-----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, H5bhq6ZL23BPhaMeg6jfZfZro1CkuTF2A6E4YINLOXWdEDPg+dc6+kw9A3BgFByl 34upevy2vS5uiOf9+zMjtA== 0000930661-97-000658.txt : 19970324 0000930661-97-000658.hdr.sgml : 19970324 ACCESSION NUMBER: 0000930661-97-000658 CONFORMED SUBMISSION TYPE: 10-K405 PUBLIC DOCUMENT COUNT: 14 CONFORMED PERIOD OF REPORT: 19961231 FILED AS OF DATE: 19970321 SROS: NYSE FILER: COMPANY DATA: COMPANY CONFORMED NAME: ENSERCH EXPLORATION INC CENTRAL INDEX KEY: 0000931006 STANDARD INDUSTRIAL CLASSIFICATION: CRUDE PETROLEUM & NATURAL GAS [1311] IRS NUMBER: 752556975 STATE OF INCORPORATION: TX FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10-K405 SEC ACT: 1934 Act SEC FILE NUMBER: 001-11413 FILM NUMBER: 97560428 BUSINESS ADDRESS: STREET 1: 4849 GREENVILLE AVE STE 1500 CITY: DALLAS STATE: TX ZIP: 75206 BUSINESS PHONE: 2143697893 MAIL ADDRESS: STREET 1: 300 S ST PAUL ST CITY: DALLAS STATE: TX ZIP: 75201 FORMER COMPANY: FORMER CONFORMED NAME: NEW ENSERCH EXPLORATION INC DATE OF NAME CHANGE: 19941004 10-K405 1 FORM 10-K405 - ------------------------------------------------------------------------------- - ------------------------------------------------------------------------------- UNITED STATES SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549 (Mark One) [X] Annual]report pursuant to section 13 or 15(d) of the Securities Exchange Act of 1934 (fee required) for the fiscal year ended December 31, 1996 or [_] Transition]report pursuant to section 13 or 15(d) of the Securities Exchange Act of 1934 (no fee required) for the transition period from to FORM 10-K COMMISSION FILE NUMBER 1-11413 ---------------- ENSERCH EXPLORATION, INC. ---------------- TEXAS 75-2556975 (STATE OR OTHER JURISDICTION OF (I.R.S. EMPLOYER IDENTIFICATION NO.) INCORPORATION OR ORGANIZATION) 6688 NORTH CENTRAL EXPRESSWAY SUITE 75206-3922 1000 DALLAS, TEXAS (ZIP CODE) (ADDRESS OF PRINCIPAL EXECUTIVE OFFICE) (214) 692-4300 (REGISTRANT'S TELEPHONE NUMBER, INCLUDING AREA CODE) Securities registered pursuant to section 12(b) of the Act: COMMON STOCK ($1.00 PAR VALUE) NEW YORK STOCK EXCHANGE (TITLE OF EACH CLASS) (NAME OF EACH EXCHANGE ON WHICH REGISTERED) Securities registered pursuant to section 12(b) of the Act: NONE Indicate by check mark whether Registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding twelve months (or for such shorter period that the Registrant was required to file such reports) and (2) has been subject to such filing requirements for the past 90 days. Yes [X] No [_] Aggregate market value of the voting stock held by nonaffiliates of the Registrant as of March 19 , 1997: $200,950,134. Shares of the Registrant's Common Stock outstanding as of March 19, 1997: 126,172,796 shares. Documents incorporated by reference and the Part of the Form 10-K into which the document is incorporated: NONE Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be contained, to the best of Registrant's knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K. [X] - ------------------------------------------------------------------------------- - ------------------------------------------------------------------------------- FORM 10-K ANNUAL REPORT FOR THE FISCAL YEAR ENDED DECEMBER 31, 1996 TABLE OF CONTENTS PART I
PAGE ---- ITEM 1. Business...................................................... 1 General....................................................... 1 Recent Developments........................................... 1 ENSERCH/Texas Utilities Company Merger........................ 1 Management Changes............................................ 1 Core Areas.................................................... 2 Offshore Activities--The Cooper Project....................... 2 Offshore Activities--The Allegheny Project.................... 2 Rocky Mountain Properties..................................... 3 International Operations...................................... 3 Sales Information............................................. 3 Major Customers............................................... 3 Competition................................................... 3 Government Regulation......................................... 3 Environmental Matters......................................... 4 Others Laws and Regulations................................... 5 Employees..................................................... 5 Offices....................................................... 5 Forward Looking Statements--Uncertainties and Risks........... 5 ITEM 2. Properties.................................................... 6 ITEM 3. Legal Proceedings............................................. 8 ITEM 4. Submission of Matters to a Vote of Security Holders........... 8 PART II ITEM 5. Market for Registrant's Common Equity and Related Stockholder Matters....................................................... 8 ITEM 6. Selected Financial Data....................................... 8 ITEM 7. Management's Discussion and Analysis of Financial Condition and Results of Operations..................................... 8 ITEM 8. Financial Statements and Supplementary Data................... 8 ITEM 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure...................................... 8 PART III ITEM 10. Directors and Executive Officers of the Registrant............ 9 Directors..................................................... 9 Executive Officers............................................ 10 ITEM 11. Executive Compensation........................................ 11 Summary Compensation Table.................................... 11 Option Grants Table........................................... 13
PAGE ---- Aggregated Option Exercise Table............................ 14 Long-Term Incentive Plan Awards Table....................... 14 Pension Plan Table.......................................... 15 Compensation of Directors................................... 15 Employee Contracts, Termination of Employment and Change-in- Control Arrangements....................................... 16 Board Compensation Committee Report on Executive Compensation................................................ 17 Performance Graph........................................... 20 Compensation Committee Interlocks and Insider Participation............................................... 21 ITEM 12. Security Ownership of Certain Beneficial Owners and Management.................................................. 21 Security Ownership of Certain Beneficial Owners............. 21 Stock Ownership of Management and Board of Directors........ 22 ITEM 13. Certain Relationships and Related Transactions.............. 22 Section 16(a) Beneficial Ownership Reporting Compliance..... 23 PART IV ITEM 14. Exhibits, Financial Statement Schedules and Reports on Form 8-K......................................................... 23 APPENDIX A Financial Information...................................... A-1
2 PART I ITEM 1. BUSINESS GENERAL Enserch Exploration, Inc. ("EEX" or the "Company"), an 83.3% owned subsidiary of ENSERCH Corporation ("ENSERCH"), has been engaged in the exploration for and the development, production and sale of natural gas and crude oil since 1918. From 1985 through December 30, 1994, this business was conducted primarily through Enserch Exploration Partners, Ltd. ("EP"), a limited partnership in which a minority interest (less than 1% since 1989) was held by the public. At year-end 1994, pursuant to a plan for the reorganization of EP ("Reorganization"), EEX acquired, through a series of transactions, all of the operating properties of EP Operating Limited Partnership ("EPO"), EP's 99%-owned operating partnership, in exchange for shares of EEX common stock. On December 30, 1994, the Reorganization was consummated, EPO was merged into EEX, EP was liquidated and the EEX common stock held by EP was distributed to EP's limited and general partners in accordance with their partnership interests. EEX is one of the largest independent exploration and production companies in the United States, with a reserve base of 1,572 billion cubic feet of natural gas equivalent ("Bcfe") at January 1, 1997, as estimated by DeGolyer and MacNaughton ("D&M"), independent petroleum consultants. Approximately 77% of these reserves consist of natural gas. RECENT DEVELOPMENTS ENSERCH/Texas Utilities Company Merger. In April 1996, ENSERCH announced that it had entered into a merger agreement with Dallas-based Texas Utilities Company ("ENSERCH/TUC Merger"). Under the terms of the agreement, a new holding company will acquire the businesses of ENSERCH, excluding the businesses of EEX and Lone Star Energy Plant Operations, Inc. ("LSEPO"). Immediately prior to the consummation of the ENSERCH/TUC Merger, and as a condition thereof, EEX will be merged into LSEPO ("EEX/LSEPO Merger"), LSEPO will change its name to "Enserch Exploration, Inc." ("New EEX"), shares of EEX will automatically be converted into shares of New EEX on a one-for-one basis in a tax-free transaction, and ENSERCH will distribute to its shareholders, on a pro rata basis, all of the shares of New EEX common stock it owns ("Distribution"). LSEPO, a wholly owned subsidiary of ENSERCH, operates and maintains, under long-term contracts, a 255-megawatt ("MW") cogeneration facility located in Sweetwater, Texas, a 62-MW cogeneration facility located in Buffalo, New York, and a 160-MW cogeneration facility located in Bellingham, Washington. In the EEX/LSEPO Merger, ENSERCH will receive approximately 778,000 shares of New EEX for the value of LSEPO. The mergers, including the transactions contemplated by the mergers, were approved by the shareholders of EEX, ENSERCH and TUC, in separate meetings, on November 15, 1996. All regulatory approvals have been received except for approval by the Securities and Exchange Commission ("SEC") under the Public Utility Holding Company Act of 1935 where the approval process is proceeding. The Railroad Commission of Texas ("RRC") has indicated no objection to the ENSERCH/TUC Merger, and the Antitrust Division of the U.S. Department of Justice ("DOJ") has notified ENSERCH and TUC that its investigation of the proposed merger has been closed without the DOJ taking any action or requiring TUC or ENSERCH to take any action. ENSERCH has also announced receipt of a favorable tax ruling from the Internal Revenue Service to the effect that neither ENSERCH nor its shareholders will recognize taxable gain in the Distribution. The merger and transactions related thereto are fully described in the Company's Proxy Statement dated October 2, 1996, as filed with the SEC, which is incorporated herein by reference. Management Changes. On January 13, 1997, EEX named Thomas M Hamilton Chairman and President, Chief Executive Officer of the Company, David R. Henderson as Executive Vice President, Worldwide 1 Exploration, and B. K. Irani as Executive Vice President, Production and Engineering. Mr. Hamilton came to EEX from Pennzoil Company where he was Executive Vice President and President of Pennzoil Exploration & Production Company. He succeeded Frederick S. Addy, interim Chairman, President and Chief Executive Officer, who continues to serve as a Director of the Company. Mr. Henderson previously was Senior Vice President of worldwide exploration at Pennzoil Exploration & Production Company. Mr. Irani has previously served as Senior Vice President, Offshore and International of the Company. Core Areas. Mr. Hamilton has initiated a review of the Company's business with a focus on enhancing performance from the Company's core areas of activity and the development of plans for maximizing the value of non-core assets through optimization of cash flow and the disposition of low-return, high-cost properties. EEX operations will be focused on existing core areas of East Texas, the Gulf of Mexico Continental Shelf and the deep water Gulf of Mexico. EEX also intends to vigorously pursue international opportunities. The existing core areas account for more than 75% of EEX's proved reserves and approximately 50% of total production. More than 90% of the Company's total probable reserves, as estimated by D&M, are in the existing core areas. Operating costs for properties located in core areas are relatively lower than the overall cost profile for the Company. Assets in non-core areas will be traded or sold with proceeds reinvested into core areas or utilized to reduce debt. Offshore Activities--The Cooper Project. Production began at the Cooper Project in the Garden Banks area of the Gulf of Mexico in September 1995. Considered a deep-water project by industry standards, the floating production facility ("FPF") is moored in 2,200 feet of water on Block 388. A 24-slot subsea template rests on the ocean floor directly under the FPF. The FPF is capable of drilling and producing simultaneously and is designed to accommodate up to 40 thousand barrels ("MBbls") of oil and 120 million cubic feet ("MMcf") of gas per day. EEX is the operator and owns a 60% interest in this project. An affiliate of Mobil Corporation has a 40% interest. At year- end 1996, gross daily production at the project had reached approximately 10 MBbls of oil and condensate and 15 MMcf of natural gas per day. Additional development and exploratory drilling of identified prospects is expected during 1997 as a part of a long-term development plan for the Cooper Project. In late July 1996, it was announced that mechanical problems had prevented completion of the A-1 development well at the Cooper Project. EEX and its partner are evaluating alternate drilling strategies to develop the extensive proven hydrocarbon column at this location. The A-2 development well reached total depth of 9,835 feet encountering three pay zones in the 7,200-foot, 7,600-foot and 9,800-foot sands in January 1997. In March 1997, the well was initially completed in the 9,800-foot sand, which has a total of 116 feet of oil pay. The SB-3 exploratory well on Garden Banks Block 387 was also completed in March 1997. The well was drilled to a total depth of 19,000 feet and was completed in a 50-foot sand interval at a depth of 18,170 feet. Based on initial flow rates, the well is expected to initially produce at rates in the range of 20 to 25 MMcf of gas per day with associated condensate. Offshore Activities--The Allegheny Project. This project comprises a four- block unit in the Green Canyon area of the Gulf of Mexico and is located approximately 150 miles south of New Orleans, Louisiana, in 2,200 to 3,400 feet of water. The Allegheny Project is located in an area of the Gulf where there is a great deal of exploration and development activity. EEX is the operator and has a 40% interest in this project, an affiliate of Mobil Corporation has 40% and an affiliate of Reading & Bates Corporation has 20%. Prior to 1996, three wells and one sidetrack had been drilled on Green Canyon Block 254 with gross proved reserves equivalent to approximately 72 million barrels ("MMBbls") of oil attributed by D&M. During 1996, a well was drilled on Block 298, bottoming on Block 297, reaching a total depth of 16,500 feet (measured depth), encountering 350 gross feet of pay (measured depth). Although the well extended the field 3,000 feet to the south, subsequent interpretation of the data revealed thinning of some previously mapped reservoirs which, coupled with the newly discovered sands, resulted in a 20 MMBbl downward revision of reserves to 52 MMBbl gross proved reserves. 2 In 1996, EEX and its partners began to identify alternative development scenarios for the Allegheny Project. A joint project team was formed to evaluate alternatives that are currently available for the design and construction of production facilities. The project team will also design and implement a development plan to optimize production from this project. The additional engineering study and design will delay the project from its previously planned early 1999 start-up. However, the design changes should favorably impact the project's economics. Rocky Mountain Properties. During 1996, EEX sold substantially all of its Rocky Mountain area properties, which were in six states, aggregated over 250,000 net acres and had proved reserves of 148 Bcfe at January 1, 1996. These properties were mostly acquired as part of the acquisition of DALEN Corporation ("DALEN") in 1995 and were not considered a core area for EEX. International Operations. In the Mudi field on the island of Java in Indonesia, where EEX owns a 25% working interest, a development plan was approved in 1996. Five wells have been drilled and are expected to be completed in this field, and a stepout delineation well is being drilled. Production is expected to commence in late 1997 or early 1998 initially at an estimated 20 MBbls of oil per day. Gross reserves are estimated to be40 MMBbls of oil and condensate. SALES INFORMATION Sales data are set forth under "Operating Data" included in Appendix A to this report. MAJOR CUSTOMERS EEX sells its gas under both long- and short-term contracts. EEX markets most of its gas through third-party gas marketing organizations while maintaining a core staff to ensure market prices are received. In 1996, Enserch Energy Services, Inc. ("EES"), the ENSERCH natural-gas marketing subsidiary, was EEX's largest gas customer, purchasing gas under two long-term variable-price contracts which terminated December 31, 1996. A division of ENSERCH, Lone Star Gas Company ("LSG"), purchases gas under a long-term fixed- price service contract which ends in March 1997. In 1996, approximately 34% and 6% of EEX's natural gas volumes were sold to EES and LSG, respectively. The termination of these contracts will not have a material adverse effect on EEX's results of operations. EEX sells its oil under contracts that are for one year or less. Prices generally are based upon field posted prices plus negotiated bonuses. EEX utilizes futures contracts, commodity price swaps and other financial instruments to reduce exposure of its gas and oil production to price volatility. See "Financial Review--Gas and Oil Market Volatility" and Note 10 of the Notes to Consolidated Financial Statements included in Appendix A for additional information on hedging activities. COMPETITION All phases of the gas and oil industry are highly competitive. EEX competes in the acquisition of properties, the search for and development of reserves, the production and sale of gas and oil and the securing of the labor and equipment required to conduct operations. EEX's competitors include major gas and oil companies, other independent gas and oil concerns and individual producers and operators. Many of these competitors have financial and other resources that substantially exceed those available to EEX. Gas and oil producers also compete with other industries that supply energy and fuel. GOVERNMENT REGULATION The gas and oil industry is extensively regulated by federal, state and local authorities. Legislation affecting the gas and oil industry is under constant review for amendment or expansion. Numerous departments and 3 agencies, both federal and state, have issued rules and regulations binding on the gas and oil industry and its individual members, some of which carry substantial penalties for the failure to comply. Inasmuch as such laws and regulations are frequently amended, reinterpreted or expanded, EEX is unable to predict the future cost or impact of complying with such laws and regulations. The RRC regulates the production of natural gas and oil by EEX in Texas. Similar regulations are in effect in all states in which EEX explores for and produces natural gas and oil. These regulations generally require permits for the drilling of gas and oil wells and regulate the spacing of the wells, the prevention of waste, the rate of production and the prevention and cleanup of pollution and other materials. Environmental Matters. Gas and oil operations are subject to extensive federal, state and local laws and regulations, including the Comprehensive Environmental Response, Compensation and Liability Act ("CERCLA"), also known as the "Superfund Law," and similar state statutes and, with respect to federal leases, to interruption or termination by governmental authorities on account of environmental and other considerations. Regulations of the Department of the Interior currently impose absolute liability upon the lessee under a federal lease for the costs to clean-up pollution resulting from a lessee's operations, and such lessee may also be subject to possible legal liability for pollution damages. EEX maintains insurance against costs of clean-up operations, but is not fully insured against all such risks. A serious incident of pollution may result in the Department of the Interior requiring lessees under federal leases to suspend or cease operation in the affected area. With respect to any EEX operations conducted on offshore federal leases, liability may generally be imposed under the Outer Continental Shelf Lands Act for costs of clean-up and damages caused by pollution resulting from such operations, other than damages caused by acts of war or the negligence of third parties. The Oil Pollution Act of 1990 and regulations thereunder impose a variety of regulations on "responsible parties" (which includes owners and operators of offshore facilities) related to the prevention of oil spills and liability for damages resulting from such spills in the United States waters. In addition, it imposes ongoing requirements on responsible parties, including proof of financial responsibility to cover at least some costs in a potential spill. The operations of EEX are also subject to the Clean Water Act and the Clean Air Act, as amended, and comparable state statutes. The EPA is currently implementing regulations pursuant to the Clean Air Act, and the states are also implementing programs. EEX may be required to incur certain capital expenditures over the next five to ten years for air-pollution control equipment. EEX's onshore operations are subject to numerous United States federal, state and local laws and regulations controlling the discharge of materials into the environment or otherwise relating to the protection of the environment, including CERCLA. These regulations, among other things, impose absolute liability on the lessee under a lease for the cost of clean-up of pollution resulting from a lessee's operations, subject the lessee to liability for pollution damages, may require suspension or cessation of operations in affected areas and impose restrictions on the injection of liquids into subsurface aquifers that may contaminate groundwater. Persons who are or were responsible for releases of hazardous substances under CERCLA may be subject to joint and several liability for the remediation and clean-up costs and for damages to natural resources. EEX has been named as a potentially responsible party at a Texas State Superfund site. However, EEX does not believe that any liabilities in connection with such matters will have a material adverse effect on its business or results of operations. For offshore operations, lessees must obtain the approval of the Mineral Management Service ("MMS"), a federal agency, and various other federal and state agencies' approval for exploration, development and production plans prior to the commencement of such operations. Similarly, the MMS has promulgated other regulations governing the plugging and abandoning of wells located offshore and the removal of all production facilities. Under certain circumstances, including but not limited to, conditions deemed to be a threat or harm to the environment, the MMS may also require any EEX operation on federal leases to be suspended or terminated in the affected area. 4 Other Laws and Regulations. Various laws and regulations require permits for drilling wells and the maintenance of bonding requirements in order to drill or operate wells and also regulate the spacing and location of wells, the method of drilling and casing wells, the surface use and restoration of properties upon which wells are drilled, the plugging and abandoning of wells, the prevention of waste of gas and oil, the prevention and cleanup of pollutants, the maintenance of certain gas/oil ratios and other matters. EEX's operations are also subject to various conservation requirements. These include the regulation of the size and shape of drilling and spacing units or proration units, the density of wells which may be drilled, maximum rates of production and unitization or pooling of oil and gas properties. In the aggregate, compliance with federal and state rules and regulations is not expected to have a material adverse effect on EEX's operations. EMPLOYEES At January 1, 1997, EEX had 528 full-time employees. OFFICES The principal offices of EEX are located at 6688 North Central Expressway, Suite 1000, Dallas, Texas 75206-3922, and its telephone number is (214)692- 4300. Production offices are maintained in Dallas, Houston, Athens, and Bridgeport, Texas. FORWARD LOOKING STATEMENTS--UNCERTAINTIES AND RISKS Written statements throughout this report on Form 10-K relating to EEX management's intentions, hopes, beliefs, expectations or predictions of the future are forward-looking statements. It is important to note that EEX's actual results could differ materially from those projected in such forward- looking statements. Information concerning some of the factors that could cause actual results to differ materially from those in the forward-looking statements are described below. Estimating Reserves and Future Net Cash Flows. Uncertainties are inherent in estimating quantities and values of reserves and in projecting rates of production, net revenues and the timing of development expenditures. The reserve data represent estimates only of the recovery of hydrocarbons from underground accumulations and are often different from the quantities ultimately recovered. Any downward adjustment in reserve estimates could adversely affect EEX. Operational Risks and Hazards. EEX's operations are subject to the risks and uncertainties associated with finding, acquiring and developing gas and oil properties, and producing, transporting and selling gas and oil. Operations may be materially curtailed, delayed or canceled as a result of numerous factors, such as accidents, weather conditions, compliance with governmental requirements and shortages or delays in the delivery of equipment. Drilling may involve unprofitable efforts, not only with respect to dry wells, but also with respect to wells that are productive but do not produce sufficient net revenues to return a profit after drilling, operating and other costs. Various field operating hazards such as fires, explosions, blow-outs, equipment failures, abnormally pressured formations and environmental accidents may adversely affect production from successful wells. EEX's ability to sell its gas and oil production is dependent on the availability and capacity of gathering systems, pipelines and other forms of transportation. Offshore Risks. EEX's offshore Gulf of Mexico gas and oil reserves include properties located in water depths of 20 to 3,400 feet where operations are by their nature more difficult than drilling operations conducted on land. Deep water drilling and operations require the application of more advanced technologies, involving a higher risk of mechanical failure and inevitably resulting in significantly higher drilling and operating costs. Furthermore, offshore operations require a significant amount of time between the time of discovery and the time the gas or oil is actually marketed, increasing the market risk involved with such operations. 5 Volatility of Gas and Oil Markets. EEX's operations are highly dependent upon the prices of, and demand for, gas and oil. These prices have been, and are likely to continue to be, volatile. Prices are subject to fluctuations in response to a variety of factors that are beyond the control of EEX, such as worldwide economic and political conditions as they affect actions of OPEC and Middle East and other producing countries, and the price and availability of alternative fuels, EEX's hedging activities with respect to some of its projected gas and oil production, which are designed to protect against price declines, may prevent EEX from realizing the benefits of price increases above the levels of the hedges and protect it from incurring the detriments of price decreases below the level of hedges. Because EEX's reserve base is approximately 80% natural gas on an energy equivalent basis, it is more sensitive to fluctuations in the price of natural gas. EEX follows the full cost method of accounting for gas and oil properties. A decline in gas and oil prices could cause a future write-down of capitalized costs and a non-cash charge against income. See "Financial Review--Capitalized Costs." Government Regulation. EEX's business is subject to certain federal, state and local laws and regulations relating to the drilling for the production of gas and oil, as well as environmental and safety matters. See "Business -- Government Regulation." ITEM 2. PROPERTIES EEX's domestic activities were focused in four regions in 1996: the Gulf of Mexico; East Texas; Mid-Continent and other; and the Gulf Coast Region of Texas, Louisiana, Mississippi and Alabama. The following table sets forth estimated net proved reserves of EEX by region, as estimated by D&M, at January 1, 1997:
OIL NATURAL AND GAS GAS LIQUIDS TOTAL REGION (BCF)* (MMBBLS) BCFE ------ ------- -------- ------- Gulf of Mexico...................................... 126.5 28.0 294.7 East Texas.......................................... 845.1 7.5 890.1 Mid-Continent and other............................. 102.8 13.7 184.9 Gulf Coast.......................................... 141.2 4.0 165.2 ------- ---- ------- Total Domestic.................................. 1,215.6 53.2 1,534.9 International....................................... 0.6 6.0 36.6 ------- ---- ------- Total........................................... 1,216.2 59.2 1,571.5 ======= ==== =======
-------- *Billion cubic feet. See Note 15 of the Notes to Consolidated Financial Statements included in Appendix A to this report for additional information on gas and oil reserves. During 1996, EEX filed Form EIA-23 with the Department of Energy reflecting reserve estimates for the year 1995. Such reserve estimates were not materially different from the 1995 reserve estimates reported in Note 15 of the Notes to Consolidated Financial Statements included in Appendix A to this report. Developed and undeveloped lease acreage as of December 31, 1996, are set forth below:
DEVELOPED ACRES UNDEVELOPED ACRES --------------- ------------------- GROSS NET (1) GROSS NET (1) ------- ------- --------- --------- Domestic Offshore............................... 189,310 60,609 853,105 426,462 Onshore................................ 471,368 289,968 1,056,035 654,701 ------- ------- --------- --------- Total................................ 660,678 350,577 1,909,140 1,081,163 International............................ 2,489,567 618,637 ------- ------- --------- --------- Total................................ 660,678 350,577 4,398,707 1,699,800 ======= ======= ========= =========
-------- (1) Represents the proportionate interest of EEX in the gross acres under lease. 6 EEX purchased about 252,000 net acres of leasehold interests in 1996, 99,000 of which were in the Gulf of Mexico. EEX's Gulf of Mexico holdings totaled some 487,000 net acres, with an average working interest of 43% in 234 blocks and an overriding royalty interest in 9 blocks. EEX operates 148 offshore blocks. EEX also canceled or allowed to expire two Gulf of Mexico leases during 1996 following review of drilling activity on or near these areas and after analysis of geophysical and geological findings. EEX plans further drilling on undeveloped acreage but at this time cannot specify the extent of the drilling or predict how successful it will be in establishing commercial reserves sufficient to justify retention of the acreage. The primary terms under which the undeveloped acreage can be retained by the payment of delay rentals without the establishment of gas and oil reserves expire as follows:
UNDEVELOPED ACRES EXPIRING ----------------------------------- DOMESTIC INTERNATIONAL ----------------- ----------------- GROSS NET GROSS NET --------- ------- --------- ------- 1997..................................... 551,741 312,456 730,242 182,560 1998..................................... 353,191 200,015 182,560 45,640 1999 and later........................... 1,004,208 568,692 1,576,765 390,437
Drilling rights with regard to a portion of the undeveloped acreage may be allowed to expire before the expiration of primary terms specified in this schedule by non-payment of delay rentals. At December 31, 1996, EEX owned interests in 1,670 gas wells (1,121.1 net) and 1,801 oil wells (422 net) in the United States and 5 oil wells (1 net) in Indonesia. Of these, 226 gas wells (166.4 net) and 43 oil wells (34.9 net) were dual completions in single boreholes. Drilling activity during the three years ended December 31, 1996, including the activities of DALEN for all periods shown, is set forth below:
1996 1995 1994 ---------- ---------- ---------- GROSS NET GROSS NET GROSS NET ----- ---- ----- ---- ----- ---- Exploratory Wells: Productive................................ 42 30.0 38 24.6 21 13.8 Dry....................................... 32 20.7 47 26.8 56 30.5 --- ---- --- ---- --- ---- Total................................... 74 50.7 85 51.4 77 44.3 === ==== === ==== === ==== Development Wells: Productive................................ 82 54.3 41 26.4 90 63.0 Dry....................................... 5 4.0 6 3.5 15 7.5 --- ---- --- ---- --- ---- Total................................... 87 58.3 47 29.9 105 70.5 === ==== === ==== === ====
Note: Productive wells are either producing wells or wells capable of commercial production, although currently shut-in. The term "gross" refers to the wells in which a working interest is owned, and the term "net" refers to gross wells multiplied by the percentage of EEX's working interest owned therein. At December 31, 1996, EEX was participating in 71 wells (34 net), which were either being drilled or in some stage of completion. The number of wells drilled is not a significant measure or indicator of the relative success or value of a drilling program because the significance of the reserves and economic potential may vary widely for each project. It is also important to recognize that reported completions may not necessarily correspond to capital expenditures, since SEC guidelines do not allow a well to be reported as complete until it is ready for production. In the case of offshore wells, this may be several years following initial drilling because of the timing of construction of platforms, pipelines and other necessary facilities. 7 Additional information relating to the gas and oil activities of EEX is set forth in Note 15 of the Notes to Consolidated Financial Statements included in Appendix A to this report. Planned capital expenditures for 1997 are expected to range from $175 million to $200 million. EEX leases approximately 205,000 square feet of office space for its offices in Dallas, Texas, under leases expiring in December 1998 and August 2002. ITEM 3. LEGAL PROCEEDINGS EEX is a party to lawsuits arising in the ordinary course of its business. EEX believes, based on its current knowledge and the advice of counsel, that all lawsuits and claims would not have a material adverse effect on its financial condition. Additional information required hereunder is set forth in Note 14 of the Notes to Consolidated Financial Statements included in Appendix A to this report. ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS Not applicable. PART II ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS The information required hereunder is set forth under "Common Stock Market Prices and Dividend Information" included in Appendix A to this report. ITEM 6. SELECTED FINANCIAL DATA The information required hereunder is set forth under "Selected Financial Data" included in Appendix A to this report. ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS The information required hereunder is set forth under "Financial Review" included in Appendix A to this report. ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA The information required hereunder is set forth under "Independent Auditors' Report," "Management Report on Responsibility for Financial Reporting," "Statements of Consolidated Operations," "Statements of Consolidated Cash Flows," "Consolidated Balance Sheets," "Statements of Owners' Equity," "Notes to Consolidated Financial Statements" and "Quarterly Results" included in Appendix A to this report. ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE None. 8 PART III ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF REGISTRANT DIRECTORS Directors are elected to hold office until the next annual election and until their successors shall have been duly elected and shall qualify. The following biographical information sets forth the name, age, principal occupation or employment during the past five years, certain other directorships held by each director, and the period during which he has served as a director of the Company. THOMAS M HAMILTON Chairman and President, Chief Executive Officer of Enserch Exploration, Inc. Mr. Hamilton, age 53, was elected Chairman and President, Chief Executive Officer in January 1997. Previously Mr. Hamilton served Pennzoil Company for five years where he was Executive Vice President, and President of Pennzoil Exploration & Production Company. Pennzoil is engaged in exploration and production, refining, marketing and franchise business. D. W. BIEGLER Chairman and President, Chief Executive Officer, ENSERCH Corporation Mr. Biegler, age 50, is Chairman and President, Chief Executive Officer of ENSERCH Corporation. Prior to his election to his present position with ENSERCH in 1993, he served LSG, the utility division of ENSERCH, as President from 1985 and as Chairman from 1989 and was elected President and Chief Operating Officer of ENSERCH in 1991. He previously served as Chairman and Chief Executive Officer of the managing general partner of EP from 1992 until its conversion into the Company beginning in 1995. He served as Chairman and Chief Executive Officer of the Company from its formation in September of 1994 until June 20, 1995, and was re-elected to such position as of February 1, 1996, which he held until September 1996. Mr. Biegler is a Director of ENSERCH, Texas Commerce Bank National Association, and Trinity Industries, Inc. He has been a Director of the Company since its formation in late 1994. FREDERICK S. ADDY Retired Executive Vice President, Amoco Corporation Mr. Addy, age 65, is retired Executive Vice President, Chief Financial Officer, and Director of Amoco Corporation, an international integrated oil and gas company. Mr. Addy has been a Director of the Company since 1995. He also served the Company as interim Chairman and Chief Executive Officer from September 10, 1996, to January 13, 1997, and as President from October 30, 1996, to January 13, 1997. He is a Director of Baker, Fentress & Company and The Pierpont Funds. B. A. BRIDGEWATER, JR. Chairman, President and Chief Executive Officer, Brown Group, Inc. Mr. Bridgewater, age 63, is Chairman, President and Chief Executive Officer, and Director of Brown Group, Inc., a footwear company. Mr. Bridgewater has been a Director of the Company since 1995. He is also a Director of ENSERCH, NationsBank Corporation, FMC Corporation, and McDonnell Douglas Corporation. MICHAEL P. MALLARDI Retired Senior Vice President, Capital Cities/ABC, Inc., and Retired President of the Capital Cities/ABC Broadcast Group. Mr. Mallardi, age 62, is retired Senior Vice President, Capital Cities/ABC, Inc., and retired President of Capital Cities/ABC Broadcast Group, which are part of the Walt Disney Company. Mr. Mallardi has been a Director since October 1996. Mr. Mallardi is also the trustee of 18 mutual funds operated by J.P. Morgan and Chairman of the Tri-State Health System, Inc. 9 WILLIAM C. MCCORD Retired Chairman and Chief Executive Officer, ENSERCH Corporation Mr. McCord, age 68, is retired Chairman and Chief Executive Officer of ENSERCH. He has been a Director of the Company since September 10, 1996. He is also a Director of ENSERCH, Lone Star Technologies, Inc. and Pool Energy Services, Inc. EXECUTIVE OFFICERS
