemption Date (assuming, only for purposes of this calculation, that if such Casualty Redemption Date is coincident with an Installment Payment Date or a Maturity Date, the scheduled principal payment due, if any, on such Casualty Redemption Date on the Secured Notes is paid prior to the time the Redemption Price is calculated pursuant to this Section 3.02(ii) and applied to principal in accordance with Section 4.01) as shall be equal to the product of (x) the entire unpaid principal amount of the Secured Notes Outstanding on such Casualty Redemption Date (assuming, only for purposes of this calculation, that if such Casualty Redemption Date is coincident with an Installment Payment Date or a Maturity Date, the scheduled principal payment due, if any, on such Casualty Redemption Date on the Secured Notes is paid prior to the time the Redemption Price is calculated pursuant to this Section 3.02(ii) and applied to principal in accordance with Section 4.01) and (y) a fraction, the numerator of which shall be the Original Cost of the Significant Portion of the Undivided Interest suffering such Event of Loss and the denominator of which shall be Lessor's Cost, at a redemption price equal to 100% of such unpaid principal amount of the Secured Notes to be redeemed on such Casualty Redemption Date pursuant to the terms of this Section 3.02(ii), together with any accrued C-11 and unpaid interest thereon to such Casualty Redemption Date (assuming, only for purposes of this calculation, that if such Casualty Redemption Date is coincident with an Interest Payment Date, the interest due on such Interest Payment Date is paid prior to the time the Redemption Price is calculated pursuant to this Section 3.O2(ii) and applied to interest in accordance with Section 4.01) and without Make-Whole Amount or any other premium; provided that each Holder of a Secured Note shall receive, as to the principal thereof, the same portion of such Redemption Price in its entirety as the principal value of such Secured Note at such Casualty Redemption Date represents of the total value of the principal value of all Secured Notes at such Casualty Redemption Date. SECTION 3.03. Optional Redemption. The Secured Notes may not be ------------------- optionally redeemed on or prior to the fifth anniversary of the Closing Date. Following the fifth anniversary of the Closing Date, EEX at its option may redeem the Secured Notes on any date, in whole, at a redemption price equal to 100% of the unpaid principal amount of the Secured Notes to be redeemed pursuant to this Section 3.03, together with any accrued and unpaid interest thereon to the date of redemption plus the Make-Whole Amount, if any. SECTION 3.04. Intentionally Omitted SECTION 3.06. Intentionally Omitted SECTION 3.08. Intentionally Omitted SECTION 3.11. Certain References and Obligations. Notwithstanding ---------------------------------- any provision to the contrary contained herein, Section 3.05 or 3.10 shall be deemed amended to provide that any reference to or obligation of the Grantor Trustee contained in such Section shall after the Relevant Date be deemed to be a reference to or obligation of EEX. (D) Article IV of the Indenture shall read as follows: ARTICLE IV RECEIPT, DISTRIBUTION AND APPLICATION OF INCOME FROM THE INDENTURE ESTATE SECTION 4.01. Intentionally Omitted SECTION 4.02. Certain Distributions. (a) Any payment received by --------------------- the Indenture Trustee (i) pursuant to Section 12 of Article XI as a result of the occurrence of an Event of Loss with respect to the Production System or a Significant Portion thereof or C-12 (ii) pursuant to Section 3.03, shall be distributed forthwith in the following order of priority: first, in the manner provided in clause "first" of Section 4.03; second, in the manner provided in clause "third" of Section 4.03 but only with respect to those Secured Notes to be redeemed pursuant to Section 3.02 as a result of such Event of Loss, sale, termination or payment, as the case may be; third, in the manner provided in clause "second" of Section 4.03; fourth, in the manner provided in clause "fourth" of Section 4.03; and fifth, in the manner provided in clause "fifth" of Section 4.03. (b) The portion of each payment referred to in this Section 4.02 distributed to a Holder on account of principal or interest on any Secured Note held by such Holder shall be applied by such Holder in payment of such Secured Note in accordance with the terms of Section 4.04. SECTION 4.03. Distribution After Indenture Event of Default. If --------------------------------------------- (a) an Indenture Event of Default shall have occurred and be continuing, and (b) either the Indenture Trustee shall have given notice to declare this Indenture to be in default pursuant to Section 5.04(a), or any of the Secured Notes shall have been declared or otherwise shall have become immediately due and payable pursuant to Section 5.04, then, to the extent that each such declaration shall not have been rescinded or the Secured Notes shall remain immediately due and payable, (i) all amounts then held by the Indenture Trustee in accordance with Section 4.05 or 4.06 (and not excluded from the operation of this Section 4.03) or then otherwise held by the Indenture Trustee hereunder or under any Operative Document (other than amounts held for its own account) (and, in each case, all earnings thereon that constitute part of the Indenture Estate as provided in Section 7.04), and (ii) all payments and amounts thereafter realized by the Indenture Trustee through the exercise of remedies hereunder or under any of the agreements assigned or pledged to the Indenture Trustee under this Indenture or otherwise as trustee under this Indenture (for purposes of this Section 4.03, all such amounts and payments held or realized being herein called "proceeds"), other than amounts expressly paid to it for its own account, shall be distributed forthwith by the Indenture Trustee in the following order of priority: first, so much of such proceeds as shall be required to reimburse the Indenture Trustee for any unpaid fees for its services under this Indenture and any unreimbursed tax, expense (including reasonable legal fees) or other loss incurred by it (in each case to the extent reimbursable under the Operative Documents) shall be distributed to the Indenture Trustee for application to itself; second, so much of the remaining proceeds as shall be required to reimburse the then existing or prior Holders for amounts paid or advanced by the Holders pursuant to Section 6.04 (to the extent not previously reimbursed), shall be distributed to the then existing and prior Holders as their respective interests may appear, and if the proceeds remaining are insufficient to pay all such amounts in full, they shall be distributed C-13 ratably, without priority of any recipient over any other recipient (except as otherwise expressly provided herein), in the proportion the aggregate amount due each such Person under this clause "second" bears to the aggregate amount and interest due all such Persons under this clause "second"; third, so much of the proceeds remaining as shall be required to pay in full the aggregate unpaid principal amount of each Secured Note then Outstanding and, Make-Whole Amount, if any, and all accrued but unpaid interest thereon to the date of distribution, shall be distributed to the Holder of such Secured Note, and if the proceeds remaining are insufficient to pay all such amounts in full, they shall be distributed to all Holders ratably, without priority of any Holder over any other Holder (except as otherwise expressly provided herein), in the proportion that the aggregate amount due each such Holder under this clause "third" bears to the aggregate amount due all such Holders under this clause "third"; fourth, so much of the proceeds remaining as shall be required to pay to each Holder all other amounts payable pursuant to any provision of any Operative Document and remaining unpaid shall be distributed to such Holder for distribution to itself and its predecessors, as their respective interests may appear, and if the proceeds remaining are insufficient to pay all such amounts in full, they shall be distributed ratably, without priority of any Holder over any other Holder (except as otherwise expressly provided herein), in the proportion that the aggregate amount due each such Holder under this clause "fourth" bears to the aggregate amount due all such Holders under this clause "fourth"; and fifth, the balance, if any, of the proceeds remaining shall be distributed to EEX. All amounts distributed to any Holder pursuant to clause "third" of this Section 4.03 shall be applied by such Holder in payment of the Secured Notes held by it in accordance with the terms of Section 4.04. SECTION 4.04. Application of Payments on Secured Notes. Each ---------------------------------------- payment on a Secured Note shall be applied, first, to the payment of accrued interest on such Secured Note to the date of such payment, second, to the payment of Make-Whole Amount, if any, on such Secured Note due on the date of such payment, third, to the payment of any principal on such Secured Note then due thereunder, and fourth, to the payment of the installments of principal remaining unpaid on such Secured Note in the inverse order of the installment due date thereof. SECTION 4.05. Applications of Payments According to Applicable ------------------------------------------------ Operative Document Provisions. Any payments or amounts received by the Indenture - ----------------------------- Trustee, provision for the application of which is made in any Operative Document, shall be applied promptly as provided in such Operative Document, unless an Indenture Event of Default shall have occurred and be continuing at the time the Indenture Trustee receives such payment and the Indenture Trustee has Actual Knowledge of such Indenture Event of Default, in which case the Indenture Trustee shall hold such payment C-14 as part of the Indenture Estate, as cash collateral security hereunder for the obligations of EEX under the Operative Documents and shall invest such payments and amounts in accordance with the terms of Section 7.04, and, subject to earlier distribution thereof under Section 4.03, such payments and amounts, and the proceeds of any investment thereof, shall be paid by the Indenture Trustee to EEX at such time as any applicable conditions shall have been satisfied and no Indenture Event of Default shall be continuing. SECTION 4.06. Amounts Received for Which No Provision Is Made. ----------------------------------------------- (a) Any payment received or amounts realized by the Indenture Trustee for which no provision as to the application thereof is made elsewhere in this Indenture or any other Operative Document shall be held by the Indenture Trustee as part of the Indenture Estate in a cash collateral account maintained under Section 7.04, and (b) all payments received and amounts realized by the Indenture Trustee under this Indenture or otherwise with respect to the Undivided Interest, to the extent received or realized at any time after payment in full of the principal of and interest on all Secured Notes issued hereunder or the conditions set forth in Section 10.01 for the defeasance of the Secured Notes shall have been satisfied, as well as any other amounts remaining as part of or as proceeds of the Indenture Estate after payment in full of the principal of and interest on all such Secured Notes or the conditions set forth in Section 10.01 for the defeasance of the Secured Notes shall have been satisfied, shall be distributed forthwith by the Indenture Trustee in the order of priority set forth in Section 4.03, omitting clause "third" thereof. The Indenture Trustee shall give prompt notice to EEX and each Holder of the receipt of any moneys by the Indenture Trustee subject to the provisions of this Section 4.06. SECTION 4.07. Payment Procedures. All amounts which are ------------------ distributable from time to time by the Indenture Trustee to EEX or any Holder shall be paid by the Indenture Trustee in immediately available funds promptly after such amounts become immediately available to it, and the Indenture Trustee shall not be obligated to see to the application of any such payment made by it. All payments made by the Indenture Trustee to EEX shall be made in the manner and to the address set forth in Schedule 1 to the Participation Agreement or to such other address as may be specified from time to time by notice to the Indenture Trustee from EEX. (E) Sections 5.01, 5.02, 5.03, 5.04, 5.05, 5.09 and 5.13 of the Indenture shall read as follows: SECTION 5.01. Intentionally Omitted SECTION 5.02. Indenture Events of Default. "Indenture Event of --------------------------- Default" means any of the following events (whatever the reason for such Indenture Event of Default and whether such event shall be voluntary or involuntary or come about or be effected by operation of law or be pursuant to or in compliance with any judgment, decree or order of any court or any Governmental Rule or Governmental Action): C-15 (a) EEX shall fail to make any payment of principal of, Make-Whole Amount, if any, or interest on any Secured Note shall not have been made on or prior to the tenth (10th) Business Day after the date for same shall have become due and payable; or (b) EEX shall fail to maintain the insurance required to be maintained pursuant to Section 13.1 of Article XI of this Indenture; or (c) EEX in any capacity under the Operative Documents shall fail to perform or observe in any material respect any covenant or agreement to be performed or observed by it under this Indenture or any other Operative Document (but in the case of the Participation Agreement, only as such covenant or agreement relates to the Indenture Trustee and the Loan Participants and other than any covenant or agreement under the Tax Indemnity Agreement) and such failure shall continue for a period of thirty (30) days after the earlier of receipt by EEX of a written notice from the Indenture Trustee specifying such failure and requiring it to be remedied or the date EEX obtains Actual Knowledge of such failure; provided, however, that the continuation of any such failure for such period of thirty (30) days or such longer period (not to exceed 365 days) or 180 days in the case of a failure to perform or observe the covenants contained in Section 11.21 or 11.22 hereof; provided that such 180 day period shall not extend beyond the date 1 year prior to the maturity date of the last maturing Secured Note after receipt of such notice shall not constitute an Indenture Event of Default so long as (i) such failure is curable or correctable and (ii) EEX is diligently pursuing the cure or correction of such failure; or (d) any representation or warranty made by EEX in any Operative Document (other than the Tax Indemnity Agreement) or in any Officer's Certificate of EEX delivered pursuant to any Operative Document shall prove to have been inaccurate in any material respect when made and such inaccurate representation or warranty shall remain inaccurate in any material respect within thirty (30) days after the earlier of receipt by EEX of a written notice thereof from the Indenture Trustee or the Actual Knowledge of Indenture Trustee; provided, however, that the continuation of any such inaccuracy for such period of thirty (30) days of such longer period (not to exceed 180 days) after receipt of such written notice thereof to remedy any such inaccuracy; or (e) EEX shall commence a voluntary case or other proceeding seeking liquidation, reorganization or other relief with respect to itself or its debts under any bankruptcy, insolvency or other similar law now or hereafter in effect or seeking the appointment of a trustee, receiver, liquidator, custodian or other similar official of it or any substantial part of its property, or shall consent to any such relief or to the appointment or taking possession by any such official or agency in an involuntary case or other proceeding commenced against it, or shall make a general assignment for the benefit of creditors, or shall take any corporate action to authorize any of the foregoing; or C-16 (f) an involuntary case or other proceeding shall be commenced against EEX seeking liquidation, reorganization or other relief with respect to it or its debts under any bankruptcy, insolvency or other similar law now or hereafter in effect or seeking the appointment of a trustee, receiver, liquidator, custodian or other similar official or agency of it or any substantial part of its property, and such involuntary case or other proceeding shall remain undismissed and unstayed for a period of ninety (90) days; provided, however, that notwithstanding anything to the contrary contained in - -------- ------- Section 5.02(c), any failure of EEX to perform or observe any covenant or agreement specified in Section 5.02(c) shall not constitute an Indenture Event of Default if such failure is caused solely by reason of any event that constitutes an Event of Loss (or any event which with lapse of time would constitute an Event of Loss) as long as EEX is continuing to comply with all the applicable terms of Section 12. SECTION 5.03.Intentionally Omitted SECTION 5.04. Remedies. -------- (a) If an Indenture Event of Default shall have occurred and be continuing and so long as the same shall be unremedied, then and in every such case the Indenture Trustee may declare this Indenture to be in default by written notice to such effect given to EEX, and at any time thereafter, provided that such declaration shall not have been rescinded, the Indenture Trustee, to the extent permitted by applicable law and subject to Sections 5.05 and 5.09 may: (i) exercise any or all of the rights and powers and pursue any and all of the remedies herein provided or available under applicable law, (ii) take possession of all or any part of the Indenture Estate and exclude EEX and all Persons claiming under EEX wholly or partly therefrom, (iii) upon reasonable prior written notice to EEX, invoke and exercise the power of sale and sell any or all of the Indenture Estate in the manner required by law at public auction, or in any other manner which shall be in accordance with applicable law, or, in lieu of sale pursuant to the power of sale, foreclose the Indenture Estate, (iv) exercise all rights and remedies of a secured party under the Uniform Commercial Code as in effect in any applicable jurisdiction or under Panamanian law, and (v) exercise any rights and remedies in respect of the Ship Mortgage. The Indenture Trustee shall notify EEX as soon as is reasonably practicable after its commencement of the exercise of any remedy pursuant to this Section 5.04. (b) If an Indenture Event of Default (other than an Indenture Event of Default specified in Sections 5.02(e) and (f)) shall have occurred and be continuing, then the Indenture Trustee may at any time, by written notice to EEX, immediately declare all (but not less than all) of the Secured Notes to be due and payable. Upon such declaration the unpaid principal of all Secured Notes then Outstanding, together with accrued but unpaid interest thereon and any other amounts due there under, shall immediately become due and payable without presentment, demand, protest or notice, all of which are hereby waived. C-17 (c) If an Indenture Event of Default of the type specified in Sections 5.02(e) and (f) shall have occurred and be continuing, the principal of all Secured Notes then Outstanding, together with accrued but unpaid interest thereon and any other amounts due thereunder, shall become and be due and payable automatically, without declaration, notice, demand or any other action on the part of the Indenture Trustee or any Holder, all of which are hereby waived. Each of Section 5.04(b) and this Section 5.04(c), however, is subject to the condition that, if at any time after the principal of the Secured Notes shall have become due and payable upon a declared or automatic acceleration thereof as provided herein, and before any judgment or decree for the payment of the money so due, or any portion thereof, shall be entered, all overdue payments of interest upon the Secured Notes and all other amounts payable under the Secured Notes (except the principal of the Secured Notes which by such declaration shall have become payable) shall have been duly paid, and every other Indenture Event of Default with respect to any covenant or provision of this Indenture shall have been cured, then and in every such case a Majority in Interest of Holders of Notes, by written instrument filed with the Indenture Trustee, may (but shall not be obligated to) rescind and annul the Indenture Trustee's declaration and its consequences; but no such rescission or annulment shall extend to or affect any subsequent Indenture Event of Default or impair any right consequent thereon. (d) Notwithstanding any provision in any document or instruction that purports to require the Indenture Trustee to acquire title to any or all of the Indenture Estate upon foreclosure, or pursuant to instructions, the Indenture Trustee shall not be obligated to acquire any such title unless: (i) the Indenture Trustee is provided with such security or indemnity as it shall deem satisfactory to it, (ii) such acquisition of title complies with all applicable Operative Documents, laws, rules and regulations, which shall be evidenced by an opinion of counsel to such effect in form and substance satisfactory to the Indenture Trustee and (iii) the Indenture Trustee shall have obtained such executed certificates, instruments or other documents, in accordance with its reasonable inquiries or requests. SECTION 5.05. Suit; Possession; Title; Sale of Indenture Estate. ------------------------------------------------- (a) EEX agrees that, if an Indenture Event of Default shall have occurred and be continuing and the Indenture Trustee shall be entitled to exercise remedies hereunder as provided in Section 5.04, the Indenture Trustee may take possession of all or any part of the Indenture Estate and may exclude EEX, and all Persons claiming under EEX, wholly or partly therefrom; provided, however, that at least 30 Business Days' prior notice of such taking of possession shall be given to EEX. If an Indenture Event of Default shall have occurred and be continuing and the Indenture Trustee shall be entitled to exercise remedies hereunder as provided in Section 5.04, at the request of the Indenture Trustee, EEX shall promptly execute and deliver to the Indenture Trustee such instruments of title and other documents as the Indenture Trustee may deem necessary or advisable to enable the Indenture Trustee or any agent or representative designated by the Indenture Trustee, at such time or times and place or places as the Indenture Trustee may specify, to obtain possession of all or any part of the Indenture Estate to which the Indenture Trustee shall C-18 at the time be entitled hereunder. If EEX shall for any reason fail to execute and deliver such instruments and documents after such request by the Indenture Trustee, the Indenture Trustee may (i) obtain a judgment conferring on the Indenture Trustee the right to immediate possession of any property comprising a portion of the Indenture Estate and requiring EEX to execute and deliver such instruments and documents to the Indenture Trustee or (ii) pursue all or part of such property wherever it may be found, and the Indenture Trustee may enter any of the premises where such property or any portion thereof may be or is supposed to be and search for such property. All expenses of obtaining such judgment or of pursuing, searching for and taking such property shall, until paid, be secured by the Lien of this Indenture and the Ship Mortgage. (b) Upon every such taking of possession, the Indenture Trustee may make, from time to time and at the expense of the Indenture Estate, such expenditures for maintenance, insurance, repairs, replacements, alterations, additions and improvements to and of the Indenture Estate as it may deem proper. In each such case, the Indenture Trustee shall have the right to maintain, use, operate, store, lease, control or manage the Indenture Estate and to exercise all rights and power of EEX relating to the Indenture Estate as the Indenture Trustee shall deem to be in the best interest of the Holders. The Indenture Trustee shall be entitled to collect and receive directly all tolls, rents, revenue, issues, income, products and profits of the Indenture Estate and every part thereof, other than Excepted Payments. Such tolls, rents, revenues, issues, income, products and profits shall be applied (i) to pay the expenses of the use, operation, storage, leasing, control, management or disposition of the Indenture Estate, (ii) to pay the expense of all maintenance, repairs, replacements, alterations, additions and improvements, (iii) to make all payments which the Indenture Trustee may be required or may elect to make, if any, for taxes, assessments, insurance or other proper charges upon the Indenture Estate or any portion thereof, including without limitation the employment of engineers and accountants to examine, inspect and make reports upon the properties and books and records of EEX, and (iv) to pay amounts owing in respect of the Secured Notes in accordance with the provisions thereof and hereof and to make all other payments which the Indenture Trustee may be required or authorized to make under any provision of this Indenture or the Ship Mortgage, as well as just and reasonable compensation for the services of the Indenture Trustee and of all Persons properly engaged and employed by the Indenture Trustee. (c) Any of the Indenture Trustee, any Holder or EEX may be a purchaser of the Indenture Estate or any portion thereof or any interest therein at any sale thereof, whether pursuant to foreclosure or power of sale or otherwise. The Indenture Trustee may apply against the purchase price thereof or the amount then due to it hereunder or under any of the Secured Notes secured hereby and any Holder may apply against the purchase price therefor the amount then due to it hereunder or under the Secured Notes held by such Holder, to the extent of such portion of the purchase price as it would have received had it been entitled to share in any distribution thereof. The Indenture Trustee or any Holder or any nominee of any such Holder shall acquire, upon any such purchase, C-19 good title to the property so purchased, free of the Lien of this Indenture and, to the extent permitted by applicable law, free of all rights of redemption in EEX in respect of the property so purchased. (d) Any sale or other conveyance of any of the Indenture Estate by the Indenture Trustee made pursuant to the terms of this Indenture or the Ship Mortgage shall bind EEX and the Holders and shall be effective to transfer or convey all right, title and interest of the Indenture Trustee, EEX and the Holders in and to such Indenture Estate or portion thereof, as the case may be. No purchaser or other grantee shall be required to inquire as to the authorization, necessity, expediency or regularity of such sale or conveyance, or as to the application of any sale or other proceeds with respect thereto by the Indenture Trustee. In the event of any such sale, EEX shall execute any and all such bills of sale, instruments of conveyance and assignment and other documents, and perform and do all other acts and things requested by the Indenture Trustee in order to permit continuation of such sale and to effectuate the transfer or conveyance referred to in the first sentence of this Section 5.05(d). EEX shall ratify and confirm any such sale or sales by executing and delivering to the Indenture Trustee or to such purchaser or purchasers all instruments as may reasonably be requested for such purpose. Any such sale or sales made hereunder shall operate to divest all the estate, right, title, interest, claim and demand whatsoever, whether at law or in equity, of EEX in and to the properties and rights so sold, and shall be a perpetual bar both at law and in equity against EEX and against any and all persons claiming or who may claim the same, or any part thereof from, through or under EEX. Upon any sale or other disposition of the Indenture Estate by the Indenture Trustee, the Indenture Trustee will promptly account in writing, in reasonable detail, to EEX for the amount of such sale, the costs and expenses incurred in connection therewith and any surplus proceeds. (e) The Indenture Trustee shall as a matter of right, be entitled to the appointment of a receiver or a keeper pursuant to the terms and provisions of La. R.S. 9:5136 et seq. (who may be the Indenture Trustee or any successor or nominee thereof), at any time after an Indenture Event of Default either before or after declaring due and payable the principal of all Secured Notes then Outstanding, together with accrued but unpaid interest thereon and any other amounts due thereunder, for all or any portion of the Indenture Estate, whether such receivership or keepership be incidental to a proposed sale of the Indenture Estate or the taking of possession thereof or otherwise, and EEX hereby consents to the appointment of such a receiver or keeper, and agrees that it will not oppose any such appointment. Any receiver or keeper appointed for all or any portion of the Indenture Estate shall be entitled in addition to any powers available under applicable law, to exercise all the rights and powers of the Indenture Trustee with respect to the Indenture Estate. (f) To the extent now or at any time hereafter enforceable under applicable law, EEX covenants that it will not at any time insist upon or plead, or in any manner whatsoever claim or take any benefit or advantage of any stay, extension, moratorium, C-20 any exemption from execution or sale or other similar law or from any law now or hereafter in force providing for the valuation or appraisement of the Indenture Estate or any part thereof, prior to any sale or sales thereof to be made pursuant to any provision herein contained, or prior to any applicable decree, judgment or order of any court of competent