NAME AGE TITLE ---- --- ----- T. M Hamilton............... 53 Chairman and President, Chief Executive Officer D. R. Henderson............. 45 Executive Vice President, Worldwide Exploration B. K. Irani................. 45 Executive Vice President, Production and Engineering M. G. Fortado............... 52 Senior Vice President, General Counsel and Corporate Secretary J. P. McCormick............. 55 Senior Vice President and Chief Financial Officer M. A. McAdams............... 52 Senior Vice President, Human Resources and Administration
Mr. Hamilton was elected Chairman and President, Chief Executive Officer in January 1997. Previously, Mr. Hamilton served Pennzoil Company for five years where he was Executive Vice President, and President of Pennzoil Exploration & Production Company. Mr. Henderson was elected Executive Vice President, Worldwide Exploration in January 1997. Previously he held the position of Senior Vice President of Worldwide Exploration at Pennzoil Exploration & Production Company. Mr. Irani has been Executive Vice President, Production and Engineering since January 1997. He previously was Senior Vice President, Production and Engineering Division since 1995 and Vice President, Production and Engineering Division from 1994 to 1995. He also served as Vice President, Production and Engineering, of EEH* since 1988. Mr. Fortado has been Vice President and Corporate Secretary of EEX since its formation in September 1994 and was designated Senior Vice President, General Counsel and Chief Legal Officer in September 1996. He is also Vice President and Corporate Secretary of ENSERCH, having served as Corporate Secretary since September 1971 and Vice President since May 1988. Mr. McCormick has been a Senior Vice President and Chief Financial Officer since 1995. He served LSG, a division of ENSERCH, as Senior Vice President, Transmission from 1993 to 1995 and as Senior Vice President, Finance from 1991 to 1993. Prior to joining LSG, he practiced public accounting for 26 years and was a partner of KPMG Peat Marwick and KMG Main Hurdman and served in management positions in each firm. Mr. McAdams has been Senior Vice President, Human Resources and Administration since July 1996. He was Vice President, Employee Relations of LSG from July 1990 to July 1996. There are no family relationships between any of the above officers. All officers of the Company are elected annually by the Board of Directors. Officers may be removed by the Board of Directors whenever, in its judgment, the best interest of the Company will be served thereby. - -------- * Enserch Exploration Holdings, Inc. ("EEH") was the Managing General Partner of EP. 10 ITEM 11. EXECUTIVE COMPENSATION SUMMARY COMPENSATION TABLE The table below sets forth annual compensation, long-term compensation and all other compensation paid by the Company and its subsidiaries for services rendered during the periods shown for each individual serving as the chief executive officer in 1996, each of the other most highly compensated executive officers in 1996 who were serving at the end of the year whose total salary and bonus exceeded $100,000 and two additional persons who were executive officers during, but not at the end of, 1996 (the "named executive officers"). The information presented does not include periods prior to 1995 since the Company's predecessor, a limited partnership, did not have employees and no compensation was paid to any of the named executive officers by the Company prior to January 1, 1995. SUMMARY COMPENSATION TABLE
LONG-TERM COMPENSATION --------------------------------------- AWARDS PAYOUTS ---------------------------- --------- OTHER ANNUAL RESTRICTED SECURITIES LONG-TERM ALL OTHER ANNUAL COMPENSATION COMPEN- STOCK UNDERLYING INCENTIVE COMPEN- NAME AND ------------------------ SATION AWARDS OPTIONS/SARS PAYOUTS SATION PRINCIPAL POSITION(1) YEAR SALARY($) BONUS ($) ($)(5) (#) ($) ($)(10) - --------------------- ---- --------- ------- ------- ---------- ------------ --------- --------- F.S. Addy............... 1996 0 0 25,275(3) 92,500 2,092(3) 0 0 Chairman and President, 1995 0 0 0 0 0 0 0 Chief Executive Officer B.K. Irani.............. 1996 210,000 100,000 0 (6) 105,000 0 4,950 Executive Vice 1995 191,042 81,755 0 0 10,000 0 3,125 President, Production and Engineering J.P. McCormick.......... 1996 211,042 60,000 0 (6) 70,000 0 3,110 Senior Vice President 1995 113,750 57,642 0 0 0 0 1,125 and Chief Financial Officer G.J. Junco.............. 1996 280,833 0 0 183,750(7) 150,000(8) 338,261(9) 2,031,042 President and Chief 1995 300,000 163,125 0 (6) 25,000 0 3,125 Operating Officer R.L. Kincheloe.......... 1996 175,692 0 351,776(4) 0 5,000 0 364,600 Senior Vice President, 1995 240,000 900 0 0 4,000 0 33,365 Offshore and International D.W. Biegler............ 1996 100,000(2) 0 0 173,653(2)(7) 20,000 161,895(2)(9) 4,340(2) Chairman and Chief 1995 0 0 0 (6) 15,000 0 0 Executive Officer J.T. Williams........... 1996 34,848 0 0 0 (6) 0 0 4,497,920 Vice Chairman and Chief 1995 227,323 124,564 0 35,000 0 72,759 Executive Officer
- -------- (1) D.W. Biegler's principal employment is Chairman and Chief Executive Officer of ENSERCH. He served as Chairman and Chief Executive Officer of the Company from September 1994 through June 20, 1995, when J. T. Williams was elected as Vice Chairman and Chief Executive Officer effective June 20, 1995. Mr. Williams resigned as Vice Chairman and Chief Executive Officer of the Company effective February 1, 1996, and D. W. Biegler was re-elected Chief Executive Officer effective February 1, 1996. Mr. Biegler resigned as Chairman and Chief Executive Officer on September 10, 1996, and F. S. Addy was elected interim Chairman and Chief Executive Officer on September 10, 1996, and President on October 30, 1996. Mr. Junco resigned as President and Chief Operating Officer on October 30, 1996. Mr. Addy ended his term as interim Chairman and President, Chief Executive Officer, on January 13, 1997, and Mr. Thomas M Hamilton was elected Chairman and President, Chief Executive Officer, on January 13, 1997. Mr. Kincheloe retired on August 31, 1996. 11 (2) Beginning in 1996, a portion of the aggregate compensation paid by ENSERCH Corporation to Mr. Biegler was allocated to the Company. The allocated charges, which were related to the services of Mr. Biegler as the Company's Chairman and Chief Executive Officer, included: base salary--$100,000; accrued charges resulting from acceleration of vesting of restricted stock caused by change-in-control provisions--$283,545 for ENSERCH restricted stock issued under the ENSERCH Corporation 1991 Stock Incentive Plan ("1991 Plan") and $52,003 for the Company's restricted stock issued under the Company's Revised and Amended 1996 Stock Incentive Plan ("1996 Plan"); and accruals resulting from acceleration of vesting caused by change-in-control provisions for deferred compensation payable on retirement, death or disability pursuant to a special supplementary compensation plan--$4,340. (3) Includes $25,275 in directors' fees paid, and 2,092 Phantom Stock Units awarded under the Phantom Stock Plan for non-employee Directors, for services rendered by Mr. Addy as a Director prior to his election as the interim Chairman and Chief Executive Officer on September 10, 1996. (4) Includes $351,776 which was reimbursed for payment of taxes paid in connection with the purchase of an annuity to fund retirement benefits under the Income Restoration Plan. (5) As of December 31, 1996, F. S. Addy held 10,000 shares of restricted stock having an aggregate value at December 31, 1996, of $117,500 which were issued pursuant to an agreement relating to his service as interim Chairman and President, Chief Executive Officer, of the Company. At December 31, 1996, the number and value of the aggregate restricted stock holdings under the 1996 Plan for named executive officers with performance-based stock were as follows: B.K. Irani: 20,000 shares, $235,000; and J. P. McCormick: 15,000 shares, $176,250. Dividends are payable on restricted shares at the same rate as would be paid to all shareholders. (6) Performance-based restricted stock awards to named executive officers under the 1996 Plan are subject to performance-based criteria. Performance-based restricted stock awards in 1996 to the named executive officers that were not subject to accelerated vesting by change-in- control provisions are reported under the "Long-Term Incentive Plan Awards" table, and reference is made to such table for information on the number of restricted shares awarded in 1996. (7) Awards of restricted stock in 1996 to Mr. Junco under the 1996 Plan and to Mr. Biegler under the 1991 Plan ($139,200) and 1996 Plan ($34,453) on which restrictions were lifted under change-in-control provisions. Excludes award in 1996 of 25,000 shares of restricted stock which was relinquished by Mr. Junco at severance of employment. (8) Relinquished by Mr. Junco at severance of employment. (9) Accrued charges resulting from acceleration of vesting caused by change- in-control provisions for awards made prior to 1996--for Mr. Junco, $200,448 for ENSERCH restricted stock under the 1991 Plan and payout of $137,813 for Company restricted stock under the 1996 Plan; and for Mr. Biegler, $144,345 for ENSERCH restricted stock under the 1991 Plan and $17,550 for Company restricted stock under the 1996 Plan. Values are based on the market value of the stock on the date the restrictions were lifted. (10) Includes Company matching contributions to the Employee Stock Purchase and Savings Plan and Deferred Compensation Plan, respectively, as follows: B.K. Irani--$750, $4,200; J.P. McCormick--$675, $2,435; G.J. Junco--$625, $5,417; R.L. Kincheloe--$600, $4,800; and J.T. Williams-- $75, $600. Also includes $4,497,245 paid to Mr. Williams in connection with his severance of employment, $2,025,000 paid to Mr. Junco in connection with his severance of employment and for Mr. Kincheloe $226,000 being paid in connection with his retirement and $133,200 accrued for deferred compensation pursuant to a Special Supplemental Compensation Plan. 12 OPTION GRANTS TABLE The table below shows, for each of the named executive officers, certain information with respect to options granted in 1996 under the 1996 Plan. OPTION/SAR GRANTS IN LAST FISCAL YEAR
NUMBER OF PERCENTAGE OF SECURITIES TOTAL UNDERLYING OPTIONS/SAR'S EXERCISE OPTIONS/SAR'S GRANTED TO PRICE GRANT DATE GRANTED EMPLOYEES IN PER SHARE EXPIRATION PRESENT NAME (#)(1) FISCAL YEAR ($/SH)(2) DATE VALUE(3) ---- ------------- ------------- --------- ---------- ---------- F. S. Addy......... 2,092(4) (4) $9.56 (4) $ -- B. K. Irani........ 30,000 1.3% 9.75 02/16/06 175,652 75,000 3.2% 9.1875 09/10/06 432,016 J. P. McCormick.... 20,000 .9% 9.75 02/16/06 117,101 50,000 2.1% 9.1875 09/10/06 288,010 G. J. Junco........ 50,000 2.1% 9.75 (5) (5) 100,000 4.3% 9.1875 (5) (5) R. L. Kincheloe.... 5,000 .2% 9.75 02/16/06 29,275 D. W. Biegler...... 20,000 .9% 9.75 02/16/06 117,101 J. T. Williams..... 0 -- -- -- --
- -------- (1) Options are exercisable in stages of 25% on the first through the fourth anniversaries of the grant. Options become fully vested in the event of a change in control as defined in the plan. (2) Fair market value on the date of grant. (3) Represents the hypothetical present value of the option determined using Black-Scholes Option Valuation Method based upon the terms of the option grant and the Company's stock price as of the date of the grant. The actual value, if any, an executive may realize will depend on the excess of the stock price over the exercise price on the date the option is exercised and there is no assurance that the value ultimately realized will be at or near the value estimated by the Black-Scholes Option Valuation Method. The assumptions used to arrive at the values shown are as follows: Risk Free Interest Rate of 5.99% for February 16, 1996, awards and 7.09% for September 10, 1996, awards, based on the ten-year Treasury bond rate on the date of the grant, Stock Price Volatility of 37.0% based on the historical return volatility using weekly stock prices over the prior three years, no dividend yield. (4) Reflects Phantom Stock Units granted under the Phantom Stock Plan for non- employee Directors. For a discussion of the Phantom Stock Plan, see "Compensation of Directors." (5) The options granted in 1996 were relinquished at Mr. Junco's severance on October 30, 1996. 13 AGGREGATED OPTION EXERCISE TABLE The table below shows, for each of the named executive officers, the information specified with respect to exercised, exercisable and unexercisable options under all existing stock option plans. AGGREGATED OPTION EXERCISES IN LAST FISCAL YEAR AND FISCAL YEAR-END OPTION VALUES
NUMBER OF SECURITIES VALUE OF UNEXERCISED UNDERLYING UNEXERCISED IN-THE-MONEY OPTIONS AT OPTIONS AT SHARES DECEMBER 31, 1996 DECEMBER 31, 1996 ACQUIRED VALUE (#) ($) ON EXERCISE REALIZED ------------------------- ------------------------- (#) ($) EXERCISABLE UNEXERCISABLE EXERCISABLE UNEXERCISABLE ----------- -------- ----------- ------------- ----------- ------------- F. S. Addy.............. 0 0 0 0 $ 0 $ 0 B. K. Irani............. 0 0 40,000 75,000 80,000 192,188 J. P. McCormick......... 0 0 20,000 50,000 40,000 128,125 G. J. Junco(1).......... 0 0 0 0 0 0 R. L. Kincheloe......... 0 0 9,000 0 18,000 0 D. W. Biegler........... 0 0 35,000 0 70,000 0 J. T. Williams.......... 0 0 35,000 0 0 0
- -------- (1) Relinquished all options on severance of employment. LONG-TERM INCENTIVE PLAN ("LTIP") AWARDS TABLE The table below shows for each of the named executive officers, certain information with respect to awards of performance-based restricted stock made pursuant to the 1996 Plan. LONG-TERM INCENTIVE PLANS--AWARD IN LAST FISCAL YEAR
ESTIMATED FUTURE PAYOUTS UNDER NON-STOCK PRICE BASED PLANS(1) PERFORMANCE PERIOD --------------------------------- NUMBER OF UNTIL MATURATION THRESHOLD(2) TARGET(2) MAXIMUM(2) NAME SHARES OR PAYOUT(3) (#) (#) (#) ---- --------- ------------------ ------------ --------- ---------- F. S. Addy.............. 0 - 0 0 0 B. K. Irani............. 20,000 10/01/96-09/30/99 1,000 20,000 20,000 J. P. McCormick......... 15,000 10/01/96-09/30/99 750 15,000 15,000 G. J. Junco............. 20,000(4) 01/10/96-12/31/98 1,000 20,000 20,000 25,000(5) 01/01/96-09/30/99 1,250 25,000 25,000 R. L. Kincheloe......... 0 - 0 0 0 D. W. Biegler........... 15,000(4) 01/01/96-12/31/98 750 15,000 15,000 J. T. Williams.......... 0 - 0 0 0
- -------- (1) Performance-based restricted shares have been awarded and will be earned at the end of a three-year performance period based upon the three year total shareholder return of the Company compared to the weighted average of the total shareholder return of the Dow Jones Oil-Secondary Index. Regular cash dividends, if any, would be paid on the restricted shares prior to vesting at the same rate as paid to all shareholders. All restrictions are lifted in the event of a change in control and are subject to allocation in the event of retirement, disability or death during the performance period. (2) All shares are earned if at the end of the performance term the Company's total shareholder return is at or above 110% of the weighted average of the peer group. For each percentage point that the Company's total shareholder return is below 110% of the weighted average of the peer group but above 100%, 2.5% of the shares will be forfeited and for each percentage point below 100%, 5% of the shares will be forfeited with no shares earned below 85%. 14 (3) Shares earned at the end of the three-year performance period will remain restricted, subject to continued employment for two additional years. (4) Approval by the Company's Board of Directors of the EEX/LSEPO Merger constituted a change in control as defined in the 1996 Plan. As a result, the forfeiture provisions with respect to these shares lapsed upon such approval. (5) This restricted stock award was relinquished at the time of Mr. Junco's severance of employment. PENSION PLAN TABLE Employees of the Company participate in The Retirement and Death Benefit Program of ENSERCH Corporation and Participating Subsidiary Companies (the "Program") and the ENSERCH Income Restoration Plan (the "Restoration Plan"). The table below illustrates the amount of annual compensation benefit payable on a normal retirement basis beginning at normal retirement age to a person in specified average salary and years-of-service classifications under the Program, the Restoration Plan, and any annuities previously purchased in satisfaction of pension obligations. PENSION PLAN TABLE
YEARS OF SERVICE -------------------------------------------------------------- REMUNERATION(1) 15 20 25 30 35 40 45 - --------------- -------- -------- -------- -------- -------- -------- -------- $275,000 $ 69,085 $ 92,114 $115,142 $138,170 $161,199 $168,074 $174,949 350,000 88,773 118,364 147,955 177,545 207,136 215,886 224,636 425,000 108,460 144,614 180,767 216,920 253,074 263,699 274,324 500,000 128,148 170,864 213,580 256,295 299,011 311,511 324,011 575,000 147,835 197,114 246,392 295,670 344,949 359,324 373,699 650,000 167,523 223,364 279,205 335,045 390,886 407,136 423,386 725,000 187,210 249,614 312,017 374,420 436,824 454,949 473,074 800,000 206,898 275,864 344,830 413,795 482,761 502,761 522,761
- -------- (1) Highest average covered compensation over any consecutive five-year period. Covered compensation under the Program includes base wages and annual- performance based bonuses. The credited years of service under the Program, as of February 28, 1997, for Messrs. Junco, Irani, Kincheloe, McCormick and Williams are 19.7, 22.1, 38.1, 5.6 and 0.6 years, respectively, and the highest average covered compensation during any consecutive five-year period for each of them is $357,698, $201,096, $240,984, $214,838 and $620,000, respectively. In 1996, the Company did not make any contribution or incur any charge regarding the retirement of Mr. Biegler. Mr. Addy waived participation in the retirement plan. The normal retirement benefit is in the form of a benefit guaranteed for ten years and life thereafter and is not subject to any deduction for Social Security or other offset amounts. COMPENSATION OF DIRECTORS Directors are compensated by an annual retainer fee of $25,000 plus $1,250 for each board or committee meeting attended. In addition, a $2,500 per annum fee is paid for services on a Board Committee, with an additional $1,000 per annum paid to the Chairman of a Board Committee. Directors who are also officers of the Company do not receive fees. In 1996, the Company adopted a Phantom Stock Plan ("Director Plan") for non- employee directors. The purpose of the Director Plan is to align the economic interests of the Company's directors with those of shareholders by linking part of the compensation of directors to increases in the value of the Company and to provide a financial incentive that will help attract and retain directors of outstanding competence. Phantom stock units were awarded to each non-employee director (which by the terms of the Plan also included Mr. Addy during his service as Interim Chairman and President, Chief Executive Officer of the Company) except 15 D. W. Biegler, who was serving at the time the Director Plan first became effective. Awards are also made to non-employee directors at the time they are first elected to the Board of Directors, and thereafter to each non-employee director elected to the Board at the Company's annual meeting of shareholders. Each award consists of phantom stock units ("Units"), the number of which is determined by dividing $20,000 by the value of the Company's common stock on the date of the grant. A Unit account, which is maintained for each director, is adjusted to reflect changes in corporate capitalization, a stock split, a transaction which may involve the merger, consolidation, separation, including a spinoff, or other distribution of stock or property of the Company, a corporate reorganization or any partial or complete liquidation of the Company. Units are fully vested at the earlier of the director's retirement from the board, his death or a change in control of the Company, as defined in the Director Plan. The aggregate value payable on an account when it is closed is determined by multiplying the value of one share of the Company's common stock by the number of Units in the account. The sum paid out is payable in cash or in the Company's common stock, at the director's election, and may be deferred for up to ten years with interest to accrue on the account balance at the prime rate as published in "The Wall Street Journal." In 1996, awards valued at $20,000 each resulted in the credit of 2,092 Units to each of the following non-employee directors: F. S. Addy, B. A. Bridgewater, Jr., M. P. Mallardi and W. C. McCord. EMPLOYMENT CONTRACTS, TERMINATION OF EMPLOYMENT AND CHANGE-IN-CONTROL ARRANGEMENTS Mr. Addy executed a Restricted Stock Agreement with the Company in connection with his service as interim Chairman and Chief Executive Officer. The agreement provides that Mr. Addy receive 10,000 restricted shares upon execution of the agreement plus 2,500 shares of restricted stock for each full quarter of service, with the 2,500 share award for a full quarter to be prorated for services less than a full quarter. The restrictions may not be removed until the first to occur of (a) September 10, 1999, (b) the date Mr. Addy ceases to be a Director of the Company or (c) Mr. Addy's death. Mr. Addy waived all employee benefits. Messrs. Junco, Kincheloe, Irani and McCormick have executed change-in- control agreements with the Company that provide certain benefits in the event their employment is terminated in connection with a change in control of the Company (as defined in the agreements). The agreements are for continuous three-year terms until terminated by the Company upon specified notice and continue for three years following a change in control of the Company. The agreements provide that if the officer is terminated or if the officer elects to terminate employment under certain circumstances during the period of six months preceding and within three years following a change in control of the Company, the officer shall be entitled to a lump-sum severance payment of three times the sum of the officer's base salary and target bonus (but not in excess of the aggregate base salary that could be earned up to the officer's normal retirement date), a prorated bonus in the year of termination, the value over exercise price of certain unexercised stock options, a three-year continuation of employee benefits, the equivalent of two years of service credit under the retirement program, and reimbursement of certain legal fees, expenses, and any excise taxes. Under the terms of such agreement, the vote of the shareholders to approve the EEX/LSEPO Merger caused a change in control to occur. Mr. Irani has entered into a retention bonus arrangement under which the Company would pay a cash bonus of $210,000 upon the attainment of eighteen months of continuous employment following the EEX/LSEPO Merger. The bonus payment is payable on a prorated basis in the event that, on or prior to the bonus payment date, the employee dies or becomes disabled, unless during such period he is terminated for cause. Mr. Junco and the Company entered into an agreement in connection with his October 30, 1996, termination as an officer of the Company. Under the agreement, Mr. Junco received payment as described in Note 10 to the Summary Compensation Table which included settlement of a change-in-control agreement. The Company also agreed to maintain Mr. Junco's life, health, accident and disability insurance for one year and reimburse amounts required for excise tax payments, if any. Mr. Junco also relinquished all rights to options and shares of restricted stock of the Company and ENSERCH Corporation held by him. Mr. Kincheloe and the Company entered into an agreement in connection with his August 31, 1996 retirement. Under the agreement, which included settlement of his change-in-control agreement, Mr. Kincheloe 16 received $66,000 at his retirement, monthly payments of $20,000 for the months of September 1996 through April 1997, the continued right to receive the net value of options for Company common stock and ENSERCH common stock, based on their highest value within six months prior to his retirement date and the amount required for excise tax payments, if any. BOARD COMPENSATION COMMITTEE REPORT ON EXECUTIVE COMPENSATION COMPENSATION COMMITTEE REPORT In determining executive compensation, the Committee is guided by three primary objectives: . Offer incentive for business success by putting a significant portion of each executive's total pay at risk, based on company performance observing, in the short term, desirable operating results and, in the long term, total shareholder return. . Attract and keep outstanding executives by providing compensation opportunities consistent with those in the Company's industry for similar positions. . Encourage career service by providing retirement income consistent with industry practice. The Committee's action regarding compensation of executives in the first quarter of the year was consistent with past practices and the above stated objectives. However, compensation matters were impacted by the announcement by ENSERCH Corporation in April of 1996 of its intention to distribute to its shareholders its 83.4% of the Company's shares, the issues that developed while posturing the Company for the transition to a fully independent Company and terminations that occurred during the year. Chief Executive Officer--Cash Compensation. Mr. J. T. Williams served as Chief Executive Officer for the first month of 1996, having served in that position since mid-1995 in association with the Company's acquisition of DALEN Corporation for which he served as Chief Executive Officer, and his compensation was negotiated as part of an employment contract concluded at the time of purchase. Mr. Williams resigned from the Company on February 1, 1996, and was paid severance in accordance with his employment contract and an applicable severance plan continuing from DALEN. Mr. Biegler began serving as Chairman and Chief Executive Officer on February 1, 1996, and served in that capacity until September 10, 1996, when it was determined by the Board, with Mr. Biegler's concurrence, that it would better facilitate the transition to an independent company for the Board to select an interim Chairman and Chief Executive Officer to serve until a permanent chief executive officer could be found. Mr. F. S. Addy, one of the Company's outside directors, was selected to serve as interim Chairman and Chief Executive Officer on September 10, 1996. Other than the award of stock options and performance-based restricted stock as described in the tables, Mr. Biegler was not compensated by the Company in 1996. However, as described in the table, a portion of Mr. Biegler's cash compensation from ENSERCH Corporation was allocated to the Company in 1996 for his services made to the Company. Mr. Addy received no cash compensation during his service with the Company but was paid in Company restricted stock at the rate of 2,500 shares for each quarter of service with proportionate shares for partial quarters and with an initial award of 10,000 shares. Other Named Executive Officers--Cash Compensation. Salary levels for the other named executive officers are based upon assessment of each individual's performance, experience and value in attaining corporate financial and strategic objectives and are set within salary ranges based on surveys of prevailing practice with the mid-point targeted for the expected level of performance, experience and value. The Committee compares the Company's annual cash payments (both salary and annual incentive) for named executive officers to recognized annual surveys of practice in its industry. Industry practice is observed from surveys conducted by Organization Resources Counselors for the "Energy 27" Comparator Group and William M. Mercer, Incorporated. Together they constitute a statistically valid database for this purpose and the Committee is guided by it. The industry specific surveys used include all but one of those companies found in the performance graph's Dow Jones Oil- Secondary Index. The sole use of the smaller number of companies in that peer group produces 17 pay data comparisons that are not considered as statistically meaningful or useful for the purpose of salary comparisons, and the group of companies in that peer group does not include all of the companies that are the Company's most direct competitors for executive talent. During 1996, the aggregate salaries of the named executive officers who were still employed by the Company at year end, not including Mr. Addy, summed to an amount equal to 14% above the sum of the size-adjusted median survey salaries for their positions. One of the named executive officers received a salary increase during 1996 which, on an annualized basis, amounted to 4.7% of the named executive officer's salary. Incentive Plan Compensation. It is the practice of the Company, which is endorsed and effected by the Committee, to encourage both desirable annual operating results and long-term total shareholder return by annual incentive opportunities that put an important portion of total pay at risk subject to the achievement of financial and operating goals. The portion of compensation at risk is intentionally higher at higher executive levels in the Company. Consequently much of a named executive officer's compensation is at risk, with potential annual and long-term incentives, at target levels, placing up to 50% of total compensation opportunity at risk. The Committee also considers comparative data when determining the potential size of both annual and long- term incentive awards. By year end Messrs. Irani and McCormick were the only named executive officers participating in the Company's Performance Incentive Plan. The level of this opportunity is designed to be consistent with industry practice. Their target awards in 1996 ranged from 35% to 40% of salary. In 1996, Plan awards required the achievement of goals set by the Committee at the beginning of the year including operating income attainment and reserve finding-cost effectiveness. Funding, based on results, could have ranged from zero to 150% of the target awards. However, after a review of 1996 operating results, the various performance targets and the circumstances relating to the upcoming spin off, the Committee determined that it would be appropriate to waive previously approved performance factors and authorized individual participant reviews to determine the extent to which 1996 goal achievement would be recognized for purposes of 1996 bonus payouts. This resulted in awards for Messrs. Irani and McCormick of 136% and 71%, respectively, of target. Stock Incentive Plan. In February of 1996, the Company offered additional incentive for stock price growth and total shareholder return through the award of Performance-Based restricted stock under the Company's Stock Incentive Plan, in which Messrs. Biegler and Junco participated, and stock options under the Company's Stock Incentive Plan, in which Messrs. Biegler, Junco, Irani and McCormick participated. In addition, after a decision by the full Board regarding the need to retain and extend additional incentives to key executives in the face of certain disruptions occurring as a result of the upcoming spin off, in September the Company made additional awards of Performance-Based restricted stock and stock options to Messrs. Junco, Irani and McCormick. The awards of Performance-Based restricted stock are subject to forfeiture in whole or in part unless specific goals which have been determined by the Compensation Committee are achieved. The goals compare the three year total shareholder return of the Company to the Dow Jones Oil- Secondary Index used in the performance graph in the Company's 1996 Form 10-K. After the three year goals are met, the restricted stock is subject to an additional requirement of continued employment for two more years. Awards are made to achieve the earlier stated objective of causing a significant portion of each executive's total pay to be at risk and dependent on total shareholder return primarily through stock price growth as well as the objective of keeping outstanding executives by providing compensation opportunities similar to those provided in the Company's industry. The Committee considered the objective that the executive have an important incentive for stock price gain. In determining the size of Performance-Based restricted stock and stock option awards, the Committee used its discretion and was not bound by any pre-adopted formulas. Performance-Based restricted stock and stock option awards in 1996 and options held at year end are described in the tables. Change-in-control provisions of the Company's Stock Incentive Plan operated in 1996 to lift the restrictions on Performance-Based restrictive stock held by Messrs. Biegler and Junco as described in the table. Mr. Junco resigned his position on October 31, 1996, and was paid a settlement that included surrender of his stock options, restricted stock, rights under his change-in- control agreement and other amounts owing to him. 18 Retirement Plan. The Company encourages career employment and it is endorsed by the Committee. Its retirement benefits are an essential part of that policy. They are described, for the named executive officers, in the Pension Plan Table. The Committee periodically reviews executive retirement benefits to ensure that they continue to meet the Company's needs and are consistent with good corporate practice. Section 162(m). No formal policy has been adopted by the Company with respect to qualifying compensation paid to its executive officers for deductibility under Section 162(m) of the Internal Revenue Code. In the event that any new compensation programs are proposed in the future, it is expected that they will be structured with a view toward qualifying for deductibility just as were the amendments to the 1994 Stock Incentive Plan as approved by shareholders in 1996. The Committee does not anticipate that current compensation levels will result in loss of any tax deductibility. Compensation Committee W. C. McCord, Chairman F. S. Addy B. A. Bridgewater, Jr. 19 PERFORMANCE GRAPH Set forth below is a line graph comparing the percentage change in the cumulative total shareholder return on the Company's Common Stock against the cumulative total return of the S&P 500 Composite Stock Index and the Dow Jones Oil-Secondary Index since the Company's stock first began trading. The graph assumes that the value of the investment in the Company's Common Stock and each index was $100 at January 3, 1995, the date the Company's stock first began trading, and that all dividends are reinvested. The publicly traded units of EP for the period prior to 1995 are not included in the performance graph because such partnership interest was valued on a different basis from the Common Stock currently traded and any comparisons would be inappropriate. COMPARISON OF CUMULATIVE TOTAL RETURN [PERFORMANCE GRAPH APPEARS HERE]
- -------------------------------------------------------------------------------- January 3, 1995 1995 1996 - -------------------------------------------------------------------------------- Enserch Exploration, Inc. 100 115 114 S&P 500 100 137 169 Dow Jones Oil-Secondary Index 100 116 143 - --------------------------------------------------------------------------------
20 COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION At various times during 1996, the following individuals served as a member of the Company's Compensation Committee: W. C. McCord, Frederick S. Addy and B. A. Bridgewater, Jr. Except for Mr. Addy, neither of the other individuals was or has been an officer or employee of the Company or its subsidiaries. Mr. Addy's service on the Compensation Committee ceased in September 1996 when he was named interim Chairman and Chief Executive Officer of the Company and its subsidiaries. ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS The Company is aware of the following beneficial owners, as of December 31, 1996, of more than 5% of its Common Stock.