jurisdiction; nor, after such sale or sales, claim or exercise any right under any statute now or hereafter made or enacted by any state or any right to have a portion of the Indenture Estate or the security for the Secured Notes marshaled or otherwise redeem the property so sold or any part thereof, and hereby expressly waives for itself and on behalf of each and every Person who may claim through or under it, except decree or judgment creditors of EEX acquiring any interest in or title to the Indenture Estate or any part thereof subsequent to the date of this Indenture, all benefit and advantage of any such law or laws, and covenants that it will not invoke or use any such law or laws, but will suffer and permit the execution of every such power as though no such law or laws had been made or enacted. The Indenture Trustee may maintain such a pleading, or, in any manner whatsoever, claim or take any benefit or advantage of or from any law now or hereafter in force even if it does not possess any of the Secured Notes or does not produce any of them in the proceeding. A delay or omission by the Indenture Trustee or any Holder in exercising any right or remedy accruing upon an Indenture Event of Default under this Indenture shall not impair the right or remedy or constitute a waiver of or acquiescence in such Indenture Event of Default. (g) The Indenture Trustee may adjourn from time to time any sale to be made under or by virtue of this Indenture for such sale or for such adjourned sale or sales, and, except as otherwise provided by any applicable provision of law, the Indenture Trustee, without further notice or publication, may make such sale at the time and place to which the same shall be so adjourned. (h) Any recovery of any judgment by the Indenture Trustee under the Secured Notes and any levy of any execution under any such judgment upon the Indenture Estate shall not affect in any manner or to any extent the security title and security interest conveyed hereby upon the Indenture Estate or any part thereof, or any conveyances, powers, rights and remedies of the Indenture Trustee hereunder, but such conveyances, powers, rights and remedies shall continue unimpaired as before. (i) Notwithstanding anything contained herein, so long as the Pass Through Trustee is a registered Holder, the Indenture Trustee is not authorized or empowered to acquire title to all or any portion of the Indenture Estate or take any action with respect to all or any portion of the Indenture Estate so acquired by it if such acquisition or action would cause the Pass Through Trust to fail to qualify as a "grantor trust" for federal income tax purposes. (j) EEX shall be liable for all reasonable legal fees and other reasonable costs and expenses incurred by each Loan Participant and the Indenture Trustee by reason of C-21 the occurrence of any Indenture Event of Default or the exercise of remedies with respect thereto. SECTION 5.09. Quiet Enjoyment. Unless an Indenture Event of --------------- Default shall have occurred and be continuing and EEX shall have been notified of such Event of Default, the Indenture Trustee agrees not to take or permit any Person lawfully claiming by, through or under it to take any action which interferes with EEX's rights to uninterrupted possession and use of and quiet use and enjoyment of the benefits of the Undivided Interest. Without limiting the foregoing, the Indenture Trustee (for itself and its successors and assigns, it being agreed that the following provisions of this sentence run with the Undivided Interest and shall be binding on any transferee or assignee of the whole or any part of the Undivided Interest) hereby waives the right to bring any action for partition of the Production System or EEX's or the Indenture Trustee's interest therein and hereby covenants that, for so long as there are economically producible oil, gas or other hydrocarbon reserves in the Unit Area ("Unit Reserves"), the Indenture Trustee shall not (i) resort to any action in law or equity to partition the Production System, (ii) interfere in any manner with the quiet use and enjoyment of the Other Owner of the Other Undivided Interest or the Other Percentage Owner, or (iii) permit the Production System to be sold, removed or abandoned such that it is made unavailable to produce the Unit Reserves. The Other Owner, the Other Percentage Owner and their respective successors and assigns shall be third-party beneficiaries of the Indenture Trustee's waiver and covenants contained in the immediately preceding sentence. The Indenture Trustee agrees that any transferee of its interest in the Undivided Interest shall agree in writing that its interest will be bound by the provisions of the second preceding sentence. In addition, the Indenture Trustee (for itself and its successors and assigns) agrees that its interest will be bound by the terms of the Operating Agreement. SECTION 5.13. Certain References and Obligations. Notwithstanding ---------------------------------- any provision to the contrary contained herein, (a) the reference to the Lessee in Section 5.07 shall after the Relevant Date be deemed to be deleted and (b) Sections 5.07 and 5.10 shall be deemed amended to provide that any reference to or obligation of the Grantor Trustee contained in such Sections shall after the Relevant Date be deemed to be a reference to or obligation of EEX. (F) Sections 6.01, 6.02, 6.03, 6.07, 6.08, 6.10 and 6.12 of the Indenture shall read as follows: SECTION 6.01. Certain Actions. If the Indenture Trustee shall --------------- have Actual Knowledge of any Indenture Event of Default or any Indenture Default or any material fact relating to the Production System, the Indenture Trustee shall (a) give prompt telephonic notice (promptly confirmed in writing) to EEX and (b) within 90 days after obtaining such Actual Knowledge, mail to each Holder, notice of all Indenture Events of Default unless, in each case, such Indenture Event of Default has been remedied before the giving of such notice and the Indenture Trustee has Actual Knowledge that such C-22 Indenture Event of Default has been so remedied; provided, however, that the failure by the Indenture Trustee to provide such notice shall not invalidate any actions subsequently taken by the Indenture Trustee in connection with such Indenture Event of Default. Except in the case of a default in the payment of the principal or interest on any Secured Note, the Indenture Trustee shall be protected in withholding the notice required under clause (b) above if and so long as Responsible Officers of the Indenture Trustee in good faith determine that withholding such notice is in the interest of the Holders. Notwithstanding any other provision hereof, the Indenture Trustee shall not be required to make any determination of materiality pursuant to Section 5.02(c) or (d). SECTION 6.02. Action Upon Instructions. The Indenture Trustee ------------------------ shall, upon the written instruction at any time and from time to time of a Majority in Interest of Holders of Notes, give such notice, consent or direction or exercise such right, remedy or power hereunder or any other agreement constituting part of the Indenture Estate as shall be specified in such instruction; provided, however, that nothing set forth in this Section 6.02 shall entitle the Holders to cause the Indenture Trustee to give any notice or exercise any right, power or remedy that is not elsewhere authorized by, or is otherwise restricted or prohibited by, this Indenture. If the Indenture Trustee shall not have received instructions as above provided within twenty (20) calendar days after mailing of the notice pursuant to Section 6.01 to the Holders, the Indenture Trustee may take such action, or refrain from taking such action, but shall be under no duty to take or refrain from taking any action, with respect to such Indenture Event of Default or fact as it shall determine to be advisable and in the best interest of the Holders. If the Indenture Trustee receives any instructions after the expiration of the aforementioned twenty day period, the Indenture Trustee shall use its best efforts to conform any action being taken to comply with those instructions. SECTION 6.03. Release of Lien of Indenture. (a) Release of ---------------------------- ---------- Indenture Estate. Upon satisfaction of the conditions for termination of this - ---------------- Indenture set forth in Section 10.01, the Indenture Trustee, upon the written request of EEX, shall execute and deliver to, or as directed by, EEX, all appropriate instruments (in due form for recording or filing) releasing the Indenture Estate from the Lien of this Indenture and the Indenture Trustee shall pay all moneys or other properties or proceeds held by it under this Indenture to EEX. The cost and expense associated with any action taken by the Indenture Trustee pursuant to the provisions of this Section 6.03(a) shall be borne by EEX. (b) Release of Undivided Interest Upon Event of Loss. Upon the ------------------------------------------------ occurrence of an Event of Loss with respect to the Undivided Interest or a Significant Portion thereof and receipt by the Indenture Trustee of all amounts due and payable by EEX as a result of such Event of Loss pursuant to Section 12.02 of Article XI and the concurrent redemption of Secured Notes as set forth in Section 3.02, the Indenture Trustee, upon the written request of EEX, shall execute and deliver to, or as directed by, EEX, all appropriate instruments provided by EEX (in due form for recording or filing) releasing C-23 the Undivided Interest or such Significant Portion, as the case may be, and all other property solely relating thereto and then constituting a portion of the Indenture Estate (or if not solely relating thereto, but such other property can be reasonably partitioned without undue burden or delay, such other property), as the case may be, from the Lien of this Indenture. The cost and expense associated with any action taken by the Indenture Trustee pursuant to the provisions of this Section 6.03(b) shall be borne by EEX. (c) Release of Liens upon Full Payment of Secured Notes. Upon --------------------------------------------------- payment in full of the principal of and interest on and all other amounts due and payable under the Secured Notes, and all other amounts due and payable to any Holder or the Indenture Trustee hereunder or under any other Operative Document, the Indenture Trustee, upon the written request of EEX, shall execute and deliver to, or as directed by, EEX, all appropriate instruments provided by EEX (in due form for recording or filing) releasing the Undivided Interest, and the Lessor's Interest therein, and all other property relating thereto and then constituting a portion of the Indenture Estate from the Lien of this Indenture. The cost and expense associated with any action taken by the Indenture Trustee pursuant to the provisions of this Section 6.03(c) shall be borne by EEX. SECTION 6.07. No Action Except Under Operative Documents or --------------------------------------------- Instructions. The Indenture Trustee agrees that it will not use, operate, store, - ------------ lease, control, manage, sell, dispose of or otherwise deal with the Undivided Interest or any other part of the Indenture Estate except (a) in accordance with the terms of the Operative Documents or (b) in accordance with the powers granted to, or the authority conferred upon, the Indenture Trustee pursuant to the express terms of this Indenture. SECTION 6.08. Intentionally Omitted SECTION 6.10. Intentionally Omitted SECTION 6.12. Certain References and Obligations. Notwithstanding ---------------------------------- any provision to the contrary contained herein, (a) the reference to the Lessee in Section 6.09 shall after the Relevant Date be deemed to be deleted, (b) Sections 6.09 and 6.11 shall be deemed amended to provide that any reference to or obligation of the Grantor Trustee contained in any such Section shall after the Relevant Date be deemed to be a reference to or obligation of EEX and (c) the phrase "the Owner Participant or" in Section 6.11 shall after the Relevant Date be deemed to be deleted. (G) Sections 7.02, 7.03, 7.04, 7.05, 7.07 and 7.10 of the Indenture shall read as follows: SECTION 7.02. Absence of Duties Except as Specified. Except in ------------------------------------- accordance with written instructions furnished pursuant to Section 6.01 or 6.02, and except as provided in, and without limiting the generality of, Sections 6.04, 6.05, 6.06 and 6.07, the Indenture Trustee shall have no duty (a) to record or file this Indenture or any other document, or to maintain any such recording or filing, or to rerecord or refile C-24 any such document, (b) to effect or maintain any such insurance, whether or not EEX shall be in default with respect thereto, (c) to discharge any Lien of any kind against any part of the Indenture Estate, or (d) to inspect the Undivided Interest at any time, or to ascertain or inquire as to the performance or observance of any of EEX's covenants hereunder. SECTION 7.03. No Representations or Warranties. NEITHER EEX NOR -------------------------------- THE INDENTURE TRUSTEE MAKES (IN ITS INDIVIDUAL AND TRUST CAPACITIES) (a) ANY REPRESENTATION OR WARRANTY, WHETHER WRITTEN, ORAL, EXPRESS OR IMPLIED, AS TO THE VALUE, COMPLIANCE WITH SPECIFICATIONS, DURABILITY, OPERATION, CONSTRUCTION, PERFORMANCE DESIGN OR CONDITION OF THE PRODUCTION SYSTEM OR ANY PART THEREOF, THE MERCHANTABILITY THEREOF OR THE FITNESS THEREOF FOR ANY PARTICULAR PURPOSE, TITLE TO THE PRODUCTION SYSTEM OR ANY COMPONENT OF THE PRODUCTION SYSTEM, THE QUALITY OF THE MATERIALS OR WORKMANSHIP THEREOF OR CONFORMITY THEREOF TO SPECIFICATIONS, OR THE PRESENCE OR ABSENCE OF ANY LATENT OR OTHER DEFECTS, WHETHER OR NOT DISCOVERABLE, OR ANY OTHER REPRESENTATION OR WARRANTY WHATSOEVER, EXPRESS OR IMPLIED, WITH RESPECT TO THE PRODUCTION SYSTEM, OR ANY COMPONENT OF THE PRODUCTION SYSTEM, except, in the case of EEX, as expressly provided in Section 5 of the Participation Agreement, or (b) any representation or warranty as to the validity, legality or enforceability of this Indenture, any of the other Operative Documents or the Secured Notes, or as to the correctness of any statement contained in any thereof, except as set forth in Sections 5 and 9 of the Participation Agreement. SECTION 7.04. No Segregation of Moneys; No Interest; Investments. -------------------------------------------------- Any moneys paid to or retained by the Indenture Trustee pursuant to any provision hereof and not then required to be distributed to the Holders or EEX shall be deposited in a separate, interest bearing cash collateral account; provided that any payments received or applied hereunder by the Indenture Trustee shall be accounted for by the Indenture Trustee so that any portion thereof paid or applied pursuant hereto shall be identifiable as to the source thereof. Any amounts held by the Indenture Trustee pursuant to the express terms of this Indenture or any other Operative Document shall be invested and reinvested by the Indenture Trustee from time to time in Permitted Investments at the direction of EEX; provided, however, that in the event there shall be continuing any Indenture Event of Default such directions may be given exclusively by a Majority in Interest of Holders of Notes. The Indenture Trustee shall have no liability for any loss resulting from any investment required to be made hereunder other than by reason of its own willful misconduct or negligence in failing to comply with such instructions. Any net income or gain realized as a result of any such investment or reinvestment shall be held as part of the Indenture Estate and shall be applied by the Indenture Trustee at the same time, on the same conditions and in the same manner as the amounts in respect of which such C-25 income or gain was realized are required to be distributed in accordance with the provisions hereof. Any Permitted Investment may be sold or otherwise reduced to cash (without regard to maturity) by the Indenture Trustee whenever necessary to make any application as required by the terms of this Indenture or of any applicable Operative Document. SECTION 7.05. Reliance; Agents; Advice of Counsel. The Indenture ----------------------------------- Trustee (in its individual or trust capacity for the purposes of this Section 7.05) shall not incur any liability to anyone in acting upon any signature, instrument, notice, resolution, request, consent, order, certificate, report, opinion, bond or other document or paper reasonably believed by it to be genuine and believed by it to be signed by the proper party or parties. The Indenture Trustee may accept a copy of a resolution of the Board of Directors or other governing body of any party to the Participation Agreement or other Operative Document, certified by the Secretary or any Assistant Secretary thereof as duly adopted and in full force and effect, as conclusive evidence that such resolution has been duly adopted and that the same is in full force and effect. As to any fact or matter relating to EEX the manner of ascertainment of which is not specifically described herein, the Indenture Trustee may for all purposes hereof rely on an Officer's Certificate of EEX as to such fact or matter, and such Officer's Certificate shall constitute full protection to the Indenture Trustee (in its individual or trust capacity), for any action taken or omitted to be taken by it in good faith in reliance thereon. In the administration of the trusts hereunder, the Indenture Trustee may execute any of the trusts or powers hereof and perform its powers and duties hereunder directly or through agents or attorneys and at the expense of the Indenture Estate may consult with counsel, accountants and other skilled Persons to be selected and retained by it, and the Indenture Trustee shall not be liable for anything done, suffered or omitted in good faith by it in accordance with the written advice or written opinion of any such counsel, accountant or other skilled Person acting within such Person's area of competence (so long as the Indenture Trustee shall have exercised due care in selecting such Person). SECTION 7.07. Right of the Indenture Trustee to Perform ----------------------------------------- Covenants, Etc. If EEX shall fail to make any payment or perform any act - -------------- required to be made or performed by it hereunder or under any other Operative Document to which it is a party or if EEX shall fail to release any Lien affecting the Indenture Estate which it is required to release by the terms of this Indenture or any other Operative Document to which it is a party, the Indenture Trustee, after notice to and demand upon EEX and affording EEX a reasonable opportunity to cure, and without waiving or releasing any obligation or Indenture Event of Default, may (but shall be under no obligation to) at any time thereafter make such payment or perform such act for the account of and at the expense of the Indenture Estate, and may enter upon any property for such purpose and take all such action with respect thereto as, in the Indenture Trustee's opinion, may be necessary or appropriate therefor. No such entry shall be deemed an eviction. All sums so paid by the Indenture Trustee and all costs and expenses including taxes (other than taxes based upon or measured by or determined by the income of the Indenture Trustee (including, without C-26 limitation, legal fees and expenses)) so incurred, shall constitute additional indebtedness secured by this Indenture and shall be paid from the Indenture Estate to the Indenture Trustee on demand. The Indenture Trustee shall not be liable for any damages resulting from any such payment or action unless such damages shall be a consequence of willful misconduct or gross negligence on the part of the Indenture Trustee. SECTION 7.10. Certain References and Obligations. Notwithstanding ---------------------------------- any provision to the contrary contained herein, Section 7.09 shall be deemed amended to provide that any reference to or obligation of the Grantor Trustee contained in such Section shall after the Relevant Date be deemed to be a reference to or an obligation of EEX. (H) Sections 8.01 and 8.04 of the Indenture shall read as follows: SECTION 8.01. Intentionally Omitted SECTION 8.04. Certain References and Obligations. Notwithstanding ---------------------------------- any provision to the contrary contained herein, (a) Sections 8.02 and 8.03 shall be deemed amended to provide that any reference to or obligation of the Grantor Trustee or the Lessee contained in any such Section shall after the Relevant Date be deemed to be a reference to or an obligation of EEX and (b) Section 8.02 shall be deemed amended to provide that any reference to the Owner Participant contained in such Section shall be deemed to be deleted. (I) Sections 9.02(a), 9.02(b) and 9.02(c) of the Indenture shall read as follows: (a) Intentionally Omitted (b) Except as provided in Section 9.01 or 9.02(c) or 9.02(d), at any time and from time to time, with the written consent of a Majority in Interest of Holders of Notes and upon the written request of EEX, the Indenture Trustee (x) shall execute an amendment or supplement to this Indenture for the purpose of adding provisions to, or changing in any manner or eliminating any of the provisions of, this Indenture or (y) shall execute an amendment or supplement to, or give a consent, waiver, authorization or approval, for the purposes of adding any provisions to or changing in any manner or eliminating any of the provisions of, any of the Operative Documents; provided, however, that no such amendment or supplement to this Indenture, or consent, waiver, authorization, approval, amendment or supplement to any such Operative Document shall, without the consent of each Holder of a Secured Note then Outstanding: (i) change the stated maturity of the principal of, or any installment of interest on, or any mandatory or optional repayment, purchase or redemption provision with respect to, any Secured Note, or change the principal amount thereof or any other amount payable in respect thereof or reduce the Make-Whole C-27 Amount, if any, or interest thereon, or change the place of payment where, or the coin or currency in which, any Secured Note or the interest thereon is payable; (ii) permit the creation of any Lien on the Indenture Estate not otherwise permitted hereunder or deprive any Holder of the benefit of the Lien of this Indenture upon the Indenture Estate, or any portion thereof, for the security of its Secured Notes; (iii) change the percentage of the aggregate principal amount of Secured Notes required to take or approve any action hereunder or any other Operative Document; (iv) modify the definitions of "Indenture Default", "Indenture Event of Default" or "Majority in Interest of Holders of Notes"; (v) modify the order of priorities in which distributions are to be made under Article IV; (vi) Intentionally Omitted (vii) Intentionally Omitted (viii) modify, amend or supplement any of the provisions of this Section 9.02; (ix) Intentionally Omitted (x) adversely affect any indemnities in favor of any Holder as provided pursuant to the terms of any Operative Document, except as may be consented to by each Person adversely affected thereby. (c) Notwithstanding anything to the contrary contained in Section 9.02(b) (except as provided in the proviso to Section 9.02(b)), without the necessity of the consent of any of the Holders, the Indenture Trustee may: (i) Intentionally Omitted (ii) Intentionally Omitted (iii) modify, amend or supplement the Participation Agreement, or give any consent, waiver, authorization or approval with respect thereto, except that without compliance with Section 9.02(b), the Indenture Trustee shall not modify, amend or supplement, or give any consent, waiver, authorization or approval for the purpose of adding any provisions to or changing in any manner or eliminating any of the provisions thereof or of modifying in any manner the rights of the respective parties thereunder, with respect to the following provisions of the C-28 Participation Agreement as originally executed: Section 5 (insofar as such Section 5 relates to the Indenture Trustee, the Indenture Estate and the Holders), Section 10, Section 11.4, Section 12 (insofar as such Section 12 relates to the Indenture Trustee, the Indenture Estate and the Holders) and, to the extent the Loan Participant would be adversely affected thereby, Section 15 and any definition of terms used in the Participation Agreement to the extent that any modification of such definition would result in a modification of the Participation Agreement not permitted pursuant to this Section 9.02(c); (iv) modify, amend or supplement either of Section 12 or Section 13 of Article XI of this Indenture, or give any consent, waiver, authorization or approval with respect thereto, except that without the written consent of a Majority in Interest of Holders of Notes, the Indenture Trustee shall not modify, amend or supplement, or give any consent, waiver, authorization or approval for the purpose of adding any provisions to or changing in any manner or eliminating any of the provisions thereof or of modifying in any manner the rights of the respective parties thereunder, with respect to the following provisions of the Indenture: Article II, Article III, Article VII, Article IX or Article XI; (v) modify, amend or supplement any of said agreements in order to cure any ambiguity, to correct or supplement any provisions thereof which may be defective or inconsistent with any other provision thereof or of any provision of this Indenture, or to make any other provision with respect to matters or questions arising thereunder or under this Indenture which shall not be inconsistent with the provisions of this Indenture, provided the making of any such other provision shall not adversely affect the interests of the Holders unless such provision corrects a mistake or cures an ambiguity. (II) Sections 9.07 and 9.08 of the Indenture shall read as follows: SECTION 9.07. Intentionally Omitted SECTION 9.08. Certain References and Obligations. Notwithstanding ---------------------------------- any provision to the contrary contained herein: (a) the phrases "the succession of a new Grantor Trustee in accordance with the Trust Agreement or" and "thereunder or" in each of Sections 9.01(f) and 9.O2(d)(iv) shall after the Relevant Date be deemed to be deleted; (b) the reference to the Lessee in each of Sections 9.01(c) and 9.06 shall after the Relevant Date be deemed to be deleted; and Sections 9.01, 9.03, 9.05 and 9.06 shall be deemed amended to provide that any reference to or obligation of the Grantor Trustee contained in such Sections shall after the Relevant Date be deemed to be a reference to or an obligation of EEX; and C-29 (c) all provisions requiring delivery of documents to the Owner Participant in Section 9.06 shall be deemed to be deleted. (J) Sections 10.01, 10.03, 10.04, 10.05, 10.08, 10.10, 10.11 and 10.14 of the Indenture shall read as follows: SECTION 10.01. Termination of Indenture. This Indenture and the ------------------------ trusts created hereby shall terminate, and this Indenture shall be of no further force or effect, when: (a) the principal of and interest on and all other amounts due and payable under all Secured Notes and all other amounts due and payable to any Holder or the Indenture Trustee hereunder or under any other Operative Document shall have been paid in full; or (b) the Indenture Trustee shall have sold or made other final disposition of all property and all moneys or other property or proceeds constituting part of the Indenture Estate in accordance with the terms hereof; or (c) all Secured Notes not theretofore delivered to the Indenture Trustee for cancellation have become due and payable (whether upon stated maturity, as a result of redemption or upon acceleration), or will become due and payable (including as a result of redemption in respect of which irrevocable notice has been given to the Indenture Trustee on or prior to the date of such deposit) at maturity within one year, and there has been deposited with the Indenture Trustee in trust for the purpose of paying and discharging the entire indebtedness on the Secured Notes not theretofore cancelled by the Indenture Trustee or delivered to the Indenture Trustee for cancellation, an amount in cash sufficient without reinvestment thereof to discharge such indebtedness, including the principal of and interest on the Secured Notes to the date of such deposit (in the case of Secured Notes which have become due and payable), or to the maturity thereof, as the case may be; or (d) (i) EEX has deposited or caused to be deposited irrevocably (except as provided in Section 10.03(b)) with the Indenture Trustee as trust funds in trust, specifically pledged as security for, and dedicated solely to, the benefit of the Loan Participants, (A) money in an amount, or (B) United States Government Obligations which, through the payment of interest and principal in respect thereof in accordance with their terms, will provide (not later than one Business Day before the due date or any payment referred to below in this clause) money in an amount, or (C) a combination of money and United States Government Obligations referred to in the foregoing clause (B), sufficient, in the opinion of a nationally recognized firm of independent certified public accountants expressed in a written certification thereof delivered to the Indenture Trustee, to pay and discharge each installment of principal of and interest on the Outstanding Secured Notes on the dates such payments of principal or interest are due (including as a result of redemption in respect of which irrevocable notice has been given to the C-30 Indenture Trustee on or prior to the date of such deposit), and no Indenture Event of Default under Section 5.02(g) shall have occurred and be continuing on the date of such deposit or at any time during the period ending on the 91st day after such date; provided, however, that upon the making of the deposit referred to above in clause (A), the right of EEX to cause the redemption of Secured Notes (except a redemption in respect of which irrevocable notice has theretofore been given) shall terminate; and (ii) EEX has delivered to the Indenture Trustee an Officer's Certificate of EEX to the effect that (A) such deposit will not constitute an Indenture Event of Default under this Indenture or a default or event of default under any other agreement or instrument to which EEX is a party or by which it is bound and (B) all conditions precedent relating to the termination of this Indenture under this Section 10.01(d) have been complied with; and (iii) EEX has delivered to the Indenture Trustee an Officer's Certificate of EEX and an Opinion of Counsel to the effect that there has been published by the Internal Revenue Service a ruling to the effect that Loan Participants will not recognize income, gain or loss for Federal income tax purposes as a result of the exercise by EEX of its option under this Section 10.01(d) and will be subject to Federal income tax in respect of the interest received from such deposit on the same amount and in the same manner and at the same times as would have been the case if such option had not been exercised; and (iv) all other amounts then due and payable hereunder to any Holder or the Indenture Trustee have been paid. Except as otherwise provided in the preceding sentence, this Indenture and the trusts created hereby shall continue in full force and effect in accordance with the terms hereof. SECTION 10.03. Monies to Be Held in Trust; Monies to be Returned ------------------------------------------------- to EEX. (a) All moneys and United States Government Obligations deposited with - ------ the Indenture Trustee pursuant to Section 10.01 shall be held in trust and applied by it, in accordance with the provisions of the Secured Notes and this Indenture, to the payment to the Holders of all sums due and to become due thereon for principal and interest, but such money need not be segregated from other funds except to the extent required by law. (b) The Indenture Trustee shall promptly pay or return to EEX upon request of EEX any money or United States Government Obligations held by it at any time that are not required for the payment of the amounts described in Section 10.03(a) for which money or United States Government Obligations have been deposited pursuant to Section 10.01. SECTION 10.04. Aggregate Unpaid Principal Amount of Secured Notes -------------------------------------------------- Outstanding. As to the aggregate unpaid principal amount of Secured Notes - ----------- Outstanding as of any date, EEX may rely on an Officer's Certificate of the Indenture Trustee. SECTION 10.05. Notices. All communications, notices and consents ------- provided for in this Indenture shall be in writing and shall be given in person or by courier or by means of telex, telecopy or other wire transmission (with request for C-31 assurance of receipt in a manner typical with respect to communications of that type), or mailed by first class mail, addressed, in the case of EEX, to EEX Corporation, 2500 City West Blvd., Suite 1400, Houston, TX 77042 Attention: Joseph T. Leary; Telecopier: (713) 243-3321, in the case of the Indenture Trustee, to The Bank of New York, 101 Barclay Street, Floor 21-W, New York, New York 10286, Attention: Corporate Trust Trustee Administration; Telecopier: (212) 815-5915; and, in the case of all other parties, as set forth in Schedule 1 to the Participation Agreement or at such other address as any such Person may from time to time designate by notice duly given in accordance with the provisions of this Section 10.05 to the other parties hereto and shall be deemed given when received by (or when proffered to, if receipt is not accepted) the party to whom it is addressed. SECTION 10.08. Successors and Assigns. All covenants and ---------------------- agreements contained herein shall be binding upon each of the parties hereto and their respective successors and permitted assigns, and inure to the benefit of each of the parties hereto and their respective successors and permitted assigns, all as herein provided. Any request, notice, direction, consent, waiver or other instrument or action by any Holder shall bind the successors and assigns of such Holder. Each Holder by its acceptance of a Secured Note agrees to be bound by this Indenture and all provisions of the Operative Documents applicable to it. SECTION 10.10. Normal Commercial Relations. Notwithstanding --------------------------- anything contained in this Indenture to the contrary, any Loan Participant, the Indenture Trustee or bank or other affiliate of any such Person may conduct any banking or other financial transactions and have banking or other commercial relationships with EEX fully to the same extent as if this Indenture were not in effect. SECTION 10.11. Governing Law. THIS INDENTURE SHALL BE GOVERNED BY, ------------- AND CONSTRUED IN ACCORDANCE WITH, THE INTERNAL LAWS OF THE STATE OF NEW YORK, WITHOUT REGARD TO ITS CONFLICT OF LAWS PRINCIPLES, EXCEPT TO THE EXTENT THAT THE LAWS OF ANY OTHER JURISDICTION MAY BE MANDATORILY APPLICABLE. SECTION 10.14. Benefits of Indenture. Nothing in this Indenture, --------------------- whether express or implied, shall be construed to give to any Person other than the parties hereto and the Holders any legal or equitable right, remedy or claim under or in respect of this Indenture or the Secured Notes, and this Indenture shall be held for the sole and exclusive benefit of the parties hereto and the Holders. (K) The Indenture shall include the following Article XI, Article XII and Article XIII: ARTICLE XI C-32 CERTAIN ADDITIONAL PROVISIONS This Article XI consists of Sections 10 through 14 and 20. Sections 1 through 9 and 15 through 19 are intentionally omitted. SECTION 10. LIENS. EEX will not, directly or indirectly, create, incur, assume or suffer to exist any Liens on or with respect to all or any part of the Undivided Interest, title thereto or any interest therein, other than Permitted Liens, and EEX promptly, at its own expense, will take such actions as may be necessary duly to discharge any such Lien not excepted above. SECTION 11. OPERATION AND MAINTENANCE; INSPECTION; REPLACEMENTS AND MODIFICATIONS; IDENTIFICATION. 11.01. Operation and Maintenance. So long as the Operating ------------------------- Agreement is in effect, EEX will at its own expense maintain and operate the Production System in accordance with the applicable provisions of the Operating Agreement. At all other times, EEX shall, at its own expense, operate and maintain (or cause the operator thereof to operate and maintain) the Production System in accordance with the EEX's established maintenance, rebuild and repair programs so long as any Secured Notes remain Outstanding (and without discriminating against the Production System, including, without limitation, any discrimination with respect to the installation of Modifications required by Governmental Rules that may be phased in over a period of time that commences prior to and extends beyond the end of the period during which any Secured Notes remain Outstanding) so as to keep the Undivided Interest (a) in good working order and condition, ordinary wear and tear excepted, (b) in compliance in all material respects with all applicable Governmental Rules and Governmental Actions and the requirements of any insurance policy required to be maintained pursuant to Section 13 hereof, to the extent any such insurance policy expressly requires certain maintenance activities; provided, however, that EEX shall not -------- ------- be obligated to comply with any Governmental Rule or Governmental Action (i) whose application or validity is being contested diligently and in good faith by appropriate proceedings, (ii) compliance with which shall have been excused or exempted by a nonconforming use permit, waiver, extension or forbearance exempting it from such Governmental Rule or Governmental Action but only to the extent that EEX's noncompliance is in accordance therewith, (iii) if good faith efforts and appropriate steps are being taken to comply, or (iv) if failure of compliance (individually and in the aggregate with all other instances of continuing noncompliance by EEX) would result in no material adverse consequences to EEX, so long as, in the case of each of clauses (i) through (iv) of this proviso, neither such failure of compliance nor such contest shall result in any material risk or danger of (1) the sale, forfeiture or loss of any material part of or interest in the Production System or the Undivided Interest or the Indenture Estate or title thereto or interest therein, (2) any interference with the C-33 payment of principal or interest hereunder or any other amount due by EEX hereunder or under the Operative Documents to the Indenture Trustee or any Holder, or (3) the imposition of any criminal liability on the part of, or any other material adverse effect on, the Indenture Trustee, any Loan Participant, the Indenture Estate or the Undivided Interest, (c) with respect to the Platform, in compliance with recognized maintenance standards for other comparable platforms in the Gulf of Mexico, (d) with respect to the Platform, in compliance with the American Petroleum Institute guidelines for inspection and repair of platforms and (e) with respect to the Platform, in compliance with the existing classification for the Platform issued by the Classification Society. 11.02. Inspection and Reports. The Indenture Trustee shall have ---------------------- the right to inspect the Production System and the books and records of EEX relating thereto to the extent provided in, and subject to the restrictions set forth in, Sections 10.7 and 11.5 of the Participation Agreement. The Indenture Trustee shall receive copies of the SEC reports and financial statements of EEX as provided in section 10.2 of the Participation Agreement. 11.03. Required Modifications. So long as the Operating Agreement ---------------------- is in effect, EEX shall have the right, subject to the last sentence of this Section 11.03, to propose, or approve all Modifications to the Production System in accordance with the provisions of the Operating Agreement and EEX shall take all actions thereunder which may be required to make (or cause to be made) all Severable and Nonseverable Modifications to the Production System as may be required from time to time to comply in all material respects with the requirements of all applicable Governmental Rules and Governmental Actions. At all other times, EEX shall make (or cause to be made) all Severable and Nonseverable Modifications to the Production System as may be required from time to time to meet the requirements of clause (b) of Section 11.01 of this Article XI or to maintain any insurance coverage required by Section 13.01 of this Article XI (subject to the qualifications set forth in such Section). EEX shall complete (or cause to be completed) all Modifications in a good and workmanlike manner, with reasonable dispatch and in a manner which does not decrease the value of the Production System (except to a de minimis extent) or decrease the remaining useful life or utility of the Production System. 11.04. Optional Modifications. EEX may, at no expense to the ---------------------- Indenture Trustee, make (or cause or allow to be made) such other Severable and Nonseverable Modifications to the Production System not required by Section 11.03 of this Article XI as do not (i) decrease the Fair Market Sales Value (except to a de minimis extent) or utility of the Production System or decrease the remaining useful life; or (ii) alter the primary function of the Production System (namely to drill and produce oil and gas), taken as a whole, to a function other than its primary function on the Closing Date. 11.05. Title to Modifications. (a) Title to EEX's undivided ---------------------- interest in all Severable Modifications to the Production System not required by any Governmental C-34 Rule or Governmental Action shall vest in EEX or any Person designated by EEX, free and clear of the Lien of this Indenture. (b) EEX's 40.139265588% undivided interest in and to (i) all Replacement Components of the Production System, (ii) Severable Modifications to the Production System required by any Governmental Rule or Governmental Action and (iii) Nonseverable Modifications to the Production System shall without further act be subject to the Lien of this Indenture. 11.06. Payment for Modifications and Replacement Components. ---------------------------------------------------- (a) EEX shall be permitted at any time to finance the cost of any Severable Modification to the Production System not required by any Governmental Rule or Governmental Action, directly or indirectly, including, without limitation, on a third party ownership basis. (b) EEX shall be permitted at any time to finance its share of the cost of any Severable Modification to the Production System that is required by any Governmental Rule or Governmental Action to be made or any Nonseverable Modification to the Production System through the issuance of Additional Notes in accordance with Section 2.08 or any alternative means of financing; provided, however, that such alternative financing does not and will not result in any Lien (other than Permitted Liens) on or with respect to the Production System as modified by such Modification. 11.07. Replacement of Components; Title to Components; Removal of ---------------------------------------------------------- Property. (a) Any Component or Replacement Component may be removed and replaced - -------- with a Replacement Component and, upon such replacement, EEX (or its designee) shall be entitled to retain the amount of the net proceeds of any sale or disposition of any such removed Component or Replacement Component. Any such Replacement Components shall be free and clear of all Liens, except Permitted Liens, and in as good operating condition as, and with a value and utility (and, in the case of Major Components, useful life) at least equal to, the Components or Replacement Components replaced, assuming such replaced Components or Replacement Components were in at least the condition and repair required to be maintained hereunder and shall not, individually or in the aggregate, adversely affect the Production System's useful life. Immediately upon any Replacement Component becoming incorporated in the Production System, without further act, (i) title to EEX's undivided interest in such Replacement Component shall vest in EEX or such Person as shall be designated by EEX, (ii) EEX's 40.139265588% undivided interest in such Replacement Component shall become subject to the Lien of the Indenture, (iii) EEX's undivided interest in such Replacement Component shall be deemed a part of the Production System and the Undivided Interest for all purposes thereof and hereof to the same extent as EEX's undivided interest in the Component or Replacement Component it replaced and (iv) title to EEX's undivided interest in such removed Component or Replacement Component shall vest in EEX or such Person as shall be designated by EEX, free and clear of all rights of the Indenture Trustee and shall no longer be deemed a Component or a Replacement Component hereunder. C-35 (b) If, at any time that any Secured Note remains Outstanding, EEX shall conclude that any property included in the Production System is obsolete, redundant or unnecessary and can be removed without diminishment of the value or utility of the Production System or reduction of the remaining useful life of the Production System, EEX may remove (or allow to be removed) such property and upon such removal, without further act, title to EEX's undivided interest in such property shall vest in EEX or in such Person as shall be designated by EEX, free of the Lien of this Indenture. In addition, notwithstanding anything contained in this Indenture to the contrary, if an event occurs with respect to any Component or Components which would constitute an Event of Loss if such event occurred with respect to the Production System or a Significant Portion thereof, EEX shall have no obligation to redeem any Outstanding Secured Notes in respect of, or to otherwise replace or repair, such Component or Components, so long as, in EEX's reasonable judgment (i) such Component is not a Significant Portion and (ii) such Component or Components are not material to the overall operation of the Production System. 11.08. Employment of Personnel. Solely as between the Indenture ----------------------- Trustee and EEX, the master, officers and crew of the Platform and all other persons at any time on board the Platform shall be deemed to be engaged and employed exclusively by EEX and shall be deemed to be and remain EEX's servants, navigating and working the Platform solely on behalf of and at the risk of EEX. THIS SECTION 11.08 SHALL NOT BE DEEMED TO CREATE ANY RIGHT IN, OR TO BE FOR THE BENEFIT OF, ANY THIRD PARTY. 11.09. Salvage. The Indenture Trustee shall not have any ------- interest in any salvage monies earned by the Platform or received by EEX or the Operator. EEX assumes and shall satisfy all costs and liabilities incurred in connection with all salvage services rendered by the Platform. 11.10. If EEX has Actual Knowledge of any Indenture Event of Default or Indenture Default EEX will give prompt written notice thereof to the Indenture Trustee, the Notice shall set forth in reasonable detail the circumstances of such default or loss known to EEX. 11.11. Identification of Platform. At all times until the -------------------------- expiration or termination of this Indenture, EEX shall cause to be placed and kept prominently displayed in the chart room of the Platform a notice, in English, framed under glass, printed in plain type of such size that the paragraph of reading matter thereof shall cover a space not less than six inches wide by nine inches high, reading as follows: "NOTICE OF MORTGAGE" A [ ]% undivided interest in this vessel is owned by EEX, Inc. and is covered by a First Priority Naval Mortgage dated as of ________ in C-36 favor of The Bank of New York, as Mortgagee. Said mortgage provides that no person shall create, incur or permit to be placed or imposed upon this vessel any lien or encumbrance whatsoever except as expressly permitted therein. A copy of said mortgage is carried on this vessel and must be exhibited on demand to any person having business with this vessel." Such notice shall be changed to reflect the identity of any successor Indenture Trustee. EEX shall not take any action or omit to take any action that would (i) cause the Platform to cease to be documented as a vessel pursuant to the laws of the Republic of Panama, (ii) cause the Ship Mortgage on the Platform to cease to be a first priority naval mortgage under the laws of the Republic of Panama or (iii) cause the Platform to cease to be entitled to the same classification that the Platform had from the Classification Society on the Closing Date (subject to any reduction in classification and rating resulting from the age of the Platform). 11.12. Merger, Consolidation, Sale, Etc. (a) Except as may occur -------------------------------- in conjunction with the Enserch Transactions, so long as any of the Secured Notes remain Outstanding or any amounts with respect thereto remain due and owing by EEX to the Loan Participant under any Operative Document remain unpaid EEX shall not consolidate with or merge with or into any other corporation under circumstances where EEX is not the surviving corporation, or sell, assign, convey, transfer, lease or otherwise dispose of all or substantially all of its assets as an entirety to any Person, unless: (i) the successor or transferee corporation (x) is generally paying its debts as they become due and (y) is not subject to bankruptcy, insolvency or similar proceedings; (ii) the successor or transferee corporation shall be a corporation organized and existing under the laws of the United States of America or any State thereof or the District of Columbia, and shall execute and deliver to the Indenture Trustee and the Loan Participant an agreement (in form and substance reasonably satisfactory to each thereof) containing the assumption by such successor corporation of the due and punctual performance and observance of each covenant and condition of each Operative Document to which EEX is a party to be performed, complied with or observed by EEX; (iii) immediately prior to and immediately after giving effect to such transaction, no Indenture Default described in Sections 5.02(a) or (f) of Indenture Event of Default shall have occurred and be continuing; and (iv) EEX shall have delivered to the Indenture Trustee an Officer's Certificate of EEX signed on behalf of EEX by the Chief Financial Officer of EEX, and an opinion of counsel to the Lessee, each stating that such consolidation, merger, conveyance, transfer or lease and the assumption C-37 agreement referred to in clause (ii) above comply with this Section 11.13 and that all conditions precedent herein provided for relating to such transaction have been satisfied and, in the case of such opinion, that (x) such assumption agreement has been duly authorized, executed and delivered by such successor corporation or transferee and is enforceable against such successor corporation or transferee in accordance with its terms, except as the same may be limited by applicable bankruptcy, insolvency, reorganization, moratorium or similar laws affecting the rights of creditors generally and by general principles of equity and (y) all filings or recordations necessary to protect the interests of the Indenture Trustee in and to the Production System have been made. (b) Upon any consolidation or merger, or any conveyance, transfer or lease of all or substantially all of the assets of the Lessee as an entirety in accordance with this Section 11.13, the successor corporation formed by such consolidation or into which EEX is merged or to which such conveyance, transfer or lease is made shall succeed to, and be substituted for, and may exercise every right and power of, EEX under this Indenture and the other Operative Documents to which EEX is a party with the same effect as if such successor corporation had been named as EEX herein and therein. No such consolidation, merger, conveyance, transfer or lease of all or substantially all of the assets of EEX as an entirety shall have the effect of releasing EEX or any successor corporation which shall theretofore have become such in the manner prescribed in this Section 11.13 from its liability hereunder or under any other Operative Document. Nothing contained herein shall permit any lease, sublease or other arrangement with respect to the Undivided Interest except in compliance with the applicable provisions of this Indenture. (c) Notwithstanding anything herein to the contrary, subject to satisfaction of Section 10.4(c), no consent shall be required in connection with the Enserch Transactions. 11.14 Change in Name or Chief Place of Business. EEX shall give ----------------------------------------- notice to the Indenture Trustee promptly but in any event within 30 days after any change in its name or chief place of business or chief executive office. 11.15. Repair of Production System. In the event of any damage to --------------------------- the Production System which does not constitute an Event of Loss, subject to the last sentence of Section 11.07(b), EEX shall, at no expense to the Indenture Trustee, as soon as commercially practicable, repair, restore or rebuild (or shall cause to be repaired, restored or rebuilt) the damaged or destroyed property so that upon completion of such repair, restoration or rebuilding, the value, utility and remaining useful life of such property shall be at least equal to the value, utility and remaining useful life of such property immediately prior to such damage or destruction, assuming such property was maintained in accordance with the terms hereof. C-38 11.16 Documentation of Platform. EEX shall so long as any Secured ------------------------- Note is outstanding maintain the documentation of the Platform in the Republic of Panama (or in any other jurisdiction selected by EEX provided such other jurisdiction provides substantially equivalent protection for the rights of lenders for similar transactions as the law of the Republic of Panama), and shall not do or suffer or permit to be done anything which would prevent the maintenance of the documentation of the Platform under the laws and the flag of the Republic of Panama (or such other jurisdiction) or which would constitute or result in a violation of any applicable law or regulation of the Republic of Panama (or such other jurisdiction) non-compliance with which could create any material risk of or danger of the sale, forfeiture or loss of any material part of or interest in the Platform. 11.17 Notice of Certain Events. Promptly after EEX has Actual ------------------------ Knowledge that any Indenture Default has occurred and has continued for thirty days, or any Indenture Event of Default, Event of Loss or event described in clause (c) of the definition of Event of Loss has occurred, EEX shall deliver to the Indenture Trustee a notice of such Indenture Default, Indenture Event of Default, Event of Loss or event described in clause (c) of the definition of Event of Loss which with the giving of notice or lapse of time would become an Event of Loss describing the same in reasonable detail and, together with such notice or as soon thereafter as possible, a description of the action that EEX has taken, is taking and proposes to take with respect thereto. 11.18 Environmental Notices. EEX shall, promptly after EEX's --------------------- receipt thereof, provide the Indenture Trustee with copies of all written communications from any Governmental Authority (a) asserting any violation of or noncompliance with Environmental Laws or any Release, discharge or emission of Hazardous Materials into the environment at or from the Production System, or (b) relating to any Environmental Claim against EEX, MPTM, or the Production System that is pending or has been threatened in writing, in each case which is reasonably likely to materially adversely affect the Production System or EEX's ability to perform its obligations under the Operative Documents. 11.19 Abandonment of Production System. EEX shall use -------------------------------- commercially reasonable efforts to exercise its rights under the Operating Agreement to prevent the abandonment of the Production System prior to January 2, 2001; provided that, except for its obligations under Section 12 of the Lease, EEX shall have no liability for its failure to prevent any such abandonment prior to January 2, 2001 if EEX has used all such commercially reasonable efforts. The Lessee shall have no obligation under this Section 10.13 or otherwise to prevent the abandonment of the Production System on or after January 2, 2001. 11.20. Fees and Expenses. Without limiting the terms of Section ----------------- 12.1 of the Participation Agreement, EEX shall pay (i) the reasonable ongoing fees and expenses of C-39 the Indenture Trustee under the Indenture and (ii) the reasonable ongoing fees and expenses of the Pass Through Trustee under the Pass Through Trust Agreement. 11.21. Transfer of Title to Undivided Interest. EEX shall not, --------------------------------------- without the prior written consent of the Indenture Trustee, directly or indirectly transfer title to the Undivided Interest or any portion thereof or interest therein, except as provided in the Operative Documents. 11.22. Agency and Support Agreement. EEX shall not transfer, ---------------------------- assign, sell, pledge, mortgage, hypothecate, grant a security interest in, convey all or any portion of its right, title or interest in or to the Blocks (as defined in the Agency and Support Agreement), including, without limitation, any right, title or interest in any Garden Banks Document without obtaining from such assignee, transferee, mortgagee, secured party or grantee, its written stipulation and agreement that the interest in the Blocks (as defined in the Agency and Support Agreement) so acquired is specifically subject to and bound by the rights and obligations of the parties established and set forth in the Agency and Support Agreement. The parties and their successors and assigns to the Agency and Support Agreement shall be express third party beneficiaries of any stipulation and agreement made in accordance with this Section 11.22. The Indenture Trustee hereby assumes the obligations, and is entitled to exercise the rights, of the Lessor under the Agency and Support Agreement. EEX agrees that the Indenture Trustee may enforce the Lessor's rights under the Agency and Support Agreement as though the Trustee were a party thereto. SECTION 12. EVENT OF LOSS. 12.01. Notice of Event of Loss. If there shall occur an Event of ----------------------- Loss, EEX shall promptly notify the Indenture Trustee of the occurrence thereof. 