NAME AND ADDRESS OF NUMBER OF SHARES PERCENT BENEFICIAL OWNER (1) BENEFICIALLY OWNED OF CLASS -------------------- ------------------ -------- ENS Holdings Limited Partnership (2)............. 53,336,434 42.3% Enserch Exploration Holdings, Inc. (3)........... 13,883,529 11.0 ENSERCH Corporation (4).......................... 37,795,365 30.0
- -------- (1) The address for each party is 300 South St. Paul, Dallas, Texas 75201 (2) ENS Holdings Limited Partnership, a Texas limited partnership, is trustee (the "Trustee") of the ENS Holding Trust, a Texas trust (the "Trust") of which ENSERCH is the beneficiary. ENS Holdings I, Inc., the general partner (the "Trustee GP") of the Trustee and ENS Holdings II, Inc., the sole limited partner of the Trustee, are each wholly owned subsidiaries of ENSERCH. The Trustee has voting and dispositive power with respect to the 53,336,434 shares of the outstanding Common Stock owned by the Trust and may be deemed to beneficially own those shares. ENSERCH has the power to revoke the Trust by giving not less than 90 days' prior notice of revocation. Upon termination of the Trust, the assets in the Trust (including any shares of Common Stock in the Trust at that time) would be distributed to ENSERCH. Actions of the Trustee are effected by the Trustee GP in its capacity a general partner of the Trustee. (3) Enserch Exploration Holdings, Inc. is a wholly owned subsidiary of ENSERCH. (4) ENSERCH has sole voting and dispositive power with respect to 37,795,365 shares of the Common Stock and, by virtue if its ownership of the securities of EEH, the Trustee and the Trustee GP, may be deemed to share voting and dispositive power with respect to the 67,219,963 shares of Common Stock shown in the table as owned by EEH and the Trust. ENSERCH, therefore, may be deemed to owned beneficially, directly or indirectly, 105,015,328 shares of Common Stock. 21 STOCK OWNERSHIP OF MANAGEMENT AND BOARD OF DIRECTORS Each director, the named executive officers, and all directors and executive officers as a group, reported beneficial ownership as of the Record Date of Common Stock of the Company as follows:
EEX ENSERCH ------------------------------------- ---------------------- NUMBER OF NUMBER OF NUMBER OF SHARES PHANTOM SHARES BENEFICIALLY PERCENT STOCK UNITS BENEFICIALLY PERCENT OWNED (1) OF CLASS OWNED(2) OWNED (3) OF CLASS ------------ -------- ----------- ------------ -------- T. M Hamilton........... 100,000 * 0 0 * F. S. Addy.............. 15,432 * 2,092 5,444 * D. W. Biegler........... 46,000(4)(6) * 0 309,043(5) * B. A. Bridgewater, Jr... 1,000 * 2,092 5,944 * M. P. Mallardi.......... 0 * 2,092 0 * W. C. McCord............ 2,000 * 2,092 66,301(5) * R. L. Kincheloe......... 11,500(4) * 0 44,676(5) * G. J. Junco............. 24,600 * 0 10,189(5) * J. T. Williams.......... 35,000(4) * 0 0 * B. K. Irani............. 61,000(4) * 0 0 * J. P. McCormick......... 44,500(4) * 0 8,796(5) * All Directors and Execu- tive Officers as a Group.................. 415,532(4) * 8,368 422,423(5) *
- -------- * Less than 1% (1) The number of shares owned includes shares held in the ENSERCH Corporation Employee Stock Purchase and Savings Plan and restricted shares awarded under the 1996 Plan, where applicable. (2) Phantom Stock Units are awarded under the Company's Phantom Stock Plan to non-employee Directors. The Plan is described in "Compensation of Directors." (3) The number of shares owned includes shares held in the ENSERCH Corporation Employee Stock Purchase and Savings Plan where applicable. (4) The totals include shares of Common Stock of the Company subject to stock options exercisable within 60 days of the Record Date: D. W. Biegler 35,000 shares; R. L. Kincheloe 9,000 shares; J. T. Williams 35,000 shares; B. K. Irani 40,000 shares; J. P. McCormick 20,000 shares; and all directors and executive officers as a group 136,000 shares. (5) The totals include shares of Common Stock of ENSERCH subject to stock options exercisable within 60 days of the Record Date: D. W. Biegler 246,948 shares; W. C. McCord 65,000 shares; R. L. Kincheloe 34,500 shares; J. P. McCormick 7,500 shares; and all directors and executive officers as a group 373,748 shares. (6) Does not include 105,015,328 shares beneficially owned by ENSERCH and its affiliates in which Mr. Biegler, as authorized by the Board of Directors of ENSERCH, has sole voting power. ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS Mr. Biegler is a Director and an executive officer, and Messrs. Bridgewater and McCord are each Directors, of ENSERCH. The Company and ENSERCH, including its affiliates, have in the past entered into significant arrangements with respect to their businesses and expect to do so in the future to the extent authorized by the Restated Articles of Incorporation of the Company. In the ordinary course of business, the Company engages in various transactions with ENSERCH companies. See Note 13 of the Notes to Financial Statements in Appendix A for information on these transactions. 22 SECTION 16(A) BENEFICIAL OWNERSHIP REPORTING COMPLIANCE Section 16(a) of the Securities Exchange Act of 1934 requires the officers and directors of the Company, and persons who own more than 10% of a registered class of the equity securities of the Company, to file reports of beneficial ownership and changes in beneficial ownership with the SEC and the New York Stock Exchange. Based solely on its review of the copies of such reports received by it, or written representations from certain reporting persons that no Forms 5 were required for those persons, the Company believes that during 1996, its officers, directors and greater than 10% shareholders complied with all applicable filing requirements. PART IV ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K (A)-1 FINANCIAL STATEMENTS The following items appear in the Financial Information section included in Appendix A to this report:
ITEM PAGE ---- ---- Selected Financial Data................................................. A-2 Operating Data.......................................................... A-3 Financial Review........................................................ A-4 Independent Auditors' Report............................................ A-9 Management Report on Responsibility for Financial Reporting............. A-10 Financial Statements: Statements of Consolidated Operations................................. A-11 Statements of Consolidated Cash Flows................................. A-12 Consolidated Balance Sheets........................................... A-13 Statements of Owners' Equity.......................................... A-14 Notes to Consolidated Financial Statements............................ A-15 Quarterly Results....................................................... A-30 Common Stock Market Prices and Dividend Information..................... A-30
(A)-2 FINANCIAL STATEMENT SCHEDULES The consolidated financial statement schedules are omitted because of the absence of the conditions under which they are required or because the required information is included in the consolidated financial statements or notes thereto. (A)-3 EXHIBITS 3.1* Restated Articles of Incorporation of the Company as currently in effect, filed as Exhibit 3.1 to the Company's Form 10-K for the year ended December 31, 1995. 3.2 Bylaws of the Company as currently in effect. 10.1* Lease Agreement for Garden Banks 388-1 between the Company and Enserch Exploration Holdings, Inc. (formerly Enserch Exploration, Inc.) included as Exhibit 10.3 to the Company's Registration Statement on Form S-4 (No. 33-56792). 10.2* Lease Agreement for Garden Banks 388-2 between the Company and Enserch Exploration Holdings, Inc. (formerly Enserch Exploration, Inc.) included as Exhibit 10.4 to the Company's Registration Statement on Form S-4 (No. 33-56792). 10.3* Lease Agreement for Mississippi Canyon 441 between the Company and Enserch Exploration Holdings, Inc. (formerly Enserch Exploration, Inc.) included as Exhibit 10.5 to the Company's Registration Statement on Form S-4 (No. 33-56792). 23 10.4* Participation Agreement between EP Operating Limited Partnership and Mobil Producing Texas and New Mexico Inc. included as Exhibit 10.6 to the Company's Registration Statement on Form S-4 (No. 33-56792). 10.5* Stock Purchase Agreement dated as of April 12, 1995, By and Between PG&E Enterprises, as Seller, and Registrant, as Buyer, filed as Exhibit 10.7 to the Company's Registration Statement on Form S-2 (No. 33- 60461). 10.6* Gas Purchase Contract between EP Operating Company and Lone Star Gas Company, a division of ENSERCH Corporation, dated January 1, 1988, Amendatory Agreement dated June 1, 1990, Amendatory Agreement dated July 1, 1992 and Letter Amendment dated August 30, 1993, filed as Exhibit 10.5 to the Company's Form 10-K for the year ended December 31, 1994. 10.7* Letter Agreement regarding intercompany loans effective January 1, 1995, between the Company and ENSERCH Corporation filed as Exhibit 10.8 to the Company's Registration Statement on Form S-2 (No. 33-60461). 10.8* Natural Gas Sales and Purchase Contract between EP Operating Limited Partnership and Enserch Gas Company, each effective March 1, 1993, filed as Exhibit 10.9 to the Company's Registration Statement on Form S-2 (No. 33-60461). 10.9* Natural Gas Sales and Purchase Contract between EP Operating Limited Partnership and Enserch Gas Company, effective March 1, 1993, and amendment effective November 1, 1994, filed as Exhibit 10.10 to the Company's Registration Statement on Form S-2 (No. 33-60461). 10.10* Agency Agreement between EP Operating Limited Partnership and Enserch Gas Company effective March 1, 1993, filed as Exhibit 10.11 to the Company's Registration Statement on Form S-2 (No. 33-60461). 10.11 Credit Agreement among Enserch Exploration, Inc. as Borrower, Texas Commerce Bank National Association, as Administrative Agent, The Chase Manhattan Bank, N.A., as Syndication Agent, Chemical Bank, as Auction Agent and The Lenders now or hereafter Parties hereto dated as of May 1, 1995, and Amendment No. 1, dated September 16, 1996. 10.12* Tax Sharing Agreement between ENSERCH Corporation and Enserch Exploration, Inc., filed as Exhibit 10.21 to the Company's Registration Statement on Form S-2 (No. 33-60461). 10.13* Amended and Restated Limited Liability Company Agreement of MIStS Issuer L.L.C. dated August 4, 1995, filed as Exhibit 10.22 to the Company's Registration Statement on Form S-2 (No. 33-60461). EXECUTIVE COMPENSATION PLAN AND ARRANGEMENTS (EXHIBITS 10.14 THROUGH 10.20): 10.14* Enserch Exploration, Inc. 1994 Stock Incentive Plan, filed as Exhibit 10.1 to the Company's Registration Statement on Form S-4 (No. 33- 56792). 10.15 Performance Incentive Plan--Calendar Year 1997. 10.16 ENSERCH Corporation Deferred Compensation Plan dated September 30, 1994 and Amendment No. 1 thereto dated March 28, 1995, Amendment No. 2 dated January 1, 1996, Amendment No. 3 dated September 23, 1996, Amendment No. 4 dated November 6, 1996 and Amendment No. 5 dated February 18, 1997. 10.17 ENSERCH Corporation Deferred Compensation Trust dated September 30, 1994, and Amendment No. 1 thereto effective January 1, 1996. 10.18 ENSERCH Corporation Retirement Income Restoration Plan dated December 28, 1990, and Amendment No. 1 thereto dated September 30, 1994, Amendment No. 1-A dated February 13, 1996, and Amendment No. 2 effective January 1, 1996. 10.19 ENSERCH Corporation Retirement Income Restoration Trust dated September 30, 1994, and Amendment No. 1 thereto effective January 1, 1996. 10.20 Form of Change of Control Agreement executed by certain executive officers of the Company. 21 Subsidiaries of the Company. 24 23.1 Deloitte & Touche LLP consent letter, including consent to incorporation by reference in Registration Statements on Form S-8 (No. 33-57715 and No. 33-60587). 23.2 Consent of DeGolyer and MacNaughton. 24 Powers of Attorney. 27 Financial Data Schedule. 99* Proxy Statement of the Company dated October 2, 1996, as filed with the SEC. - -------- Long-term debt is described in the Notes to Consolidated Financial Statements included in Appendix A to this report. EEX agrees to provide the Commission, upon request, copies of instruments defining the rights of holders of such long-term debt, which instruments are not filed herewith pursuant to Paragraph (b)(4)(iii)(A) of Item 601 of Regulation S-K. * Incorporated herein by reference and made a part hereof. (b) Reports on Form 8-K Current Report on Form 8-K dated October 31, 1996, was filed on October 31, 1996 (Resignation of Gary J. Junco as President and Director) and Current Report on Form 8-K dated November 22, 1996, was filed on November 22, 1996 (Results of vote on proposals at Special Meeting of Shareholders held on November 15, 1996). 25 SIGNATURES PURSUANT TO THE REQUIREMENTS OF SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE ACT OF 1934, THE REGISTRANT HAS DULY CAUSED THIS REPORT TO BE SIGNED ON ITS BEHALF BY THE UNDERSIGNED, THEREUNTO DULY AUTHORIZED: ENSERCH Exploration, Inc. By: /s/ T. M Hamilton -------------------------------- T. M Hamilton, Chairman and President MARCH 21, 1997 PURSUANT TO THE REQUIREMENTS OF THE SECURITIES EXCHANGE ACT OF 1934, THIS REPORT HAS BEEN SIGNED BELOW BY THE FOLLOWING PERSONS IN THE CAPACITIES AND ON THE DATE INDICATED. SIGNATURE TITLE T. M Hamilton, Chairman and President, Chief Executive Officer and Director; F. S. Addy, Director; D. W. Biegler, Director; B. A. Bridgewater, Jr., Director; W. C. McCord, Director; and M. P. Mallardi, Director By: /s/ T. M Hamilton -------------------------------------- March 21, 1997 T. M Hamilton Individually and As Attorney-in-Fact /s/ J. P. McCormick -------------------------------------- March 21, 1997 J. P. McCormic Senior Vice President and Chief Financial Officer /s/ R. E. Schmitz -------------------------------------- March 21, 1997 R. E. Schmitz Vice President and Controller 26 APPENDIX A ENSERCH EXPLORATION, INC. INDEX TO FINANCIAL INFORMATION DECEMBER 31, 1996
PAGE ---- Selected Financial Data.................................................... A-2 Operating Data............................................................. A-3 Financial Review........................................................... A-4 Independent Auditors' Report............................................... A-9 Management Report on Responsibility for Financial Reporting................ A-10 Financial Statements: Statements of Consolidated Operations.................................... A-11 Statements of Consolidated Cash Flows.................................... A-12 Consolidated Balance Sheets.............................................. A-13 Statements of Owners' Equity............................................. A-14 Notes to Consolidated Financial Statements............................... A-15 Quarterly Results.......................................................... A-30 Common Stock Market Prices and Dividend Information........................ A-30
A-1 ENSERCH EXPLORATION, INC. SELECTED FINANCIAL DATA
AS OF OR FOR YEAR ENDED DECEMBER 31, ------------------------------------------------ 1996 1995(A) 1994 1993 1992 -------- -------- -------- -------- -------- (IN MILLIONS EXCEPT PER SHARE AMOUNTS) INCOME STATEMENT DATA Natural gas revenues........ $ 221.2 $ 157.3 $ 144.5 $ 146.4 $ 118.6 Oil and condensate revenues................... 98.9 56.5 30.9 36.9 45.1 Natural gas liquids revenues................... 8.2 4.9 2.4 4.1 6.5 Other revenues.............. 2.1 2.1 1.3 2.4 1.3 -------- -------- -------- -------- -------- Total revenues............. 330.4 220.8 179.1 189.8 171.5 Production and operating expenses................... 74.0 49.8 31.7 31.4 29.6 Exploration................. 12.5 11.9 9.1 8.7 11.2 Depreciation and amortization............... 150.4 116.6 80.8 78.4 76.7 (Sale) write down of inactive pipeline.......... (7.5) 16.5 Write down of gas and oil properties................. 10.2 General, administrative and other...................... 35.0 29.9 19.8 30.0 23.1 Taxes, other than income.... 21.7 18.8 13.2 15.9 15.6 -------- -------- -------- -------- -------- Total expenses............. 293.6 227.0 147.1 174.6 172.7 Operating income (loss)..... 36.8 (6.2) 32.0 15.2 (1.2) Other income (expense)-- net........................ 2.1 .1 (.3) Interest income............. .1 1.0 .7 2.0 3.7 Interest and other financing costs...................... (22.7) (14.6) (20.9) (30.6) (20.7) -------- -------- -------- -------- -------- Income (loss) before income taxes...................... 16.3 (19.7) 11.5 (13.4) (18.2) Income taxes (benefit)...... 5.5 (7.2) (.3) (3.4) .4 -------- -------- -------- -------- -------- Net income (loss)........... $ 10.8 $ (12.5) $ 11.8 $ (10.0) $ (18.6) -------- -------- -------- -------- -------- Pro Forma Information-- Change in Tax Status(b): Income (loss) before income taxes...................... $ 11.5 $ (13.4) $ (18.2) Income taxes (benefit)...... 4.0 (4.7) (6.4) -------- -------- -------- Net income (loss).......... $ 7.5 $ (8.7) $ (11.8) ======== ======== ======== Net income (loss) per share (pro forma for periods prior to 1995)............. $ .09 $ (.11) $ .07 $ (.08) $ (.11) Weighted average shares outstanding................ 125.9 111.1 105.8 105.8 105.8 CASH FLOW DATA Net cash provided by operating activities....... $ 134.9 $ 84.0 $ 61.7 $ 79.5 $ 85.2 Net cash used in investing activities................. (63.0) (388.2) (108.8) (129.0) (58.7) Net cash provided by (used in) financing activities... (72.1) 305.5 47.0 48.9 (25.7) COMMON STOCK DATA Market Price(c) High........................ $ 12 $ 14 7/8 $ 11 $ 12 1/4 $ 8 1/4 Low......................... 8 1/4 9 1/4 5 3/4 7 3/8 6 1/4 Common Shareholders' Equity per Share.................. 7.49 7.41 6.96 Shares Outstanding at Year- end........................ 126.0 125.9 105.8 BALANCE SHEET DATA (at year end) Property, plant and equipment--net............. $1,746.7 $1,670.6 $1,254.0 $1,046.4 $1,018.4 Total assets................ 1,872.1 1,776.8 1,381.2 1,111.5 1,068.8 CAPITAL STRUCTURE (at year end) Capital lease obligations(d)............. $ 245.0 $ 98.0 $ 155.9 $ $ Long term debt(d)........... 115.0 160.0 298.0 266.0 Company-obligated mandatorily redeemable preferred securities of subsidiary... 150.0 150.0 Owners' equity.............. 944.2 932.2 736.0 630.7 671.7 -------- -------- -------- -------- -------- Total...................... $1,454.2 $1,340.2 $ 891.9 $ 928.7 $ 937.7 ======== ======== ======== ======== ========
- -------- (a) 1995 includes results of DALEN since acquisition on June 8, 1995. (b) Pro forma net income and per share data for periods prior to 1995 include a pro forma provision for income taxes on partnership operations based on the applicable federal statutory tax rate. (c) Market price share amounts for years prior to 1995 represent prices of Enserch Exploration Partners, Ltd. units. (d) Including current portion. A-2 ENSERCH EXPLORATION, INC. OPERATING DATA
AS OF OR FOR YEAR ENDED DECEMBER 31 -------------------------------------------- 1996 1995 1994 1993 1992 -------- -------- -------- -------- -------- Sales volumes Natural gas (Bcf)............... 100.5 90.2 67.1 70.0 65.2 Oil and condensate (MMBbls)..... 5.1 3.4 2.0 2.1 2.3 Natural gas liquids (MMBbls).... .6 .5 .2 .3 .5 Total volumes (Bcfe) (a)...... 135.0 113.4 80.5 84.9 82.2 Average sales price Natural gas (per Mcf)........... $ 2.20 $ 1.74 $ 2.15 $ 2.09 $ 1.82 Oil and condensate (per Bbl).... 19.47 16.86 15.38 17.24 19.20 Natural gas liquids (per Bbl)... 12.35 9.38 10.85 12.09 13.38 Total (per Mcfe) (a).......... 2.43 1.93 2.21 2.21 2.07 Costs and expenses (per Mcfe) (a) Production and operating (b).... $ .55 $ .44 $ .39 $ .37 $ .36 Exploration..................... .09 .10 .11 .10 .14 Depreciation and amortization... 1.11 1.03 1.00 .92 .93 General, administrative and oth- er............................. .26 .26 .25 .35 .28 Taxes, other than income........ .16 .17 .16 .19 .19 Net Wells Drilled......................... 109 81 74 79 19 Productive...................... 84 51 44 64 8 Proved Reserve Data (at year end) Natural Gas (Bcf)............... 1,216.2 1,362.8 1,041.7 1,086.5 1,101.4 Oil and condensate (MMBbls) (c)............................ 59.2 71.5 50.6 39.3 39.2 Total (Bcfe) (a).............. 1,571.5 1,791.8 1,345.3 1,322.3 1,336.6 Standardized Measure of Discounted Future Net Cash Flows (in mil- lions)........................... $1,715.1 $1,227.4 $ 879.3 $1,102.6 $1,111.3
- -------- (a) Oil and natural gas liquids are converted to Mcf equivalents (Mcfe) on the basis of one barrel equals 6.0 Mcfe. (b) Excludes related production, severance and ad valorem taxes. (c) Reserves include natural gas liquids attributable to leasehold interests. A-3 ENSERCH EXPLORATION, INC. FINANCIAL REVIEW 1996 RESULTS OF OPERATIONS COMPARED WITH 1995 Net income was $10.8 million ($.09 per share) for 1996, compared with a net loss of $12.5 million ($.11 per share) for 1995. Results for 1996 were adversely impacted by nonrecurring charges of $2.8 million after tax ($4.3 million pre-tax) related to the Company's pending separation from ENSERCH Corporation (ENSERCH) and associated management changes. The year to year improvement is primarily attributable to higher commodity prices in 1996 and a full year's contribution to production volumes from properties acquired in 1995 and the Cooper Project. Operating income was $36.8 million in 1996, compared with an operating loss of $6.2 million in 1995. Revenues for 1996 were $330 million, a $110 million (50%) increase from 1995, reflecting a $64 million (41%) increase in natural gas revenues, and a $46 million (72%) improvement in oil and other revenues. The average natural gas sales price per thousand cubic feet (Mcf) was $2.20 in 1996 compared with $1.74 in 1995. Natural gas production increased to 101 billion cubic feet (Bcf) in 1996, 11% higher than in 1995. The higher natural gas volumes primarily resulted from 1996 operations containing a full year of production from the properties acquired in the acquisition of DALEN Corporation in June 1995. Higher oil revenues in 1996 reflect a 15% improvement in the average sales price and a 52% increase in sales volumes due primarily to the continued development of the Cooper Project and the DALEN acquisition. Production and operating expenses for 1996 were $24 million (49%) higher than in 1995, primarily due to a full year's activity from the Cooper Project (up $15 million), and the properties acquired in the DALEN acquisition. Exploration expenses were slightly higher in 1996, reflecting increased costs from international exploration activity. General and administrative expenses increased $5.1 million from 1995, reflecting a full year's impact of the DALEN acquisition and $3.4 million for costs associated with the Company's pending separation from ENSERCH and related management changes. The depreciation and amortization rate per thousand cubic feet of natural gas equivalent (Mcfe) increased to $1.11 in 1996, from $1.03 in 1995, principally due to the downward reserve revisions in two offshore deep water projects. EEX sold substantially all of its Rocky Mountain area properties in 1996. Sales proceeds of $116.5 million, less $5.5 million in closing costs and income from the April 1, 1996 effective date to the closing dates, were received and used to reduce bank borrowings. The properties sold contributed $1.6 million to 1996 operating income, with total revenues of $22.2 million and operating expenses of $20.6 million. Natural gas revenues were $15.2 million on sales of 10.8 Bcf, and oil and natural gas liquids revenues totaled $7.0 million on sales of 504 thousand barrels (MBbls). Interest and other financing costs for 1996 were $23 million, compared with $15 million in 1995. Interest in 1996 includes a full year's impact from the debt incurred to finance the DALEN acquisition in June 1995 and the Cooper Project capital lease, partially offset by the reduction in debt from proceeds of property sales. Interest on the Cooper Project capital lease was deferred through September 1995, the date of first production. The pro forma incremental impact on 1997's results of operations, compared with 1996, of refinancing the Cooper Project equipment and facilities in December 1996 and capitalization of the associated operating sublease will be a reduction in production and operating expense of some $15 million, an increase in the amortization rate of approximately $0.05 per Mcfe, and an increase in interest costs of some $10 million. For the year ended December 31, 1996 the Cooper Project added $1.2 million to operating income, but detracted $2.6 million from net income. Operating results in 1996 were negatively impacted when the A-1 development well encountered mechanical difficulties which prevented completion. Two additional wells, the A-4 SB-3 exploratory well on Garden Banks Block 387 and the A-2 development well on Garden Banks Block 388 have been completed with first production expected in the first quarter of 1997. See Item 1: Business, for additional information. 1995 RESULTS OF OPERATIONS COMPARED WITH 1994 EEX had a net loss of $12.5 million ($.11 per share) for 1995, compared with pro forma net income of $7.5 million ($.07 per share) in 1994 after income taxes on partnership operations. Results for 1994 benefitted from a $4.9 million after tax ($7.6 million pre-tax) gain from the sale of assets. There was an operating loss of $6.2 million in 1995, compared with operating income of $32 million in 1994. DALEN's operations are included since their acquisition on June 8, 1995 and contributed 1995 operating income of $6.9 million, with revenues of $70.4 million and operating expenses of $63.5 million. Natural gas revenues were $49 million on sales of 31 Bcf at an average sales price of $1.60 per Mcf. Oil and other revenues totaled $21 million; the average sales price for oil was $16.61 per barrel (Bbl), and oil sales volumes were 1.1 million barrels (MMBbls). The following comparisons of 1995 and 1994 operating results exclude the impact of DALEN in 1995 and the previously noted unusual item in 1994. There was an operating loss for 1995 of $13 million, compared with income of $24 million for 1994. Revenues for 1995 were $29 million (16%) lower than in 1994, reflecting a $37 million (25%) decrease in natural gas revenues, but an $8 million (23%) improvement in oil and other revenues. The average natural gas sales price per Mcf of $1.82 in 1995, excluding DALEN, declined 15% from the 1994 average of $2.15, causing a $23 million decline in revenues. Natural gas sales volumes of 59 Bcf, excluding DALEN, were 12% less than in 1994, reducing revenues by $14 million. The lower volumes primarily resulted from less capital spending to replace gas production due to low gas prices and the normal decline in production from several mature fields and the Mississippi Canyon Block 441 in the Gulf of Mexico. Higher oil revenues reflect a 10% improvement in the average sales price and a 12% increase in sales volumes from the start-up of production from the Cooper Project in late September, and increased production from exploration and development activities in Hardeman and Shackelford counties in North Texas. Production and operating expenses for 1995, excluding DALEN, were $5.1 million (16%) higher than in 1994, primarily due to expenses of $4.4 million for the Cooper Project and higher maintenance costs. The commencement of sales from the Cooper Project in late September detracted from 1995 results, producing an operating loss of $1.9 million, as fixed operating costs exceeded revenues from the initial levels of production. Exploration expenses were $1.9 million higher than in the 1994 period due to increased international exploration activity. General and administrative expenses increased $5.3 million from 1994, with 1995 expenses including a $1.8 million provision for injuries and damages claims and a $1.0 million charge for severance costs related to the DALEN acquisition, while 1994 expenses benefited from credits of $2.0 million associated with litigation accruals. The total amortization rate per Mcfe was $1.03 in 1995, compared with $1.00 in 1994. The increase in 1995 over 1994 was primarily due to the conversion of a part of the Cooper Project lease from an operating to a capital lease in connection with the year end 1994 reorganization, partially offset by a benefit resulting from reserve additions for the Allegheny Project and DALEN. Excluding DALEN, a lower level of production caused depreciation and amortization to be less in 1995 than in 1994. Interest and other financing costs for 1995 were $15 million, compared with $21 million for 1994. The 1995 costs are primarily associated with the DALEN acquisition. Interest for 1994 related to debt assumed by ENSERCH companies in connection with the reorganization. The pro forma impact on 1994's net income as shown on EEX's Statements of Consolidated Operations of the incorporation of EP and the assumption of debt by ENSERCH companies, would be to decrease interest $20.9 A-5 million and increase income taxes a total of $11.6 million, $4.3 million on partnership operations and $7.3 million on the interest reduction. RESERVES EEX's natural gas reserves, as estimated by DeGolyer and MacNaughton, independent petroleum consultants (D&M), at January 1, 1997 were 1.22 trillion cubic feet (Tcf), compared with 1.36 Tcf the year earlier. Additions to and purchases of natural gas reserves in 1996 replaced gas produced from retained properties after adjusting for the sale of 124 Bcf of gas reserves. As a result, natural gas reserves at year end 1996 for retained properties were little changed from the year earlier. Oil and condensate reserves, including natural gas liquids, were 59 MMBbls, down 8.6 MMBbls compared with the year earlier level of 71 MMBbls after adjusting for the sale of 3.7 MMBbls, additions at 102% of 1996 adjusted production and downward revisions of 8.2 MMBbls at the Company's deep water projects in the Gulf of Mexico. The downward revisions resulted from the performance of two producing wells at the Cooper Project and the thinning of some previously mapped reservoirs as a result of additional drilling at the Allegheny Project. GAS AND OIL MARKET VOLATILITY Results of operations are largely dependent upon the difference between the prices received for gas and oil produced and the costs of finding and producing such resources. On an energy equivalent basis, gas reserves at January 1, 1997 constituted approximately 80% of total reserves, and gas production accounted for approximately 77% of total production for 1996. Accordingly, variations in gas prices have a more significant impact on operations than variations in oil prices. Gas production as a percentage of total production is expected to decrease as a result of the development of the offshore Gulf of Mexico properties. A portion of the risk associated with fluctuations in the price of natural gas and oil is managed through the use of hedging techniques such as gas and oil swaps, collars and futures agreements. EEX fixed the price on 1996 production volumes of 43 Bcf of natural gas (43% of production) at an average price of $2.11 per Mcf and 2.7 MMBbls of oil (52% of production) at