12.02. Payment Upon Event of Loss, Etc. (a) If an Event of Loss ------------------------------- with respect to the Production System shall occur, EEX shall within 180 days of the occurrence of such Event of Loss give the Indenture Trustee written notice of its election to either: (i) pay to the Indenture Trustee as compensation for such Event of Loss, on the Installment Payment Date immediately following the date of such election, an amount in cash which is sufficient to redeem each Outstanding Secured Note required to be redeemed pursuant to Section 3.02 as a result of such Event of Loss; or (ii) subject to compliance with this Section 12.02, replace (or cause to be replaced) the Production System with equipment of a similar type, service and use, and of equal or greater Fair Market Sales Value, residual value, remaining useful life and utility as the replaced Production System immediately prior to such Event of Loss (assuming the Production System has been maintained in accordance with the terms of this Indenture); C-40 provided that (x) EEX may not elect to replace the Production System if at the - -------- ---- time of the Event of Loss or the time of election an Indenture Default of the type described in Section 5.02(a) or (f) or an Indenture Event of Default shall have occurred and be continuing; and (y) if EEX fails to give notice of its election to replace the Production System in the time period specified above, it shall be deemed to have elected to redeem each Outstanding Secured Note as specified in clause (i) above. (b) If an Event of Loss with respect to a Significant Portion of the Production System shall occur, EEX shall within 180 days of the occurrence of such Event of Loss give the Indenture Trustee written notice of its election to either: (i) pay to the Indenture Trustee as compensation for such Event of Loss, on the Installment Payment Date immediately following the date of such election, an amount in cash which is sufficient to redeem each Outstanding Secured Note required to be redeemed pursuant to Section 3.02 as a result of such Event of Loss as of such Installment Payment Date; or (ii) subject to compliance with this Section 12.02(b) rebuild or cause to be rebuilt (or replace or cause to be replaced) the Significant Portion of the Production System suffering such Event of Loss which such rebuilt portion (or replacement portion) shall have at least the same value, utility and remaining useful life as such Significant Portion had prior to the Event of Loss (assuming the Production System has been maintained in accordance with the terms of this Indenture; provided that (x) if (A) EEX shall fail to provide such written notice within - -------- ---- such 180-day period or (B) the remaining portion of the Production System not suffering such Event of Loss is not capable of functioning for its intended purpose, EEX shall be deemed to have elected the option set forth in paragraph (i) above; and (y) EEX may not elect the option set forth in paragraph (ii) during such time an Indenture Default of the type described in Section 5.02(a) or (f), or an Indenture Event of Default shall have occurred and be continuing. (c) If the Platform is being replaced, cause a supplement to the New Ship Mortgage subjecting such undivided interest in the replacement Platform to the Lien of the Ship Mortgage to be duly authorized, executed and delivered by the appropriate parties and cause such Ship Mortgage to be filed for recordation in the same manner as provided for the New Ship Mortgage, (iv) so long as this Indenture shall not have been satisfied and discharged, request the Lessor to execute and deliver to the Indenture Trustee a supplement to the Indenture subjecting the Lessor's interest in the replacement Production System, Components or Significant Portion, as the case may be, to the Lien of the Indenture and requesting that such Indenture Supplement be filed for recordation in the same manner as provided for the Indenture in Section 4.16 of the Participation Agreement, (v) upon the request of the Indenture Trustee, furnish the Indenture Trustee with an opinion (upon which the Indenture Trustee shall be entitled to rely) of EEX's C-41 counsel, which counsel shall be reasonably satisfactory to the Indenture Trustee, to the effect that (w) if the Platform is being replaced, the supplement to the Ship Mortgage referred to in clause (iii) above constitutes a legal, valid, binding and enforceable obligation of EEX (subject to customary qualifications as to bankruptcy and equitable principles), (x) legal title to such replacement Production System, Component or Significant Portion, as the case may be, has been vested in EEX (y) such replacement Production System, Components or Significant Portion, as the case may be, is free and clear of all Liens of record, other than Permitted Liens and (z) all filings, recordings and other action necessary or appropriate to perfect and protect the Indenture Trustee's interest in the replacement Production System, Components or Significant Portion, as the case may be, have been accomplished, (vi) upon the request of the Indenture Trustee, furnish the Indenture Trustee with an Officer's Certificate certifying that as of said date, and upon consummation of the replacement, no Indenture Default of the type described in Section 5.02(a) or (f) or Indenture Event of Default shall have occurred and be continuing and (vii) furnish such other documents and evidence as the Indenture Trustee or its counsel may reasonably request in order to establish the consummation of the transactions contemplated by this Section 12.02, including, without limitation, evidence that the replacement Production System, Components or Significant Portion, as the case may be, has a value, utility, remaining useful life and residual value at least equal to that of the Production System, Component or Significant Portion replaced. 12.03. Application of Other Payments upon the Occurrence of an ------------------------------------------------------- Event of Loss. Any amounts of condemnation or requisition proceeds received at - ------------- any time by the Indenture Trustee or EEX as a result of the occurrence of an Event of Loss shall be paid over to or retained, as the case may be, by EEX. 12.04. Application of Payments Not Relating to an Event of Loss. -------------------------------------------------------- Payments (except for payments under insurance policies described in Section 13 of this Article XI) received at any time by the Indenture Trustee or EEX from any Governmental Authority or other Person with respect to any destruction, damage, Loss, condemnation, confiscation, theft or seizure of or requisition of title to or use of the Undivided Interest or any part thereof not constituting an Event of Loss shall be paid over to EEX or as it may direct. 12.05. Other Dispositions. Notwithstanding the foregoing ------------------ provisions of this Section 12, so long as any Indenture Default of the type described in Section 5.02(a) or (f) or any Indenture Event of Default shall have occurred and be continuing, any amount that otherwise would be payable to or for the account of, or that otherwise would be retained by, EEX pursuant to this Section 12 shall be paid to the Indenture Trustee as long as the Undivided Interest is subject to the Lien of the Indenture as security for the obligations of EEX under this Indenture and, subject to this Indenture, applied against EEX's payment obligations hereunder when and as they become due and payable and, at such time thereafter as no Indenture Default of the type described in Section 5.02(a) or (f) or Indenture Event of Default shall be continuing, such amount shall, to the extent not C-42 theretofore applied as provided in this Indenture, be paid promptly to EEX or as it may direct, unless the Indenture Trustee shall be entitled to exercise remedies hereunder as provided in Section 5.04, in which event such amount shall be applied in accordance with the provisions of this Indenture. SECTION 13. INSURANCE. 13.01. Coverage. (a) EEX, at its own cost and expense, shall carry -------- and maintain or cause to be carried and maintained in full force and effect at all times so long as any Secured Note remains Outstanding in such amounts and with such terms (including co-insurance, deductibles, limits of liability and loss payment provisions) as are customary under EEX's risk management programs and customary industry practices; provided that at all times, so long as any Secured Note remains Outstanding, EEX shall at a minimum maintain the following types and amounts of insurance: (i) public liability insurance against loss or damage for personal injury, death or property damage and against Claims including, without limitation, Environmental Claims arising out of or connected with the possession, use, operation or condition of any part of the Production System in an amount of $100,000,000 for 100% interest and in such forms as are consistent with EEX's practice for other properties similar to the Production System owned or leased by EEX; (ii) all risk property insurance for the Undivided Interest in an amount equal to the outstanding principal amount of the Secured Notes; and (iii) Operator's Extra Expense coverage in such forms as are consistent with EEX's practice for other properties similar to the Production System owned or leased by EEX in an amount of $100,000,000 for 100% interest. The insurance required under clause (i), (ii) or (iii) of this Section 13.01(a) may be subject to deductible amounts and self-insured retentions (up to an aggregate amount of $50,000,000) as is consistent with EEX's practice for other properties similar to the Production System owned or leased by EEX. Such insurance may be carried under blanket policies maintained by or on behalf of EEX so long as such policies otherwise comply with the provisions of this Section 13. (b) Any insurance carried in accordance with Section 13.1(a)(i) and (ii) shall provide in the policy or by special endorsement that: (i) the Indenture Trustee (in its individual and trust capacities) and each Loan Participant are included as additional insureds and shall provide that no such Person shall have any obligation or liability for payment of premiums; (ii) the insurer thereunder waives all rights of subrogation against the Indenture Trustee (in its individual and trust capacities) and each Loan Participant, and waives any right of set-off and counterclaim and any other right to deduction whether by attachment or otherwise; (iii) such insurance shall be primary without right of contribution of any other insurance carried by or on behalf of the Indenture Trustee (in its individual and trust capacities) and each Loan Participant; C-43 (iv) the respective interests of the Indenture Trustee (in its individual and trust capacities) and each Loan Participant under all insurance policies required hereunder shall not be invalidated by any action or inaction of EEX or any other Person (other than, with respect to any such insured, such insured) and such insurance shall insure the Indenture Trustee and each Loan Participant as their interests may appear, regardless of any breach or violation of any warranty, declaration or condition contained in such policies by EEX or any other Person (other than, with respect to any such insured, such insured); (v) if the insurers cancel such insurance for any reason whatsoever or any materially adverse change is made in policy terms or conditions, or if such insurance is allowed to lapse for nonpayment of premium, such cancellation, change or lapse shall not be effective as to each Loan Participant or the Indenture Trustee (in its individual and trust capacities) for thirty days after receipt by each Loan Participant or the Indenture Trustee (in its individual and trust capacities), respectively, of written notice from such insurers of such cancellation, change or lapse; (vi) with respect to all liability insurance, inasmuch as the policies are written to cover more than one insured, all terms, conditions, insuring agreements and endorsements, with the exception of the limits of liability shall operate in the same manner as if there were a separate policy covering each insured; and (vii) any payment under any policy of insurance maintained pursuant to Section 13.01(a)(ii) shall be made to the Indenture Trustee so long as the Lien of the Trust Indenture shall not have been discharged, and otherwise to the Lessor as their respective interests may appear except that unless an Indenture Default described in Section 5.02(a) of (f) or an Indenture Event of Default shall have occurred and be continuing, the first $25,000,000 of payments made in respect of any single casualty or other occurrence or in any policy year with respect to the Undivided Interest shall be paid solely to EEX. 13.02. Adjustment of Losses. Losses, if any, with respect to the -------------------- Production System under any property damage policies required to be carried under Section 13.01(a) of this Article XI shall be adjusted with the insurance companies, including the filing of appropriate proceedings, by EEX. 13.03. Application of Insurance Proceeds. All proceeds of --------------------------------- insurance maintained pursuant to Section 13.01(a)(ii) paid to the Indenture Trustee or EEX, other than in connection with an Event of Loss or Partial Event of Loss as to which EEX has elected (or has been deemed to have elected) to pay costs of redemption of the Outstanding Secured Notes, shall be paid over to EEX or as it may direct to pay for, or reimburse EEX for, its payment of the cost of repairing or restoring the Production System; provided, however, that such -------- ------- payments to EEX shall be made only upon (i) delivery by a Responsible Officer of EEX to the Indenture Trustee, if applicable, of a C-44 certificate (A) describing in reasonable detail the nature and cost of such repair or restoration and the actual expenditures theretofore made in connection therewith (and accompanied by copies of related invoices) and (B) certifying that the sum requested is a proper item of such cost, has not been the subject of any previous such request which has been paid to EEX and has been paid, or is then due and payable, by EEX and (ii) receipt by the Indenture Trustee, if applicable, of evidence satisfactory to each of them, in their reasonable judgment that such proceeds, together with funds of EEX available for the purpose will be sufficient to complete such repair and restoration of the Production System or portion thereof. 13.04. Additional Insurance. Nothing in this Section 13 shall -------------------- prohibit EEX or the Indenture Trustee from acquiring or maintaining, at its own expense, additional insurance for its own account with respect to loss or damage to the Undivided Interest or any part thereof provided that any such additional insurance shall not interfere with or in any way limit insurance maintained under Section 13.01(a) or increase the amount of any premium payable with respect to any such insurance. The proceeds of any such additional insurance will be for the account of the party maintaining such additional insurance. 13.05. Annual Insurance Report. Prior to December 31 of each year ----------------------- commencing in 1997, EEX will provide to the Indenture Trustee an insurance report and certificate, substantially in the form of the report and the certificate provided by EEX pursuant to Section 4.7 of the Participation Agreement, with respect to the insurance then required to be maintained by EEX pursuant to this Section 13. SECTION 14. RIGHTS TO SUBLEASE. 14.01. Intentionally Omitted 14.02. Lease by EEX. EEX may, without the consent of the Indenture ------------ Trustee, at any time and from time to time, lease the Undivided Interest to another Person; provided that (i) such lease shall be subject and subordinate to this Indenture and the Operating Agreement (and such lease shall contain a provision providing that any sublease permitted thereunder shall be so subject and subordinate), (ii) EEX shall remain primarily liable under this Indenture and the Other Operative Documents, and all terms and conditions hereof and of the other Operative Documents shall be complied with as though no such lease was in existence, (iii) the Indenture Trustee shall have received such opinions (other than any opinion regarding United States Federal income taxes) as the Indenture Trustee shall reasonably request, (iv) such lessee shall not be subject to any bankruptcy, insolvency or other similar proceedings affecting creditors' rights on the commencement date of the lease and shall have such authorizations and approvals under Governmental Rules (and all Governmental Actions shall have been taken) as may be necessary in order for such lessee to perform its obligations under the lease, (v) the Indenture Trustee shall bear no unindemnified tax risk associated with such lease, (vi) such lease shall not permit further leasing, (vii) such lease, to the extent that the lessee C-45 assumes responsibility for maintenance and insurance obligations of EEX, shall have terms with respect to such maintenance and insurance obligations no less stringent than those contained in Section 11 hereof, (viii) as of the date of commencement of the lease, no Indenture Default of the type described in Section 5.02(a) or (f) or Indenture Event of Default shall have occurred and be continuing, (ix) the lessee shall not be a Governmental Authority unless such Governmental Authority shall have waived its right of sovereign immunity, (x) such lease shall have substantially the same terms with respect to use and operation as contained in Section 11 hereof, (xi) any such lease shall not impair any right or remedy of the Indenture Trustee under the Indenture or any other Operative Document and (xii) EEX shall have obtained all consents and taken all actions necessary to comply with all Governmental Rules and all shall have obtained all consents and taken all actions as may be required under any contract or agreement binding on EEX or the lessee or any of their respective properties. Any lessee under a lease permitted hereunder may sublease the Undivided Interest to another Person under a sublease that otherwise complies with the provisions hereunder applicable to a lease hereunder. EEX shall give prompt written notice to the Indenture Trustee of any lease or sublease of the Undivided Interest and shall deliver a certified copy of any lease to the Indenture Trustee with 10 days following the execution and delivery thereof. SECTION 20. General. (a) As provided in the Relevant Date ------- Supplement, effective upon the execution and delivery by EEX and the Indenture Trustee of the Relevant Date Supplement on the Relevant Date, EEX assumed on a full recourse basis all of the obligations of the Grantor Trustee under this Indenture and the Secured Notes and shall be entitled to all the rights and benefits of the Grantor Trustee hereunder and thereunder, in each case to the extent provided for in Exhibit C hereto, and the Grantor Trustee is, effective upon such execution and delivery on the Relevant Date, released from all obligations and rights under this Indenture and the Secured Notes; provided, however, that any obligations or liabilities of the Grantor Trustee in its individual capacity incurred on or prior to the Relevant Date or arising out of or based upon events occurring on or prior to the Relevant Date, shall remain the responsibility of the Grantor Trustee. (b) As provided in Section 2 of the Relevant Date Supplement, EEX confirmed and ratified the security interest which the Grantor Trustee granted to the Indenture Trustee pursuant to the Granting Clause of this Indenture in all of the Grantor Trustee's right, title and interest in and to the Indenture Estate and EEX explicitly agreed that EEX is acquiring the Undivided Interest identified in such Section 2 subject to such security interest, which shall remain in full force and effect until the Lien of this Indenture on the Undivided Interest is discharged in accordance with the terms hereof, and the Indenture Trustee acknowledges that the Lease and the obligations of EEX thereunder as the Lessee have been terminated, except as specifically provided for therein. Each of EEX and the Indenture Trustee hereby agree that: C-46 (i) after the Relevant Date, the phrase "and other than Section 12 of the Participation Agreement" near the end of clause (i) of the paragraph preceding the Granting Clause of this Indenture shall be deleted, the comma at the end of such clause (i) shall be deemed to be "and"; the reference to the Grantor Trustee in clause (ii) of the paragraph preceding the Granting Clause of this Indenture shall after the Relevant Date be deemed to be a reference to EEX; the phrase ", and (iii) the performance and observance by the Owner Participant of its covenants and agreements in the Operative Documents (other than the Tax Indemnity Agreement) contained" in the paragraph preceding the Granting Clause of this Indenture shall after the Relevant Date be deemed to be deleted; and the phrase "(the obligations described in the above clauses (i), (ii) and (iii) collectively, the "Indenture Indebtedness")" in the paragraph preceding the Granting Clause of this Indenture shall after the Relevant Date be deemed to be "(the obligations described in the above clauses (i) and (ii) collectively, the "Indenture Indebtedness")"; (ii) the paragraph preceding clause (a) of the Granting Clause of this Indenture shall be deemed amended to provide that any reference to the Grantor Trustee contained in such paragraph shall after the Relevant Date be deemed to be a reference to EEX; (iii) clauses (a) through (h) of the Granting Clause of this Indenture and the two paragraphs following clause (h) of such Granting Clause shall be deemed amended to read as follows after the Relevant Date: (a) the Undivided Interest, which is both (x) described in Schedule 1 or as may be described in any Indenture Supplement or any other supplement to this Indenture and (y) as to which EEX agrees, pursuant to Section 2 of the Relevant Date Supplement, is subject to the security interest and Lien of the Indenture Trustee, including without limitation any Component or Replacement Component thereof or Modification thereto which, pursuant to the terms of Article XI of this Indenture, are at any time subject to the Lien of this Indenture; and (b) all rights or property which may be received upon the exercise of any remedy or option contained in any of the above-described instruments and all proceeds in whatever form of all or any part of any of the foregoing; (c) Intentionally Omitted (d) Intentionally Omitted (e) Intentionally Omitted (f) Intentionally Omitted C-47 (g) Intentionally Omitted (h) Intentionally Omitted. SUBJECT to the rights of EEX hereunder. (L) (I) Section 10.6 of the Participation Agreement shall read as follows: 10.6 Further Assurances. EEX, at its own cost and expense, will ------------------ cause to be promptly and duly taken, executed, acknowledged and delivered all such further acts, documents and assurances as the Grantor Trustee, the Owner Participant, the Pass Through Trustees and the Indenture Trustee reasonably may request from time to time in order to carry out more effectively the intent and purposes of this Agreement, the Pass Through Trust Agreements and the other Operative Documents and the transactions contemplated hereby and thereby. EEX, at is own cost and expense, will cause the Indenture and supplements or amendments thereto and restatements thereof and all financing statements, fixture filings and other documents, to be recorded or filed at such places and times and in such manner, as may be necessary or as may be reasonably requested so long as any Secured Notes are Outstanding, by the Indenture Trustee or the Pass Through Trustees in order to establish, preserve, protect and perfect the mortgage and security interest of the Indenture Trustee in the Indenture Estate granted or intended to be created under the Indenture and the Indenture Trustee's rights under this Agreement and the other Operative Documents, subject only to Permitted Liens. (II) Sections 10.16 and 10.17 of the Participation Agreement shall read as follows: 10.16 Intentionally Omitted 10.17 Intentionally Omitted (III) Section 10.19 of the Participation Agreement shall read as follows: 10.19 Certain References and Obligations. After the Relevant Date, ---------------------------------- the provisions of Section 10 which require or permit any action by, any consent, approval or authorization of, the furnishing of any document, paper or information to, or the performance of any other obligation to, the Grantor Trustee or the Owner Participant shall not be effective, and the Sections containing such provisions shall be read as though there were no such references to any such requirements or permissions. (IV) Section 14.1 of the Participation Agreement shall read as follows: 14.1 Intentionally Omitted C-48 (M) (I) Section 1.04(c) of each Pass Through Trust Agreement shall read as follows: (c) In determining whether the holders of the requisite Fractional Undivided Interests of Certificates Outstanding have given any direction, consent or waiver (a "Direction"), under this Trust Agreement, Certificates owned by EEX or any Affiliate thereof shall be disregarded and deemed not to be Outstanding under this Trust Agreement for purposes of any such determination. In determining whether the Trustee shall be protected in relying upon any such Direction, only Certificates which the Trustee has Actual Knowledge regarding such ownership shall be so disregarded. Notwithstanding the foregoing, (i) if any such Person owns 100% of the Certificates Outstanding, such Certificates shall not be so disregarded as aforesaid, and (ii) if any amount of Certificates so owned by any such Person have been pledged in good faith, such Certificates shall not be disregarded as aforesaid if the pledgee establishes to the satisfaction of the Trustee the pledgee's right so to act with respect to such Certificates and that the pledgee is not EEX or any Affiliate thereof. (II) Sections 6.03 and 12.11 of each Pass Through Trust Agreement shall read as follows: Section 6.03. Judicial Proceedings Instituted by Trustee. ------------------------------------------ (a) Trustee May Bring Suit. If there shall be a failure to make payment of the principal of premium, if any, or interest on any Secured Note, or if there be any failure to pay any other amount payable by EEX to the Indenture Trustee or the Holders under any Operative Document when due and payable, then the Trustee, in its own name, and as trustee of an express trust, as holder of such Secured Notes, shall be, to the extent permitted by and in accordance with the terms of the Note Documents applicable to such Secured Note, entitled and empowered to institute any suits, actions or proceedings at law, in equity or otherwise, for the collection of the sums so due and unpaid on such Secured Notes and may prosecute any such claim or proceeding to judgment or final decree with respect to the whole amount of any such sums so due and unpaid. (b) Trustee May File Proofs of Claim; Appointment of Trustee as Attorney-in-Fact in Judicial Proceedings. The Trustee in its own name, or as trustee of an express trust, or as attorney-in-fact for the Certificateholders, or in any one or more of such capacities (irrespective of whether distributions on the Certificates shall then be due and payable, or the payment of the principal on the Secured Notes shall then be due and payable, as therein expressed or by declaration or otherwise and irrespective of whether the Trustee shall have made any demand to the Indenture Trustee for the payment of overdue principal, premium (if any) or interest on the Secured Notes), shall be entitled and empowered to file such proofs of claim and other papers or documents as may be necessary or advisable in order to have the claims of the Trustee and of the Certificateholders allowed in any receivership, insolvency, bankruptcy, liquidation, readjustment, reorganization or any other judicial proceedings relative to EEX or the C-49 Indenture Trustee, their respective creditors or property. Any receiver, assignee, trustee, liquidator, sequestrator (or similar official) in any such judicial proceeding is hereby authorized by each Certificateholder to make payments in respect of such claim to the Trustee, and in the event that the Trustee shall consent to the making of such payments directly to the Certificateholders, to pay to the Trustee any amount due to it for the reasonable compensation, expenses, disbursements and advances of the Trustee, its agents and counsel. Nothing contained in this Trust Agreement shall be deemed to give to the Trustee any right to accept or consent to any plan of reorganization or otherwise by action of any character in any such proceeding to waive or change in any way any right of any Certificateholder. Section 12.11. Certain References and Obligations. Notwithstanding -------------------------- any provision to the contrary contained herein: (a) The phrase "(with the consent of the Grantor Trustee, such consent not to be unreasonably withheld)" in Section 9.02 shall after the Relevant Date be deemed to be deleted; and (b) Sections 1.02, 7.02, 7.03(c), 7.05, 7.09(b), 7.09(c), 7.09(e), 7.09(f), 7.12(a), 7.12(d), 9.02, 11.01 and 12.03 shall be deemed amended to provide that any reference to the Grantor Trustee contained in such Sections (but not any reference to the "Grantor Trustee or its designee the Company" in such Sections) shall after the Relevant Date be deemed to be deleted. All provisions of this Indenture, the other Operative Documents and the Pass Through Trust Agreements not specifically amended by operation of this Exhibit C shall remain in full force and effect. This amendment may be executed by the parties hereto in separate counterparts, each of which, when so executed and delivered, shall be an original, but all such counterparts shall together constitute but one and the same instrument. C-50 THUS DONE AND PASSED on this 31/st/ day of July, 2001, before me, the undersigned Notary Public, in and for the County of Harris, State of Texas, and in the presence of the undersigned competent witnesses, who have hereunto signed their names with EEX Corporation and me, said Notary, after reading of the whole. WITNESSES TO SIGNATURES: EEX CORPORATION WITNESSES: By: /s/ J. T. Leary ----------------------------- Joseph T. Leary Vice President, Finance and Treasurer Name: /s/ C. B. McDaniel ---------------------------------- C. B. McDaniel Name: /s/ H. A. Bailey, Jr. ---------------------------------- H. A. Bailey, Jr. NOTARY PUBLIC: Name: /s/ Iliana C. Galan ---------------------------------- Iliana C. Galan My Commission Expires: 11/4/04 C-51 THUS DONE AND PASSED on this 27/th/ day of July, 2001, before me, the undersigned Notary Public, in and for the County of Cook, State of Illinois, and in the presence of the undersigned competent witnesses, who have hereunto signed their names with Cooper Project, L.L.C. and me, said Notary, after reading of the whole. WITNESSES TO SIGNATURES: COOPER PROJECT, L.L.C. By: /s/ Jean F. Nagatani ---------------------- Its: Senior Vice President WITNESSES: Name: /s/ Olivia A. Cerda Name: /s/ Michael D. Heine NOTARY PUBLIC: Name: /s/ Anita Purnell ------------------------------ Anita Purnell My Commission Expires: 7/20/04 C-52 THUS DONE AND PASSED on this 1/st/ day of August, 2001, before me, the undersigned Notary Public, in and for the County of New Castle, State of Delaware, and in the presence of the undersigned competent witnesses, who have hereunto signed their names with Corporate Grantor Trustee and me, said Notary, after reading of the whole. WITNESSES TO SIGNATURES: WILMINGTON TRUST COMPANY, not in his individual capacity, except as expressly provided herein, but solely as Corporate Grantor Trustee WITNESSES: By: /s/ Mary Kay Pupillo ------------------------------------ Its: Senior Financial Services Officer Name: /s/ Jennifer A. Luce Name: /s/ Anne D. Miller NOTARY PUBLIC: Name: /s/ Susanne M. Gula -------------------------------- Susanne M. Gula My Commission Expires: 11/21/01 C-53 THUS DONE AND PASSED on this 1/st/ day of August, 2001, before me, the undersigned Notary Public, in and for the County of New Castle, State of Delaware, and in the presence of the undersigned competent witnesses, who have hereunto signed their names with Individual Grantor Trustee and me, said Notary, after reading of the whole. WITNESSES TO SIGNATURES: JOHN M. BEESON, JR., not in his individual capacity, except as expressly provided herein, but solely as Individual Grantor Trustee WITNESSES: By: /s/ John M. Beeson, Jr. --------------------------------- Name: /s/ Anne D. Miller Name: /s/ Jennifer A. Luce NOTARY PUBLIC: Name: /s/ Susanne M. Gula ---------------------------------- Susanne M. Gula My Commission Expires: 11/21/01 C-54 THUS DONE AND PASSED on this 2/nd/ day of August, 2001, before me, the undersigned Notary Public, in and for the County of New York, State of New York, and in the presence of the undersigned competent witnesses, who have hereunto signed their names with Corporate Indenture Trustee and me, said Notary, after reading of the whole. WITNESSES TO SIGNATURES: THE BANK OF NEW YORK, not in its individual capacity, except as expressly provided herein, but solely as Corporate Indenture Trustee WITNESSES: By: /s/ Van Brown ---------------------- Its: Vice President Name: [Illegible signature] Name: [Illegible signature] NOTARY PUBLIC: Name: /s/ Robert Schneck ------------------------------------------------ Robert Schneck My Commission Expires: 5/31/03 C-55 THUS DONE AND PASSED on this 2/nd/ day of August, 2001, before me, the undersigned Notary Public, in and for the County of New York, State of New York, and in the presence of the undersigned competent witnesses, who have hereunto signed their names with Individual Indenture Trustee and me, said Notary, after reading of the whole. WITNESSES TO SIGNATURES: VAN BROWN, not in his individual capacity, except as expressly provided herein, but solely as Individual Indenture Trustee WITNESSES: By: /s/ Van Brown ------------------------ Name: [Illegible signature] Name: [Illegible signature] NOTARY PUBLIC: Name: /s/ Robert Schneck ---------------------------------- Robert Schneck My Commission Expires: 5/31/03 C-56 THUS DONE AND PASSED on this 2/nd/ day of August, 2001, before me, the undersigned Notary Public, in and for the County of New York, State of New York, and in the presence of the undersigned competent witnesses, who have hereunto signed their names Pass Through Trustee and me, said Notary, after reading of the whole. WITNESSES TO SIGNATURES: THE BANK OF NEW YORK, not in its individual capacity, except as expressly provided herein, but solely as Corporate Indenture Trustee WITNESSES: By: /s/ Van Brown ------------------------ Its: Vice President Name: [Illegible signature] Name: [Illegible signature] NOTARY PUBLIC: Name: /s/ Robert Schneck ---------------------------------- Robert Schneck My Commission Expires: 5/31/03 C-57 EX-10.4 8 dex104.txt AMENDMENT TO RELEVANT AMENDMENT Exhibit 10.4 AMENDMENT TO RELEVANT AMENDMENT BE IT KNOWN, that on the date hereinafter set forth, before me, the undersigned Notary Public, duly commissioned and qualified in and for the State of New York, and in the presence of the undersigned, competent witnesses, personally came and appeared: EEX CORPORATION, a Texas corporation ("EEX"), and THE BANK OF NEW YORK, not in its individual capacity, but solely as Corporate Indenture Trustee (the "Corporate Indenture Trustee"), and VAN BROWN, an individual, not in his individual capacity, but solely as Individual Indenture Trustee (the "Individual Indenture Trustee"; together with the Corporate Indenture Trustee, the "Indenture Trustee"), who each being duly sworn, did agree and consent as follows: WHEREAS, pursuant to Section 3.04 of the Indenture and Section 11.6 of the Participation Agreement the parties hereto have executed and delivered an amendment to the Indenture substantially in the form of Exhibit C to the Indenture, (the "Relevant Amendment"), which Relevant Amendment amended the Indenture, the other Operative Documents and the Pass Through Trust Agreement, effective as of Relevant Date; WHEREAS, the majority in Interest of Holders of Notes have consented to amend the Relevant Amendment as herein set forth; and WHEREAS, the parties hereto hereby desire to amend the Relevant Amendment as herein set forth. NOW, THEREFORE, the parties hereto agree as follows: SECTION 1. Definitions. Capitalized terms used herein and not ----------- otherwise defined shall have the respective meanings assigned to them in the Indenture. SECTION 2. Deletion of Section 11.22 of Relevant Amendment. Section ----------------------------------------------- 11.22 of the Relevant Amendment is hereby deleted in its entirety. SECTION 3. Termination of Agency and Support Agreement. ------------------------------------------- Notwithstanding anything in the Relevant Amendment to the contrary or otherwise, the Agency and Support Agreement is hereby terminated in its entirety and the parties therein are released from all liabilities and obligations therein, provided, however, that such termination shall not constitute a waiver by any - -------- ------- party thereto of any claims or rights to indemnity that such party might have against any other party thereto, which claims or rights had accrued in favor of such party prior to the Relevant Date under the Agency and Support Agreement as in existence prior to the Relevant Date. SECTION 4. Successors and Assigns. This Amendment shall be binding ---------------------- upon and inure to the benefit of the parties hereto and their respective successors and assigns. SECTION 5. GOVERNING LAW. 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 NEW YORK, OTHER THAN THE CONFLICT OF LAWS RULES THEREOF. SECTION 6. Counterparts. This Amendment may be executed in any ------------ number of counterparts and by each of the parties hereto on separate counterparts, all such counterparts together constituting but one and the same instrument. IN WITNESS WHEREOF, this instrument has been executed on the date indicated below. EEX CORPORATION By: /s/ Richard L. Edmonson ------------------------------------- Name: Richard L. Edmonson Title: Senior Vice President, General Counsel and Corporate Secretary THE BANK OF NEW YORK, not in its individual capacity, but solely as Corporate Indenture Trustee By: /s/ Van K. Brown ------------------------------------- Name: Van K. Brown Title: Vice President VAN BROWN, not in his individual capacity, but solely as Individual Indenture Trustee By: /s/ Van Brown ------------------------------------- ACKNOWLEDGMENT STATE OF TEXAS COUNTY OF HARRIS I, Iliana C. Galan, a Notary Public duly appointed, sworn and qualified to act in the State of Texas, do hereby certify that Richard L. Edmonson, known to me to be a Senior Vice President, General Counsel and Corporate Secretary of EEX CORPORATION, and as such duly authorized to execute the above Amendment, personally appeared before me on the date hereof and acknowledge that he had signed the above Amendment. IN WITNESS WHEREOF, I have hereunto set my hand and seal this 24/th/ day of August, 2001. /s/ Iliana C. Galan -------------------------------------- Notary Public, State of Texas My Commission Expires: 11/4/04 SEAL ACKNOWLEDGMENT STATE OF NEW YORK COUNTY OF NEW YORK I, Jean F. Newman, a Notary Public duly appointed, sworn and qualified to act in the State of New York, do hereby certify that Van K. Brown, known to me to be a Vice President of THE BANK OF NEW YORK, not in its individual capacity but solely as Corporate Indenture Trustee, and as such duly authorized to execute the above Amendment, personally appeared before me on the date hereof and acknowledge that he had signed the above Amendment. IN WITNESS WHEREOF, I have hereunto set my hand and seal this 24/th/ day of August, 2001. /s/ Jean F. Newman --------------------------------------------- Notary Public, State of New York My Commission Expires: 9/30/05 SEAL C-1 ACKNOWLEDGMENT STATE OF NEW YORK COUNTY OF NEW YORK I, Jean F. Newman, a Notary Public duly appointed, sworn and qualified to act in the State of New York, do hereby certify that Van Brown, not in his individual capacity but solely as Individual Indenture Trustee, personally appeared before me on the date hereof and acknowledge that he had signed the above Amendment. IN WITNESS WHEREOF, I have hereunto set my hand and seal this 24/th/ day of August, 2001. /s/ Jean F. Newman ---------------------------------------- Notary Public, State of New York My Commission Expires: 9/30/05 SEAL C-2 EX-10.7 9 dex107.txt SIXTH AMENDMENT TO CREDIT AGREEMENT Exhibit 10.7 SIXTH AMENDMENT TO CREDIT AGREEMENT THIS SIXTH AMENDMENT TO CREDIT AGREEMENT (this "Amendment") is among: EEX --------- CORPORATION (formerly known as 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; JPMORGAN CHASE BANK, a New York banking corporation and the successor to THE CHASE MANHATTAN BANK, a New York banking corporation, 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 book runner for the Lenders (in such capacity, together with its successors in such capacity, the "Book Runner"); Bank One, NA (formerly known as ----------- The First National Bank of Chicago), a national banking association and as syndication agent for the Lenders (in such capacity, together with its successors in such capacity, the "Syndication Agent"); Citibank, N.A., a ----------------- national banking association and as a documentation agent for the Lenders (in such capacity, together with its successors in such capacity, a "Documentation ------------- Agent"); Canadian Imperial Bank of Commerce, a national banking association and - ----- as a documentation agent for the Lenders (in such capacity, together with its successors in such capacity, a "Documentation Agent") and The Bank of New York, ------------------- The Bank of Nova Scotia, Bankers Trust Company, Bank of America, N.A. (formerly known as NationsBank of Texas, N.A.) and Royal Bank of Canada as co-agents. RECITALS -------- A. The Company, the Agents, and the Lenders have entered into that certain Credit Agreement dated as of May 1, 1995 as amended by First Amendment to Credit Agreement dated as of September 16, 1996, by Second Amendment to Credit Agreement dated as of June 27, 1997, by Third Amendment to Credit Agreement dated as of September 25, 1997, by Fourth Amendment to Credit Agreement dated as of December 15, 1997 and by Fifth Amendment to Credit Agreement dated as of March 31, 1999 (collectively, the "Credit Agreement"), 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. Pursuant to Section 2.03(a) of the Agreement, the Company has requested a reduction in the Aggregate Commitments from $350,000,000 to $325,000,000. C. The Company has requested that the Lenders temporarily amend, and waive the Company's compliance with, certain covenants for a limited period, and the Lenders desire to make such temporary amendment and waivers to the Credit Agreement. 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. The Aggregate Commitments are hereby permanently reduced, pursuant to Section 2.03(a) of the Agreement, from $350,000,000 to $325,000,000, each Lender's Commitment and percentage share of the Aggregate Commitments being set forth on the new Annex 1 attached hereto and made a part hereof. At the request of the Borrower and for the convenience of all parties to the Credit Agreement, no new Notes shall be issued to reflect the reduction in the Aggregate Commitments effectuated by this Amendment. 3. For fiscal year end 2001 through April 30, 2002, compliance with Section 9.01 the Credit Agreement is hereby partially waived, and Section 9.01 is hereby temporarily amended, so that the Company will not permit is Debt to Capital Ratio to exceed 72%. Beginning May 1, 2002, such temporary waiver and amendment shall terminate, and the Company shall return to compliance with Section 9.01 as currently in effect before application of this Amendment. 4. Section 1.02 of the Credit Agreement is hereby supplemented, where alphabetically appropriate, with the addition of the following definition: "Sixth Amendment" shall mean that certain Sixth Amendment to Credit --------------- Agreement dated as of February 20, 2002, among the Company, the Lenders and the Agents." 5. This Amendment shall become binding on the Lenders when, and only when, the Administrative Agent shall have received counterparts of this Amendment and the attached Ratification executed by the Company, the Guarantor and the Majority Lenders in form and substance satisfactory to the Administrative Agent or its counsel. 6. The Company shall pay $5,000 to the account of each Lender that executes and delivers (including by facsimile) this Amendment to the Administrative Agent by 5:00 p.m., Houston, Texas time, on February 20, 2002. 7. The parties hereto hereby acknowledge and agree that, except as specifically waived, supplemented and amended, changed or modified hereby, the Credit Agreement shall remain in full force and effect in accordance with its terms. 8. 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. 9. 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. 10. THE CREDIT AGREEMENT, THIS AMENDMENT AND THE LOAN DOCUMENTS REPRESENT THE FINAL AGREEMENT BETWEEN THE PARTIES AND MAY NOT BE CONTRADICTED BY EVIDENCE OF PRIOR, CONTEMPORANEOUS OR -2- SUBSEQUENT ORAL AGREEMENTS OF THE PARTIES. THERE ARE NO UNWRITTEN OR ORAL AGREEMENTS BETWEEN THE PARTIES. 11. 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. Delivery of an executed signature page of this Amendment by facsimile transmission shall be effective as delivery of a manually executed counterpart hereof. [SIGNATURES BEGIN NEXT PAGE] -3- IN WITNESS WHEREOF, the parties hereto have caused the Amendment to be executed as of February 20, 2002. EEX CORPORATION (formerly known as ENSERCH EXPLORATION, INC.) By: /s/ J. T. Leary ---------------------------------------- Name: J. T. Leary Title: Vice President, Finance, and Treasurer S-1 LENDER AND ADMINISTRATIVE JPMORGAN CHASE BANK (formerly - ------------------------- AGENT, BOOK RUNNER AND AUCTION known as THE CHASE MANHATTAN BANK) - ------------------------------ AGENT: - ------ By: /s/ Robert C. Mertensotto -------------------------------------- Name: Robert C. Mertensotto Title: Managing Director LENDER AND SYNDICATION AGENT BANK ONE, NA (formerly known as First - ---------------------------- National Bank of Chicago) By: /s/ Hal E. Fudge -------------------------------------- Name: Hal E. Fudge Title: First Vice President LENDER AND DOCUMENTATION AGENT: CITIBANK, N.A. - ------------------------------- By: /s/ Douglas A. [illegible] -------------------------------------- Name: Douglas A. [illegible] Title: Attorney-in-Fact LENDER AND DOCUMENTATION AGENT: CANADIAN IMPERIAL BANK OF COMMERCE - ------------------------------- By: /s/ Nora Q. Catiis -------------------------------------- Name: Nora Q. Catiis Title: Authorized Signatory LENDER: THE BANK OF NEW YORK - ------- By: /s/ Peter W. Keller -------------------------------------- Name: Peter W. Keller Title: Vice President S-2 LENDER: THE BANK OF NOVA SCOTIA - ------- By: -------------------------------------- Name: Title: LENDER: BANKERS TRUST COMPANY - ------- By: /s/ Calli S. Hayes -------------------------------------- Name: Calli S. Hayes Title: Managing Director LENDER: BANK OF AMERICA, N.A. - ------- By: /s/ William E. Livingston, III -------------------------------------- Name: William E. Livingston, III Title: Managing Director LENDER: ROYAL BANK OF CANADA - ------- By: /s/ Stephanie Babich --------------------------------- Name: Stephanie Babich Title: Senior Manager LENDER: CREDIT AGRICOLE INDOSUEZ (Formerly Caisse - ------- Nationale De Credit Agricole) By: ---------------------------------------- Name: Title: By: ---------------------------------------- Name: Title: S-3 LENDER: THE FUJI BANK LTD. - ------- By: ---------------------------------------- Name: Title: LENDER: THE INDUSTRIAL BANK OF JAPAN - ------- TRUST COMPANY By: ---------------------------------------- Name: Title: LENDER: GENERAL ELECTRIC CAPITAL - ------- CORPORATION By: /s/ William S. Richardson ---------------------------------------- Name: William S. Richardson Title: Duly Authorized Signatory LENDER: MELLON BANK, N.A. - ------- By: /s/ Roger E. Howard ---------------------------------------- Name: Roger E. Howard Title: Vice President LENDER: TORONTO DOMINION (TEXAS), INC. - ------- By: /s/ Mark A. Baird ---------------------------------------- Name: Mark A. Baird Title: Vice President S-4 LENDER: UBS AG, STAMFORD BRANCH as - ------- successor to Union Bank of Switzerland, Houston Agency By: ---------------------------------------- Name: Title: By: ---------------------------------------- Name: Title: LENDER: THE BANK OF TOKYO-MITSUBISHI, LTD. - ------- By: ---------------------------------------- Name: Title: LENDER: DRESDNER BANK AG NEW YORK AND - ------- GRAND CAYMAN BRANCHES By: /s/ Laura J. K. Schumaker ---------------------------------------- Name: Laura J. K. Schumaker Title: Vice President By: /s/ Fred C. Thurston ---------------------------------------- Name: Fred C. Thurston Title: Vice President LENDER: CREDIT LYONNAIS NEW YORK BRANCH - ------- By: ---------------------------------------- Name: Title: S-5 RATIFICATION ------------ Each of the undersigned (a "Guarantor") hereby agrees that its liabilities --------- under its respective Guaranty Agreement guaranteeing the indebtedness, obligations and liabilities under that certain Credit Agreement dated May 1, 1995, as amended, shall remain enforceable against such Guarantor in accordance with the terms of its Guaranty Agreement and shall not be reduced, altered, limited, lessened or in any way affected by the execution and delivery of this Sixth Amendment to Credit Agreement. Each Guarantor hereby confirms and ratifies its liabilities under its Guaranty in all respects. EEX OPERATING LLC By: /s/ J. T. Leary ------------------------------------------- Name: J. T. Leary Title: Vice President, Finance, and Treasurer EEX CORPORATION By: /s/ J. T. Leary ------------------------------------------- Name: J. T. Leary Title: Vice President, Finance, and Treasurer EEX OPERATING L.P. By: EEX Corporation, its general partner By: /s/ J. T. Leary ------------------------------------------ Name: J. T. Leary Title: Vice President, Finance, and Treasurer S-6 EX-10.33 10 dex1033.txt STOCK PURCHASE AGREEMENT Exhibit 10.33 STOCK PURCHASE AGREEMENT by and among PT MEDCO ENERGI INTERNASIONAL TBK., EEX INTERNATIONAL, INC., and ENSERCH FAR EAST LTD. Dated: March 11, 2002 TABLE OF CONTENTS ARTICLE 1. DEFINITIONS..................................................................... 1 ARTICLE 2. PURCHASE AND SALE OF SHARES..................................................... 7 2.1 Purchase and Sale of Shares............................................. 7 2.2 Purchase Price.......................................................... 7 2.3 The Closing............................................................. 7 2.4 Deliveries at the Closing............................................... 8 ARTICLE 3. REPRESENTATIONS AND WARRANTIES CONCERNING THE TRANSACTION....................... 9 3.1 Representations and Warranties of Seller................................ 9 3.2 Representations and Warranties of Buyer................................. 10 ARTICLE 4. REPRESENTATIONS AND WARRANTIES CONCERNING THE COMPANY........................... 11 4.1 Corporate Status........................................................ 11 4.2 Power and Authority; Enforceability..................................... 11 4.3 No Violation............................................................ 12 4.4 Brokers' Fees........................................................... 12 4.5 Capitalization.......................................................... 12 4.6 Records................................................................. 12 4.7 Company Subsidiaries.................................................... 12 4.8 Financial Statements.................................................... 12 4.9 Subsequent Events....................................................... 13 4.10 Legal Compliance........................................................ 14 4.11 Tax Matters............................................................. 14 4.12 Real Property........................................................... 14 4.13 Contracts............................................................... 14 4.14 Litigation.............................................................. 15 4.15 Employees............................................................... 15 4.16 Employee Benefits....................................................... 16 4.17 Permits................................................................. 16 4.18 Environmental, Health and Safety Matters................................ 16 4.19 Foreign Corrupt Practices Act Compliance................................ 16 4.20 Certain Assets Used by the Company...................................... 16 4.21 Current Drilling Commitments............................................ 16 4.22 Bankruptcy.............................................................. 17 4.23 No Other Representations................................................ 17 ARTICLE 5. PRE-CLOSING COVENANTS........................................................... 17 5.1 General................................................................. 17 5.2 Notices and Consents.................................................... 17 5.3 Operation of Business................................................... 18 5.4 Full Access............................................................. 18 5.5 Notice of Developments.................................................. 19 5.6 Affiliated Transactions................................................. 19 5.7 Operation of Properties................................................. 19 5.8 Commitments............................................................. 19
i ARTICLE 6. POST-CLOSING COVENANTS............................................................ 20 6.1 General................................................................... 20 6.2 Litigation Support........................................................ 20 6.3 Transition................................................................ 20 6.4 Taxes..................................................................... 21 ARTICLE 7. CLOSING CONDITIONS................................................................ 22 7.1 Conditions Precedent to Obligation of Buyer............................... 22 7.2 Conditions Precedent to Obligation of the Seller Parties.................. 23 ARTICLE 8. TERMINATION....................................................................... 23 8.1 Termination of Agreement.................................................. 23 8.2 Effect of Termination..................................................... 24 ARTICLE 9. INDEMNIFICATION................................................................... 24 9.1 Survival of Representations and Warranties................................ 24 9.2 Indemnification Provisions for Buyer's Benefit............................ 25 9.3 Indemnification Provisions for Seller's Benefit........................... 25 9.4 Indemnification Claim Procedures.......................................... 25 9.5 Notice of Claim........................................................... 26 9.6 Limitations on Indemnification Liability.................................. 26 9.7 Other Indemnification Provisions.......................................... 27 ARTICLE 10. REPRESENTATION DEFECTS........................................................... 27 10.1 Asserted Defects.......................................................... 27 10.2 Certain Adjustments to Purchase Price..................................... 28 10.3 Arbitration............................................................... 29 ARTICLE 11. MISCELLANEOUS.................................................................... 30 11.1 Schedules................................................................. 30 11.2 Entire Agreement.......................................................... 30 11.3 Successors................................................................ 30 11.4 Assignments............................................................... 31 11.5 Notices................................................................... 31 11.6 Binding Arbitration....................................................... 32 11.7 Time...................................................................... 33 11.8 Counterparts.............................................................. 33 11.9 Headings.................................................................. 33 11.10 Governing Law............................................................. 34 11.11 Amendments and Waivers.................................................... 34 11.12 Severability.............................................................. 34 11.13 Expenses.................................................................. 34 11.14 Construction.............................................................. 34 11.15 Incorporation of Exhibits and Schedules................................... 35 11.16 Remedies.................................................................. 35 11.17 Electronic Signatures..................................................... 35