an average price of $19.58 per Bbl. In total, gas and oil price hedging activities decreased 1996 revenues by $20.3 million and increased 1995 and 1994 revenues by $.1 million and $4.3 million, respectively. At December 31, 1996, EEX had outstanding swaps, collars and futures agreements that were entered into as hedges extending through December 31, 1997 to exchange payments on 32 Bcf of natural gas and 365 MBbls of oil. At December 31, 1996 there were $3.0 million of net unrealized and unrecognized hedging gains based on the difference between the strike price and the New York Mercantile Exchange futures price for the applicable trading month. In addition, there were $5.1 million of realized losses on hedging activities which were deferred and will be applied as a reduction in revenues in January 1997, the month of physical sale of production. CAPITALIZED COSTS At January 1, 1997, estimated future net cash flows, before income taxes, from EEX's owned proved oil and gas reserves, based on average December 1996 prices of $3.37 per Mcf of natural gas and $23.33 per barrel of oil were $3.9 billion. The net present value of such cash flows after income taxes and discounted at 10%, was $1.7 billion, which is the basis for the SEC-prescribed cost center ceiling for the full cost accounting method. The margin between the cost center ceiling and the unamortized capitalized costs of U.S. oil and gas properties was about $540 million at December 31, 1996. Product prices, production rates, levels of reserves and estimates of future development costs all influence the calculation of the cost center ceiling, making it difficult to project. Gas and oil prices are subject to seasonal and other fluctuations and, from time to time, may vary significantly. Product prices generally have the greatest impact on the cost center ceiling. At December 31, 1996, a $0.10 per Mcf change in the price of natural gas has about a $45 million impact on the cost center ceiling; a $1.00 per barrel change in the oil price has about a $20 million impact. A-6 The SEC-prescribed full cost accounting rules require registrants to calculate the cost center ceiling limitation at the end of each quarter using current prices and costs. Prices for natural gas and oil have declined sharply since the end of 1996. If there is not a substantial improvement in prices or mitigating changes in the other factors involved in the calculation by the end of the first quarter, the carrying value of EEX's oil and gas properties almost certainly will be above the SEC-prescribed cost center ceiling. Such conditions would necessitate a significant write-down of gas and oil properties and a non-cash charge against earnings for the quarter. Based on circumstances existing in March 1997 and without any pricing improvement or mitigating changes, such a write-down could range from $225 to $250 million after tax. Management believes the low prices required to be used in the calculation are not representative of the prices EEX will receive for its production in the future. A non-cash write-down of oil and gas properties will reduce future depreciation and amortization expense but will not impact future cash flows. LIQUIDITY AND CAPITAL RESOURCES During 1996, EEX took certain actions to assure its liquidity and access to financial resources to fund its investment and growth opportunities. EEX renewed its $350 million revolving credit facility extending it to five years. At December 31, 1996, $235 million was unused. EEX converted its Cooper Project equipment leases, which had been with an ENSERCH affiliate, to fifteen year leveraged leases with third party financial institutions for $229 million. EEX also arranged a $200 million, seven year operating lease commitment from a group of banks to finance the construction of its share of the Allegheny Project offshore equipment and facilities, of which $182 million was unused at year end. EEX made minor changes in other facilities to ensure continued availability of its financial resources to meet its planned activities. See Note 7 of the Notes to Consolidated Financial Statements for additional information. CASH FLOWS EEX funded the 1996 business plan and reduced financings by $74 million, primarily from operations and monetization of non-core assets. Net cash flows from operating activities increased $51 million to $135 million, compared with $84 million in 1995 and $62 million in 1994. Investing activities required net cash flows of $63 million in 1996, compared with $388 million in 1995 and $109 million in 1994. The 1995 requirement included $333 million required for the DALEN acquisition and $86 million provided by the collection of a note receivable from an affiliated company. Proceeds from the disposition of property, plant and equipment in 1996 include amounts received from the sale of the Rocky Mountain area and other properties. In 1995, proceeds include amounts received from the sale of interests in the Cooper and Allegheny projects. Capital expenditures of $204 million in 1996 increased $15 million from 1995, principally related to normal exploration and development activities. EEX intends to utilize substantially all of its internally generated cash flows for growth of the business and expects to have ample cash flow from operations and the continuous monetization of non-core assets to fund its business plans. Borrowings under EEX's credit facilities may be used to supplement temporary cash flow needs. EEX does not anticipate paying cash dividends in the foreseeable future. CAPITAL STRUCTURE Debt and preferred securities of a subsidiary represented 35% of total capitalization of $1.5 billion for December 31, 1996, compared to 30% of total capitalization of $1.3 billion for December 31, 1995. This increase was due primarily to the conversion of the operating sublease to a capital lease when the Cooper Project leases were refinanced, offset by reduced bank borrowings and improved shareholders' equity. See Note 7 of the Notes to Consolidated Financial Statements for additional information. A-7 CAPITAL BUDGET Planned 1997 capital expenditures will range from $175 million to $200 million, compared with actual expenditures of $204 million in 1996 and $189 million in 1995. Capital expenditure amounts exclude costs of offshore equipment and facilities financed under operating lease arrangements of $25 million in 1996, $24 million in 1995, and are expected to be minimal in 1997. FOURTH QUARTER RESULTS Fourth quarter 1996 net income was $3.3 million ($.03 per share), compared with a net loss of $5.4 million ($.04 per share) for the 1995 fourth quarter. Operating income for the 1996 fourth quarter was $7.8 million versus an operating loss of $4.7 million for the same period of 1995. The increased fourth quarter 1996 income reflects a 44% increase in the average sales prices per Mcfe from 1995 to 1996, partially offset by costs related to the Company's pending separation from ENSERCH and associated management changes, and increased amortization expense as previously noted. A-8 INDEPENDENT AUDITORS' REPORT To the Shareholders and Board of Directors of Enserch Exploration, Inc.: We have audited the accompanying consolidated balance sheets of Enserch Exploration, Inc. and subsidiaries (the "Company") as of December 31, 1996 and 1995, and the related statements of consolidated operations, cash flows and owners' equity for each of the three years in the period ended December 31, 1996. These financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on these financial statements based on our audits. We conducted our audits in accordance with generally accepted auditing standards. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion. In our opinion, such financial statements present fairly, in all material respects, the consolidated financial position of the Company at December 31, 1996 and 1995, and the results of their operations and their cash flows for each of the three years in the period ended December 31, 1996, in conformity with generally accepted accounting principles. DELOITTE & TOUCHE LLP Dallas, Texas February 10, 1997 (March 7, 1997 as to the third paragraph of Note 4) A-9 MANAGEMENT REPORT ON RESPONSIBILITY FOR FINANCIAL REPORTING The management of Enserch Exploration, Inc. is responsible for the preparation and integrity of the financial statements and other information contained in this report. The financial statements have been prepared in conformity with accounting principles generally accepted in the United States and include amounts that represent management's best estimates and judgments. Management has established practices and procedures designed to support the reliability of the estimates and minimize the possibility of a material misstatement. Management has established and maintains internal accounting controls that provide reasonable assurance as to the integrity and reliability of the financial statements, the protection of assets from unauthorized use or disposition and the prevention and detection of fraudulent financial reporting. The system of internal control is supported by written policies and procedures and the control environment is regularly evaluated by both ENSERCH Corporation's internal auditors and Deloitte & Touche LLP, the Company's independent auditors. The Board of Directors maintains an Audit Committee composed of Directors who are not employees. The Audit Committee meets periodically with management, the independent auditors and the internal auditors to discuss significant accounting, auditing, internal accounting control and financial reporting matters related to Enserch Exploration, Inc. The independent auditors and the internal auditors have free access to the Audit Committee. Management believes that, as of December 31, 1996, the overall system of internal accounting controls is sufficient to accomplish the objectives described herein. Thomas M Hamilton J. Philip McCormick Chairman, President Senior Vice and Chief Executive President and Chief Officer Financial Officer February 10, 1997 A-10 ENSERCH EXPLORATION, INC. STATEMENTS OF CONSOLIDATED OPERATIONS
YEAR ENDED DECEMBER 31 ------------------------------------------- 1996 1995 1994 ------------- ------------- ------------- (IN THOUSANDS EXCEPT PER SHARE AMOUNTS) Revenues Natural gas..................... $ 221,239 $ 157,308 $ 144,550 Oil and condensate.............. 98,902 56,525 30,880 Natural gas liquids............. 8,150 4,859 2,377 Other........................... 2,150 2,159 1,333 ------------- ------------- ------------- Total......................... 330,441 220,851 179,140 ------------- ------------- ------------- Costs and Expenses Production and operating........ 74,020 49,792 31,667 Exploration..................... 12,453 11,848 9,136 Depreciation and amortization... 150,435 116,614 80,819 Sale of inactive pipeline....... (7,551) General, administrative and other.......................... 34,995 29,937 19,807 Taxes, other than income........ 21,715 18,813 13,233 ------------- ------------- ------------- Total......................... 293,618 227,004 147,111 ------------- ------------- ------------- Operating Income (Loss)........... 36,823 (6,153) 32,029 Other Income (Expense)--Net....... 2,092 64 (314) Interest Income................... 66 1,027 671 Interest and Other Financing Costs............................ (22,667) (14,617) (20,919) ------------- ------------- ------------- Income (Loss) Before Income Taxes............................ 16,314 (19,679) 11,467 Income Taxes (Benefit)............ 5,540 (7,177) (334) ------------- ------------- ------------- Net Income (Loss)................. $ 10,774 $ (12,502) $ 11,801 ============= ============= ============= Pro Forma Information--Change in Tax Status: Income before income taxes...... $ 11,467 Income taxes (including income taxes on partnership operations).................... 3,990 ------------- Net Income...................... $ 7,477 ============= Net Income (Loss) Per Share (Pro Forma for 1994).................. $ 0.09 $ (0.11) $ 0.07 ============= ============= ============= Weighted Average Shares Outstanding...................... 125,917 111,137 105,821 ============= ============= =============
See Notes to Consolidated Financial Statements. A-11 ENSERCH EXPLORATION, INC. STATEMENTS OF CONSOLIDATED CASH FLOWS
YEAR ENDED DECEMBER 31 ------------------------------- 1996 1995 1994 --------- --------- --------- (IN THOUSANDS) OPERATING ACTIVITIES Net income (loss)........................... $ 10,774 $ (12,502) $ 11,801 Depreciation and amortization............... 150,435 116,614 80,819 Deferred income taxes (benefit)............. 1,795 (9,520) (366) Sale of inactive pipeline................... (7,551) Other....................................... (12,625) (11,760) (10,332) Changes in current operating assets and liabilities Accounts receivable....................... (10,808) (22,824) 3,464 Other current assets...................... (3,361) (6,199) (26,333) Accounts payable.......................... (2,883) 33,854 11,894 Other current liabilities................. 1,579 (3,673) (1,714) --------- --------- --------- Net cash flows from operating activities.. 134,906 83,990 61,682 --------- --------- --------- INVESTING ACTIVITIES Additions of property, plant and equipment.. (204,363) (189,399) (132,590) Proceeds from dispositions of property, plant and equipment........................ 140,863 54,977 13,051 Purchase of DALEN, net of cash acquired..... (332,888) Collection of note receivable from affiliated company......................... 86,077 Other....................................... 507 (6,939) 10,755 --------- --------- --------- Net cash flows used in investing activities............................... (62,993) (388,172) (108,784) --------- --------- --------- FINANCING ACTIVITIES Borrowings under bank revolving credit agreement.................................. 136,000 380,000 Repayment of borrowings under bank revolving credit agreement........................... (181,000) (220,000) Changes in temporary advances with affiliated companies....................... (28,993) (89,609) 76,331 Payments of capital lease obligations....... (3,832) (4,424) Increase (Decrease) in advances under leasing arrangements--net.................. 5,457 (32,771) Borrowings under bridge loan................ 150,000 Repayment of DALEN bank debt assumed at acquisition................................ (115,000) Issuance of common stock.................... 249 207,940 Issuance of company-obligated mandatorily redeemable preferred securities of subsidiary................................. 150,000 Repayment of borrowings under bridge loan... (150,000) Proceeds from long term notes payable to affiliated companies....................... 11,000 Cash distributions paid..................... (7,842) Other....................................... (3,413) 275 --------- --------- --------- Net cash flows (used in) from financing activities............................... (72,119) 305,494 46,993 --------- --------- --------- Net Increase (Decrease) in Cash............... (206) 1,312 (109) Cash at Beginning of Year..................... 1,546 234 343 --------- --------- --------- Cash at End of Year........................... $ 1,340 $ 1,546 $ 234 ========= ========= =========
See Notes to Consolidated Financial Statements. A-12 ENSERCH EXPLORATION, INC. CONSOLIDATED BALANCE SHEETS
DECEMBER 31 --------------------- 1996 1995 ---------- ---------- (IN THOUSANDS) ASSETS Current Assets Cash................................................... $ 1,340 $ 1,546 Accounts receivable--trade (net of allowance for possible losses of $1,351 and $1,814)................. 61,654 46,749 Accounts receivable--affiliated companies.............. 16,549 20,646 Temporary advances--affiliated companies............... 13,133 Other.................................................. 18,181 14,820 ---------- ---------- Total current assets................................. 110,857 83,761 ---------- ---------- Property, Plant and Equipment (at cost) Gas and oil properties (full cost method, $233,478 and $243,740 excluded from amortization base)............. 2,806,536 2,602,454 Other.................................................. 21,957 20,684 ---------- ---------- Total................................................ 2,828,493 2,623,138 Less accumulated depreciation and amortization......... 1,081,845 952,538 ---------- ---------- Net property, plant and equipment.................... 1,746,648 1,670,600 ---------- ---------- Other Assets............................................. 14,634 22,471 ---------- ---------- Total................................................ $1,872,139 $1,776,832 ========== ========== LIABILITIES AND SHAREHOLDERS' EQUITY Current Liabilities Accounts payable--trade................................ $ 90,922 $ 95,386 Accounts payable--affiliated companies................. 8,924 6,836 Temporary advances--affiliated companies............... 15,860 Advances under leasing arrangements.................... 5,457 Current portion of capital lease obligations........... 3,250 3,859 Other.................................................. 10,584 9,005 ---------- ---------- Total current liabilities............................ 119,137 130,946 ---------- ---------- Bank Revolving Credit Agreement.......................... 115,000 160,000 ---------- ---------- Capital Lease Obligations................................ 241,735 94,184 ---------- ---------- Other Liabilities Deferred income taxes.................................. 273,801 271,618 Other liabilities...................................... 28,249 37,856 ---------- ---------- Total other liabilities.............................. 302,050 309,474 ---------- ---------- Company--Obligated Mandatorily Redeemable Preferred Securities of Subsidiary................................ 150,000 150,000 Commitments and Contingent Liabilities (Notes 7 and 14) Preferred Stock--authorized 2 million shares, none issued at December 31, 1996, 15 shares issued to subsidiary at December 31, 1995 (eliminated in consolidation) Shareholders' Equity..................................... 944,217 932,228 ---------- ---------- Total................................................ $1,872,139 $1,776,832 ========== ==========
See Notes to Consolidated Financial Statements. A-13 ENSERCH EXPLORATION, INC. STATEMENTS OF OWNERS' EQUITY FOR THE THREE YEARS ENDED DECEMBER 31, 1996(IN THOUSANDS) Balance, December 31, 1993........................................... $ 630,685 Net income.......................................................... 11,801 Reorganization Adjustments Assumption by ENSERCH Companies Assets and obligations of offshore facilities and leases.......... (24,418) EP's notes payable to other ENSERCH Companies and EPO............. 395,077 Accrued interest on notes payable................................. 12,566 Assumption of deferred income taxes by EEX........................ (289,703) --------- Balance December 31, 1994............................................ $ 736,008 =========
COMMON STOCK ($1.00 PAR VALUE, AUTHORIZED 200 MILLION SHARES) UNAMORTIZED ---------------- RESTRICTED TOTAL SHARES PAID IN STOCK TREASURY SHAREHOLDERS' ISSUED AMOUNT CAPITAL DEFICIT COMPENSATION STOCK EQUITY ------- -------- -------- -------- ------------ -------- ------------- Balance, December 31, 1994................... 105,821 $105,821 $630,187 $736,008 Net loss............... $(12,502) (12,502) Adjustment for acquisition of international and SACROC operations..... (2,798) (2,798) Additional deferred income tax benefit from reorganization... 3,480 3,480 Common shares issued for Cash sale to public.... 20,000 20,000 187,872 207,872 Stock plans............ 6 6 62 68 Unamortized restricted stock compensation Shares granted......... 56 56 617 $ (673) Amortization........... 100 100 Market valuation adjustments........... (22) 22 ------- -------- -------- -------- ------- ----- -------- Balance, December 31, 1995................... 125,883 125,883 819,398 (12,502) (551) 932,228 Net income............. 10,774 10,774 Common shares issued for stock plans....... 24 24 225 249 Unamortized restricted stock compensation Shares granted......... 137 137 1,145 (1,190) 92 Restrictions lifted.... 756 756 Awards canceled (25 thousand shares)...... 230 $(230) Amortization........... 132 132 Market valuation adjustments........... 40 (54) (14) ------- -------- -------- -------- ------- ----- -------- Balance, December 31, 1996................... 126,044 $126,044 $820,808 $ (1,728) $ (677) $(230) $944,217 ======= ======== ======== ======== ======= ===== ========
See Notes to Consolidated Financial Statements. A-14 ENSERCH EXPLORATION, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS Enserch Exploration, Inc. (EEX), a natural gas and oil exploration and production company with activities focused in Texas and the Gulf of Mexico, is 83.3% owned by ENSERCH Corporation (ENSERCH) at year end 1996. All dollar amounts, except per share amounts, in the notes to consolidated financial statements are stated in thousands unless otherwise indicated. 1. ORGANIZATION AND BASIS OF PRESENTATION Prior to December 30, 1994, the operations of EEX, a corporation, were conducted through Enserch Exploration Partners, Ltd. (EP), a partnership. EP was a publicly traded entity with published financial statements. On December 30, 1994, through a series of transactions, EEX acquired all of the partnership interests of EP Operating Limited Partnership (EPO), the 99% owned operating partnership of EP, and EP received common stock of EEX. Certain affiliates of ENSERCH other than EEX (collectively, the "ENSERCH Companies") also received EP's interest in and assumed EP's obligations under certain equipment lease arrangements (the equipment was simultaneously subleased to EEX) and assumed approximately $395 million principal amount of EP's indebtedness, plus accrued interest. In 1995, EEX acquired the international gas and oil and SACROC operations from ENSERCH in exchange for cash and EEX Common Stock. ENSERCH's historical carrying value of the assets acquired and liabilities assumed has been recorded by EEX. The financial statements of EEX for periods prior to December 30, 1994 include the assets, liabilities, operations and cash flows of EP, restated to include the international gas and oil operations and the SACROC operations in a manner similar to a pooling-of-interests since the operations were under the common control of ENSERCH prior to the establishment of EEX. No recognition was given to income taxes in the financial statements of EP. EEX, as a corporation, is a taxable entity. Pro forma information for the change in tax status includes an adjustment for income taxes on the partnerships' operations at the applicable statutory rate. 2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES The consolidated financial statements include the accounts of EEX and its subsidiaries. The preparation of financial statements requires the use of significant estimates and assumptions by management; actual results could differ from those estimates. Earnings per share applicable to common stock are based on the weighted average number of common shares outstanding during the period, including common equivalent shares when dilutive. Gas and Oil Properties--The full cost accounting method as prescribed by the Securities and Exchange Commission (SEC) is followed for gas and oil properties. Under this method, all acquisition, exploration and development costs incurred, including salaries, benefits and other internal costs directly attributable to these activities, are capitalized. All costs associated with production and general corporate activities are expensed in the period incurred. Costs directly associated with the acquisition and evaluation of unproved gas and oil properties are excluded from the amortization base until the related properties are evaluated. Such unproved properties are assessed periodically and a provision for impairment is made to the full cost amortization base when appropriate. Amortization of evaluated gas and oil properties, including assets acquired under capital leases, is computed on the unit of production method using estimated proved gas and oil reserves quantified on the basis of their equivalent energy content. Depreciation of other property, plant and equipment is provided principally by the straight line method over the estimated service lives of the related assets. At December 31, 1996, estimates of future site restoration, dismantlement and abandonment costs, as assessed on an overall cost center basis, were less than estimates of future salvage values. Therefore, no accruals were required. A-15 ENSERCH EXPLORATION, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED) Derivative Instruments--The Company frequently enters into swaps, futures, options and other derivative contracts to hedge the impact of market fluctuations in gas and oil prices on anticipated future gas and oil production. The Company defers the impact of changes in the market value of the contracts that serve as hedges until the related transaction is completed. The Company also enters into interest rate swaps to manage risk associated with interest rates and reduce the Company's exposure to interest rate fluctuations. Interest rate swaps are valued on a periodic basis, with resulting differences recognized as an adjustment to interest and other financing costs over the term of the agreement. Stock Based Employee Compensation--Statement of Financial Accounting Standards No. 123, "Accounting for Stock Based Compensation," (SFAS123) encourages, but does not require companies to record compensation cost for stock based employee compensation plans at fair value. EEX has chosen to continue to account for stock based compensation using the intrinsic value method prescribed in Accounting Principles Board Opinion No. 25, "Accounting for Stock Issued to Employees," and related Interpretations. Accordingly, compensation cost for stock options is measured as the excess, if any, of the quoted market price of EEX's stock at the date of the grant over the amount an employee must pay to acquire the stock. The final compensation cost for restricted stock awards is based on the quoted market price of EEX's stock at the date the award becomes vested (See Note 9). 3. SUPPLEMENTAL CASH FLOW INFORMATION Cash paid for interest, net of amounts capitalized, was $23,422 in 1996, $11,890 in 1995 and $20,248 in 1994. Net cash income taxes paid were $1,530 in 1996 and $6,011 in 1995. The table below summarizes non cash investing and financing activities:
1996 1995 1994 -------- -------- -------- Capital asset and lease obligations assumed.... $150,775 $155,855 ======== ======== Capital asset and lease obligations assumed by others........................................ $(53,388) ======== Purchase of DALEN Fair value of assets acquired.................. $474,755 Cash paid for acquisition...................... 332,888 -------- Liabilities assumed............................ $141,867 ========
4. MERGER WITH LONE STAR ENERGY PLANT OPERATIONS, INC. On April 15, 1996, ENSERCH announced that it had entered into a merger agreement with Texas Utilities Company (TUC), subject to shareholder and regulatory approval. The merger is to be preceded by the distribution of ENSERCH's approximate 83% interest in EEX to the ENSERCH shareholders. In connection with this distribution, EEX will merge with Lone Star Energy Plant Operations, Inc. (LSEPO), a subsidiary of ENSERCH. LSEPO operates and maintains, under long term contracts, three cogeneration facilities. The value of LSEPO was fixed at $7.0 million, which includes an ENSERCH working capital guarantee of $3.5 million. The number of shares issued by the merged entity in exchange for the outstanding LSEPO common stock will be determined by dividing $7 million by the average of the closing sales price of EEX common stock for the 15 trading days preceding the fifth trading day prior to the effective time of the merger. An average market price for EEX shares of $9.00 per share (778,000 shares) was assumed to determine the pro forma shares outstanding and pro forma earnings per share of the combined entities. A-16 ENSERCH EXPLORATION, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED) On November 15, 1996, in separate meetings, the shareholders of TUC, ENSERCH and EEX approved the mergers and the related distribution. All regulatory approvals have been received except for the approval by the Securities and Exchange Commission under the Public Utility Holding Company Act of 1935 where the approval process is proceeding. The Antitrust Division of the U.S. Department of Justice (DOJ) has notified ENSERCH and TUC that its investigation of the proposed merger has been closed without the DOJ taking any action or requiring ENSERCH or TUC to take any action. In a private letter ruling, the Internal Revenue Service notified ENSERCH that neither ENSERCH nor its shareholders will recognize taxable gain in the distribution of EEX stock. Following is a summary of pro forma combined results of operations of EEX and LSEPO:
1996 1995 1994 -------- -------- -------- Revenues....................................... $337,953 $237,358 $191,866 Operating Income (Loss)........................ 38,299 (3,904) 33,432 Net Income (Loss).............................. 11,707 (11,132) 12,614 Net Income (Loss) After Pro Forma Income Taxes on Partnership Operations..................... 11,707 (11,132) 8,290 Net Income (Loss) Per Share.................... .09 (.10) .08
5. DALEN ACQUISITION On June 8, 1995, EEX acquired all the capital stock of DALEN Corporation (DALEN) for cash of $340 million and assumed DALEN's bank debt of $115 million. The acquisition was accounted for as a purchase. The assets acquired and the liabilities assumed were recorded at their estimated fair values. Essentially all of the valuation adjustment was assigned to gas and oil properties. Assuming the DALEN acquisition had occurred at the beginning of 1995, EEX pro forma 1995 results of operations would include revenues of $269,175; an operating loss of $5,746; a net loss of $22,201 and a net loss per share of $0.20. 6. BORROWINGS AND CREDIT AGREEMENTS EEX has a $350 million revolving credit line with a group of banks that matures on August 1, 2001, of which $235 million was unused at December 31, 1996. The revolving credit agreement limits, at all times, total debt, as defined, to the lesser of 60% of capitalization, as defined, or $900 million, and prohibits liens on property except under certain circumstances. The interest rate ranges from the London Inter-Bank Offered Rate (LIBOR) (5.61% in effect at December 31, 1996) plus .35% to .75% per annum, plus a facility fee of from .15% to .25% per annum, depending upon the consolidated capitalization ratio. EEX has a $50 million borrowing arrangement with ENSERCH to meet short term cash needs. Under this arrangement, ENSERCH may advance funds to EEX, and EEX may advance funds to ENSERCH. At December 31, 1996, EEX had a receivable from ENSERCH of $13 million under this arrangement with interest based on LIBOR (5.6% at December 31, 1996). This agreement will terminate upon the merger of ENSERCH and TUC.