ii ATTACHMENTS Exhibits Exhibit A Form of Adjusted Purchase Price Certificate Exhibit B Form of Seller's Officers' Certificate Exhibit C Form of Seller's Secretary's Certificate Exhibit D Form of Buyer's Officers' Certificate Schedules Schedule 3.2(c) Required Buyer Consents Schedule 4.1 Company's Officers and Directors Schedule 4.3 Required Company Consents Schedule 4.8 Financial Statements Schedule 4.9 Subsequent Events Schedule 4.13 Contracts Schedule 4.14 Litigation Schedule 4.21 Current Drilling Commitments Schedule 5.6 Surviving Affiliate Contracts Schedule 5.8(e) Budget Schedule 7.1(d) Sellers Parties' Closing Consents Schedule 7.2(d) Buyer Closing Consents iii STOCK PURCHASE AGREEMENT This Stock Purchase Agreement (this "Agreement"), dated March 11, 2002, is by and among (i) PT MEDCO ENERGI INTERNASIONAL TBK. ("Buyer"), (ii) EEX International, Inc., a Texas corporation ("Seller"), and (iii) Enserch Far East Ltd., a Cayman Islands company limited by shares and a wholly-owned subsidiary of Seller (the "Company" and, together with Seller, the "Seller Parties"). RECITALS: A. Seller owns all of the outstanding capital stock of the Company. B. Buyer desires to purchase from Seller all of the outstanding capital stock of the Company, and Seller desires to sell to Buyer all of the outstanding capital stock of the Company, in accordance with this Agreement's terms and conditions. C. Buyer and the Seller Parties (the "Parties") intend for the purchase and sale of the Shares (as defined) to be treated as a taxable purchase for tax purposes. AGREEMENT: NOW, THEREFORE, in consideration of the premises and the mutual promises herein made, and in consideration of the representations, warranties, and covenants contained herein, Buyer and each Seller Party agree as follows: ARTICLE 1. DEFINITIONS "Action" means any action, appeal, petition, plea, charge, complaint, claim, suit, demand, litigation, arbitration, mediation, hearing, inquiry, or proceeding. "Adjustment Amount" is defined in Section 10.2(a). --------------- "Adjusted Purchase Price" is defined in Section 2.2(b). -------------- "Adjusted Purchase Price Certificate" is defined in Section 2.4(a)(i). ----------------- "AFEs" is defined in Section 4.9. ----------- "Affiliate" or "Affiliated" with respect to any specified Person, means a Person that, directly or indirectly, through one or more intermediaries, controls or is controlled by, or is under common control with, such specified Person. For this definition, "control" (and its derivatives) means the possession, directly or indirectly, or as trustee or executor, of the power to direct or cause the direction of the management and policies of a Person, whether through ownership of voting Equity Interests, as trustee or executor, by contract or credit arrangements or otherwise. "Agreement" is defined in the preamble to this Agreement. "Asserted Defects" is defined in Section 10.1(a). --------------- "Balance Sheet Date" is defined in Section 4.8. ----------- "Buyer" is defined in the preamble to this Agreement. "Buyer Controlled Tax Proceeding" is defined in Section 6.4(b)(i). ----------------- "Buyer Indemnified Parties" means Seller and its officers, directors, managers, employees, agents, representatives, controlling Persons, shareholder, and their Affiliates. "Claim Notice" is defined in Section 9.5. ----------- "Closing" is defined in Section 2.3. ----------- "Closing Date" is defined in Section 2.3. ----------- "Code" means the Internal Revenue Code of 1986. "Commercially Reasonable Efforts" means efforts that are designed to enable a Party, directly or indirectly, to satisfy a condition to, or otherwise assist in the consummation of, the Transactions and that do not require the performing Party to expend any funds or assume liabilities other than expenditures and liabilities that are customary and reasonable in nature and amount in the context of the Transactions. "Commitment" means (a) options, warrants, convertible securities, exchangeable securities, subscription rights, conversion rights, exchange rights, or other contracts that could require a Person to issue any of its Equity Interests or to sell any Equity Interests it owns in another Person; (b) any other securities convertible into, exchangeable or exercisable for, or representing the right to subscribe for any Equity Interest of a Person or owned by a Person; (c) statutory pre-emptive rights or pre-emptive rights granted under a Person's Organizational Documents; and (d) stock appreciation rights, phantom stock, profit participation, or other similar rights with respect to a Person. "Company" is defined in the preamble to this Agreement. "Consent" means any consent, approval, notification, waiver, or other similar Action that is necessary or convenient. "Controlling Party" is defined in Section 6.4(b)(ii). ------------------ "Damages" means all damages, losses, liabilities, payments, amounts paid in settlement, obligations, fines, penalties, and other costs (including reasonable and necessary fees and expenses of outside attorneys, accountants and other professional advisors and of expert witnesses) and other costs of litigation in connection with any Action. "Defect Date" is defined in Section 10.1(a). --------------- "Disputes" is defined in Section 11.6(a) --------------- 2 "Encumbrance" means any security interest, contract, easement, covenant, community property interest, equitable interest, right of first refusal, or restriction, including any material restriction on use, voting, transfer, receipt of income, or exercise of any other material attribute of ownership. "Enforceable" - a contract is "Enforceable" if it is the legal, valid, and binding obligation of the applicable Person enforceable against such Person in accordance with its terms, except as such enforceability may be subject to the effects of bankruptcy, insolvency, reorganization, moratorium, or other laws relating to or affecting the rights of creditors, and general principles of equity. "Environmental Defect" means, with respect to the Property in question, (a) any hazardous substances stored or located on a Property in violation of any Orders or laws enacted by any Governmental Body of Indonesia; or (b) any such Property that has been cited by any Governmental Body of Indonesia for noncompliance with any existing regulations or Permits for protection of the environment governing such Property, to the extent that any of the foregoing arise out of or pertain to operations conducted by the Company on the Properties prior to the Closing Date; provided, however, that "Environmental Defects" shall not include risks that are inherent in normal, prudent oil and gas production and gathering operations in compliance with laws and regulations applicable to the Properties. "Environmental, Health, and Safety Requirements" means all Orders and laws enacted by any Governmental Body of Indonesia concerning or relating to public health and safety, worker/occupational health and safety, and pollution or protection of the environment, including those relating to the presence, use, production, generation, handling, transportation, treatment, recycling, transfer, storage, disposal, processing, discharge, release, control, or other action or failure to act involving cleanup of any hazardous materials, substances or wastes, chemical substances or mixtures, pollutants, contaminants, toxic chemicals, petroleum products or byproducts, asbestos, polychlorinated biphenyls, noise, or radiation, each as amended and as now in effect. "Equity Interest" means (a) with respect to a corporation, any and all shares of capital stock, (b) with respect to a partnership, limited liability company, trust or similar Person, any and all units, interests or other partnership/limited liability company interests, and (c) any other direct equity ownership or participation in a Person. "ERISA" means the Employee Retirement Income Security Act of 1974. "ERISA Affiliate" means each business or entity which is a member of a "controlled group of corporations," under "common control" or an "affiliated service group" with the Company within the meaning of Sections 414(b), (c) or (m) of the Code, or required to be aggregated with the Company under Section 414(o) of the Code, or is under "common control" with the Company, within the meaning of Section 4001(a)(14) of ERISA. "Evaluation Date" means 7:00 AM, on September 30, 2001. "Expenses" means direct, out of pocket expenses incurred in the ownership and operation of the Properties, exclusive of any administrative or other general expenses. 3 "Expiration Date" means December 31, 2001. "Financial Statements" is defined in Section 4.8. ----------- "Foreign Corrupt Practices Act" means the Foreign Corrupt Practices Act of 1977. "Governmental Body" means any legislature, agency, bureau, branch, department, division, commission, court, tribunal, magistrate, justice, multi- national organization, quasi-governmental body, or other similar recognized organization or body of any federal, state, county, municipal, local, or foreign government or other similar recognized organization or body exercising similar powers or authority. "Indemnification Claim" is defined in Section 9.4. ----------- "Indemnified Parties" means, individually and as a group, the Buyer Indemnified Parties and the Seller Indemnified Parties. "Indemnitor" means any Party having any liability to any Indemnified Party under this Agreement. "Interim Financial Statements" is defined in Section 4.8. ----------- "Knowledge" means with respect to (a) the Seller Parties, the actual conscious knowledge of the following individuals with no investigation other than owning and operating the Company in the historical course of their business: David Henderson, Joe Kilchrist, Al Smith and Bill Parker and (b) Buyer, the actual conscious knowledge of the following individuals with no investigation other than performing their duties for Buyer in the historical course of such duties: Hilmi Panigoro, Sugiharto and Rashid I Mangunkusumo. "Material Adverse Change (or Effect)" means a change (or effect) in the condition (financial or otherwise), properties, assets, liabilities, rights, obligations, operations, or business which change (or effect), individually or in the aggregate, could reasonably be expected to be materially adverse to such condition, properties, assets, liabilities, rights, obligations, operations, or business. "Material Company Contract" means each of (a) the Production Sharing Contract, dated February 29, 1988, by and between PERTAMINA and Trend East Java Limited, for the exploration for and exploitation of hydrocarbons on the Tuban Block area, onshore Northeast Hava, Indonesia, and (b) the Participation Agreement, as amended, dated February 29, 1988, among Trend East Java Limited, TOTAL Tuban, the Company, and RSR (Tuban) Pty. Ltd., which governs all operations for the exploration for and exploitation of hydrocarbons on the Tuban Block area, onshore Northeast Java, Indonesia, through which the Company owns an undivided participating interest related to the Production Sharing Contract described in (a) above. "Order" means any order, ruling, decision, verdict, decree, writ, subpoena, mandate, precept, command, directive, consent, approval, award, judgment, injunction, or other similar determination or finding by, before any Governmental Body or arbitrator. 4 "Ordinary Course of Business" means the ordinary course of business consistent with past custom and practice (including with respect to quantity, quality and frequency) of the relevant Person and its subsidiaries. "Organizational Documents" means the articles of incorporation, certificate of incorporation, charter, bylaws, articles of formation, regulations, operating agreement, certificate of limited partnership, partnership agreement, and all other similar documents, instruments or certificates executed, adopted, or filed in connection with the creation, formation, or organization of a Person, including any amendments thereto. "Parties" is defined in the preamble to this Agreement. "Permit" means any permit, license, certificate, approval, consent, notice, waiver, franchise, registration, filing, accreditation, or other similar authorization required by any law, or Governmental Body. "Person" means any individual, partnership, limited liability company, corporation, association, joint stock company, trust, entity, joint venture, unincorporated organization, or Governmental Body. "PERTAMINA" means Perusahaan Pertambangan Minyak Dan Gas Bumi Negara, an Indonesia State Enterprise established on the basis of Law No. 8/1971 of the Republic of Indonesia. "Properties" means, collectively, the properties subject of the Material Company Contracts, the wells and associated equipment located thereon, and all related properties, rights, and interests. "Property Records" means, collectively, (i) either Seller Party's production records, well files, maps, surveys, electric logs, seismic records, geological and geophysical data, together with all other files, third party contracts, documents, manuals and records, related to the Properties, other than until the Closing documents subject to the attorney-client privilege, and (ii) copies of either Seller Party's accounting and tax records pertaining to the Properties, including computer stored data and records. "Purchase Price" is defined in Section 2.2(a). -------------- "Representation Defect" is defined in Section 10.1(a). --------------- "Representation Defect Amount" is defined in Section 10.1(a). --------------- "Representation Defect Notice" is defined in Section 10.1(a). --------------- "Schedules" means the Schedules to this Agreement. "SEC" means the Securities and Exchange Commission. "Securities Act" means the Securities Act of 1933. 5 "Seller" is defined in the preamble to this Agreement. "Seller Controlled Tax Proceeding" is defined in Section 6.4(b)(i). ----------------- "Seller Indemnified Parties" means Buyer and its officers, directors, managers, employees, agents, representatives, controlling Persons, and shareholders. "Seller Indemnified Parties Threshold Amount" is defined in Section ------- 9.6(a)(ii). - ---------- "Seller Parties" is defined in the preamble to this Agreement. "Share" means any issued and outstanding share of the common stock, par value $1 per share, of the Company. "Straddle Tax Proceeding" is defined in Section 6.4(b)(i). ----------------- "Substances" means all severed crude oil, natural gas, casinghead gas, drip gasoline, natural gasoline, petroleum, natural gas liquids, condensate, products, liquids and other hydrocarbons and other minerals or materials of every kind and description. "Tax" means any federal, state, local, or foreign income, gross receipts, license, payroll, employment, excise, severance, stamp, occupation, premium, windfall profits, environmental customs, ad valorem, duties, capital stock, franchise, profits, withholding, social security, unemployment, disability, real property, personal property, sales, use, transfer, registration, value added, alternative or add-on minimum tax, including any interest, penalty, or addition thereto. "Tax Proceeding" is defined in Section 6.4(b)(i). ----------------- "Termination Date" means the earlier to occur of (a) the Expiration Date and (b) the date on which this Agreement is terminated pursuant to Section 8.1 ----------- (other than Section 8.1(b)). -------------- "Transaction Documents" means this Agreement and any documents or instruments executed or entered into by any of the Parties in connection herewith. "Transactions" means all of the transactions contemplated by this Agreement, including: (a) the sale of the Shares by Seller to Buyer and Buyer's delivery of the Purchase Price therefor; (b) the execution, delivery, and performance of all of the documents, instruments and agreements to be executed, delivered, and performed in connection herewith; and (c) the performance by Buyer and Seller Parties of their respective covenants and obligations (pre- and post-Closing) under this Agreement. "UNCITRAL" means the United Nations Commission on International Trade Law. "$" means the currency of the United States of America. 6 ARTICLE 2. PURCHASE AND SALE OF SHARES 2.1 Purchase and Sale of Shares. On and subject to the terms and conditions of this Agreement, Buyer agrees to purchase from Seller, and Seller agrees to sell to Buyer, all of the Shares for the consideration specified in Section 2.2, free from Encumbrances, together ----------- with all rights, titles and interests now or hereafter attaching to them at the Closing. 2.2 Purchase Price. (a) The purchase price for the Shares is $33,986,516.95 (the "Purchase Price"). (b) Purchase Price Adjustments. The Purchase Price will be subject to the following adjustments (as adjusted, the "Adjusted Purchase Price"): (i) The Purchase Price will be reduced by the Adjustment Amount to the extent such adjustments with respect thereto have been asserted prior to the Defect Date as provided in Article 10. ---------- (ii) The Purchase Price will be decreased by the amount of all proceeds received by the Company (without duplication) attributable to the period from the Evaluation Date up to (and including) the Closing Date that are derived from the sale of Substances produced from the Properties and sold on or after the Evaluation Date, less applicable production, severance and other similar Taxes, royalties, overriding royalties and other burdens. (iii) The Purchase Price will be increased by the amount of cash calls from the operator of the Properties which are attributable to the period from the Evaluation Date up to (and including) the Closing Date and are incurred in a manner consistent with the representations and covenants of the Seller Parties contained herein. (iv) The Purchase Price will be reduced by the amount of $20,000. This amount is attributable to the cash balance in the Company's checking account. 2.3 The Closing. The closing of the purchase and sale of the Shares (the "Closing") will take place at the offices of Waterous & Co., 5 Mount Street, Mayfair, London, England, WIK 3NE, commencing at 9:00 a.m., local time, on the second business day following the satisfaction or waiver of all conditions to the obligations of the Parties to consummate the purchase and sale of the Shares (other than conditions with respect to actions the respective Parties will take at the Closing itself) or such other date or place as Buyer and Seller may mutually determine (the "Closing Date"). 7 2.4 Deliveries at the Closing. At the Closing: (a) Seller will deliver to Buyer: (i) An officer's certificate, substantially in the form of Exhibit A, duly executed on Seller's behalf, which shall set forth --------- the Adjusted Purchase Price (the "Adjusted Purchase Price Certificate"). (ii) Certificates representing the Shares, duly endorsed (or accompanied by duly executed stock powers). (iii) An officers' certificate, substantially in the form of Exhibit B, duly executed on Seller's behalf, as to whether each --------- condition specified in Sections 7.1(a)-7.1(d) has been satisfied in ---------------------- all respects. (iv) A secretary's certificate, substantially in the form of Exhibit C, duly executed on Seller's behalf. (v) Certified resolutions of the directors and the shareholders of the Company authorizing the registration in the Company's register of shareholders of each transfer relating to the Shares and of the Buyer as the holder of the Shares. (vi) A resignation letter, effective as of the Closing Date, from each of the Company's directors and officers and each member the Company appointed to the operating committee for each project in which the Company may appoint such a member, which resignation in the case of officers and directors shall include a statement from such individual acknowledging that he or she has no claim against the Company for wrongful termination. (vii) The Property Records (which delivery will be made in Houston, Texas) and an inventory thereof in a form reasonably satisfactory to Buyer and Seller. (viii) Any powers of attorney (or other evidence of authority) under which any transfer or documents are executed on behalf of Seller or any nominee of Seller. (ix) The original Organizational Documents of the Company, certified by the appropriate Cayman Islands authority where applicable. (x) The Company's register of shareholders and all other minute or record books of the Company. (xi) The Company's official seal. (b) Buyer will deliver to Seller: 8 (i) The Adjusted Purchase Price, by wire transfer to Southwest Bank of Texas, N.A., ABA # :113011258, Cr: EEX Corporation, account:297895; Swift Code: SWBKUS44. (ii) An officers' certificate, substantially in the form of Exhibit D, duly executed on Buyer's behalf, as to whether each --------- condition specified in Section 7.2(a)-7.2(d) has been satisfied in --------------------- all respects. ARTICLE 3. REPRESENTATIONS AND WARRANTIES CONCERNING THE TRANSACTION 3.1 Representations and Warranties of Seller. Seller represents and warrants to Buyer that the statements contained in this Section 3.1 are correct and complete as of the date of this Agreement and ----------- will be correct and complete as of the Closing Date (as though made then, except as expressly provided in a representation or warranty, and as though the Closing Date were substituted for the date of this Agreement throughout this Section ------- 3.1). - --- (a) Status of Seller. Seller is an entity duly created, formed or organized, validly existing, and in good standing under the laws of the jurisdiction of its creation, formation, or organization. (b) Power and Authority; Enforceability. Seller has the relevant entity power and authority to execute and deliver each Transaction Document to which Seller is a party, and to perform and consummate the Transactions. Seller has taken all actions necessary to authorize the execution and delivery of each Transaction Document to which it is party, the performance of Seller's obligation's thereunder, and the consummation of the Transactions. Each Transaction Document to which Seller is a party has been duly authorized, executed, and delivered by, and is Enforceable against, Seller. (c) No Violation. The execution and the delivery by Seller of the Transaction Documents to which Seller is a party and the performance and consummation of the Transactions by Seller will not (i) breach any law or Order to which Seller is subject or provision of its Organizational Documents, (ii) breach any material contract, Order, or Permit to which Seller is a party or by which Seller is bound or to which any of Seller's assets is subject, or (iii) require any Consent, except (A) any SEC and other filings required to be made by Buyer, and (B) any notifications or filings to, or consents from, PERTAMINA. (d) Brokers' Fees. Seller has no liability to pay any compensation to any broker, finder, or agent with respect to the Transactions for which Buyer or the Company could become directly or indirectly liable. (e) Shares; Seller Information. Seller holds of record and owns beneficially all of the Shares, free and clear of any Encumbrances (other than any restrictions under the Securities Act, state securities laws, and Cayman Islands' securities laws). Seller is 9 not a party to any contract that could require Seller to sell, transfer, or otherwise dispose of any of the Shares (other than this Agreement). Seller is not a party to any other contract with respect to the Shares. 3.2 Representations and Warranties of Buyer. Buyer represents and warrants to Seller that the statements contained in this Section 3.2 are correct and complete as of the date of this Agreement and ----------- will be correct and complete as of the Closing Date (as though made then and, except as expressly provided in a representation or warranty, as though the Closing Date were substituted for the date of this Agreement throughout this Section 3.2). - ----------- (a) Entity Status. Buyer is an entity duly created, formed or organized, validly existing and in good standing under the laws of the jurisdiction of its creation, formation or organization. There is no pending or, to Buyer's Knowledge, threatened Action for the dissolution, liquidation, insolvency, or rehabilitation of Buyer. (b) Power and Authority; Enforceability. Buyer has the relevant entity power and authority to execute and deliver each Transaction Document to which it is party, and to perform and consummate the Transactions. Buyer has taken all action necessary to authorize the execution and delivery of each Transaction Document to which it is party, the performance of its obligations thereunder, and the consummation of the Transactions. Each Transaction Document to which Buyer is a party has been duly authorized, executed and delivered by, and is Enforceable against, Buyer. (c) No Violation. Except as set forth on Schedule 3.2(c) the --------------- execution and delivery by Buyer of the Transaction Documents to which Buyer is party and the performance and consummation of the Transactions by Buyer will not (i) breach any law or Order to which Buyer is subject or any provision of its Organizational Documents; (ii) breach any material contract, Order, or Permit to which Buyer is a party or by which it is bound or to which any of its assets is subject; or (iii) require any Consent, except (A) any SEC and other filings required to be made by Buyer, and (B) any notifications or filings to, or consents from, PERTAMINA. (d) Brokers' Fees. Buyer has no liability to pay any compensation to any broker, finder, or agent with respect to the Transactions for which either Seller Party could become liable. (e) Company Review. Buyer: (i) Has such knowledge and experience in financial and business matters that it is capable of evaluating the merits and risks of its investment in the Shares contemplated hereby, and that Buyer is able to bear the economic risk of such investment indefinitely. 10 (ii) Has (i) had the opportunity to meet with representative officers and other representatives of the Company to discuss its business, assets, liabilities, financial condition, cash flow, and operations, and (ii) received all materials, documents and other information that it deems necessary or advisable to evaluate the Shares and the Transactions. (iii) Has made its own independent examination, investigation, analysis and evaluation of the Shares, including its own estimate of the value of the Shares. (iv) Has undertaken such due diligence (including a review of the Company's assets, properties, liabilities, books, records, and contracts) as it deems adequate, including that described above. Nothing in this Section 3.2(e) will preclude Buyer from relying on the -------------- representations, warranties, covenants, and agreements of the Seller Parties herein or from pursuing its remedies with respect to a breach thereof. ARTICLE 4. REPRESENTATIONS AND WARRANTIES CONCERNING THE COMPANY Each Seller Party, jointly and severally, represents and warrants to Buyer that the statements contained in this Article 4 are correct and complete --------- as of the date of this Agreement and will be correct and complete as of the Closing Date (as though made then and, except as expressly provided in a representation or warranty, as though the Closing Date were substituted for the date of this Agreement throughout this Article 4), except as set forth in the --------- Schedules the Seller Parties have delivered to Buyer on the date hereof. 4.1 Corporate Status. The Company is an entity duly created, formed or organized, validly existing, and in good standing under the laws of the jurisdiction of its creation, formation, or organization. The Company is duly authorized to conduct its business and is in good standing under the laws of each jurisdiction where such qualification is required. The Company has the requisite entity power and authority necessary to own or lease its properties and to carry on its businesses as currently conducted. Schedule 4.1 lists the Company's directors ------------ and officers. Seller has delivered to Buyer correct and complete copies of the Company's Organizational Documents, as amended to date. The Company is not in breach of any provision of its Organizational Documents. 4.2 Power and Authority; Enforceability. The Company has the relevant entity power and authority necessary to execute and deliver each Transaction Document to which it is a party and to perform and consummate the Transactions. The Company has taken all action necessary to authorize the execution and delivery of each Transaction Document to which it is a party, the performance of its obligations thereunder, and the consummation of the Transactions. Each Transaction Document to which the 11 Company is party has been duly authorized, executed, and delivered by, and is Enforceable against, the Company. 4.3 No Violation. Except as listed on Schedule 4.3, the execution and the delivery of the ------------ applicable Transaction Documents by the Company and the performance of its obligations hereunder and thereunder, and consummation of the Transactions by the Company will not (a) breach any law or Order to which the Company is subject or any provision of the Organizational Documents of the Company; or (b) breach any material contract (including the Material Company Contracts), Order, or Permit to which the Company is a party or by which it is bound or to which any of its assets is subject (or result in the imposition of any material Encumbrance upon any of its assets); or (c) require any Consent, except any notifications or filings to, or consents from, PERTAMINA. 4.4 Brokers' Fees. The Company has no liability to pay any compensation to any broker, finder, or agent with respect to the Transactions for which Buyer or the Company could become directly or indirectly liable. 4.5 Capitalization. The Company's authorized Equity Interests consist of 850,000 shares of common stock, par value $1 per share, of which 100 shares are issued and outstanding and 0 shares are held in treasury. All of the Company's issued and outstanding shares: (a) have been duly authorized and are validly issued, fully paid, and nonassessable, (b) were issued in compliance with all applicable Cayman Islands, state, and federal securities laws, (c) were not issued in breach of any Commitments, and (d) are held of record and owned beneficially by Seller. The Company has no Commitments outstanding and has no obligation to issue any Commitments. No additional Commitments will arise in connection with the Transactions. There are no contracts with respect to the voting or transfer of the Company's Equity Interests. The Company is not obligated to redeem or otherwise acquire any of its outstanding Equity Interests. 4.6 Records. The copies of the Company's Organizational Documents that were provided to Buyer are accurate and complete and reflect all amendments made through the date hereof. The Company's minute books and other records have been made available to Buyer for review. 4.7 Company Subsidiaries. The Company owns no and has never owned any Equity Interests in any Person. 4.8 Financial Statements. Set forth on Schedule 4.8 are the following financial statements ------------ (collectively, the "Financial Statements"): 12 (a) unaudited balance sheets and statements of income as of and for the fiscal years ended December 31, 2000 and December 31, 2001 (December 31, 2001 being the "Balance Sheet Date") for the Company; and (b) unaudited balance sheets and statements of income (the "Interim Financial Statements") as of and for the nine months ended the Evaluation Date for the Company. The Financial Statements have been prepared based on the books and records of the Company and information from the operator of the Properties on a fair and reasonable basis throughout the periods covered thereby, present fairly the financial condition of the Company as of such dates and the results of operations of the Company for such periods and are consistent with the books and records of the Company and information from the operator of the Properties; provided, however, that the Financial Statements lack footnotes and other presentation items necessary for a complete understanding. Since the Balance Sheet Date the Company has not effected any change in any method of accounting or accounting practice. 4.9 Subsequent Events. Except as set forth in Schedule 4.9, since the Balance Sheet Date, the ------------ Company has been operated in the Ordinary Course of Business (except for activities pursuant to authorities for expenditures ("AFEs") contemplated in Section 4.21), and except as would not have a Material Adverse Effect, none of - ------------ the following has occurred: (a) The Company has not sold, leased, transferred, or assigned any assets other than for a fair consideration in the Ordinary Course of Business, or for sales of Substances produced from the Properties in the Ordinary Course of Business. (b) The Company has not entered into any contract (or series of related contracts). (c) The Company has not made any capital expenditure (or series of related capital expenditures). (d) The Company has not made any capital investment in, any loan to, or any acquisition of the securities or assets of, any other Person. (e) The Company has not issued any note, bond, or other debt security or created, incurred, assumed, or guaranteed any liability for borrowed money or any capitalized lease contract. (f) The Company has not canceled, compromised, waived, or released any Action (or series of related Actions). (g) There has been no change made or authorized to be made to the Organizational Documents of the Company. 13 (h) The Company has not issued, sold, or otherwise disposed of any of its Equity Interests. (i) The Company has not experienced any damage, destruction, or loss (whether or not covered by insurance) to its properties. 4.10 Legal Compliance. Except as would not cause a Material Adverse Effect, to Seller's Knowledge, (i) the Company and its respective predecessors has complied with all applicable laws, and (ii) no Action is pending or threatened against it alleging any failure to so comply. Except as would not cause a Material Adverse Effect, to Seller's Knowledge, the ownership and operation of the Properties has been in conformity with all laws relating to such Properties. 