1996 1995 1994 ------- ------- ------- Interest and Other Financing Costs: Interest costs incurred......................... $29,123 $19,531 $25,678 Interest capitalized............................ (6,456) (4,914) (4,759) ------- ------- ------- Interest charged to expense..................... $22,667 $14,617 $20,919 ======= ======= =======
A-17 ENSERCH EXPLORATION, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED) 7. LEASE COMMITMENTS The equipment and facilities used in developing and producing reserves in the Mississippi Canyon Block 441 and the Cooper Project were originally financed under equipment leases between certain financial institutions and EPO. In connection with the merger of EPO into EEX, the leases were assigned to and assumed by Enserch Exploration Holdings, Inc. (EEH), wholly owned by ENSERCH. EEX entered into three subleases with EEH for such offshore facilities. For accounting purposes, one of the leases was an operating lease, and two were capital leases. A component of the payments to be made by EEX under the subleases was based on a floating interest rate of LIBOR plus 1.50% per annum. However, effective November 1995, ENSERCH entered into an interest rate swap on a notional amount of $150 million to fix its costs and agreed to fix the interest rate to EEX accordingly at 7.2% (see Note 10). In October 1996, the Mississippi Canyon Block 441 equipment and facilities were refinanced through certain financial institutions. EEX simultaneously entered into a lease of the facilities which extends through October 2001. For accounting purposes, this lease is classified as a capital lease. EEX has an option to purchase the facilities for a fixed amount at the early buy-out date of July 22, 2000, or for fair market value at the end of the lease term. There are no renewal options. Interest on the lease was fixed at 6.97%. In December 1996, the Cooper Project equipment and facilities were refinanced through certain financial institutions. EEX simultaneously entered into two leases of the facilities extending through December 30, 2010, with the option to renew the leases, with the consent of the lessors, for up to five years. For accounting purposes, these leases are classified as capital leases. The Company has the option to purchase the facilities for fair market value on any renewal date, or for fixed amounts or fair market value at the end of the initial lease term. The leases also contain two early buy-out option dates on which the Company may purchase the facilities for fixed amounts, and other special purchase options. Interest on the leases was fixed at 6.51%. EEX is currently required to maintain a $65 million letter of credit in support of the equity owners of the leased facilities. In June 1996, EEX entered into an operating lease arrangement to provide financing for the offshore platform and related facilities of its 40% owned Green Canyon 254 (Allegheny) project. The lessor will fund the construction cost of the facilities quarterly, up to a maximum of $200 million. As of December 31, 1996, a total of $18 million had been advanced to EEX under the lease as agent for the lessor, $5.5 million of which was unexpended and reflected as a current liability. EEX will lease the facilities for an initial period through June 29, 2003, with the option to renew the lease, with the consent of the lessor, for up to three successive three year periods. EEX, as agent for the lessors, will acquire, construct, and operate the leased property and has guaranteed completion of construction of the facilities. EEX has the option to purchase the facilities at the end of the initial lease term and has guaranteed an estimated residual value of approximately $160 million, assuming the full lease amounts are advanced and expended, should the lease not be renewed. Lease payments are being deferred during the construction period and will be amortized when production begins. EEX also leases buildings and office space under noncancelable operating leases that expire at various dates through 2002. A-18 ENSERCH EXPLORATION, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED) Estimated future minimum payments under noncancelable operating and capital leases with initial or remaining terms of one year or more at December 31, 1996 are as follows:
OPERATING CAPITAL LEASES LEASES --------- -------- 1997..................................................... $ 5,083 $ 12,222 1998..................................................... 4,456 23,346 1999..................................................... 2,673 25,147 2000..................................................... 3,535 30,948 2001..................................................... 4,328 25,998 Thereafter............................................... 17,777 236,705 ------- -------- Total.................................................. $37,852 354,366 ======= Less interest factor................................... 109,381 -------- Capital lease obligations.............................. $244,985 ========
Assets recorded under capital leases are as follows:
1996 1995 -------- -------- Property and equipment................................... $249,699 $102,467 Accumulated depreciation and amortization................ (9,560) (3,450) -------- -------- Net.................................................... $240,139 $ 99,017 ======== ========
The Company also bears an allocated share of rental expenses incurred by ENSERCH companies under noncancelable long-term operating leases, principally for office space and equipment. Rental expenses incurred under all operating leases totaled $21,110, $6,468 and $3,102 in 1996, 1995 and 1994, respectively. 8. COMPANY-OBLIGATED MANDATORILY REDEEMABLE PREFERRED SECURITIES On August 4, 1995, a subsidiary (Issuer), whose common equity interests are wholly owned by EEX Capital L.L.C. (Capital), a limited liability company wholly owned by EEX, completed the private placement of $150 million of adjustable rate mandatorily redeemable preferred securities. Issuer is a special purpose finance subsidiary and neither Issuer nor Capital has operations independent from EEX. The proceeds were loaned, under a Demand Note, by Issuer to Capital. Capital used the proceeds to purchase preferred stock from EEX and EEX repaid the bridge loan. In 1996 EEX repurchased at par the fifteen shares held by Capital for $150 million through the issuance of a demand note in that amount. This demand note is eliminated in consolidation. Issuer's preferred securities are reflected on the balance sheet as "Company- obligated mandatorily redeemable preferred securities of subsidiary." Interest payments on the EEX demand note support the interest payments due under the Demand Note loan agreement which, in turn, support the dividend requirements of Issuer's preferred securities. Dividends on Issuer's preferred securities are based on LIBOR plus 0.5% to 1.0% per annum and are reflected in interest and other financing costs in the statements of consolidated operations. In late 1995, EEX entered into an interest rate swap which effectively fixes the rate for the dividend on these preferred securities at 6.37% as of December 31, 1996 (see Note 10). EEX has guaranteed Capital's obligations under the Demand Note. The mandatory redemption date for Issuer's preferred securities is the earlier of August 4, 2005 or the Demand Note repayment date. 9. STOCK PLANS The Company's Revised and Amended 1996 Stock Incentive Plan (the "Plan"), provides for awards to officers, directors and key employees of restricted stock, stock options to purchase shares of common stock of A-19 ENSERCH EXPLORATION, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED) EEX, or a combination of both. EEX has reserved 3,698,500 shares of its common stock for issuance under the Plan. Options granted under the Plan have an exercise price of not less than the fair market value of the common stock on the grant date. Options become exercisable over four years and expire after ten years. The terms for the release of restrictions on awards of restricted stock may be performance based, time based, or a combination of both, and each award may have different restrictions and conditions. The following is a summary of stock option activity under the Plan:
1996 1995 ------------------ ---------------- WEIGHTED WEIGHTED AVERAGE AVERAGE EXERCISE EXERCISE SHARES PRICE SHARES PRICE --------- -------- ------- -------- Outstanding--Beginning of year........... 170,000 $10.94 -- -- Granted................................ 1,066,500 9.33 173,000 $10.92 Exercised.............................. 10,000 9.75 -- -- Canceled............................... 255,000 9.50 3,000 9.75 --------- ------ ------- ------ Outstanding--End of year................. 971,500 $ 9.56 170,000 $10.94 ========= ====== ======= ======
The following is a summary of Plan stock options outstanding at December 31, 1996:
EXERCISABLE OPTIONS WEIGHTED --------------------- NUMBER AVERAGE WEIGHTED WEIGHTED RANGE OF OF REMAINING AVERAGE NUMBER AVERAGE EXERCISE OPTIONS CONTRACTUAL EXERCISE OF EXERCISE PRICES OUTSTANDING LIFE (YEARS) PRICE OPTIONS PRICE ------------- ----------- ------------ -------- ---------- ---------- $8.81-$9.75 927,500 10 $ 9.34 257,500 $ 9.73 $12.69-$14.50 44,000 8 $14.34 44,000 $ 14.34 ------- ---------- 971,500 301,500 ======= ==========
A summary of restricted stock award activity follows:
NUMBER OF SHARES ----------------- 1996 1995 -------- -------- Outstanding -- Beginning of year............................ 56,000 -- Awarded................................................... 137,000 56,000 Restrictions Lifted....................................... 98,000 -- Canceled.................................................. 25,000 -- -------- ------- Outstanding -- End of year.................................. 70,000 56,000 ======== =======
The weighted average grant date fair value of restricted stock awarded during 1996 was $9.36. Fair value is equal to the common stock fair market value on the grant date. On September 10, 1996, the Board of Directors approved the Preliminary Plan of Merger with LSEPO. As a result, all restrictions on outstanding shares awarded prior to that date were lifted. In 1996 the Company adopted the Employee Stock Option Plan for eligible employees not covered by the Plan described above. Stock options granted to purchase shares of EEX common stock have an exercise price of not less than the fair market value of the common stock on the grant date. EEX has reserved 1.3 million shares for issuance under this plan. Options become exercisable over three years and expire after ten years. In 1996, the A-20 ENSERCH EXPLORATION, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED) Company granted 1,102,450 options at a weighted average exercise price of $11.00. No options were exercised or canceled in 1996 and none were exercisable at December 31, 1996. Exercise prices range from $10.69 to $11.25 and these options have a weighted average remaining contractual life of 10 years. Total compensation cost recognized in income for 1996 and 1995 for stock based employee compensation awards was immaterial. Had compensation cost for the Company's plans been determined based on the fair value at the grant dates consistent with the method of SFAS 123, the Company's net income and earnings per share would have been reduced to the pro forma amounts indicated below:
1996 1995 ------- -------- Net income (loss) As reported................... $10,774 $(12,502) Pro forma..................... $ 9,682 $(12,603) Net income (loss) per share As reported................... $ .09 $ (0.11) Pro forma..................... $ .08 $ (0.11)
The effects of applying SFAS123 in this pro forma disclosure are not indicative of future amounts as additional awards in future years are anticipated. The weighted average grant date fair value of options granted during 1996 was $4.72. Fair value of options was calculated by using the Black-Scholes options pricing model using the following weighted average assumptions for 1996 activity: risk free interest rate of 6.17%, expected life of 6 years, expected volatility of 37% and no dividend yield. 10. FINANCIAL INSTRUMENTS AND RISK MANAGEMENT The Company's operations involve managing market risks related to changes in interest rates and commodity prices. Derivative financial instruments, specifically swaps, futures, options and other contracts, are used to reduce and manage those risks. Interest Rate Swaps--In November 1995, the Company entered into an interest rate swap on a notional amount of $150 million to fix the interest rate associated with the company-obligated mandatorily redeemable preferred securities of subsidiary (see Note 8). The notional amount declines on a schedule that parallels the estimated redemption of the securities and terminates in July 2000. Under the swap agreement, EEX is to receive interest on the outstanding notional amount at a rate (5.53% in effect at December 31, 1996) based on LIBOR, reset quarterly, and is to pay a fixed rate of 5.8%. The net effect of the swap fixes the rate on the preferred dividends at 6.37% at December 31, 1996. The Company is exposed to market risk under this swap agreement due to the possibility of exchanging a lower interest rate for a higher interest rate. The counter-parties are major financial institutions, and the risk of incurring losses related to credit risk is considered by the Company to be remote. In December 1996, in connection with the refinancing of the Cooper Project leasing arrangements (See Note 7), the Company recognized a $1.4 million after tax ($2.2 million pre-tax) gain on the settlement of the related interest rate swap which had been in effect since December 1995 on a notional amount of $150 million. Commodity Hedging Activities--The Company enters into swaps, futures and other derivative contracts to hedge the price risks associated with a portion of anticipated future gas and oil production. Under these agreements, payments are received or made based on the differential between a fixed and a variable product price. These agreements are settled in cash at or prior to expiration or exchanged for physical delivery contracts. The Company does not obtain collateral to support the agreements but monitors the financial viability of counter-parties and believes its credit risk is minimal on these transactions. In the event of nonperformance by A-21 ENSERCH EXPLORATION, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED) counter-parties, the Company would be exposed to price risk. The Company has some risk of accounting loss since the price received for the product at the actual physical delivery point may differ from the prevailing price at the delivery point required for settlement of the hedging transaction. Gas and oil hedging activities reduced revenues $20 million in 1996 and increased revenues $.1 million and $4.3 million in 1995 and 1994, respectively. At December 31, 1996, EEX had outstanding swaps, collars and futures agreements that were entered into as hedges extending through December 31, 1997 to exchange payments on 32 Bcf of natural gas and 365 MBbls of oil. The weighted average strike price and market price per Mcf of natural gas was $2.47 and $2.37, respectively, and the weighted average strike price and market price per barrel of oil was $25.00 and $25.32, respectively. At December 31, 1996 there were $3.0 million of net unrealized and unrecognized hedging gains based on the difference between the strike price and the New York Mercantile Exchange futures price for the applicable trading month. In addition, there were $5.1 million of realized losses on hedging activities which were deferred and will be applied as a reduction in revenues in January 1997, the month of physical sale of production. Fair Value of Financial Instruments--At December 31, 1996, the estimated proceeds the Company would have received to terminate or otherwise settle gas and oil swaps, collars and futures agreements were $3.0 million and interest rate swaps were $.9 million, which represented their fair value. The fair value of all other financial instruments at December 31, 1996 and 1995, including the revolving credit agreement and the company-obligated mandatorily redeemable preferred securities of subsidiary, approximated carrying value. 11. INCOME TAXES For periods prior to 1995, except for international and SACROC operations, the Company operated as a partnership, and the income or loss of the partnership was includable in the tax returns of the individual partners. Accordingly, no recognition was given to income taxes on partnership operations. EEX, as a corporation, is a taxable entity; its operations are included in ENSERCH's consolidated federal income tax return. Pursuant to a tax sharing agreement, EEX and ENSERCH make or receive payments determined as though EEX and its subsidiaries filed a separate consolidated federal income tax return. The accompanying statements of operations for periods prior to 1995 include a pro forma provision for income taxes on the partnership operations based on the applicable corporate federal statutory rate. PROVISION (BENEFIT) FOR INCOME TAXES:
1996 1995 1994 ------ ------- ----- Federal: Current............................................. $3,745 $ 2,343 $ 32 Deferred............................................ 1,795 (9,520) (366) ------ ------- ----- Total............................................. $5,540 $(7,177) $(334) ====== ======= =====
A-22 ENSERCH EXPLORATION, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED) RECONCILIATION OF INCOME TAXES (BENEFIT) COMPUTED AT THE FEDERAL STATUTORY RATE TO PROVISION FOR INCOME TAXES (BENEFIT): Income (loss) before income taxes: Domestic..................................... $18,808 $(15,578) $12,623 Foreign...................................... (2,494) (4,101) (1,156) ------- -------- ------- Total...................................... $16,314 $(19,679) $11,467 ======= ======== ======= Income taxes (benefit) computed at the federal statutory rate of 35%......................... $ 5,710 $ (6,888) $ 4,013 Percentage depletion........................... (334) (322) (23) Other--net..................................... 164 33 ------- -------- ------- Total pro forma income taxes (benefit)..... 5,540 (7,177) 3,990 Less pro forma income taxes (benefit) applicable to partnership operations.......... (4,324) ------- -------- ------- Provision for income taxes (benefit)....... $ 5,540 $ (7,177) $ (334) ======= ======== =======
The deferred tax effect of the difference in financial accounting basis and income tax basis of EEX's assets and liabilities at December 31, 1996 and 1995 was as follows:
1996 1995 ------------------------------- ------------------------------ TOTAL CURRENT NONCURRENT TOTAL CURRENT NONCURRENT -------- ------- ---------- -------- ------- ---------- Deferred Tax Assets: Retirement and other employee benefit obligations.......... $ 968 $ 625 $ 343 $ 1,177 $ 426 $ 751 Accruals and allowances........... 473 473 931 230 701 Losses of controlled foreign corporations......... 8,079 8,079 7,367 7,367 All other............. 647 647 332 332 -------- ------- -------- -------- ----- -------- Total............... $ 10,167 $ 1,098 $ 9,069 $ 9,807 $ 656 $ 9,151 -------- ------- -------- -------- ----- -------- Deferred Tax Liabilities: Exploration and intangible development costs.... 187,501 187,501 209,443 209,443 Property-related differences.......... 95,369 95,369 71,326 71,326 -------- ------- -------- -------- ----- -------- Total............... 282,870 282,870 280,769 280,769 -------- ------- -------- -------- ----- -------- Net deferred tax liability (asset)...... $272,703 $(1,098)(a) $273,801 $270,962 $(656)(a) $271,618 ======== ======= ======== ======== ===== ========
- -------- (a) Included in other current assets in the balance sheet. 12. EMPLOYEE BENEFIT PLANS At December 31, 1996, substantially all employees were covered by an ENSERCH pension plan, and some retirees are eligible for varying levels of health care and life insurance benefits. Employees hired after July 1, 1989 are not eligible for medical benefits when they retire. The allocation of the costs of these plans is actuarially determined. As a result of ENSERCH's pending distribution of EEX stock to ENSERCH Corporation shareholders (see Note 4), the Company intends to establish new plans which will provide substantially the same benefits as the ENSERCH plans. A-23 ENSERCH EXPLORATION, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED) EMPLOYEE BENEFIT PLAN COSTS (in millions):
1996 1995 1994 ------- ------- ----- Pension--ENSERCH................................ $ 3.5 $ 4.5 $ 6.5 --Allocated to EEX................................ .8 .6 1.2 Postretirement health care and life insurance--ENSERCH........................ $ 9.8 $ 9.8 $10.2 --Allocated to EEX............................. .8 .8 .8 ENSERCH PENSION PLAN INFORMATION: Valuation Assumptions: Discount rate................................... 7.75% 7.65% 9.00% Rate of increase in compensation levels......... 4.00% 4.00% 4.00% Expected long-term rate of return on assets..... 9.50% 9.50% 9.50% Amounts Recognized (in millions): Actuarial present value of pension benefit obligation: Vested benefit obligation...................... $(302.4) $(297.0) ======= ======= Accumulated benefit obligation................. $(305.0) $(299.3) ======= ======= Projected pension benefit obligation........... $(333.9) $(327.9) Plan assets at fair value....................... 285.8 263.1 ------- ------- Projected benefit obligation in excess of plan assets......................................... (48.1) (64.8) Unrecognized net asset at transition............ ( 3.4) (6.0) Unrecognized prior service cost (credit)........ ( 3.6) (3.5) Unrecognized net actuarial loss................. 3.4 16.9 ------- ------- ENSERCH accrued pension cost.................... $ (51.7) $ (57.4) ======= ======= EEX accrued pension cost........................ $ (4.9) $ (4.3) ======= ======= ENSERCH POSTRETIREMENT BENEFIT INFORMATION: Valuation Assumptions: Discount rate................................... 7.75% 7.65% 9.00% Medical cost trend rate......................... 6.50% 7.00% 12.00% Amounts Recognized (in millions): Accumulated postretirement benefit obligation... $ (73.2) $ (75.5) Unrecognized obligation at transition........... 53.0 58.1 Unrecognized net actuarial loss................. 10.7 10.0 ------- ------- ENSERCH accrued postretirement benefit cost..... $ (9.5) $ (7.4) ======= ======= EEX accrued postretirement benefit cost......... $ (1.0) $ (.7) ======= =======
The assumed health care cost trend rate is 6.5% for 1996, declining gradually to 4.5% after 1999, and remaining at that level thereafter. If the health care cost trend rate were increased by 1%, the accumulated postretirement benefit obligation of ENSERCH as of December 31, 1996 and the net periodic postretirement benefit costs of ENSERCH for 1996 would be increased by $4.2 million and $.3 million, respectively. Investment Plan--At December 31, 1996 ENSERCH provided a voluntary contributory investment plan that was available to substantially all employees of the Company. The Company's share of costs under the plan was A-24 ENSERCH EXPLORATION, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED) $425, $304 and $236 in 1996, 1995 and 1994, respectively. The Company intends to establish a new plan with substantially the same provisions as the ENSERCH plan. 13. RELATED PARTY TRANSACTIONS In the ordinary course of business, the Company engages in various transactions with ENSERCH and its affiliates. The Company is charged for direct costs incurred by ENSERCH Companies that are associated with managing the Company's business and operations. Additionally, the Company is charged for indirect costs including the general and administrative staff costs incurred by ENSERCH in performing accounting, treasury, internal audit, income tax planning and compliance, legal, information systems, human resources and other functions. Prior to July 1, 1994, the Company was not charged for the cost of ENSERCH elected officer management of these functions. Costs are determined on a basis that reasonably reflects the actual costs of services performed for EEX and may include allocations based on such factors as net capital employed, the number of employees or the percentage of time spent on projects or services. ENSERCH charges for all indirect costs amounted to $4,510, $2,725 and $2,162 in 1996, 1995 and 1994, respectively. Effective January 1, 1997 responsibility for all management and administrative functions previously performed by ENSERCH, along with selected ENSERCH employees, were transferred to EEX and the ENSERCH allocations were discontinued. The Company had sales to certain ENSERCH companies (Enserch Energy Services, Inc., Lone Star Gas Company and Enserch Processing Company) that aggregated $86,235, $87,002 and $110,036 in 1996, 1995 and 1994, respectively. EEX incurred interest costs, including amounts capitalized, of $72, $3,389 and $21,579 in 1996, 1995 and 1994, respectively, on borrowings from ENSERCH Companies. Interest income on notes receivable from ENSERCH Companies was $66, $1,027 and $671 in 1996, 1995 and 1994, respectively. See Note 1 for information concerning transactions with ENSERCH companies in connection with the organization of the Company and Note 7 for information concerning lease transactions with affiliates. 14. CONTINGENT LIABILITIES Legal Proceedings--On March 23, 1994, a lawsuit was brought in the 299th District Court of Harris County, Texas against EPO (the Company's predecessor) and five other defendants by 19 royalty owners under leases contained within the Corby Gas Unit in Leon County, Texas. Defendants are working interest owners and lessees under the leases. The plaintiffs allege causes of action involving breach of express and implied obligations under the leases, drainage, failure to explore and develop for gas and oil under the leases, civil conspiracy, tortious interference with contractual relationships, specific performance, negligence and conversion. The plaintiffs seek to recover alleged actual damages in excess of $5.4 million, punitive damages of at least ten times the actual damages, if any, found by a jury, interest and attorneys' fees. The Company owned a 7.1% interest in these leases. A lawsuit was filed against ENSERCH, its utility division, EPO and EPO's managing general partner in the 348th Judicial District Court of Tarrant County in May 1989. Plaintiffs seek unspecified actual damages and punitive damages in the amount of $5 million. Plaintiffs allege royalties were not fully paid, certain expenses were improperly charged against the amount of royalties due, negligence in the venting of gas and liquid hydrocarbons into the air, and breach of duty of good faith and fair dealing by wrongfully concealing certain material facts concerning sales of gas from the subject leases to the utility division. A-25 ENSERCH EXPLORATION, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED) A lawsuit was filed on February 24, 1987, in the 112th Judicial District of Sutton County, Texas, against certain subsidiaries and affiliates of ENSERCH, including predecessors of EEX. The plaintiffs initially claimed that defendants failed to make certain production and minimum purchase payments under a gas purchase contract. In this connection, the plaintiffs have alleged a conspiracy to violate purchase obligations, improper accounting of amounts due, fraud, misrepresentation, duress, failure to properly market gas and failure to act in good faith. Under amended pleadings filed in January, 1997, plaintiffs have added allegations of negligence and gross negligence in connection with the measurement of gas, and conversion. Plaintiffs seek actual damages in excess of $5 million and punitive damages in an amount equal to 0.5% of the consolidated gross revenues of ENSERCH for the years 1982 through 1986 (approximately $85 million), interest, costs and attorneys' fees. On April 17, 1996, a subsidiary of EEX was made a third party defendant in a lawsuit filed in the United States District Court for the Central Division of Utah. The original suit was instituted to quiet title to an oil and gas lease in Carbon County, Utah, which had been assigned to the plaintiffs by the subsidiary. The defendants, previous assignees of the lease, are seeking damages of $10 million from the subsidiary in the event the defendants lose their rights to the lease. Management believes that the named defendants have meritorious defenses to the claims made in these and other actions brought in the ordinary course of business. In the opinion of management, the Company will incur no liability from these and all other pending claims and suits that is material for financial reporting purposes. Environmental Matters--The Company is subject to federal, state and local environmental laws and regulations that regulate the discharge of materials into the environment. Environmental expenditures are expensed or capitalized depending on their future economic benefit. The level of future expenditures for environmental matters, including costs of obtaining operating permits, equipment monitoring and modifications under the Clean Air Act and cleanup obligations, cannot be fully ascertained until the regulations that implement the applicable laws have been approved and adopted. It is management's opinion that all such costs, when finally determined, will not have a material adverse effect on the consolidated financial position or results of operations of the Company. 15. SUPPLEMENTARY GAS AND OIL INFORMATION Gas and Oil Producing Activities--The following tables set forth information relating to gas and oil producing activities of EEX. Reserve data for natural gas liquids attributable to leasehold interests owned by the Company are included in oil and condensate.