4.11 Tax Matters. The Company is not subject to any liabilities for Taxes, including Taxes relating to prior periods, other than those set forth or adequately reserved against in the Interim Financial Statements or those incurred since the Evaluation Date in the Ordinary Course of Business. The Company has duly filed or caused to be filed when due all Tax reports and returns in connection with and in respect of its business and assets, and has timely paid and discharged all amounts shown as due thereon. The Company has made available to Buyer accurate and complete copies of all of its Tax reports and returns for all periods, except those periods for which returns are not yet due. The Company has not received any notice of any Tax deficiency outstanding, proposed or assessed against or allocable to it, and the Company has not executed any waiver of any statute of limitations on the assessment or collection of any Tax or executed or filed with any Governmental Body any contract now in effect extending the period for assessment or collection of any Taxes against it. There are no Encumbrances for Taxes upon, pending against or, to Seller's Knowledge, threatened against, any asset of the Company. The Company is not subject to any Tax allocation or sharing contract. 4.12 Real Property. Except for the Properties, the Company does not own or lease any real property. 4.13 Contracts. (a) Schedule 4.13 lists the following contracts to which the ------------- Company is a party: (i) Any contract (or group of related contracts) for the lease of personal property to or from any Person providing for lease payments. (ii) Any contract to sell, lease, farmout or otherwise dispose of any of its interests in any of the Properties other than conventional rights of reassignment. 14 (iii) Any option to purchase or call on the Substances produced from the Properties. (iv) Any contract (or group of related contracts) under which it has created, incurred, assumed, or guaranteed any liability for borrowed money or any capitalized lease, or under which it has imposed or suffered to exist a material Encumbrance on any of its assets. (v) Any contract with Seller or any Affiliates of Seller other than the Company. (vi) Any other contract (or group of related contracts) the performance of which involves receipt or payment of consideration in excess of $10,000. (b) Seller has delivered to Buyer a correct and complete copy of each Material Company Contract (as amended to date). With respect to each Material Company Contract: (i) The Material Company Contract is Enforceable against the Company. (ii) The Material Company Contract will continue to be Enforceable against the Company on identical terms following the consummation of the Transactions. (iii) The Company is not in breach of such Material Company Contract, and to Seller's Knowledge, no event has occurred that, with notice or lapse of time, would constitute a breach under the Material Company Contract. (iv) To Seller's Knowledge, no party to the Material Company Contract has repudiated any provision of the Material Company Contract. 4.14 Litigation. Schedule 4.14 sets forth each instance in which the Company (a) is ------------- subject to any outstanding Order or (b) is a party to, the subject of, or, to Seller's Knowledge, is threatened to be made a party to or the subject of any Action. No Action required to be set forth in Schedule 4.14 questions the ------------- Enforceability of this Agreement or the Transactions, or would reasonably be expected to result in any Material Adverse Change with respect to the Company, and to Seller's Knowledge, no such Action has been threatened against the Company. 4.15 Employees. The Company does not have and has never had any employees. 15 4.16 Employee Benefits. With respect to the employee benefit plans or arrangements of any type (including plans described in Section 3(3) of ERISA) sponsored, maintained or contributed to by Seller or any ERISA Affiliate, no event has occurred and there exists no condition or set of circumstances, in connection with which the Company could, directly or indirectly, be subject to any liability under ERISA or the Code. 4.17 Permits. To Seller's Knowledge, the Company or the operator of the Properties possesses all Permits required to be obtained for its business and operations. 4.18 Environmental, Health and Safety Matters. Notwithstanding any other provision in this Agreement, the Seller Parties make no representations or warranties with respect to Environmental, Health and Safety Requirements. All matters concerning Environmental Defects are addressed exclusively in Sections 10.1 through 10.3 of this Agreement. ------------- ---- 4.19 Foreign Corrupt Practices Act Compliance. Neither Seller Party has, directly or indirectly, in connection with the Company's business, made or agreed to make any payment to any Person connected with or related to any Governmental Body, except payments or contributions required or allowed by applicable law. The internal accounting controls and procedures of the Company are sufficient to cause the Company to comply with the Foreign Corrupt Practices Act. 4.20 Certain Assets Used by the Company. Neither Seller nor any of Seller's Affiliates (other than the Company) own any asset that is used in the Company's business. 4.21 Current Drilling Commitments. Schedule 4.21 contains a complete and accurate list as of the date hereof ------------- of (a) all AFEs to drill or rework wells or for capital expenditures pursuant to any contract to which the Company is a party or by which any of the Properties is bound that any Person has proposed on or after the Evaluation Date, whether or not accepted by the Company or any other Person; (b) all AFEs and commitments to drill or rework wells or for other capital expenditures pursuant to any such contracts for which all of the activities anticipated in such AFEs or commitments have not been completed and paid for by the date hereof; (c) any wells located on the Properties or lands pooled or unitized therewith which have been abandoned; and (d) any material items of equipment removed from the Properties, other than those replaced by items of equal suitability and value. 16 4.22 Bankruptcy. No steps have been taken for the appointment of an administrator, judicial manager or receiver with respect to any part of the Properties or any undertaking of the Company. To Seller's Knowledge, there are no circumstances that would entitle any Person to succeed in winding up the Company or in obtaining the appointment of a receiver, manager, trustee, judicial manager or similar officer with respect to any part of the Properties or undertakings of the Company. 4.23 No Other Representations. Except as and to the extent set forth in this Agreement, neither Seller Party makes any representations or warranties whatsoever (INCLUDING ANY IMPLIED OR EXPRESS WARRANTY OF MERCHANTABILITY, FITNESS FOR A PARTICULAR PURPOSE, OR CONFORMITY TO MODELS OR SAMPLES OF MATERIALS) to Buyer and each of them hereby disclaims all Liability and responsibility for any representation, warranty, statement, or information not included herein that was made, communicated, or furnished (orally or in writing) to Buyer or its representatives (including any opinion, information, projection, or advice that may have been or may be provided to Buyer by any director, officer, employee, agent, consultant, or representative of either Seller Party). Without limiting the foregoing, no representation or warranty is made with respect to the information included in the Information Memorandum dated October, 2001, or any supplement or amendment thereof or other information provided in connection with the solicitation of proposals to acquire the Shares, such information being provided for Buyer's convenience to assist it in framing its due diligence. ARTICLE 5. PRE-CLOSING COVENANTS The Parties agree as follows with respect to the period between the execution of this Agreement and the earlier of the Closing and the Termination Date: 5.1 General. Each Party will use its Commercially Reasonable Efforts to take all Actions and to do all things necessary, proper, or advisable to consummate, make effective, and comply with all of the terms of this Agreement and the Transactions applicable to it (including satisfaction, but not waiver, of the Closing conditions for which it is responsible or otherwise in control, as set forth in Article 7). --------- 5.2 Notices and Consents. (a) Each Seller Party will give any notices to third parties, and will use its Commercially Reasonable Efforts to obtain any third party Consents listed on Schedule 4.3, or that Buyer reasonably may otherwise request in ------------ connection with the matters referred to in Sections 3.1(c) and 4.3. Each Seller --------------- --- Party will give any notices to, make any filings with, and use its Commercially Reasonable Efforts to obtain any Consents of Governmental Authorities, if any, required pursuant to any applicable law in connection 17 with the Transactions including in connection with the matters referred to in Sections 3.1(c) and 4.3. --------------- --- (b) Buyer will give any notices to third parties, and will use its Commercially Reasonable Efforts to obtain any third party consents listed on Schedule 3.2(c), or that Seller reasonably may otherwise --------------- request in connection with the matters referred to in Section 3.2(c). -------------- Buyer will give any notices to, make any filings with, and use its Commercially Reasonable Efforts to obtain any Consents of Governmental Bodies, if any, required or reasonably deemed advisable by Seller pursuant to any applicable law in connection with the Transactions including in connection with the matters referred to in Section 3.2(c). -------------- 5.3 Operation of Business. The Company will not engage in any practice, take any action, or enter into any transaction outside the Ordinary Course of Business or engage in any practice, take any action, or enter into any transaction of the sort described in Section 4.9. Subject to compliance with applicable law, from the date hereof ----------- until the earlier to occur of the Closing or the Termination Date, the Seller Parties will confer on a regular and frequent basis with one or more representatives of Buyer to report on operational matters and the general status of the Company's ongoing business, operations and finances and will promptly provide to Buyer or its representatives copies of all material filings they make with any Governmental Body during such period. 5.4 Full Access. (a) The Company will permit representatives of Buyer (including financing providers) to have full access at all reasonable times, and in a manner so as not to interfere with the normal business operations of the Company, to all premises, properties, personnel, books, records, contracts, and documents pertaining to the Company and will furnish copies of all such books, records, contracts and documents and all financial, operating and other data, and other information as Buyer may reasonably request; provided, however, that no investigation pursuant to this Section 5.4 will affect any representations or warranties made ----------- herein or the conditions to the Parties' obligations to consummate the Transactions. (b) Notwithstanding Section 5.4(a), Buyer acknowledges that the -------------- Company does not operate the Properties and that, despite its Commercially Reasonable Efforts, it may not be able to provide access to the Properties. The Seller Parties will not be obligated to provide Buyer with access to any Property Records or other data that (i) consist of any evaluations by either Seller Party or pertaining to either Seller Party or their Affiliates, (ii) are unrelated to the Company, (iii) the Seller Parties cannot legally provide to Buyer without breaching confidentiality contracts with other Persons, of which the Seller Parties are not able to obtain waivers using their Commercially Reasonable Efforts, or (iv) are subject to the attorney-client privilege. At Buyer's request, such Seller Party will use its Commercially Reasonable Efforts to obtain such waivers or consents as 18 may be required for Buyer to have access to such documents, but will not be required to incur any material expenses in connection therewith. 5.5 Notice of Developments. The Seller Parties will give prompt written notice to Buyer of any development occurring after the date of this Agreement, or any item about which such Person did not have Knowledge on the date of this Agreement, which causes or reasonably could be expected to cause a breach of any of the representations and warranties in Section 3.1 or Article 4. Buyer will give prompt written ----------- --------- notice to Seller of any development occurring after the date of this Agreement, or any item about which such Person did not have Knowledge on the date of this Agreement, which causes or reasonably could be expected to cause a breach of any of the representations and warranties in Section 3.2. Except as set forth in ----------- Section 9.2(a) or Section 9.3(a), no disclosure by any Party pursuant to this - -------------- -------------- Section 5.5 will be deemed to amend or supplement the Schedules or to prevent or - ----------- cure any misrepresentation or breach of any representation, warranty, or covenant. 5.6 Affiliated Transactions. Except as disclosed on Schedule 5.6, the Seller Parties will cause all ------------ contracts and transactions by and between Seller or any Affiliate of Seller and the Company to be terminated effective as of the Closing, without any material cost or continuing obligation to the Company or Buyer. 5.7 Operation of Properties. The Seller Parties will take such steps as would a prudent non-operator to cause the operator to continue the routine operation of the Properties in the Ordinary Course of Business as would a prudent operator. 5.8 Commitments. (a) The Company will not expend any funds, or make any commitments to expend funds or enter into any contract that would obligate the Company to expend funds, or otherwise incur any other liabilities, in connection with owning or operating the Properties after the date hereof, other than routine expenses incurred in the normal operation of the existing wells on the Properties. (b) The Company will not abandon, or consent to abandoning, any wells located on the Properties that are (or with the expenditure of funds would be) capable of producing in paying quantities, or take any other steps that represent a substantial departure from the Properties' current operational status. (c) The Company will not propose to drill any additional wells, or propose to deepen, plug back, or rework any existing wells, or propose to conduct any other operations that require consent under the applicable operating contract, or propose to conduct any other operations other than the normal operation of the existing wells on the Properties, or propose to abandon any wells on the Properties. 19 (d) The Seller Parties will advise Buyer within three business days of any proposals with respect to Section 5.8(a) that third parties make and -------------- Buyer will advise the applicable Seller Party of the action Buyer desires such Party to take within three business days of such notice. The appropriate Seller Party will respond to each such proposal in the manner Buyer requests. Any matter to which Buyer consents under this Section 5.8 ----------- will not be deemed to be an Asserted Defect under Article 10. ---------- (e) Set forth in Schedule 5.8(e) is the calendar year 2002 budget --------------- proposed by the operator of the Properties. The 2002 budget has not yet been approved by the Company as provided in the Material Company Contracts. ARTICLE 6. POST-CLOSING COVENANTS The Parties agree as follows with respect to the period following the Closing: 6.1 General. In case at any time after the Closing any further action is necessary or reasonably desirable to carry out the purposes of this Agreement, each Party will take such further action (including executing and delivering such further instruments and documents) as any other Party reasonably may request, all at the requesting Party's sole cost and expense (unless the requesting Party is entitled to indemnification therefor under Article 9). After the Closing Buyer --------- will be entitled to possession of all documents, books, records, agreements, and financial data of any sort relating to the Company, except for data that (i) consist of any evaluations by Seller or pertaining to either Seller Party or their Affiliates, (ii) are unrelated to the Company, (iii) the Seller Parties cannot legally provide to Buyer without breaching confidentiality contracts with other Persons, of which the Seller Parties are not able to obtain waivers using their Commercially Reasonable Efforts, or (iv) are subject to the attorney- client privilege of Seller and not the Company. 6.2 Litigation Support. So long as any Party actively is contesting or defending against any Action in connection with (a) the Transactions or (b) any fact, situation, circumstance, status, condition, activity, practice, plan, occurrence, event, incident, action, failure to act, or transaction on or prior to the Closing Date involving the Company, each other Party will cooperate with such Party and such Party's counsel in the contest or defense, make available their personnel, and provide such testimony and access to their books and records as will be necessary in connection with the contest or defense, at the sole cost and expense of the contesting or defending Party (unless the contesting or defending Party or one of its Affiliates is entitled to indemnification therefor under Article 9). - --------- 6.3 Transition. Seller will not take any action that is designed or intended to have the effect of discouraging any lessor, licensor, customer, joint interest owner, production purchaser, supplier, or other business associate of the Company from maintaining at least as favorable business 20 relationships with the Company after the Closing as it maintained with the Company prior to the Closing. 6.4 Taxes. (a) Seller shall be responsible for the preparation and filing of all Tax returns of the Company relating to taxable periods ending on or before the Balance Sheet Date, and Buyer shall be responsible for the preparation and filing of all Tax returns of the Company for taxable periods ending after the Balance Sheet Date. In the event of a Tax period beginning on or before the Balance Sheet Date and ending after the Balance Sheet Date, Buyer shall be responsible for the preparation and filing of Tax returns relating thereto; provided that Buyer shall keep Seller apprised of all matters with respect to such returns and shall allow Seller to review and comment on such returns prior to the filing thereof. (b) (i) Upon Buyer's receipt of notice of any audit, examination, determination or other proceeding concerning Taxes relating to the Company, the Properties or the Substances ("Tax Proceeding"), Buyer shall promptly give Seller written notice thereof if the Tax Proceeding relates to a period ending on or before the Balance Sheet Date ("Seller Controlled Tax Proceeding") or a period beginning on or prior to the Balance Sheet Date and ending after the Closing Date ("Straddle Tax Proceeding"). In the case of a Seller Controlled Tax Proceeding, Seller shall have sole authority and control over the conduct and settlement of such Tax Proceeding. If the Tax Proceeding relates to a period beginning after the Balance Sheet Date, Buyer shall have the sole authority and control over the conduct and settlement of such Tax Proceeding ("Buyer Controlled Tax Proceeding"). If a Tax Proceeding is a Straddle Tax Proceeding, then Buyer and Seller shall have joint authority and control over the Tax Proceeding. The authority granted to Buyer and/or Seller pursuant to this Section ------- 6.4(b)(i) includes the authority to initiate any claim for a refund, --------- file any amended Tax return or take any other action reasonably deemed appropriate by such party(ies) with respect to such Tax Proceeding. (ii) In the case of a Seller Controlled Tax Proceeding or a Buyer Controlled Tax Proceeding, the party that is not controlling the conduct and settlement of such Tax Proceeding shall, at the request of the other party (the "Controlling Party"), do all things reasonably requested by the Controlling Party, including executing powers of attorney or other documents, to enable the Controlling Party to take actions with respect to such Tax Proceeding pursuant to Section ------- 6.4(b)(i). ---------- (iii) This Section 6.4(b) shall only apply in cases where Buyer -------------- may pursue indemnification from Seller under Section 9.2. ------------ 21 (c) Buyer shall cause the Company to: (i) (A) Retain, until the expiration of the statutes of limitation for Tax audits (including any extensions thereof), records of each cost incurred under any Material Company Contract since its inception until the Closing Date and the Tax classification of each such cost, and (B) provide to Seller, at the cost estimated as of the Evaluation Date, all such records and all other records and information for all Tax periods or portions thereof commencing on or before the Closing Date. (ii) At Seller's request, provide to Seller information relating to any final determination of any Tax Proceeding that affects any amount required to be shown on any Tax return of the Company for Tax periods or portions thereof commencing on or before the Closing Date; (iii) (A) Retain until the expiration of all applicable statutes of limitations (including any extensions thereof) copies of all Tax returns, supporting working schedules and other records or information relating to all Tax periods or portions thereof commencing on or before the Closing Date, and (B) at any time thereafter, prior to destroying or otherwise disposing of such records, provide Seller with a reasonable opportunity to review and copy them. ARTICLE 7. CLOSING CONDITIONS 7.1 Conditions Precedent to Obligation of Buyer. Buyer's obligation to consummate the Transactions contemplated to occur in connection with the Closing and thereafter is subject to the satisfaction of each condition precedent listed below. (a) Accuracy of Representations and Warranties. Each representation and warranty set forth in Section 3.1 and Article 4 must have been accurate ----------- --------- and complete in all material respects (except with respect to any provisions including the word "material" or words of similar import, with respect to which such representations and warranties must have been accurate and complete) as of the date of this Agreement and must be accurate and complete in all material respects (except with respect to any provisions including the word "material" or words of similar import, with respect to which such representations and warranties must have been accurate and complete) as of the Closing Date, as if made on the Closing Date, without giving effect to any supplements to the Schedules. (b) Compliance with Obligations. Each Seller Party must have performed and complied with all of its covenants to be performed or complied with at or prior to the Closing (singularly and in the aggregate) in all material respects. 22 (c) No Adverse Litigation. There must not be pending or threatened any Action by or before any Governmental Body, arbitrator, or mediator which will seek to restrain, prohibit, invalidate, or collect Damages arising out of the Transactions. (d) Consents. The Seller Parties must have obtained all of the Consents listed on Schedule 7.1(d). --------------- 7.2 Conditions Precedent to Obligation of the Seller Parties. The obligation of the Seller Parties to consummate the Transactions contemplated to occur in connection with the Closing and thereafter is subject to the satisfaction of each condition precedent listed below. (a) Accuracy of Representations and Warranties. Each representation and warranty set forth in Section 3.2 must have been accurate and complete ----------- in all material respects (except with respect to any provisions including the word "material" or words of similar import, with respect to which such representations and warranties must have been accurate and complete) as of the date of this Agreement, and must be accurate and complete in all material respects (except with respect to any provisions including the word "material" or words of similar import, with respect to which such representations and warranties must have been accurate and complete) as of the Closing Date, as if made on the Closing Date. (b) Compliance with Obligations. Buyer must have performed and complied with all its covenants and obligations required by this Agreement to be performed or complied with at or prior to the Closing (singularly and in the aggregate) in all material respects. (c) No Order or Injunction. There must not be pending or threatened any Action by or before any Governmental Body, arbitrator, or mediator which will seek to restrain, prohibit, invalidate, or collect Damages arising out of the Transactions. (d) Consents. Buyer must have obtained all of the Consents listed on Schedule 7.2(d). --------------- ARTICLE 8. TERMINATION 8.1 Termination of Agreement. The Parties may terminate this Agreement as provided below: (a) Buyer and Seller may terminate this Agreement as to all Parties by mutual written consent at any time prior to the Closing; (b) Buyer or Seller may terminate this Agreement upon delivery of notice if the Closing has not occurred prior to the Expiration Date, provided that the Party delivering such notice will not have caused such failure to close; 23 (c) Buyer may terminate this Agreement by giving written notice to Seller at any time prior to the Closing if either Seller Party has breached any representation, warranty, or covenant contained in this Agreement in any material respect; provided, however, that the failure of the Seller Parties to obtain the consents required under Schedules 4.3 and 7.2(d) ------------- ------ prior to the Closing will not permit Buyer to terminate this Agreement under this Section 8.1(c) so long as the Seller Parties obtain such -------------- consents within 90 days after the Closing; or (d) Buyer or Seller may terminate this Agreement if the Representation Defect Amount (as defined in Section 10.1(a)) is greater than 20% of the --------------- Purchase Price; or (e) Seller may terminate this Agreement by giving notice to Buyer at any time prior to the Closing if Buyer has breached any representation, warranty, or covenant contained in this Agreement in any material respect. 8.2 Effect of Termination. (a) Except for the obligations under this Article 8 and Article 11, if --------- ---------- this Agreement is terminated under Section 8.1, then, except as provided in ----------- this Section 8.2 all further obligations of the Parties under this ----------- Agreement will terminate. (b) If Buyer or Seller terminate this Agreement pursuant to Section ------- 8.1(c) or 8.1(d), as the case may be, then the rights of the non-breaching ----- ------ Party(ies) to pursue all legal remedies for Damages such Party suffer will survive such termination unimpaired and no election of remedies will have been deemed to have been made. (c) Upon the termination of this Agreement, whether under Section ------- 8.1(a) or 8.1(b), Seller will be free to sell the Shares (or any portion ------ ------ thereof) to any other Person without any limitation under or because of this Agreement. Buyer will cooperate with Seller in effectuating any such sale and will promptly execute any instrument evidencing the termination of Buyer's right to acquire the Shares as Seller may reasonably request. Buyer will also immediately return to Seller all data and other information (and all copies thereof and analysis therefrom) furnished to Buyer by or on behalf of Seller in connection with this transaction. ARTICLE 9. INDEMNIFICATION 9.1 Survival of Representations and Warranties. (a) Each representation and warranty of Seller contained in Section ------- 3.1 and any certificate related to such representations and warranties will --- survive the Closing and will continue in full force and effect forever. Each representation and warranty of either Seller Party contained in Article 4 and any certificate related to such representations and --------- warranties will survive the Closing and continue in full force and effect for one year thereafter, except (i) the representations and warranties set forth in Sections 4.4, 4.11, and 4.16, which will survive the Closing and ------------ ---- ---- continue in full force and effect until the applicable statute of limitations expires (or for 15 years if there is no applicable statute of 24 limitations), and (ii) the representations and warranties set forth in Sections 4.1, 4.2, and 4.5, which will survive the Closing and will ------------ --- --- continue in full force and effect forever. (b) Each representation and warranty of Buyer contained in Section 3.2 ----------- and any certificate related to such representations and warranties will survive the Closing and continue in full force and effect forever. 9.2 Indemnification Provisions for Buyer's Benefit. Seller will indemnify and hold the Seller Indemnified Parties harmless from and pay any and all Damages, directly or indirectly, resulting from, relating to, arising out of, or attributable to any one of the following: (a) Any breach of any representation or warranty either Seller Party has made in this Agreement as if such representation or warranty were made on and as of the Closing Date without giving effect to any supplement to the Schedules, other than any such breach that is disclosed in a supplement to the Schedules delivered under Section 5.5, as having caused a condition ----------- specified in Article 7 not to be satisfied. --------- (b) Any breach by either Seller Party of any covenant or obligation of either Seller Party in this Agreement. 