CAPITALIZED COSTS 1996 1995 ----------------- ---------- ---------- Proved gas and oil properties......................... $2,573,058 $2,358,714 Unproved gas and oil properties....................... 233,478 243,740 ---------- ---------- Total............................................... $2,806,536 $2,602,454 ========== ========== Accumulated depreciation and amortization............. $1,066,771 $ 940,356 ========== ==========
A-26 ENSERCH EXPLORATION, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
1996 1995 1994 --------------- --------------- --------------- NON- NON- NON- COSTS INCURRED U.S. U.S. U.S. U.S. U.S. U.S. -------------- -------- ------ -------- ------ -------- ------ Property acquisition costs: Proved....................... $ 3,165 $356,326 $ 1,562 Unproved..................... 23,425 132,744 20,591 Exploration costs.............. 84,603 $2,781 68,321 $9,000 60,145 $3,076 Development costs.............. 100,395 628 77,601 56,767 -------- ------ -------- ------ -------- ------ Total...................... $211,588 $3,409 $634,992 $9,000 $139,065 $3,076 ======== ====== ======== ====== ======== ====== Amortization (per MMBtu) (a)... $ 1.08 $ .98 $ .96 ======== ======== ========
- -------- (a) Amortization expense per unit of production converted to a common unit of measure, millions of British thermal units (MMBtu); on a per thousand cubic feet of gas equivalent (Mcfe) basis, the amounts are: $1.09, $1.00 and $.98 Costs Excluded from the Amortizable Base as of December 31, 1996:
YEAR INCURRED TOTAL AT ------------------------ PRIOR DECEMBER 31, 1996 1995 1994 YEARS 1996 ------- -------- ------- ------- ------------ Property acquisition costs...... $19,168 $ 56,520 $15,640 $ 1,261 $ 92,589 Exploration costs............... 21,825 14,243 10,504 2,733 49,305 Development costs............... 7,747 28,476 33,222 10,283 79,728 Interest capitalized............ 5,257 3,491 1,719 1,389 11,856 ------- -------- ------- ------- -------- Total......................... $53,997 $102,730 $61,085 $15,666 $233,478 ======= ======== ======= ======= ========
Approximately 51% of excluded costs relates to offshore activities in the Gulf of Mexico, about 45% is domestic onshore exploration activities and the remainder is non-U.S. The anticipated timing of the inclusion of these costs in the amortization computation will be determined by the rate at which exploratory and development activities continue, which are expected to be accomplished within ten years. The following information is required and defined by the Financial Accounting Standards Board. The disclosure does not represent the results of operations based on historical financial statements. In addition to requiring different determinations of revenues and costs, the disclosure excludes interest expense and corporate overhead.
1996 1995 1994 ---------------- ---------------- -------------- NON- NON- NON- U.S. U.S. U.S. U.S. U.S. U.S. -------- ------- -------- ------- -------- ----- Results of Operations: Revenues................. $348,606 $218,565 $173,468 Less: Production costs (a).... 94,172 65,520 43,899 Exploration costs (b)... 10,176 $ 2,295 9,588 $ 2,260 8,407 $ 729 Depreciation and amorti- zation (c)............. 147,740 113,624 929 79,232 Income tax effects...... 33,447 (803) 10,119 (1,116) 14,647 (255) -------- ------- -------- ------- -------- ----- Net producing activi- ties................. $ 63,071 $(1,492) $ 19,714 $(2,073) $ 27,283 $(474) ======== ======= ======== ======= ======== =====
- -------- (a) Includes severance, ad valorem and production taxes. (b) Includes internal costs that cannot be directly identified with acquisition, exploration or development activities. (c) Amount for 1994 excludes a $7,551 gain from the sale of an inactive offshore pipeline and facilities, which was not related to gas and oil producing activities. A-27 ENSERCH EXPLORATION, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED) Gas and Oil Reserves (Unaudited)--The following table of estimated proved and proved developed reserves of gas and oil has been prepared utilizing estimates of year end reserve quantities provided by DeGolyer and MacNaughton, independent petroleum consultants. Reserve estimates are inherently imprecise and estimates of new discoveries are more imprecise than those of producing gas and oil properties. Accordingly, the reserve estimates are expected to change as additional performance data becomes available.
GAS (MMCF) OIL (MBBLS) (A) ------------------------------- ----------------------- 1996 1995 1994 1996 1995 1994 --------- --------- --------- ------ ------- ------ U.S. Reserves: At January 1............ 1,362,763 1,041,736 1,086,482 66,537 46,486 39,349 Changes in reserves Revisions of previous estimates............ (7,935) 26,802 (25,106) (8,173) 2,312 (499) Extensions, discover- ies and additions.... 72,854 62,249 47,580 4,315 21,466 9,877 Purchase of minerals in place............. 12,347 336,668 787 11,417 14 Sales of minerals in place................ (123,861) (14,497) (894) (3,730) (11,274) (28) Production............ (100,544) (90,195) (67,113) (5,740) (3,870) (2,227) --------- --------- --------- ------ ------- ------ At December 31.......... 1,215,624 1,362,763 1,041,736 53,209 66,537 46,486 ========= ========= ========= ====== ======= ====== Proved Developed Re- serves At January 1.......... 937,372 698,643 735,093 30,110 14,437 15,380 At December 31........ 859,094 937,372 698,643 27,938 30,110 14,437
- -------- (a) Includes condensate and natural gas liquids of 1,103 MBbls for 1996, 3,593 MBbls for 1995 and 911 Mbbls for 1994.
GAS (MMCF) OIL (MBBLS) ---------- ----------------- 1996 1996 1995 1994 ---------- ----- ----- ----- Non-U.S. Reserves: At January 1....................................... -- 4,963 4,105 -- Extensions, discoveries and additions............ 618 1,045 858 4,105 --- ----- ----- ----- At December 31..................................... 618 6,008 4,963 4,105 === ===== ===== =====
Proved reserves for all periods were undeveloped. Standardized Measure of Discounted Future Net Cash Flows Relating to Proved Gas and Oil Reserve Quantities (Unaudited)--has been prepared using estimated future production rates and associated production and development costs. Continuation of economic conditions existing at the balance sheet date was assumed. Accordingly, estimated future net cash flows were computed by applying prices and contracts in effect in December to estimated future production of proved gas and oil reserves, estimating future expenditures to develop proved reserves and estimating costs to produce the proved reserves based on average costs for the year. Average prices used in the computations were: Gas (per Mcf) $3.37 in 1996, $2.19 in 1995, and $2.29 in 1994; Oil (per barrel) $23.33 in 1996, $16.91 in 1995, and $14.07 in 1994. A-28 ENSERCH EXPLORATION, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED) Because reserve estimates are imprecise and changes in the other variables are unpredictable, the standardized measure should be interpreted as indicative of the order of magnitude only and not as precise amounts.
1996 1995 1994 -------- -------- -------- Standardized Measure (in millions): Future cash inflows............................ $5,474.3 $4,180.7 $3,081.5 Future production and development costs........ (1,552.9) (1,512.7) (1,065.8) Future income tax expense...................... (1,030.2) (597.1) (542.6) -------- -------- -------- Future net cash flows.......................... 2,891.2 2,070.9 1,473.1 Less 10% annual discount....................... 1,176.1 843.5 593.8 -------- -------- -------- Standardized measure of discounted future net cash flows.................................... $1,715.1 $1,227.4 $ 879.3 ======== ======== ======== Change in Standardized Measure (in millions): Sales and transfers of gas and oil produced, net of production costs.............................. $ (254.4) $ (153.1) $ (120.5) Changes in prices, net of production and future development costs............................. 1,065.0 50.6 (33.9) Extensions, discoveries and improved recovery, less related costs............................ 185.0 175.8 158.7 Purchases of minerals in place................. 3.2 367.6 1.6 Revisions of previous quantity estimates....... (238.7) (113.9) (26.5) Sales of minerals in place..................... (125.2) (59.2) (1.3) Accretion of discount.......................... 144.4 102.3 102.7 Net change in income taxes..................... (329.6) (3.1) (295.3) Other.......................................... 38.0 (18.9) (8.8) -------- -------- -------- Total........................................ $ 487.7 $ 348.1 $ (223.3) ======== ======== ========
As the estimates of future site restoration, dismantlement and abandonment costs on an overall cost center basis are less than estimates of future salvage value, such costs were not included in the standardized measure. A-29 ENSERCH EXPLORATION, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED) QUARTERLY RESULTS (UNAUDITED) The results of operations of the Company by quarters are summarized below. In the opinion of the Company's management, all adjustments (consisting only of normal recurring accruals) necessary for a fair presentation have been made.
QUARTER ENDED ------------------------------------------ MARCH 31 JUNE 30 SEPTEMBER 30 DECEMBER 31 -------- ------- ------------ ----------- 1996: Revenues....................... $75,411 $84,936 $82,736 $87,358 Operating Income............... 5,715 14,329 9,024 7,755 Net Income..................... 84 5,273 2,073 3,344 Net Income Per Share........... $ .00 $ .04 $ .02 $ .03 1995: Revenues....................... $41,661 $47,987 $66,807 $64,396 Operating Income (Loss)........ 564 (4,969) 2,944 (4,692) Net Income (Loss).............. 624 (5,162) (2,611) (5,353) Net Income (Loss) Per Share.... $ .01 $ (.05) $ (.02) $ (.04)
COMMON STOCK MARKET PRICES AND DIVIDEND INFORMATION MARKET PRICES--EEX COMMON STOCK The Company's common stock is traded principally on the New York Stock Exchange under the symbol "EEX". The following table shows the high and low sales prices per share of the common stock of the Company reported in the New York Stock Exchange--Composite Transactions report for the periods shown as quoted in the Wall Street Journal.
1996 1995 -------------- ------------ HIGH LOW HIGH LOW ------- ------ ------- ---- First Quarter................................. $ 12 $ 9 $11 1/8 $ 9 3/8 Second Quarter................................ 11 3/8 9 5/8 14 7/8 10 1/8 Third Quarter................................. 11 1/2 8 1/4 14 3/4 10 Fourth Quarter................................ 11 7/8 8 7/8 11 5/8 9 1/4
COMMON STOCK DATA AT YEAR-END
1996 1995 1994 ------- ------- ------- Shareholders of Record............................... 1,395 1,450 1,373 Shares Outstanding (000's)........................... 126,044 125,883 105,821
DIVIDENDS PER SHARE OF COMMON STOCK There have been no dividends declared on the Company's common stock. The declaration of future dividends will be dependent upon business conditions, earnings, cash requirements and other relevant factors. A-30 EX-3.2 2 BYLAWS OF THE COMPANY EXHIBIT 3.2 BYLAWS OF ENSERCH EXPLORATION, INC., A CORPORATION INCORPORATED UNDER THE LAWS OF THE STATE OF TEXAS ------------------------------------------------ PURPOSE AND SCOPE OF BYLAWS These Bylaws shall constitute the private laws of ENSERCH EXPLORATION, INC., a corporation duly incorporated under the laws of the State of Texas (herein called the "corporation"), for the administration and regulation of the affairs of the corporation. In the event any provision of these Bylaws is or may be in conflict with any applicable law of the United States or the State of Texas, or of any order, rule, regulation, decree or judgment of any governmental body or power or court having jurisdiction over this corporation, or over the subject matter to which such provision of these Bylaws applies or may apply, such provision of these Bylaws shall be inoperative to the extent only that the operation thereof unavoidably conflicts with such law or order, rule, regulation, decree or judgment, and shall in all other respects be in full force and effect. ARTICLE I OFFICES Section 1. The registered office of the corporation shall be at ENSERCH Center, 300 South St. Paul, in the City of Dallas, County of Dallas, State of Texas, and the registered agent of the corporation at such address shall be such person as the Board of Directors may from time to time designate. Section 2. The corporation may also have offices at such other places both within and without the State of Texas as the Board of Directors may from time to time determine or the business of the corporation may require. ARTICLE II MEETINGS OF SHAREHOLDERS Section 1. All meetings of the shareholders shall be held at the registered office of the corporation or at such other place either within or without the State of Texas as shall be designated from time to time by the Board of Directors. Section 2. The annual meeting of shareholders shall be held on the second Tuesday of May in each year, at 10:00 A.M., for the election of a Board of Directors and the transaction of such other business as may properly be brought before the meeting. Section 3. Special meetings of the shareholders may be called by the Chairman and President, the Board of Directors, or the holders of not less than one-tenth of all the shares entitled to vote at the meetings. 1 Business transacted at all special meetings shall be confined to the subjects stated in the notice of meeting. Section 4. Written or printed notice stating the place, day and hour of the meeting, and, in case of a special meeting, the purpose or purposes for which the meeting is called, shall be delivered not less than ten (10) nor more than sixty (60) days before the date of the meeting, either personally or by mail, by or at the direction of the Chairman and President, the Corporate Secretary, or the officer or person calling the meeting, to each shareholder of record entitled to vote at such meeting. If mailed, such notice shall be deemed to be delivered when deposited in the United States mail addressed to the shareholder at his address as it appears on the stock transfer books of the corporation, with postage thereon prepaid. Section 5. The officer or agent having charge of the stock transfer books for shares of the corporation shall make, at least ten (10) days before each meeting of shareholders, a complete list of the shareholders entitled to vote at such meeting or any adjournment thereof, arranged in alphabetical order, with the address of and the number of shares held by each, which list, for a period of ten (10) days prior to such meeting, shall be kept on file at the registered office of the corporation and shall be subject to inspection by any shareholder at any time during usual business hours. Such list shall also be produced and kept open at the time and place of the meeting and shall be subject to the inspection of any shareholder during the whole time of the meeting. The original stock transfer books shall be prima-facie evidence as to who are the shareholders entitled to examine such list or transfer books or to vote at any meeting of shareholders. Section 6. The holders of a majority of the shares issued and outstanding and entitled to vote thereat, present in person or represented by written proxy, shall constitute a quorum at all meetings of the shareholders for the transaction of business. If, however, such quorum shall not be present or represented at any meeting of the shareholders, the shareholders entitled to vote thereat, present in person or represented by proxy, shall have power to adjourn the meeting from time to time, without notice other than announcement at the meeting, until a quorum shall be present or represented. At such adjourned meeting at which a quorum shall be present or represented any business may be transacted which might have been transacted at the meeting as originally notified. Section 7. Each outstanding share, of any class, shall be entitled to as many votes per share as the Articles of Incorporation shall provide, on each matter submitted to a vote at a meeting of shareholders, except to the extent that the voting rights of the shares of any class or classes are limited or denied by the Articles of Incorporation or these Bylaws. The vote for the election of Directors and, upon demand by any shareholder, the vote upon any question before the meeting shall be by ballot. Cumulative voting is expressly prohibited. Section 8. At any meeting of the shareholders, every shareholder having the right to vote shall be entitled to vote in person or by proxy executed in writing by such shareholder or by his duly authorized attorney-in-fact. No proxy shall be valid after eleven (11) months from the date of 2 its execution unless otherwise provided in the proxy. All proxies shall be revocable unless expressly provided therein to be irrevocable and are coupled with an interest and shall be filed with the Corporate Secretary of the corporation prior to or at the time of the meeting at which they are to be voted. Section 9. When a quorum is present at any meeting, matters brought before the meeting shall be determined by the shareholders in the following manner: (a) with respect to any matter, other than the election of Directors or a matter for which the affirmative vote of a specified portion of the shares entitled to vote is required by the statutes, the act of the shareholders shall be the affirmative vote of the holders of a majority of the shares entitled to vote on, and voted for or against, that matter at a meeting of shareholders at which a quorum is present and (b) with respect to the election of Directors, the act of the shareholders electing the Directors shall be a plurality of the votes cast by the holders of shares entitled to vote in the election of Directors at a meeting of shareholders at which a quorum is present, unless the question is one upon which, by express provision of the statutes or of the Articles of Incorporation or of these Bylaws, a different vote is required, in which case such express provision shall govern and control the decision of such question. The shareholders present at a duly organized meeting may continue to transact business until adjournment, notwithstanding the withdrawal of enough shareholders to leave less than a quorum. Section 10. The Chairman and President shall preside at all meetings of the shareholders. In his absence, an officer of the corporation designated by the Board of Directors shall preside and perform the duties of the Chairman and President at such meeting. He shall appoint two inspectors of voting to serve at each such meeting. Before acting at any meeting, the inspectors shall be sworn faithfully to execute their duties with strict impartiality and according to the best of their ability. The inspectors shall determine the number of shares outstanding, the voting power of each, the shares represented at the meeting, the existence of a quorum, the qualification of the voters, the authenticity, validity and effect of proxies, receive votes and ballots, hear and determine all challenges and questions in any way arising in connection with the vote, count and tabulate all votes and determine and announce the result of the voting. Section 11. At an annual meeting of the shareholders, only such business shall be conducted as shall have been properly brought before the meeting. To be properly brought before an annual meeting, business must be specified in the notice of meeting (or any supplement thereto) given by or at the direction of the Board, otherwise properly brought before the meeting by or at the direction of the Board, or otherwise properly brought before the meeting by a shareholder. In addition to any other applicable requirements, for business to be properly brought before an annual meeting by a shareholder, the shareholder must have given timely notice thereof in writing to the Corporate Secretary. To be timely, a shareholder's notice must be delivered to or mailed and received at the principal executive offices of the corporation, not less than fifty (50) days nor more than seventy-five (75) days prior to the meeting; provided, however, that in the event that less than sixty-five (65) days' notice or prior public disclosure of the date of the meeting is given or made to shareholders, 3 notice by the shareholder to be timely must be so received not later than the close of business on the 15th day following the day on which such notice of the date of the annual meeting was mailed or such public disclosure was made. A shareholder's notice to the Corporate Secretary shall set forth as to each matter the shareholder proposes to bring before the annual meeting (i) a brief description of the business desired to be brought before the annual meeting and the reasons for conducting such business at the annual meeting, (ii) the name and record address of the shareholder proposing such business, (iii) the class and number of shares of the corporation which are beneficially owned by the shareholder, and (iv) any material interest of the shareholder in such business. Notwithstanding anything in the Bylaws to the contrary, no business shall be conducted at the annual meeting except in accordance with the procedures set forth in this Section 11; provided, however, that nothing in this Section 11 -------- ------- shall be deemed to preclude discussion by any shareholder of any business properly brought before the annual meeting in accordance with said procedure. The chairman of an annual meeting shall, if the facts warrant, determine and declare to the meeting that business was not properly brought before the meeting in accordance with the provisions of this Section 11, and if he should so determine, he shall so declare to the meeting and any such business not properly brought before the meeting shall not be transacted. Section 12. Only persons who are nominated in accordance with the following procedures shall be eligible for election as Directors. Nominations of persons for election to the Board of the corporation may be made at a meeting of shareholders by or at the direction of the Board of Directors by any nominating committee or person appointed by the Board or by any shareholder of the corporation entitled to vote for the election of Directors at the meeting who complies with the notice procedures set forth in this Section 12. Such nominations, other than those made by or at the direction of the Board, shall be made pursuant to timely notice in writing to the Corporate Secretary. To be timely, a shareholder's notice shall be delivered to or mailed and received at the principal executive offices of the corporation not less than fifty (50) days nor more than seventy-five (75) days prior to the meeting; provided, however, -------- ------- that in the event that less than sixty-five (65) days' notice or prior public disclosure of the date of the meeting is given or made to shareholders, notice by the shareholder to be timely must be so received not later than the close of business on the 15th day following the date on which such notice of the date of the meeting was mailed or such public disclosure was made. Such shareholder's notice to the Corporate Secretary shall set forth (a) as to each person whom the shareholder proposes to nominate for election or re-election as a Director, (i) the name, age, business address and residence address of the person, (ii) the principal occupation or employment of the person, (iii) the class and number of shares of capital stock of the corporation which are beneficially owned by the person, and (iv) any other information relating to the person that is required to be disclosed in solicitations for proxies for election of Directors pursuant to Rule 14a under the Securities Exchange Act of 1934 as amended; and (b) as to the shareholder giving the notice (i) the name and record address of shareholder and (ii) the class and number of shares of capital stock of the 4 corporation which are beneficially owned by the shareholder. The corporation may require any proposed nominee to furnish such other information as may reasonably be required by the corporation to determine the eligibility of such proposed nominee to serve as Director of the corporation. No person shall be eligible for election as a Director of the corporation unless nominated in accordance with the procedures set forth herein. The chairman of the meeting shall, if the facts warrant, determine and declare to the meeting that a nomination was not made in accordance with the foregoing procedure, and if he should so determine, he shall so declare to the meeting and the defective nomination shall be disregarded. ARTICLE III DIRECTORS Section 1. The business and affairs of the corporation shall be managed by its Board of Directors who may exercise all such powers of the corporation and do all such lawful acts and things as are not by statute or by the Articles of Incorporation or by these Bylaws directed or required to be exercised or done by the shareholders. Section 2. The Board of Directors shall consist of not less than two Directors, none of whom need be shareholders or residents of the State of Texas; the exact number of Directors to be determined from time to time by resolution adopted by the Board of Directors. A person shall be ineligible to be a Director of the corporation after the date of the annual meeting of shareholders of the corporation in the year in which such person's seventieth birthday occurs. The Directors shall be elected at the annual meeting of the shareholders, except as provided in Section 4 of this Article III. Unless he shall resign or become ineligible, each Director shall hold office until his successor shall be elected and shall qualify. Section 3. Any Director may resign at any time either by oral tender of resignation at any meeting of the Board of Directors or by giving written notice thereof to the Corporate Secretary. Resignations shall take effect when tendered or at the time specified in the tender and, unless otherwise specified, the acceptance of a resignation shall not be necessary to make it effective. If the employment of an officer or employee of the corporation who is also a Director of the corporation is terminated due to disability, retirement, resignation, action of the Board or otherwise, then such person shall be deemed to have contemporaneously tendered his or her resignation as a Director unless otherwise determined by the Board of Directors. Section 4. Any Director may be removed either for or without cause, at any special meeting of shareholders by the affirmative vote of the holders of record of a majority of the shares present in person or by proxy at such meeting and entitled to vote for such removal, if notice of the intention to act upon such matter shall have been given in the notice calling for such meeting. Any vacancy occurring in the Board of Directors may be filled by the affirmative vote of a majority of the remaining Directors even though such remaining Directors shall be less than a quorum of the Board of Directors. A Director elected to fill a vacancy shall be elected for the unexpired term of his predecessor in office. Any 5 directorship to be filled by reason of an increase in the number of directors may be filled by election at an annual meeting or at a special meeting of shareholders called for that purpose or may be filled by the Board of Directors for a term of office continuing until the next election of one or more Directors by the shareholders; provided that the Board of Directors may not fill more than two such directorships between any two successive annual meetings of shareholders. Section 5. The Board of Directors, by resolution adopted by a majority of the full Board of Directors, may designate from among its members one or more committees, each of which shall be comprised of one or more of its members, and may designate one or more of its members as alternate members of any committee, who may, subject to any limitations imposed by the Board of Directors, replace absent or disqualified members at any meeting of that committee. Any such committee, to the extent provided in such resolutions or in the Articles of Incorporation or the Bylaws, shall have and may exercise all of the authority of the Board of Directors, provided that no committee of the Board of Directors shall have the authority of the Board of Directors in reference to: (1) amending the Articles of Incorporation, except that a committee may, to the extent provided in the resolution designating that committee or in the Articles of Incorporation or the Bylaws, exercise the authority of the Board of Directors vested in it in accordance with Article 2.13 of the Texas Business Corporation Act ("Act"); (2) proposing a reduction of the stated capital of the Corporation in the manner permitted by Article 4.12 of the Act; (3) approving a plan of merger or share exchange of the Corporation; (4) recommending to the shareholders the sale, lease, or exchange of all or substantially all of the property and assets of the Corporation otherwise than in the usual and regular course of its business; (5) recommending to the shareholders a voluntary dissolution of the Corporation or a revocation thereof; (6) amending, altering, or repealing the Bylaws of the Corporation or adopting new Bylaws of the Corporation; (7) filling vacancies in the Board of Directors; (8) filling vacancies in or designating alternate members of any such committee; (9) filling any directorship to be filled by reason of an increase in the number of Directors; (10) electing or removing officers of the Corporation or members or alternate members of any such committee; (11) fixing the compensation of any member or alternate members of such committee; or (12) altering or repealing any resolution of the Board of Directors that by its terms provides that it shall not be so amendable or repealable; and, unless such resolution designating a particular committee, the Articles of Incorporation, or the Bylaws expressly so provide, no committee of the Board of Directors shall have the authority to authorize a distribution or to authorize the issuance of shares of the Corporation. MEETINGS OF THE BOARD OF DIRECTORS Section 6. The Directors of the corporation may hold their meetings, both regular and special, either within or without the State of Texas. Section 7. The first meeting of each newly elected Board of Directors shall be held without further notice immediately following the annual meeting of shareholders, and at the same place, unless by unanimous consent of the Directors then elected and serving such time or place shall be changed. 