9.3 Indemnification Provisions for Seller's Benefit. Buyer will indemnify and hold the Buyer Indemnified Parties harmless from and pay any and all Damages, directly or indirectly, resulting from, relating to, arising out of, or attributable to any of the following: (a) Any breach of any representation or warranty Buyer has made in this Agreement as if such representation or warranty were made on and as of the Closing Date without giving effect to any supplement to the Schedules, other than any such breach that is disclosed in a supplement to the Schedules delivered under Section 5.5, as having caused a condition ----------- specified in Section 7.2 not to be satisfied. ----------- (b) Any breach by Buyer of any covenant or obligation of Buyer in this Agreement. (c) Any Taxes for which the Company may become liable attributable to its assets business or operations for the time after the Evaluation Date. 9.4 Indemnification Claim Procedures. (a) If any third party notifies any Indemnified Party with respect to the commencement of any Action that may give rise to a claim for indemnification against any Indemnitor under this Article 9 (an --------- "Indemnification Claim"), then the Indemnified Party will promptly give notice to the Indemnitor. Failure to notify the Indemnitor will relieve the Indemnitor of any liability that it may have to the Indemnified Party to the 25 extent the defense of such Action is materially and irrevocably prejudiced by the Indemnified Party's failure to give such notice. (b) An Indemnitor will have the right at any time to assume and thereafter conduct the defense of the Indemnification Claim with counsel of the Indemnitor's choice reasonably satisfactory to the Indemnified Party; provided, however, the Indemnified Party will not consent to the entry of any judgment or enter into any settlement with respect to the Indemnification Claim without the prior written consent of the Indemnitor (not to be withheld unreasonably). (c) Unless and until an Indemnitor assumes the defense of the Indemnification Claim as provided in Section 9.4(b), the Indemnitor may -------------- defend against the Indemnification Claim in any manner the Indemnitor reasonably may deem appropriate. (d) In no event will the Indemnified Party consent to the entry of any judgment or enter into any settlement with respect to the Indemnification Claim without the prior written consent of the Indemnitor (not to be withheld unreasonably). (e) Each Party hereby consents to the non-exclusive jurisdiction of any Governmental Body, arbitrator, or mediator in which an Action is brought against any Indemnified Party for purposes of any Indemnification Claim that an Indemnified Party may have under this Agreement with respect to such Action or the matters alleged therein, and agrees that process may be served on such Party with respect to such claim anywhere in the world. 9.5 Notice of Claim. A Party having Knowledge of an event or condition that may cause such Party to be Damaged, which event or condition gives or could give rise to a claim for indemnification under this Article 9, shall promptly notify each other Party --------- thereof in writing (a "Claim Notice"). The Claim Notice shall contain a brief description of the nature of the Damages suffered and, if practicable, an aggregate dollar value estimate of the Damages suffered. Failure to provide a Claim Notice with respect to such an event or condition within 30 days of the occurrence of such event or condition will constitute a waiver of any such claim. 9.6 Limitations on Indemnification Liability. (a) With Respect to Claims by the Seller Indemnified Parties. Any claims the Seller Indemnified Parties make under this Article 9 will be --------- limited as follows: (i) Ceiling. Seller's aggregate liability for Damages under this ------- Agreement related to breaches of the representations, warranties, and covenants herein will not exceed an amount equal to 50% the Purchase Price. (ii) Basket. Seller will have no liability for Damages related to ------ breaches of the representations, warranties, and covenants in this Agreement unless and until the aggregate Damages claimed under Section ------- 9.2 exceeds 2 1/2% of the Purchase Price (the "Seller Indemnified --- Parties Threshold Amount"); 26 provided, however, once such amount exceeds the Seller Indemnified Parties Threshold Amount, the Seller Indemnified Parties will be entitled to recover all amounts to which they are entitled in excess of the Seller Indemnified Parties Threshold Amount. (b) With Respect to Claims by the Buyer Indemnified Parties. Any claims the Buyer Indemnified Parties make under this Article 9 will be --------- limited as follows: (i) No Impleading. Buyer agrees that it will not, and it will ------------- cause its Affiliates to not, implead, or cause to be impleaded, Seller or any of its Affiliates in any Action arising from owning or operating the Company. (ii) The Parties acknowledge that substantial negotiations occurred with respect to the value of (i) the "current assets" of the Company. Accordingly, notwithstanding the representations made in Section 4.8 or otherwise, no indemnity will be available under this ----------- Agreement or otherwise if the Company collects different amounts with respect to such items than the amounts reflected in the Financial Statements. (c) With Respect to Claims by any Indemnified Party. Any claims any Indemnified Party makes under this Article 9 will be limited as follows: --------- (i) Reduction for Insurance Claims. The amount required to be ------------------------------ paid for Damages will be reduced to the extent of any amounts an Indemnified Party actually receives pursuant to the terms of the insurance policies (if any) covering such Indemnification Claim. (ii) Exclusion of Certain Types of Damages. All indemnification ------------------------------------- obligations under this Article 9 will be limited to actual Damages and --------- will exclude incidental, consequential, lost profits, indirect, punitive, or exemplary Damages. 9.7 Other Indemnification Provisions. (a) This Article 9 contains the sole and exclusive remedy for any --------- claim against Buyer or either Seller Party with respect to claims under this Agreement after the Closing (other than under Section 2.2). ----------- (b) A claim for any matter not involving a third party may be asserted by notice to the Party from whom indemnification is sought. ARTICLE 10. REPRESENTATION DEFECTS 10.1 Asserted Defects. (a) If, in the course of its review of the Company and the Properties in accordance with Section 5.4, Buyer discovers any Environmental Defects ----------- or items, 27 occurrences, or circumstances which would constitute a breach of any representation or warranty set forth in Article 4 (collectively, --------- "Representation Defects"), Buyer may, on or before March 22, 2002 (the "Defect Date"), assert any such Representation Defects by giving Seller written notice of the same. To be effective, Buyer's notice of a defect under this Section 10.1 (a "Representation Defect Notice") must include (i) ------------ if applicable, the Property affected by such Representation Defect, (ii) a brief description of the matter allegedly constituting the Representation Defect, (iii) the reports of experts, all other documentation (if any) on which Buyer's assertion of such a defect is based, (iv) such supporting documents as are reasonably necessary for Seller to verify the existence of any such defect, (v) any requirements asserted by Buyer as being required to cure such Representation Defect, (vi) Buyer's estimate of the sum that would be required to correct such Representation Defect (the "Representation Defect Amount"), and (vii) a description of the manner by which such Representation Defect Amount was determined, together with sufficient supporting detail to enable Seller to determine whether such Representation Defect Amount is an appropriate valuation. Such Representation Defects of which Buyer provides a valid Representation Defect Notice prior to the Defect Date are "Asserted Defects." All matters that might constitute Environmental Defects which are not Asserted Defects will be deemed waived for all purposes related to this Agreement. (b) Seller will have 10 days from and after the receipt of the Representation Defect Notice to review and evaluate the Representation Defect Notice and to determine whether it concurs with Buyer's assessment of the Representation Defect and the Representation Defect Amount. Buyer will have three days thereafter to review Seller's response to its Representation Defect Notice. If Buyer notifies Seller of Asserted Defects on or before the Defect Date, Seller may, for a period of 20 days after the receipt of such notice, attempt to cure the Asserted Defects. Buyer and Seller will exercise Commercially Reasonable Efforts to resolve any disputes that may pertain to the existence of a Representation Defect or the Representation Defect Amount. 10.2 Certain Adjustments to Purchase Price. (a) If Asserted Defects are presented to the Seller Parties, and Seller is unable (or unwilling) to cure such Asserted Defects in accordance with Section 10.1(b) and without any cost or Encumbrance to the Company, --------------- then, subject to Section 10.2(b) and 10.2(c), the Purchase Price will be --------------- ------- reduced by an amount equal to the "Adjustment Amount." The Adjustment Amount will be calculated in accordance with the following provisions: (i) If the Asserted Defect results from a charge that is undisputed and liquidated in amount, then the Adjustment Amount will be the amount necessary to be paid to cure the Asserted Defect. (ii) If the Asserted Defect represents a liability, Encumbrance, burden, discrepancy or charge of a type not described in Section 10.2(a)(i), the Adjustment Amount will be determined by taking into account (A) if applicable, the portion of the Property affected by the Asserted Defect, (B) the legal effect of 28 the Asserted Defect, (C) the potential economic effect of the Asserted Defect, and (D) such other factors as are necessary to make a proper evaluation of the Asserted Defect's value. (b) If after giving effect to the factors set forth above in this Section 10.2, the Parties are still unable to reach agreement upon an ------------ appropriate Adjustment Amount, Seller may elect prior to the Closing to either (i) continue to attempt to cure the Asserted Defect until the Closing in accordance with Section 10.1, (ii) elect to cease efforts to ------------ cure the Asserted Defect, and employ for the purpose of the Closing, an amount determined by averaging Seller's and Buyer's estimates of the proposed adjustments relating to such Asserted Defect, (iii) indemnify Buyer with respect to the Asserted Defect, or (iv) refer the matter for resolution by arbitration in the manner set forth in Section 10.3. ------------ (c) If the Purchase Price reduction (taking into account any adjustments under Section 10.2) that would result from the procedure above ------------ does not exceed 10% of the Purchase Price set forth in Section 2.2(a), then -------------- the Purchase Price will not be adjusted and the Closing will occur in accordance with Section 2.3. ----------- 10.3 Arbitration. If despite their good faith efforts to do so, Buyer and Seller are unable to reach agreement regarding (a) the existence of an Asserted Defect, (b) the value of an Asserted Defect (and the corresponding adjustment to the Purchase Price), or (c) the Adjustment Amount, either Buyer or Seller may elect to refer the matter to arbitration in accordance with the following provisions: (a) The arbitration will be held before a panel of one arbitrator who will have a minimum of 15 years experience in the international oil and gas industry, such that he or she is considered an expert on oil and gas environmental matters. (b) Notice of Buyer's or Seller's election to submit the matter for arbitration shall be given to each other Party within three business days after such referral is made. (c) Upon delivery of such notice by either Buyer or Seller, each Party, as applicable, will have ten days to provide the arbitrator (and each other Party) with a statement of its position (with supporting documentation) regarding the matter or matters in dispute together with its best and final offer for settlement of the dispute. The failure to provide a statement of position within this period will constitute a waiver of such Party's right to have the arbitrator consider such materials. (d) The arbitrator will consider the statements of position the Parties submit and will, within ten business days after receipt of such materials, issue his or her decision adopting the best and final offer for settlement of the dispute either by Buyer or Seller. (e) If necessary to accommodate resolution of any dispute under this Section 10.3, the Closing Date will be extended for ten days after issuance ------------ of the decision by the arbitrator. All determinations made by the arbitrator will be final, conclusive and binding on the Parties. 29 (f) Buyer and Seller will equally bear the costs and fees of the arbitration. The Parties agree that a court reporter will record the arbitration proceedings and that the reporter's record will be the agreed to transcript of the proceedings. Buyer and Seller will share the expenses of this recorder equally. (g) The arbitrator will specify the basis for his or her decision. The arbitrator's decision will be considered as a final and binding resolution of the disagreement, will not be subject to appeal and may be entered as an Order in any court of competent jurisdiction in London, England. Each Party agrees to submit to the jurisdiction of any such court for purposes of the enforcement of any such Order. No Party will sue the other except for enforcement of the arbitrator's decision if each other Party is not performing in accordance with the arbitrator's decision. (h) Any arbitration proceeding hereunder will be conducted on a confidential basis. ARTICLE 11. MISCELLANEOUS 11.1 Schedules. The disclosures made on any Schedule with respect to any representation, warranty or covenant shall be deemed to be made with respect to any other representation or warranty requiring the same or similar disclosure to the extent that the relevance of such disclosure to other representations and warranties is evident from the face of the Schedule. The inclusion of any matter on any Schedule will not be deemed an admission by any Party that such listed matter is material or that such listed matter has or would have a Material Adverse Effect on any Person(s), or used in determining any standard with respect to such concepts. 11.2 Entire Agreement. This Agreement, together with the Exhibits and Schedules hereto and the certificates, documents, instruments and writings that are delivered pursuant hereto, constitutes the entire agreement and understanding of the Parties in respect of its subject matters and supersedes all prior understandings, agreements, or representations by or among the Parties, written or oral, to the extent they relate in any way to the subject matter hereof or the Transactions, except the confidentiality agreement, by and between [______________] and [______________], and dated as of [_________] [__], [____]. Except as expressly contemplated by Article 9, there are no third party beneficiaries having rights --------- under or with respect to this Agreement. 11.3 Successors. All of the terms, agreements, covenants, representations, warranties, and conditions of this Agreement are binding upon, and inure to the benefit of and are enforceable by, the Parties and their respective successors. 30 11.4 Assignments. No Party may assign either this Agreement or any of its rights, interests, or obligations hereunder without the prior written approval of Buyer and Seller; provided, however, that Buyer may (a) assign any or all of its rights and interests hereunder to one or more of its Affiliates and (b) designate one or more of its Affiliates to perform its obligations hereunder (in any or all of which cases Buyer nonetheless will remain responsible for the performance of all of its obligations hereunder). 11.5 Notices. All notices, requests, demands, claims and other communications hereunder will be in writing. Any notice, request, demand, claim or other communication hereunder will be deemed duly given if (and then three business days after) it is sent by registered or certified mail, return receipt requested, postage prepaid, and addressed to the intended recipient as set forth below: If to Buyer and after the Closing to the Company: Attn: [______________________] [______________________] [______________________] Tel: [(____)_________-______] Fax: [(____)_________-______] Copy to (which will not constitute notice): Attn: [______________________] [______________________] [______________________] Tel: [(____)_________-______] Fax: [(____)_________-______] If to Seller and before the Closing to the Company: Attn: Richard Edmonson 2500 CityWest Blvd., Suite 1400 Houston, Texas 77042 Tel: (713) 243-3100 Fax: (713) 243-3359 31 Copy to (which will not constitute notice): Akin, Gump, Strauss, Hauer & Feld, L.L.P. Attn: Julien R. Smythe 1900 Pennzoil Place - South Tower 711 Louisiana Street Houston, TX 77002 Tel: (713) 220-5800 Fax: (713) 236-0822 Any Party may send any notice, request, demand, claim, or other communication hereunder to the intended recipient at the address set forth above using any other means (including personal delivery, expedited courier, messenger service, telecopy, telex, ordinary mail, or electronic mail), but no such notice, request, demand, claim, or other communication will be deemed to have been duly given unless and until it actually is received by the intended recipient. Any Party may change the address to which notices, requests, demands, claims, and other communications hereunder are to be delivered by giving the other Parties notice in the manner herein set forth. 11.6 Binding Arbitration. (a) All disputes, claims, questions or disagreements arising under this Agreement ("Disputes") will be resolved as follows: first, senior management of Buyer and Seller will meet and attempt in good faith to resolve such Dispute. If the Dispute cannot be resolved by agreement of the Parties within 60 days of the first meeting of the senior management of Buyer and Seller relating to such Dispute, the Dispute shall be settled by arbitration under UNCITRAL in accordance with the rules thereof; provided that the foregoing shall not preclude equitable or other judicial relief to enforce the provisions hereof or to preserve the status quo pending resolution of Disputes; and provided further and subject to Section 9.4 ----------- that resolution of Disputes with respect to claims by third Persons will be deferred until any judicial proceedings with respect thereto are concluded. (b) The arbitration will be held before a panel of three arbitrators consisting of one arbitrator selected by Buyer, the other selected by Seller, and the third then selected by those two arbitrators or, if the two arbitrators cannot agree on an arbitrator, the President (or equivalent) of UNCITRAL shall appoint one; provided that if the amount that is the subject of the Dispute is less than $300,000, the panel of arbitrators will consist of one arbitrator to be agreed to by Buyer and Seller, or if Buyer and Seller cannot agree on an arbitrator, then to be appointed by the President (or equivalent) of UNCITRAL. All arbitrator(s) will be knowledgeable regarding international transactions similar to the Transactions in the oil and gas exploration and development industry. (c) Buyer and Seller will equally bear the costs and fees of the arbitration. The Parties agree that a court reporter will record the arbitration proceedings and that the 32 reporter's record will be the agreed transcript of the proceedings. Buyer and Seller will share the expenses of this reporter equally. (d) The arbitrators will specify the basis for their decision, the basis for the Damages award and a breakdown of the Damages awarded, and the basis of any other remedy. The arbitrators' decision will be considered as a final and binding resolution of the disagreement, will not be subject to appeal and may be entered as an Order in any court of competent jurisdiction in the United States or Indonesia; provided that this Agreement confers no power or authority upon the arbitrators to render any decision that is based on clearly erroneously findings of fact, that manifestly disregards the law, or exceeds of the powers of the arbitrator, and no such decision will be eligible for confirmation. Each Party agrees to submit to the jurisdiction of any such court for purposes of the enforcement of any such Order. No Party will sue any other Party except for enforcement of the arbitrator's decision if such other Party is not performing in accordance with the arbitrator's decision. The provisions of this Agreement will be binding on the arbitrators. (e) Any arbitration proceeding will be conducted on a confidential basis. (f) The arbitrators' discretion to fashion remedies hereunder will be no broader or narrower than the legal and equitable remedies available to a court, unless the Parties expressly state elsewhere in this Agreement that Parties will be subject to broader or narrower legal and equitable remedies than would be available under the law governing this Agreement. (g) The arbitration proceedings shall take place in London, England or such other jurisdiction as the Parties may agree. (h) The language of the arbitration proceedings shall be English. 11.7 Time. Time is of the essence in the performance of this Agreement. 11.8 Counterparts. This Agreement may be executed in two or more counterparts, each of which will be deemed an original but all of which together will constitute one and the same instrument. 11.9 Headings. The Article and Section headings contained in this Agreement are inserted for convenience only and will not affect in any way the meaning or interpretation of this Agreement. 33 11.10 Governing Law. This Agreement and the performance of the Transactions and obligations of the Parties hereunder will be governed by and construed in accordance with the laws of England, without giving effect to any choice of law principles. 11.11 Amendments and Waivers. No amendment, modification, replacement, termination or cancellation of any provision of this Agreement will be valid, unless the same will be in writing and signed by Buyer and Seller. No waiver by any Party of any default, misrepresentation, or breach of warranty or covenant hereunder, whether intentional or not, may be deemed to extend to any prior or subsequent default, misrepresentation, or breach of warranty or covenant hereunder or affect in any way any rights arising because of any prior or subsequent such occurrence. 11.12 Severability. The provisions of this Agreement will be deemed severable and the invalidity or unenforceability of any provision will not affect the validity or enforceability of the other provisions hereof. 11.13 Expenses. Except as otherwise expressly provided in this Agreement, each Party will bear its own costs and expenses incurred in connection with the preparation, execution and performance of this Agreement and the Transactions including all fees and expenses of agents, representatives, financial advisors, legal counsel and accountants. Seller agrees that Company has not borne or will not bear any costs and expenses (including any legal fees and expenses of either Seller Party) in connection with this Agreement or any of the Transactions. 11.14 Construction. The Parties have participated jointly in the negotiation and drafting of this Agreement. If an ambiguity or question of intent or interpretation arises, this Agreement will be construed as if drafted jointly by the Parties and no presumption or burden of proof will arise favoring or disfavoring any Party because of the authorship of any provision of this Agreement. Any reference to any federal, state, local, or foreign law will be deemed also to refer to law as amended to the date of this Agreement and all rules and regulations promulgated thereunder, unless the context requires otherwise. The words "include," "includes," and "including" will be deemed to be followed by "without limitation." Pronouns in masculine, feminine, and neuter genders will be construed to include any other gender, and words in the singular form shall be construed to include the plural and vice versa, unless the context otherwise requires. The words "this Agreement," "herein," "hereof," "hereby," "hereunder," and words of similar import refer to this Agreement as a whole and not to any particular subdivision unless expressly so limited. 34 11.15 Incorporation of Exhibits and Schedules. The Exhibits, Schedules, and other attachments identified in this Agreement are incorporated herein by reference and made a part hereof. 11.16 Remedies. Except as expressly provided herein, the rights, obligations and remedies created by this Agreement are cumulative and in addition to any other rights, obligations, or remedies otherwise available at law or in equity. Except as expressly provided herein, nothing herein will be considered an election of remedies. 11.17 Electronic Signatures. (a) Notwithstanding the Electronic Signatures in Global and National Commerce Act (15 U.S.C. Sec. 7001 et. seq.), the Uniform Electronic -- --- Transactions Act, or any other law relating to or enabling the creation, execution, delivery, or recordation of any contract or signature by electronic means, and notwithstanding any course of conduct engaged in by the Parties, no Party will be deemed to have executed a Transaction Document or other document contemplated thereby (including any amendment or other change thereto) unless and until such Party shall have executed such Transaction Document or other document on paper by a handwritten original signature or any other symbol executed or adopted by a Party with current intention to authenticate such Transaction Document or such other document contemplated. (b) Delivery of a copy of a Transaction Document or such other document bearing an original signature by facsimile transmission (whether directly from one facsimile device to another by means of a dial-up connection or whether mediated by the worldwide web), by electronic mail in "portable document format" (".pdf") form, or by any other electronic means intended to preserve the original graphic and pictorial appearance of a document, will have the same effect as physical delivery of the paper document bearing the original signature, provided a copy bearing an original signature on paper is subsequently physically delivered. "Originally signed" or "original signature" means or refers to a signature that has not been mechanically or electronically reproduced. [Remainder of this page is intentionally left blank.] 35 IN WITNESS WHEREOF, the Parties have executed this Agreement as of the date first written above. PT MEDCO ENERGI INTERNASIONAL TBK. By: /s/ Hilmi Panigoro ------------------ Name: Hilmi Panigoro Title: Chief Executive Officer EEX INTERNATIONAL, INC. By: /s/ Richard S. Langdon ---------------------- Name: Richard S. Langdon Title: Exeutive Vice President ENSERCH FAR EAST LTD. By: /s/ Richard S. Langdon ---------------------- Name: Richard S. Langdon Title: Director EX-21 11 dex21.txt SUBSIDIARIES Exhibit 21 Subsidiaries of EEX Corporation State of Incorporation/Organization - ------------------------------- ----------------------------------- EEX Operating LLC Delaware EEX Operating L.P. Delaware EEX Capital, Inc. Delaware Enserch International Oil & Gas, Inc. Texas EEX International, Inc. Texas Corpus Christi Energy Co. Delaware Corpus Christi Hydrocarbons Co. Delaware Enserch Far East Ltd. Cayman Islands EEX Asahan Ltd. Cayman Islands EEX Turkey B.V. Netherlands EEX New Zealand Ltd. Cayman Islands EEX Exploration and Production Company LLC Delaware EEX E&P Company, L.P. Delaware EEX Reserves Funding LLC Delaware EEX Reserves Company LLC Delaware EEX Natural Gas Company Delaware EEX Gathering Company Delaware EEX Pipeline Company, L.P. Delaware Rocksprings Pipeline Company LLC Delaware EX-23.1 12 dex231.txt CONSENT OF ERNST & YOUNG LLP Exhibit 23.1 CONSENT OF INDEPENDENT AUDITORS We consent to the incorporation by reference in the Registration Statements (Form S-8 No. 333-24595 registering 6,313,432 shares of common stock pursuant to the Employee Stock Purchase and Savings Plan, Employee Stock Option Plan, Revised and Amended 1996 Stock Incentive Plan, Non-Qualified Stock Option Agreement and Restricted Stock Agreement and Form S-8 No. 333-41979 registering 1,500,000 shares of common stock pursuant to the 1997 Non-Officer Stock Option Plan, and Form S-3 No. 333-64427 for the registration of EEX Corporation debt securities, preferred stock, warrants, and common stock, and Form S-8 No. 333- 81203 registering 2,500,000 shares of common stock pursuant to the Amended and Restated 1998 Stock Incentive Plan) of EEX Corporation of our report dated February 20, 2002, except for Note 25 as to which the date is March 11, 2002, with respect to the consolidated financial statements of EEX Corporation included in this Annual Report (Form 10-K) for the year ended December 31, 2001. ERNST & YOUNG LLP Houston, Texas April 11, 2002 EX-23.2 13 dex232.txt CONSENT OF NETHERLAND, SEWELL & ASSOC., INC. Exhibit 23.2 CONSENT OF INDEPENDENT PETROLEUM ENGINEERS AND GEOLOGISTS --------------------------------------------------------- We hereby consent to the filing of the Annual Report on Form 10-K, for the year ended December 31, 2001, for EEX Corporation in accordance with the requirements of the Securities Exchange Act of 1934. We consent to the inclusion in such Annual Report of our reserve reports incorporated therein, references to our name in the form and context in which they appear, and the incorporation by reference thereof into the company's Registration Statements on Form S-8 (Nos. 333-24595, 333-41979 and 333-81203) and on Form S-3 (No. 333- 64427). NETHERLAND, SEWELL & ASSOCIATES, INC. By: /s/ Frederic D. Sewell ----------------------------------- Frederic D. Sewell President Dallas, Texas April 11, 2002 -----END PRIVACY-ENHANCED MESSAGE-----