6 Section 8. Regular meetings of the Board of Directors may be held with or without notice at such time and place as shall from time to time be determined by the Board of Directors. Section 9. Special meetings of the Board of Directors may be called on twenty-four (24) hours' notice to each Director, or such shorter period of time as the person calling the meeting deems appropriate in the circumstances, either personally, or by mail, or by telegram; special meetings shall be called by the Chairman and President or, in the event of the inability of the Chairman and President to act, the Corporate Secretary in like manner and on like notice on the written request of two Directors. Neither the business to be transacted at, nor the purpose of, any special meeting need be specified in a notice or waiver of notice. Section 10. At all meetings of the Board of Directors the presence of a majority of the Directors shall constitute a quorum for the transaction of business and the act of a majority of the Directors present at any meeting at which there is a quorum shall be the act of the Board of Directors. Any action required or permitted to be taken at a meeting of the Board of Directors may be taken without a meeting if a consent in writing, setting forth the action so taken, is signed by all members of the Board of Directors. If a quorum shall not be present at any meeting of Directors, the Directors present thereat may adjourn the meeting from time to time, without notice other than announcement at the meeting, until a quorum shall be present. Section 11. COMPENSATION OF DIRECTORS. The Board of Directors shall have authority to establish, from time to time, the amount of compensation which shall be paid to its members for their services as Directors. ARTICLE IV NOTICES Section 1. Whenever under the provisions of the statutes or of the Articles of Incorporation or of these Bylaws, notice is required to be given to any Director or shareholder, and no provision is made as to how such notice shall be given, it shall not be construed to mean personal notice, but any such notice may be given in writing, by mail, postage prepaid, addressed to such Director or shareholder at such address as appears on the books of the corporation. Any notice required or permitted to be given by mail shall be deemed to be given at the time when the same shall be thus deposited in the United States mails as aforesaid. Section 2. Whenever any notice is required to be given to any shareholder or Director of the corporation under the provisions of the statutes or of the Articles of Incorporation, or of these Bylaws, a waiver thereof in writing signed by the person or persons entitled to such notice, whether before or after the time stated in such notice, shall be equivalent to the giving of such notice. Attendance of a Director at a meeting shall constitute a waiver of notice of such meeting, except when a Director attends a meeting for the express purpose, in writing filed at the meeting, of objecting to the transaction of any business on the grounds that the meeting is not lawfully called or held. 7 ARTICLE V OFFICERS Section 1. The officers of the corporation shall be a Chairman and President, one or more Executive Vice Presidents, Senior Vice Presidents or Vice Presidents, a General Counsel, a Controller, a Corporate Secretary and a Treasurer, all of whom shall be elected by the Board of Directors. Any two or more offices may be held by the same person. Each such officer shall have such authority and perform such duties in the management of the corporation as may be determined by resolution of the Board of Directors. Section 2. The Board of Directors may elect or appoint such other officers and agents as it shall deem necessary, who shall hold their offices for such term and who shall have such authority and perform such duties as may be prescribed by the Board of Directors or the Chairman and President. The power to appoint such other officers and agents may be delegated by the Board of Directors to the Chairman and President to the extent the Board may delineate by resolution. Section 3. Each officer of the corporation shall hold office until his successor is chosen and qualified in his stead or until his death or until his resignation, retirement or removal from office. Any officer or agent elected or appointed by the Board of Directors may be removed by the Board of Directors whenever in its judgment the best interests of the corporation will be served thereby, but such removal shall be without prejudice to the contract rights, if any, of the person so removed. Election or appointment of an officer or agent shall not of itself create contract rights. A person shall be ineligible to be an officer of the corporation after the last day of the month in which such person's sixty-fifth (65th) birthday occurs; provided, however, the foregoing shall only be applicable to persons that may be required to retire under the terms of the Age Discrimination in Employment Act. Section 4. THE CHAIRMAN AND PRESIDENT. The Chairman and President shall be the chief executive officer of the corporation. He shall, subject to the direction and control of the Board of Directors, be their representative and medium of communication. He shall see that all orders, resolutions and policies adopted by the Board of Directors are carried into effect. He shall preside at all meetings of shareholders and at all meetings of the Board of Directors. He shall be in complete charge with attendant responsibility and accountability of the entire corporation and its affairs. Section 5. EXECUTIVE VICE PRESIDENTS. Each Executive Vice President shall have such powers and responsibilities, and shall perform such duties, as delineated by the Board or by the Chairman and President. They shall be directly responsible to such officer as the Chairman and President may from time to time prescribe. Section 6. SENIOR VICE PRESIDENT, CHIEF FINANCIAL OFFICER. The Senior Vice President, Chief Financial Officer, shall have such powers and responsibilities and shall perform such duties, as delineated by the Board of Directors or by the Chairman and President. He shall be responsible to the Chairman and President in said performance. Section 7. OTHER SENIOR VICE PRESIDENTS. Other Senior Vice Presidents shall have such powers and responsibilities, and shall perform 8 such duties, as delineated by the Board or by the Chairman and President. They shall be directly responsible to such officer as the Chairman and President may from time to time prescribe. Section 8. THE GENERAL COUNSEL. The General Counsel shall have general control over all matters of a legal nature concerning the corporation and shall perform such duties as delineated by the Board or by the Chairman and President. He shall be directly responsible to the Chairman and President in said performance. Section 9. VICE PRESIDENTS. Each Vice President shall have such powers and responsibilities, and shall perform such duties, as may be delineated by the Board or the Chairman and President. They shall be directly responsible to such officer as the Chairman and President may from time to time prescribe. Section 10. THE CONTROLLER. The Controller shall be in general control of the accounts of the corporation, shall be responsible for the making of adequate audits, shall prepare and interpret required accounting, financial and statistical statements, and shall be directly responsible to such officer and shall perform such other duties as the Board or Chairman and President may from time to time prescribe. Section 11. THE CORPORATE SECRETARY. The Corporate Secretary shall attend all meetings of the Board of Directors and shareholders and act as secretary thereof and shall record all votes and the minutes of all proceedings of the Board of Directors and shareholders in a book for that purpose maintained and kept in his custody. He shall keep in his custody the seal of the corporation and shall in general perform all the duties incident to the office of Secretary of a corporation. He shall act as Transfer Agent of the corporation and/or Registrar of its capital stock and other securities; provided that the Board of Directors may by resolution appoint one or more other persons or corporations as Transfer Agents and/or Registrars or as Co-Transfer Agents and/or Co-Registrars. He shall be directly responsible to such officer and shall perform such other duties as the Board or Chairman and President may from time to time prescribe. Section 12. THE TREASURER. The Treasurer shall have custody of all the funds and securities of the corporation and shall keep full and accurate accounts of receipts and disbursements. He may endorse checks, notes and other obligations on behalf of the corporation for collection and shall deposit the same, together with all monies and other valuable effects, to the credit of the corporation in banks or depositories as the Board of Directors may designate by resolution or as may be established in accordance with Article VIII of these Bylaws. He shall be directly responsible to such officer as the Chairman and President may from time to time designate and shall perform all duties incident to the office of Treasurer of a corporation or as the Board or Chairman and President shall designate. Section 13. ASSISTANT CORPORATE SECRETARY, ASSISTANT TREASURER, ASSISTANT CONTROLLER. The Board of Directors may appoint one or more Assistant Corporate Secretaries, Assistant Treasurers and Assistant Controllers and such other appointive officers as may be appropriate and required. They shall be directly responsible to such officer and shall 9 perform such duties as the Board or Chairman and President may from time to time designate. ARTICLE VI CERTIFICATES REPRESENTING SHARES Section 1. The shares of stock of this corporation shall be deemed personal estate, and shall be transferable only on the books of the corporation in such manner as these Bylaws prescribe. Section 2. Every shareholder in the corporation shall be entitled to have a certificate or certificates representing the number of shares owned by him. The certificates of shares of stock of the corporation shall be numbered and shall be entered in the books of the corporation as they are issued. They shall exhibit the holder's name and number of shares, and shall be signed by the Chairman and President or a Vice President, and the Treasurer or an Assistant Treasurer and bear the corporate seal; but the signatures of such officers and the seal of the corporation upon such certificates may be facsimiles, engraved or printed where such certificate is signed by a duly authorized Transfer Agent or Co-Transfer Agent and a Registrar or Co-Registrar. Section 3. The Board of Directors may make such rules and regulations as it may deem expedient concerning the issue, transfer, conversion, and registration of certificates for shares of the capital stock of the corporation. Section 4. LOST CERTIFICATES. The Board of Directors may direct a new certificate representing shares to be issued in place of any certificate theretofore issued by the corporation alleged to have been lost or destroyed, upon the making of an affidavit of that fact by the person claiming the certificate to be lost or destroyed. When authorizing such issue of a new certificate, the Board of Directors, in its discretion and as a condition precedent to the issuance thereof, may require the owner of such lost or destroyed certificate, or his legal representative, to advertise the same in such manner as it shall require and/or give the corporation a bond in such form, in such sum, and with such surety or sureties as it may direct as indemnity against any claim that may be made against the corporation and its Transfer Agents and Registrars and its Co-Transfer Agents and Co-Registrars with respect to the certificate alleged to have been lost or destroyed. Section 5. TRANSFER OF SHARES. Transfers of shares of stock shall be made on the books of the corporation only by the person named in the certificate or by attorney, lawfully constituted in writing, and upon surrender of the certificate therefor. Section 6. The Board of Directors may close the stock transfer books of the corporation for a period not to exceed sixty (60) days for the purpose of determining shareholders entitled to notice of or to vote at any meeting of shareholders or any adjournment thereof, or entitled to receive payment of any distribution and share dividend, or in order to make a determination of shareholders for any purpose, provided that if such books shall be closed for the purpose of determining shareholders entitled to notice of or to vote at a shareholders' meeting, such books shall be closed 10 for at least ten (10) days immediately preceding such meeting. In lieu of so closing the stock transfer books, the Board of Directors may fix a date in advance, not exceeding sixty (60) days preceding the date of any meeting of shareholders, or the date for the payment of any distribution and share dividend or the date for the allotment of rights, or the date when any change or conversion or exchange of capital stock shall go into effect, as a record date for the respective determination of the shareholders entitled to notice of, and to vote at, any such meeting, or entitled to receive payment of any such distribution and share dividend, or to any such allotment of rights, or to exercise rights in respect of any such change, conversion or exchange of capital stock and in such case such shareholders and only such shareholders as shall be shareholders of record on the date so fixed shall be entitled to such notice of, and to vote at, such meeting, or to receive payment of such distribution and share dividend, or to receive such allotment of rights, or to exercise such rights, as the case may be, notwithstanding any transfer of any shares of stock on the books of the corporation after any such record date fixed as aforesaid. In the absence of any designation with respect thereto by the Board of Directors, the date upon which the notice of a meeting is mailed or resolutions declaring a distribution and share dividend are adopted shall be the record date for such determination in regard to meetings of shareholders or declarations of distributions and share dividends. Section 7. The corporation shall be entitled to treat the holder of record of any share or shares of stock as the holder in fact thereof and, accordingly, shall not be bound to recognize any equitable or other claim to or interest in such share on the part of any other person, whether or not it shall have express or other notice thereof, save as expressly provided by the laws of Texas . Section 8. BONDS, DEBENTURES AND EVIDENCES OF INDEBTEDNESS. Bonds, debentures and other evidence of indebtedness of the corporation shall be signed by the Chairman and President or any Vice President and the Treasurer or an Assistant Treasurer and shall bear the corporate seal and when so executed shall be binding upon the corporation, but not otherwise. The seal of the corporation thereon may be facsimile, engraved or printed, and where any such bond, debenture or other evidence of indebtedness is authenticated with the manual signature of an authorized officer of the corporation or trustee appointed or named by an indenture of trust or other agreement under which such security is issued, the signature of any of the corporation's officers authorized to execute such security may be facsimile. Section 9. SIGNATURES ON SHARE CERTIFICATES, BONDS, DEBENTURES AND EVIDENCES OF INDEBTEDNESS. In case any officer who signed, or whose facsimile signature has been placed on any certificate representing shares of stock, bond, debenture or evidence of indebtedness of this corporation shall cease to be an officer of the corporation for any reason before the same has been issued or delivered by the corporation, such certificate, bond, debenture or evidence of indebtedness may nevertheless be issued and delivered as though the person who signed it or whose facsimile signature had been placed thereon had not ceased to be such officer. 11 ARTICLE VII DEEDS AND OTHER INSTRUMENTS OF CONVEYANCE Section 1. Deeds and other instruments of the corporation conveying land or any interest in land shall be signed by the Chairman and President, a Vice President or attorney-in-fact of the corporation when authorized by appropriate resolution of the Board of Directors or shareholders, and when required by law, shall be attested by the Corporate Secretary or an Assistant Corporate Secretary and shall bear the corporate seal, and when so executed shall be binding upon the corporation, but not otherwise. ARTICLE VIII CHECKS, DRAFTS AND BILLS OF EXCHANGE Section 1. The Chairman and President of the corporation may from time to time establish General Bank Accounts, Depository Bank Accounts, and such Special Bank Accounts as in the judgment of the Chairman and President may be needed in carrying on and dispatching the business of the corporation. All checks, drafts and bills of exchange issued in the name of the corporation and calling for the payment of money out of said General Accounts, Depository Accounts, or Special Accounts of the corporation shall be signed by the Controller or Assistant Controller, or such agents and employees as the Chairman and President may from time to time designate and authorize to sign for the Controller, and countersigned by the Treasurer or any Assistant Treasurer, or such agents and employees as the Chairman and President may from time to time designate and authorize to sign for the Treasurer; and when so designated by the Chairman and President, the signature of the Treasurer or an Assistant Treasurer may be affixed by the use of a check-signing machine; provided that for the purpose of transferring funds from any bank or depository at which the corporation has funds on deposit to any other bank or depository of the corporation for credit to the corporation's account, a form of check having plainly printed upon its face "DEPOSITORY TRANSFER CHECK," and being by its wording payable to a bank or depository for credit to the account of the corporation, is hereby authorized, and such checks shall require no signature other than the name of the corporation printed at the lower right corner; and further provided that checks, drafts and bills of exchange issued in the name of the corporation in the amount of $5,000.00 or less need bear only one signature and that being the signature of the Treasurer or an Assistant Treasurer, affixed either manually or by the use of a check-signing machine, or the manual signature of such agents and employees as the Chairman and President may from time to time designate and authorize to sign for the Treasurer; and provided further that checks and drafts issued in the name of the corporation and calling for the payment of production revenue or royalties need bear only one signature and that being the signature of the Treasurer or an Assistant Treasurer, affixed either manually or by the use of a check-signing machine, or the manual signature of such agents and employees as the Chairman and President may from time to time designate and authorize to sign for the Treasurer; and provided further that checks and drafts issued in the name of the corporation and calling for payment of money out of Special Bank Accounts established for the payment of dividends need bear only one signature and that being the signature of the Treasurer or an Assistant Treasurer, affixed either manually or by the use of a check-signing machine, or the manual signature of such agents and employees as the Chairman and President may from time to time designate and authorize to sign for the Treasurer; and further provided that no person authorized to sign checks or drafts may sign a check or draft payable to himself. When signed in such applicable manner, 12 but not otherwise, every check, draft or bill of exchange issued in the name of the corporation and calling for the payment of money out of the General Bank Accounts, Depository Bank Accounts, and Special Bank Accounts of the corporation shall be valid and enforceable according to its wording, tenor and effect, but not otherwise. Provided, however, that for the purpose of transferring funds between accounts of the corporation, from accounts of the corporation to accounts of subsidiaries and affiliates, from accounts of the corporation for the purpose of investment of corporate funds, and from accounts of the corporation for the payment of dividends, the Treasurer or an Assistant Treasurer, or such agents and employees as the Chairman and President may from time to time designate and authorize, may make such transfer of funds by bank wire transfers through oral or written instructions; and for the purpose of transferring funds from accounts of the corporation to accounts of other third parties, such funds may be transferred by bank wire transfers but only upon written instructions from the Treasurer or an Assistant Treasurer, or such agents and employees as the Chairman and President may from time to time designate and authorize to sign for the Treasurer, and countersigned by the Controller or Assistant Controller, or such agents and employees as the Chairman and President may from time to time designate and authorize to sign for the Controller. Section 2. The Treasurer of the corporation may establish special bank accounts designated as Agent's Account in such bank or banks as in his judgment may be needed in carrying on and dispatching the business of the corporation, provided that the Treasurer in establishing and maintaining such accounts shall keep only such funds therein and in such amount as may be required for the local needs of such accounts and provided that checks or drafts issued against or drawn on such accounts shall be valid and binding on the corporation according to their wording, tenor and effect when signed by either the Treasurer of the corporation or by such agent or employee of the corporation as may be designated by the Treasurer in writing to such bank or when signed in such manner and by such agent or employee of the corporation as may be designated by the Chairman and President of the corporation; and further provided that checks and drafts issued in the name of the corporation against funds in such Agent's Account in the amount of $1,000.00 or more must be countersigned by two persons authorized to sign such checks or drafts. ARTICLE IX FISCAL YEAR Section 1. The fiscal year shall begin on the first day of January in each year. ARTICLE X DISTRIBUTIONS AND SHARE DIVIDENDS Section 1. Distributions and share dividends upon the outstanding shares of the corporation, subject to the provisions of the Articles of Incorporation, if any, may be declared by the Board of Directors at any regular or special meeting. Distributions may be paid in cash or property, and share dividends may be paid in shares of the authorized but unissued shares or in treasury shares, of the corporation subject to the provisions of the Articles of Incorporation. 13 ARTICLE XI RESERVES Section 1. There may be created by resolution of the Board of Directors out of the earned surplus of the corporation such reserve or reserves as the Directors from time to time, in their discretion, think proper to provide for contingencies, or to equalize dividends, or to repair or maintain any property of the corporation, or for such other purpose as the Directors shall think beneficial to the corporation, and the Directors may modify or abolish any such reserve in the manner in which it was created. ARTICLE XII SEAL Section 1. The corporation's seal shall have inscribed thereon the name of the corporation, the year of the organization and the words "Corporate Seal, Texas." Said seal may be used by causing it or a facsimile thereof to be impressed or affixed or reproduced or otherwise. ARTICLE XIII INDEMNIFICATION Section 1. The corporation shall indemnify, and advance or reimburse reasonable expenses incurred by, any person who (1) is or was a director, officer, employee or agent of the corporation, or (2) while a director, officer, employee or agent of the corporation, its divisions or subsidiaries, is or was serving at the request of the corporation, pursuant to a resolution adopted by the Board of Directors, as a director, officer, partner, venturer, proprietor, trustee, employee, agent or similar functionary of another foreign or domestic corporation, partnership, joint venture, sole proprietorship, trust, employee benefit plan or other enterprise, to the fullest extent that a corporation may or is required to grant indemnification to a director under the Texas Business Corporation Act. The corporation, pursuant to a resolution adopted by the Board of Directors, may indemnify any such persons to such further extent as permitted by law. Action by the Board of Directors to amend, modify or terminate this ARTICLE XIII, Section 1. shall be prospective from the effective date of such action and any rights or obligations resulting from an event or events occurring prior thereto shall be governed by the provisions of this ARTICLE XIII, Section 1, as of the date of such event or events. ARTICLE XIV AMENDMENTS Section 1. The power to alter, amend, suspend or repeal the Bylaws or to adopt new Bylaws shall be vested in the Board of Directors; provided, however, that any Bylaw or Amendment thereto as adopted by the Board of Directors may be altered, amended, suspended or repealed by vote of the shareholders entitled to vote for the election of Directors or a new Bylaw in lieu thereof may be adopted by vote of such shareholders. No Bylaw which has been altered, amended or adopted by such a vote of the shareholders may be altered, amended, suspended or repealed by vote of the Directors until two years after such action by vote of the shareholders. 14 ARTICLE XV RESTRICTIONS ON FOREIGN OWNERSHIP Section 1. PURPOSE AND EFFECTIVENESS. The purpose of this Article XV is to limit ownership and control of shares of any class of capital stock of the corporation by persons who are not Eligible Citizens in order to permit the corporation or any of its Subsidiaries to conduct its business as a U.S. Mineral Lessee. The Board of Directors is hereby authorized to adopt such resolutions, and to effect any and all other measures reasonably necessary or desirable (consistent with applicable law and the provisions of the Articles of Incorporation) to fulfill the purpose and implement the restrictions of this Article XV, including without limitation, requiring, as a condition precedent to the transfer of shares on the records of the corporation, representations and other proof as to the identity of existing or prospective shareholders and persons on whose behalf of shares of any class of capital stock of the corporation or any interest therein or right thereof are or are to be held and as to whether or not such persons are Eligible Citizens. Section 2. RESTRICTION ON TRANSFERS. Any transfer, or attempted or purported transfer, of any shares of any class of capital stock issued by the corporation or any interest therein or right thereof, which would result in the ownership or control by one or more non-Eligible Citizens of the shares of any class of capital stock of the corporation or of any interest or right therein will, until such condition no longer exists, be void and will be ineffective as against the corporation and the corporation will not recognize the purported transferee as a shareholder of the corporation for any purpose other than the transfer of such shares to a person who is an Eligible Citizen; provided, however, that such shares may nevertheless be deemed to be shares held or owned by non-Eligible Citizens for the purposes of this Article XV. Section 3. SUSPENSION OF VOTING, DIVIDEND AND DISTRIBUTION RIGHTS. No shares of the outstanding capital stock of the corporation or any class thereof transferred to, or acquired or held by, a non-Eligible Citizen shall be entitled to receive or accrue any rights with respect to any dividends or other distributions of assets declared payable or paid to the holders of such capital stock during such period. Furthermore, no shares held by or for the benefit of any non-Eligible Citizen will be entitled to vote with respect to any matter submitted to stockholders of the corporation so long as such condition exists. Section 4. REDEMPTION. If at any time (i) the corporation is named, or is threatened to be named, as a party in a judicial or administrative proceeding that seeks the cancellation or forfeiture of any property, lease, right or license in which the corporation has an interest or (ii) if, in the opinion of the Board of Directors, the corporation's ability to hold any property, lease, right or license would be prohibited or restricted because of the nationality, citizenship, residence, or other status, of any shareholder of the corporation (or, in the case of a shareholder which is a corporation, partnership or association, of any shareholder, owner, partner or member of such shareholder), the corporation may redeem the shares held by such shareholder at the then Current Market Price and upon such terms as shall be determined by the Board of Directors, in their sole discretion. 15 Section 5. DEFINITIONS. "Current Market Price" per share of capital stock of the corporation on any date is the average of the Quoted Prices of such class of capital stock during the four trading weeks before the date in question. In the absence of one or more such quotations, the Board of Directors shall determine the current market price on the basis of such quotations as it considers appropriate. "Eligible Citizen" means any person (including a corporation, partnership or other entity) whose ownership, holding or control of shares in the corporation would not, by reason of such person's citizenship or the citizenship of its members or owners or otherwise, (1) disqualify the corporation or any of its Subsidiaries from owning, acquiring, holding, possessing, or leasing oil, gas or other minerals, mineral deposits, land, vessels or any other property, licenses, or rights of any nature whatsoever in federal lands or leases under federal laws and regulations in effect from time to time, (2) violate any other qualifications as the Board of Directors deems in its reasonable discretion are necessary or appropriate to permit the corporation and its Subsidiaries to engage in any other business activities for which there may be qualifications or restrictions on shareholders of the corporation or any of its Subsidiaries applicable under federal or state law. A person is an Eligible Citizen if the applicable following requirement is met: (1) for an individual, that he is native-born, naturalized or a derivative Citizen of the United States or otherwise qualifies as a United States citizen; (2) for a corporation, that is organized or existing under the laws of the United States, a state, the District of Columbia or United States territory or possession, that at least 75% of the ownership interest in, and the voting power over, the corporation is held by Eligible Citizens, that the corporation's president or other chief executive officer and the chairman of its board of directors are United States citizens and that no more than a minority of the number of directors required to constitute a quorum are non-United States citizens; (3) for a partnership, that all of the interests in the partnership, are owned by Eligible Citizens; (4) for a trust, that each of its trustees and each of its beneficiaries is an Eligible Citizen; and (5) for an association, joint venture, or other entity, that all members, venturers or other equity participants are Eligible Citizens and that such association, joint venture or other entity is capable of holding leases or other interest in federal minerals or lands under the laws of the United States. "Quoted Price" means, with respect to any class of capital stock of the corporation, the last reported sales price regular way or, in case no such reported sale takes place on such day, the average of the closing bid and asked prices regular way for such day, in each case on the principal national securities exchange on which the shares of such class of capital stock are listed or admitted to trading or, if not listed or admitted to trading, the last sale price regular way for such shares as published by NASDAQ, or if such last price is not so published by NASDAQ or if no such sale takes place on such day, the mean between the closing bid and asked prices for such shares as published by NASDAQ or in the absence of any of the foregoing, the fair market value as determined by the Board of Directors. 16 "Subsidiary" means any corporation more than 50% of the outstanding capital stock of which is owned by the corporation or any Subsidiary of the corporation. "U.S. Mineral Lessee" means any corporation or other entity directly or indirectly owning, acquiring, holding, possessing, or leasing oil, gas or other minerals, mineral deposits, lands, vessels or any other property, licenses, or rights of any nature whatsoever in federal lands or leases under federal laws and regulations in effect from time to time, including, without limitation, the Mineral Leasing Act of 1920, as amended, 30 U.S.C.A. (S) 181 et seq. 17 EX-10.11 3 CREDIT AGREEMENT EXHIBIT 10.11 CREDIT AGREEMENT AMONG ENSERCH EXPLORATION, INC. AS BORROWER, TEXAS COMMERCE BANK NATIONAL ASSOCIATION, AS ADMINISTRATIVE AGENT, THE CHASE MANHATTAN BANK, N.A., AS SYNDICATION AGENT CHEMICAL BANK, AS AUCTION AGENT AND THE LENDERS NOW OR HEREAFTER PARTIES HERETO DATED AS OF MAY 1, 1995 TABLE OF CONTENTS Page ARTICLE I DEFINITIONS AND ACCOUNTING MATTERS Section 1.01 Terms Defined Above....................... 1 Section 1.02 Certain Defined Terms..................... 1 Section 1.03 Accounting Terms and Determinations....... 14 ARTICLE II BORROWINGS Section 2.01 Committed Loans........................... 14 Section 2.02 Borrowings, Continuations and Conversions of Committed Loans......................... 15 Section 2.03 Changes of Commitments.................... 17 Section 2.04 Fees...................................... 17 Section 2.05 Several Obligations....................... 17 Section 2.06 Notes..................................... 17 Section 2.07 Prepayments............................... 18 Section 2.08 Lending Offices........................... 19 Section 2.09 Competitive Loans......................... 19 Section 2.10 Designated Subsidiaries................... 23 ARTICLE III PAYMENTS OF PRINCIPAL AND INTEREST Section 3.01 Repayment of Loans........................ 23 Section 3.02 Interest.................................. 24 ARTICLE IV PAYMENTS; PRO RATA TREATMENT; COMPUTATIONS; ETC. Section 4.01 Payments.................................. 25 Section 4.02 Pro Rata Treatment........................ 25 Section 4.03 Computations.............................. 26 Section 4.04 Non-receipt of Funds by the Administrative Agent................................... 26 Section 4.05 Sharing of Payments, Etc.................. 26 Section 4.06 Taxes..................................... 27 ARTICLE V CAPITAL ADEQUACY, ADDITIONAL COSTS, ETC. Section 5.01 Additional Costs.......................... 30 Section 5.02 Limitation on Eurodollar Loans............ 31 Section 5.03 Illegality................................ 31 Section 5.04 Base Rate Loans Pursuant to Sections 5.02 and 5.03 ......................................... 31 Section 5.05 Compensation.............................. 32 ARTICLE VI CONDITIONS PRECEDENT Section 6.01 Initial Funding........................... 32 Section 6.02 Initial and Subsequent Loans.............. 33 Section 6.03 Loans to Designated Subsidiaries.......... 33 ARTICLE VII REPRESENTATIONS AND WARRANTIES Section 7.01 Corporate Existence....................... 34 Section 7.02 Financial Condition....................... 35 Section 7.03 Litigation................................ 35 Section 7.04 No Breach................................. 35 Section 7.05 Authority................................. 35 Section 7.06 Approvals................................. 36 Section 7.07 Use of Loans.............................. 36 Section 7.08 ERISA..................................... 36 Section 7.09 Taxes..................................... 37 Section 7.10 Titles, etc............................... 37 Section 7.11 No Material Misstatements................. 38 Section 7.12 Investment Company Act.................... 38 Section 7.13 Public Utility Holding Company Act........ 38 Section 7.14 Subsidiaries and Partnerships............. 38 Section 7.15 Location of Business and Offices.......... 38 Section 7.16 Defaults.................................. 38 Section 7.17 Environmental Matters..................... 39 Section 7.18 Compliance with Laws...................... 40 Section 7.19 Pari Passu................................ 40 ARTICLE VIII AFFIRMATIVE COVENANTS Section 8.01 Financial Statements...................... 40 Section 8.02 Litigation................................ 42 Section 8.03 Maintenance, Etc.......................... 42 Section 8.04 Environmental Matters..................... 43 Section 8.05 Further Assurances........................ 43 Section 8.06 ERISA Information and Compliance.......... 43 Section 8.07 Lease Payments............................ 44 Section 8.08 Subsidiary Guaranty Agreements............ 44 ARTICLE IX NEGATIVE COVENANTS Section 9.01 Debt to Capital Ratio..................... 45 Section 9.02 Liens..................................... 45 Section 9.03 Investments, Loans and Advances........... 47 Section 9.04 Dividends, Distributions and Redemptions............................................ 47 Section 9.05 Nature of Business........................ 47 Section 9.06 Mergers, Etc.............................. 47 Section 9.07 Proceeds of Notes......................... 48 Section 9.08 ERISA Compliance.......................... 48 Section 9.09 Environmental Matters..................... 49 Section 9.10 Transactions with Affiliates.............. 49 Section 9.11 Restrictive Dividend Agreements........... 49 ARTICLE X EVENTS OF DEFAULT; REMEDIES Section 10.01 Events of Default........................ 49 Section 10.02 Remedies................................. 51 ARTICLE XI THE ADMINISTRATIVE AGENT Section 11.01 Appointment, Powers and Immunities....... 52 Section 11.02 Reliance by Agent........................ 53 Section 11.03 Defaults................................. 53 Section 11.04 Rights as a Lender....................... 53 Section 11.05 INDEMNIFICATION.......................... 53 Section 11.06 Non-Reliance on the Agents and other..... Lenders.................................. 54 Section 11.07 Action by Agent.......................... 54 Section 11.08 Resignation or Removal of the Agen....... 55 ARTICLE XII MISCELLANEOUS Section 12.01 Waiver................................... 5 Section 12.02 Notices.................................. 6 Section 12.03 Payment of Expenses, Indemnities, etc.... 6 Section 12.04 Amendments, Etc.......................... 58 Section 12.05 Successors and Assigns................... 59 Section 12.06 Assignments and Participations........... 59 Section 12.07 Invalidity............................... 60 Section 12.08 Counterparts............................. 60 Section 12.09 References............................... 60 Section 12.10 Survival................................. 61 Section 12.11 Captions................................. 61 Section 12.12 NO ORAL AGREEMENTS....................... 61 Section 12.13 GOVERNING LAW; SUBMISSION TO JURISDICTION............................. 61 Section 12.14 Interest................................. 62 Section 12.15 Confidentiality.......................... 63 Section 12.16 Effectiveness............................ 64 Section 12.17 EXCULPATION PROVISIONS................... 64 Annex 1 - List of Commitments Exhibit A - Form of Committed Note Exhibit B - Form of Competitive Note Exhibit C - Form of Competitive Bid Request Exhibit D - Form of Notice to Lenders of Competitive Bid Request Exhibit E - Form of Competitive Bid Exhibit F - Form of Competitive Bid Administration Questionnaire Exhibit G - Form of Borrowing, Continuation and Conversion Request Exhibit H - Form of Compliance Certificate Exhibit I - Form of Legal Opinion of Counsel for the Company Exhibit J - Form of Legal Opinion of Counsel for the Designated Subsidiary Exhibit K - Form of Assignment Agreement Exhibit L - Form of Notice of Designation of Designated Subsidiaries Exhibit M - Form of Permitted Subordinated Debt Subordination Provisions Exhibit N - Form of Legal Opinion of Counsel for the Subsidiary Guarantor Schedule 1.02 - Capital and Operating Lease Obligations Schedule 7.02 - Liabilities Schedule 7.03 - Litigation Schedule 7.09 - Taxes Schedule 7.10 - Titles, etc. Schedule 7.14 - Subsidiaries and Partnerships Schedule 7.17 - Environmental Matters THIS CREDIT AGREEMENT dated as of May 1, 1995 is among: ENSERCH EXPLORATION, INC., a corporation formed under the laws of the State of Texas (the "Company"); each of the lenders that is a signatory hereto or which becomes a signatory hereto as provided in Section 12.06 (individually, together with its successors and assigns, a "Lender" and, collectively, the "Lenders"); TEXAS COMMERCE BANK NATIONAL ASSOCIATION, a national banking association (in its individual capacity, "TCB"), as administrative agent for the Lenders (in such capacity, together with its successors in such capacity, the "Administrative Agent"); CHEMICAL BANK, a New York banking corporation (in its individual capacity, "Chemical"), as auction agent for the Lenders (in such capacity, together with its successors in such capacity, the "Auction Agent"); and THE CHASE MANHATTAN BANK, N.A., a national association (in its individual capacity, "Chase"), as syndication agent for the Lenders (in such capacity, together with its successors in such capacity, the "Syndication Agent"). R E C I T A L S A. The Company has requested that the Lenders provide certain loans to the Company and to certain of its subsidiaries; and B. The Lenders have agreed to make such loans subject to the terms and conditions of this Agreement. C. In consideration of the mutual covenants and agreements herein contained and of the loans and commitments hereinafter referred to, the parties hereto agree as follows: ARTICLE I DEFINITIONS AND ACCOUNTING MATTERS Section 1.01 Terms Defined Above. As used in this Agreement, the terms "Administrative Agent," "Auction Agent," "Company," "Chase," "Chemical," "Lender," "Lenders," "Syndication Agent," and "TCB" shall have the meanings indicated above. Section 1.02 Certain Defined Terms. As used herein, the following terms shall have the following meanings (all terms defined in this Article I or in other provisions of this Agreement in the singular to have the same meanings when used in the plural and vice versa): "Additional Costs" shall have the meaning assigned such term in Section 5.01(a). "Affected Loans" shall have the meaning assigned such term in Section 5.04. 1 "Affiliate" shall mean with respect to any Person, any other Person that, directly or indirectly, through one or more intermediaries, controls, or is controlled by, or is under common control with, such Person. For purposes of the foregoing definition, "control" means the direct or indirect ownership of more than 50% of the outstanding capital stock or other equity interests having ordinary voting power. "Agents" shall mean the Administrative Agent, the Syndication Agent and/or the Auction Agent. "Agreement" shall mean this Credit Agreement, as the same may from time to time be amended or supplemented. "Aggregate Commitments" at any time shall equal the sum of the Commitments of the Lenders ($350,000,000), as the same may be reduced pursuant to Section 2.03(a). "Applicable Lending Office" shall mean, for each Lender, the lending office of such Lender (or an Affiliate of such Lender) designated for each Type of Loan on the signature pages hereof or such other offices of such Lender (or of an Affiliate of such Lender) as such Lender may from time to time specify to the Administrative Agent and the Company as the office by which its Loans of such Type are to be made and maintained. "Applicable Margin" shall mean the following rates per annum as are applicable based upon the Debt to Capital Ratio calculated as of the last day of a fiscal quarter of the Company to be effective for any Committed Loan outstanding or for the facility fee during the period from the Financial Statement Delivery Date following such fiscal quarter to but not including the next succeeding Financial Statement Delivery Date:
DEBT TO CAPITAL RATIO --------------------------------- 40% 45% 50% BUT BUT BUT 40% 45% 50% 55% 55% ---- ---- ---- ---- ---- Facility Fee .150% .175% .200% .225% .250% Eurodollar Loans .350% .425% .500% .575% .750% Base Rate Loans 0% 0% 0% 0% 0%
"Assignment" shall have the meaning assigned such term in Section 12.06(b). "Base Rate" shall mean, with respect to any Base Rate Loan, for any day, the higher of (i) the Federal Funds Rate for any such day plus 1/2 of 1% 2 or (ii) the Prime Rate for such day. Each change in any interest rate provided for herein based upon the Base Rate resulting from a change in the Base Rate shall take effect at the time of such change in the Base Rate. "Base Rate Loans" shall mean Loans that bear interest at rates based upon the Base Rate. "Benefit Plan" shall mean any employee pension benefit plan, as defined in section 3(2) of ERISA (other than a Multiemployer Plan), which (a) is currently or hereafter sponsored, maintained or contributed to by the Company, a Subsidiary or an ERISA Affiliate or (b) was at any time during the six preceding years, sponsored, maintained or contributed to by the Company, a Subsidiary or an ERISA Affiliate. "Borrowing" shall mean a borrowing pursuant to a Borrowing Request or a Competitive Bid Request or a continuation or a conversion pursuant to Section 2.02 consisting, in each case, of the same Type of Loans having, in the case of Eurodollar Loans and Fixed Rate Loans, the same Interest Period. "Borrowing Request" shall mean a request for a Borrowing of Committed Loans pursuant to Section 2.02, substantially in the form attached as Exhibit G. "Business Day" shall mean any day other than a day on which commercial banks are authorized or required to close in New York, New York, Dallas, Texas, or at the location of the Principal Office and, where such term is used in the definition of "Quarterly Date" or if such day relates to a Borrowing or continuation of, a payment or prepayment of principal of or interest on, or a conversion of or into, or the Interest Period for, a Eurodollar Loan or a notice by the Company with respect to any such Borrowing or continuation, payment, prepayment, conversion or Interest Period, any day which is also a day on which dealings in Dollar deposits are carried out in the London interbank market. "Capital Lease Obligations" shall mean, as to the Company or any Subsidiary, the obligations of such person to pay rent or other amounts under a lease of (or other agreement conveying the right to use) real and/or personal property which obligations are required to be classified and accounted for as a liability for a capital lease on a balance sheet of such Person in accordance with GAAP and, for purposes of this Agreement, the amount of such obligations shall be the capitalized amount thereof. "Closing Date" shall mean the as of date of this Agreement set forth in the first paragraph hereof. 3 "Code" shall mean the Internal Revenue Code of 1986, as amended, and any successor statute. "Commitment" shall mean, for any Lender, its obligation to make Committed Loans up to the amount set forth opposite such Lender's name on Annex 1 under the caption "Commitments" (as the same may be reduced pursuant to Section 2.03(a) pro rata to each Lender based on its Percentage Share) as modified from time to time to reflect any assignments permitted by Section 12.06(b). "Committed Loan" shall mean a Loan made pursuant to Section 2.01. "Committed Note" shall mean for each Obligor a promissory note of such Obligor described in Section 2.06(a) payable to any Lender and being substantially in the form of Exhibit A, evidencing the aggregate Indebtedness of such Obligor to such Lender resulting from Committed Loans made by such Lender, together with all renewals, extensions, modifications and replacements thereof and substitutions therefor. "Competitive Bid" shall mean an offer by a Lender to make a Competitive Loan pursuant to Section 2.09. "Competitive Bid Administrative Questionnaire" shall mean a questionnaire in the form of Exhibit F. "Competitive Bid Rate" shall mean, as to any Competitive Bid made by a Lender pursuant to Section 2.09, (a) in the case of a Eurodollar Loan, the Margin (which will be added to or subtracted from the Eurodollar Rate) and (b) in the case of a Fixed Rate Loan, the fixed rate of interest, in each case, offered by the Lender making such Competitive Bid. "Competitive Bid Request" shall have the meaning assigned such term in Section 2.09. "Competitive Loans" shall mean the loans provided for in Section 2.09. "Competitive Note" shall mean for each Obligor a promissory note of such Obligor described in Section 2.06(b) payable to any Lender and being substantially in the form of Exhibit B, evidencing the aggregate Indebtedness of such Obligor to such Lender resulting from Competitive Loans made by such Lender, together with all renewals, extensions, modifications and replacements thereof and substitutions therefor. "Consolidated Subsidiaries" shall mean each Subsidiary (whether now existing or hereafter created or acquired) the financial statements of which 4 shall be (or should have been) consolidated with the financial statements of the Company in accordance with GAAP. "Debt" shall mean, for the Company or any Subsidiary the sum of the following (without duplication): (i) all obligations for borrowed money or evidenced by bonds, debentures, mandatorily redeemable preferred stock with maturities before the Revolving Credit Termination Date, notes or other similar instruments (excluding interest, fees and charges); (ii) all obligations in respect of bankers' acceptances, unreimbursed drawings on letters of credit, surety or other bonds; (iii) all Capital Lease Obligations, but excluding such Capital Lease Obligations in existence as of the Closing Date and set forth on Schedule 1.02 and any renewals and rearrangements, but not increases in the amount thereof; (iv) all Operating Lease Obligations, but excluding such Operating Lease Obligations in existence as of the Closing Date and set forth on Schedule 1.02 and any renewals and rearrangements and increases up to an additional 15% in the amount thereof; (v) all financial guaranties in respect of Debt of unconsolidated Affiliates and unrelated Persons; (vi) all obligations secured by a Lien on any asset, whether or not such Debt is assumed, but excluding obligations secured by Liens permitted by Sections 9.02(c), (e), (f), (h), (i), (j), (k) and (l); (vii) all production payments in connection with oil and gas properties; and (viii) all Debt of Special Entities to the extent the Company or any Subsidiary is liable for such Debt under GAAP or such Debt is reflected on the consolidated balance sheet of the Company or any Subsidiary. "Debt" shall not include Permitted Subordinated Debt. "Debt to Capital Ratio" shall have the meaning assigned such term in Section 9.01. "Default" shall mean an Event of Default or an event which with notice or lapse of time or both would become an Event of Default. "Designated Subsidiary" shall mean a Subsidiary during the period that it has been designated by the Company pursuant to Section 2.10 to have the right to borrow hereunder. "Dollars" and "$" shall mean lawful money of the United States of America. "Effective Date" shall mean the date on which (i) each of the conditions precedent set forth in Article VI has been satisfied or waived by each of the Lenders and (ii) the conditions to effectiveness set forth in Section 12.16 have been satisfied. Subject to Section 6.01, the Effective Date and Closing Date may be the same date. 5 "Environmental Laws" shall mean any and all Governmental Requirements pertaining to health or the environment in effect in any and all jurisdictions in which the Company or any Subsidiary is conducting or at any time has conducted business, or where any Property of the Company or any Subsidiary is located, including without limitation, the Oil Pollution Act of 1990, as amended, ("OPA"), the Clean Air Act, as amended, the Comprehensive Environmental, Response, Compensation, and Liability Act of 1980, as amended, ("CERCLA"), the Federal Water Pollution Control Act, as amended, the Occupational Safety and Health Act of 1970, as amended, the Resource Conservation and Recovery Act of 1976, as amended, ("RCRA"), the Safe Drinking Water Act, as amended, the Toxic Substances Control Act, as amended, the Superfund Amendments and Reauthorization Act of 1986, as amended, the Hazardous Materials Transportation Act, as amended, and other environmental conservation or protection laws. The term "oil" shall have the meaning specified in OPA, the terms "hazardous substance" and "release" (or "threatened release") shall have the meanings specified in CERCLA, and the terms "solid waste" and "disposal" (or "disposed") shall have the meanings specified in RCRA; provided, however, that (i) in the event either OPA, CERCLA or RCRA is amended so as to broaden the meaning of any term defined thereby, such broader meaning shall apply subsequent to the effective date of such amendment and (ii) to the extent the laws of the state in which any Property of the Company or any Subsidiary is located establish a meaning for "oil," "hazardous substance," "release," "solid waste" or "disposal" which is broader than that specified in either OPA, CERCLA or RCRA, such broader meaning shall apply. "ERISA" shall mean the Employee Retirement Income Security Act of 1974, as amended, and any successor statute. "ERISA Affiliate" shall mean each trade or business (whether or not incorporated) which together with the Company or a Subsidiary would be deemed to be a "single employer" within the meaning of section 4001(b)(1) of ERISA or subsections (b), (c), (m) or (o) of section 414 of the Code. "ERISA Event" shall mean (i) a "Reportable Event" described in section 4043 of ERISA and the regulations issued thereunder (other than a "Reportable Event" not subject to the provision for 30-day notice to the PBGC), (ii) the withdrawal of the Company, a Subsidiary or any ERISA Affiliate from a Plan during a plan year in which it was a "substantial employer" as defined in section 4001(a)(2) of ERISA, (iii) the filing of a notice of intent to terminate a Plan or the treatment of a Plan amendment as a termination under section 4041 of ERISA, (iv) the institution of proceedings to terminate a Plan by the PBGC, (v) any other event or condition which might constitute grounds under section 4042 of ERISA for the termination of, or the appointment of a trustee to administer, any Plan 6 or (vi) the partial or complete withdrawal of the Company, a Subsidiary or any ERISA Affiliate from a Multiemployer Plan. "Eurodollar Loans" shall mean Loans the interest rates on which are determined on the basis of rates referred to in the definition of "Eurodollar Rate". "Eurodollar Rate" shall mean, with respect to any Eurodollar Loan, the rate per annum (rounded upwards, if necessary, to the nearest 1/16 of 1%) quoted by the Administrative Agent at approximately 11:00 a.m. London time (or as soon thereafter as practicable) two (2) Business Days prior to the first day of the Interest Period for such Loan for the offering by the Administrative Agent to leading banks in the London interbank market of Dollar deposits having a term comparable to such Interest Period and in an amount comparable to the principal amount of the Eurodollar Loan, if a Committed Loan, to be made by the Administrative Agent for such Interest Period, or, if a Competitive Loan, requested for such Interest Period. "Event of Default" shall have the meaning assigned such term in Section 10.01. "Federal Funds Rate" shall mean, for any day, the rate per annum (rounded upwards, if necessary, to the nearest 1/100 of 1%) equal to the weighted average of the rates on overnight federal funds transactions with a member of the Federal Reserve System arranged by federal funds brokers on such day, as published by the Federal Reserve Bank of New York on the Business Day next succeeding such day, provided that (i) if the date for which such rate is to be determined is not a Business Day, the Federal Funds Rate for such day shall be such rate on such transactions on the next preceding Business Day as so published on the next succeeding Business Day, and (ii) if such rate is not so published for any day, the Federal Funds Rate for such day shall be the average rate charged to the Administrative Agent on such day on such transactions as determined by the Administrative Agent. "Fee Letter" shall mean collectively that certain letter agreement from the Company to the Administrative Agent and the Syndication Agent dated April 4, 1995 and that certain letter agreement from the Company to the Auction Agent, both letters concerning certain fees in connection with this Agreement and any agreements or instruments executed in connection therewith, as the same may be amended or replaced from time to time. "Financial Statement Delivery Date" means the date on which the quarterly or annual financial statements of the Company are delivered pursuant to Section 8.01(a) or (b), as the case may be. 7 "Financial Statements" shall mean the financial statement or statements of the Company and its Consolidated Subsidiaries described or referred to in Section 7.02. "Fixed Rate Loan" shall mean any Competitive Loan made by a Lender pursuant to Section 2.09 bearing interest based upon an actual percentage rate per annum offered by such Lender (as opposed to a Margin over the Eurodollar Rate) and accepted by the Company. "GAAP" shall mean generally accepted accounting principles in the United States of America in effect from time to time. "Governmental Authority" shall mean any nation or government, any state or other political subdivision thereof and any Person exercising executive, legislative, judicial, regulatory or administrative functions of or pertaining to government. "Governmental Requirement" shall mean any law, statute, code, ordinance, order, determination, rule, regulation, judgment, decree, injunction, franchise, permit, certificate, license, authorization or other directive or requirement (whether or not having the force of law), including, without limitation, Environmental Laws, energy regulations and occupational, safety and health standards or controls, of any Governmental Authority. "Guarantors" shall mean the Company and the Subsidiary Guarantors. "Guaranty Agreements" shall mean the Parent Guaranty Agreement and the Subsidiary Guaranty Agreements. "Highest Lawful Rate" shall mean, with respect to each Lender, the maximum nonusurious interest rate, if any, that at any time or from time to time may be contracted for, taken, reserved, charged or received on the Notes or on other Indebtedness under laws applicable to such Lender which are presently in effect or, to the extent allowed by law, under such applicable laws which may hereafter be in effect and which allow a higher maximum nonusurious interest rate than applicable laws now allow. "Indebtedness" shall mean any and all amounts owing or to be owing by the Obligors to the Administrative Agent and/or Lenders in connection with the Loan Documents and all renewals, extensions and/or rearrangements of any of the above. "Indemnified Parties" shall have the meaning assigned such term in Section 12.03(b). 8 "Indemnity Matters" shall mean any and all actions, suits, proceedings (including any investigations, litigation or inquiries), claims, demands and causes of action made or threatened against a Person and, in connection therewith, all losses, liabilities, damages (including, without limitation, punitive damages except those arising from the gross negligence or wilful misconduct of such Indemnified Party) or reasonable costs and expenses of any kind or nature whatsoever incurred by such Person whether caused by the negligent acts or omissions of such Person seeking indemnification. "Initial Funding" shall mean the funding of the initial Loans pursuant to Section 6.01. "Interest Period" shall mean, (a) with respect to any Eurodollar Loan, the period commencing on the date such Eurodollar Loan is made and ending on the numerically corresponding day in the first, second, third or sixth calendar month thereafter, as the Company may select as provided in Section 2.02 (or such longer period as may be requested by the Company and agreed to by the Majority Lenders), except that each Interest Period which commences on the last Business Day of a calendar month (or on any day for which there is no numerically corresponding day in the appropriate subsequent calendar month) shall end on the last Business Day of the appropriate subsequent calendar month; and (b) with respect to any Fixed Rate Loan, the period commencing on the date such Fixed Rate Loan is made and ending on the date set forth in the Competitive Bid in which the offer to make such Fixed Rate Loan was extended. Notwithstanding the foregoing: (i) no Interest Period may commence before and end after the Revolving Credit Termination Date; (ii) each Interest Period which would otherwise end on a day which is not a Business Day shall end on the next succeeding Business Day (or, for Eurodollar Loans, if such next succeeding Business Day falls in the next succeeding calendar month, on the next preceding Business Day); (iii) no Interest Period for Eurodollar Loans shall have a duration of less than one month and, if the Interest Period for any Eurodollar Loans would otherwise be for a shorter period, such Loans shall not be available hereunder; and (iv) no Interest Period for Fixed Rate Loans shall have a duration of less than one (1) day nor more than 365 days. "Lien" shall mean any interest in Property securing an obligation owed to, or a claim by, a Person other than the owner of the Property, whether such interest is based on the common law, statute or contract, and whether such obligation or claim is fixed or contingent, and including but not limited to (i) the lien or security interest arising from a mortgage, encumbrance, pledge, security agreement, conditional sale or trust receipt or a lease, consignment or bailment for security purposes or (ii) production payments 9 and the like payable out of Properties. For the purposes of this Agreement, the Company or any Subsidiary shall be deemed to be the owner of any Property which it has acquired or holds subject to a conditional sale agreement, or leases under a financing lease or other arrangement pursuant to which title to the Property has been retained by or vested in some other Person in a transaction intended to create a financing. "Loan Documents" shall mean this Agreement, the Notes, the Borrowing Requests, the Competitive Bid Requests, the Fee Letter, the Guaranty Agreements and the Notices of Designation of Designated Subsidiaries. "Loans" shall mean Committed Loans or Competitive Loans. "Majority Lenders" shall mean, at any time while no Committed Loans are outstanding, Lenders having at least fifty-one percent (51%) of the Aggregate Commitments and, at any time while Committed Loans are outstanding, Lenders holding at least fifty-one percent (51%) of the outstanding aggregate principal amount of the Committed Loans (without regard to any sale by a Lender of a participation in any Loan under Section 12.06(c)). "Margin" shall mean, as to any Competitive Bid relating to a Eurodollar Loan, the margin (expressed as a percentage rate per annum) to be added to or subtracted from the Eurodollar Rate in order to determine the interest rate payable to such Lender with respect to such Eurodollar Loan. "Material Adverse Effect" shall mean any material and adverse change in the financial condition, business or results of operations of the Company and its Subsidiaries taken as a whole which makes them unable to perform their obligations under the Loan Documents. "Multiemployer Plan" shall mean a multiemployer plan as defined in section 3(37) or 4001(a)(3) of ERISA which is, or within the six preceding years was, contributed to by the Company, a Subsidiary or an ERISA Affiliate. "Net Worth" shall mean, as at any date, the sum of the following for the Company and its Consolidated Subsidiaries determined (without duplication) in accordance with GAAP: (i) the amount of preferred stock (excluding mandatorily redeemable preferred stock) and common stock at par plus the amount of paid in capital of the Company, plus 10 (ii) the amount of retained earnings (or, in the case of a retained earnings deficit, minus the amount of such deficit), minus (iii) the cost of treasury shares, minus (iv) unamortized restricted stock compensation, plus (v) foreign currency translation adjustment gains (or minus losses), plus (vi) any other additions (or minus any other deductions) to the net worth of the Company required by GAAP. "Notes" shall mean the Committed Notes and the Competitive Notes. "Notice of Designation of Designated Subsidiaries" shall be substantially in the form of Exhibit L and delivered pursuant to Section 6.03. "Obligor" shall mean either the Company or any Designated Subsidiary. "Operating Lease Obligations" shall mean, as to the Company or any Subsidiary, the obligations of such person to pay rent or other amounts under a lease of (or other agreement conveying the right to use) real and/or personal property which obligations are not required to be classified and accounted for as a liability for a capital lease on a balance sheet of such Person and, for purposes of this Agreement, the amount of such obligations shall be the discounted present value of the lease payments, discounted in the same manner a capital lease would be discounted according to GAAP. "Other Taxes" shall have the meaning assigned such term in Section 4.06(b). "Parent Guaranty Agreement" shall mean the Guaranty Agreement of even date with this Agreement executed by the Company guaranteeing the Indebtedness of the Designated Subsidiaries as such agreement may be amended, supplemented or restated from time to time. "PBGC" shall mean the Pension Benefit Guaranty Corporation, or any successor thereto. "Percentage Share" shall mean the percentage of the Aggregate Commitments to be provided by a Lender under this Agreement as indicated on Annex 1 hereto, as modified from time to time to reflect any assignments permitted by Section 12.06(b). 11 "Permitted Subordinated Debt" shall mean Debt of the Company or a Subsidiary owing to the Company, ENSERCH Corporation or another Subsidiary subordinated to the Indebtedness on terms substantially similar to the terms set forth in Exhibit M or on terms and pursuant to documentation acceptable to the Administrative Agent and the Syndication Agent. "Person" shall mean any individual, corporation, company, limited liability company, voluntary association, partnership, joint venture, trust, unincorporated organization or government or any agency, instrumentality or political subdivision thereof, or any other form of entity. "Plan" shall mean each Benefit Plan and Multiemployer Plan. "Post-Default Rate" shall mean, in respect of any principal of any Loan which is not paid when due (whether at stated maturity, by acceleration or otherwise), a rate per annum during the period commencing on the due date until such amount is paid in full or the default is cured or waived equal to 2% per annum plus the Base Rate as in effect from time to time plus the Applicable Margin (if any), but in no event to exceed the Highest Lawful Rate provided that, if such amount in default is principal of a Eurodollar Loan or a Fixed Rate Loan, the "Post- Default Rate" for such principal shall be, for the period commencing on the due date and ending on the last day of the Interest Period therefor, 2% per annum plus the applicable interest rate for such Loan as provided in Section 3.02(b), (c) or (d), but in no event to exceed the Highest Lawful Rate. "Prime Rate" shall mean the rate of interest from time to time announced publicly by the Administrative Agent at the Principal Office as its prime rate. Such rate is set by the Administrative Agent as a general reference rate of interest, taking into account such factors as the Administrative Agent may deem appropriate, it being understood that many of the Administrative Agent's commercial or other loans are priced in relation to such rate, that it is not necessarily the lowest or best rate actually charged to any customer and that the Administrative Agent may make various commercial or other loans at rates of interest having no relationship to such rate. "Principal Office" shall mean the principal office of the Administrative Agent, presently located at 2200 Ross Avenue, Dallas, Texas 75201, Attention: Energy Group. "Property" shall mean any interest in any kind of property or asset, whether real, personal or mixed, or tangible or intangible. 12 "Quarterly Dates" shall mean the last day of each March, June, September, and December, in each year, the first of which shall be June 30, 1995; provided, however, that if any such day is not a Business Day, such Quarterly Date shall be the next succeeding Business Day. "Regulation D" shall mean Regulation D of the Board of Governors of the Federal Reserve System (or any successor), as the same may be amended or supplemented from time to time. "Regulatory Change" shall mean, with respect to any Lender, any change after the Closing Date in any Governmental Requirement (including Regulation D) or the adoption or making after such date of any interpretations, directives or requests applying to a class of lenders (including such Lender or its Applicable Lending Office) of or under any Governmental Requirement (whether or not having the force of law) by any Governmental Authority charged with the interpretation or administration thereof. "Required Payment" shall have the meaning assigned such term in Section 4.04. "Responsible Officer" shall mean, as to the Company or any Subsidiary, the Chief Executive Officer, the President or any Vice President of such Person and, with respect to financial matters, the term "Responsible Officer" shall include the Chief Financial Officer, Controller, Treasurer or Treasury Officer of such Person. Unless otherwise specified, all references to a Responsible Officer herein shall mean a Responsible Officer of the Company. "Revolving Credit Termination Date" shall mean, unless the Commitments are sooner terminated pursuant to Sections 2.03(a) or 10.02, May 1, 1999. "SEC" shall mean the Securities and Exchange Commission or any successor Governmental Authority. "Special Entity" shall mean any joint venture, limited liability company, general or limited partnership or any other type of partnership or company in which the Company or one or more of its other Subsidiaries is a member, owner, partner or joint venturer and owns at least a majority of the equity of such entity. "Subsidiary" shall mean any corporation of which at least a majority of the outstanding shares of stock having by the terms thereof ordinary voting power to elect a majority of the board of directors of such corporation (irrespective of whether or not at the time stock of any other class or classes 13 of such corporation shall have or might have voting power by reason of the happening of any contingency) is at the time directly or indirectly owned or controlled by the Company or one or more of its Subsidiaries or by the Company and one or more of its Subsidiaries. "Subsidiary Guarantor" shall mean any Subsidiary or Special Entity that has executed a Subsidiary Guaranty Agreement. "Subsidiary Guaranty Agreement" shall mean any Guaranty Agreement executed by a Subsidiary or a Special Entity as required by Section 8.08 as such agreement may be amended, supplemented or restated from time to time. "Taxes" shall have the meaning assigned such term in Section 4.06(a). "Type" shall mean, with respect to any Loan, a Base Rate Loan, Eurodollar Loan or Fixed Rate Loan. "Withdrawal Liability" shall have the meaning given such term under Part I of Subtitle E of Title IV of ERISA. Section 1.03 Accounting Terms and Determinations. Unless otherwise specified herein, all accounting terms used herein shall be interpreted, all determinations with respect to accounting matters hereunder shall be made, and all financial statements and certificates and reports as to financial matters required to be furnished to the Administrative Agent or the Lenders hereunder shall be prepared, in accordance with GAAP, applied on a basis consistent with the audited financial statements of the Company referred to in Section 7.02 (except for changes concurred with by the Company's independent public accountants). ARTICLE II BORROWINGS Section 2.01 Committed Loans. (a) Loans. Each Lender severally agrees, on the terms of this Agreement, to make Committed Loans to any Obligor during the period from and including (i) the Effective Date or (ii) such later date that such Lender becomes a party to this Agreement as provided in Section 12.06(b), to and up to, but excluding, the Revolving Credit Termination Date in an aggregate principal amount at any one time outstanding and owing by all Obligors up to but not exceeding the amount of such Lender's Commitment as then in effect; provided, however, that the aggregate principal amount of all Committed Loans and Competitive Loans by all Lenders to any or all Obligors at any one time outstanding shall not exceed the Aggregate 14 Commitments. Subject to the terms of this Agreement, during the period from the Effective Date to and up to, but excluding, the Revolving Credit Termination Date, any Obligor may borrow, repay and reborrow the amount described in this Section 2.01. (b) Limitation on Types of Loans. Subject to the other terms and provisions of this Agreement, at the option of the Company, the Committed Loans may be Base Rate Loans or Eurodollar Loans; provided that, without the prior written consent of the Majority Lenders, no more than seven (7) Eurodollar Loans which are Committed Loans to any or all Obligors by any Lender may be outstanding at any time. Section 2.02 Borrowings, Continuations and Conversions of Committed Loans. (a) Borrowings. An Obligor shall cause the Company to give the Administrative Agent (which shall promptly notify the Lenders) advance notice as hereinafter provided of each Borrowing of a Committed Loan hereunder, which shall specify the name of the Obligor making such Borrowing; the aggregate amount of such Borrowing, the Type and the date (which shall be a Business Day) of the Committed Loans to be borrowed and (in the case of Eurodollar Loans) the duration of the Interest Period therefor. (b) Minimum Amounts. All Borrowings of Base Rate Loans shall be in amounts of at least $10,000,000 or the remaining balance of the Aggregate Commitments, if less, or any whole multiple of $1,000,000 in excess thereof, and all Borrowings in the form of Eurodollar Loans shall be in amounts of at least $10,000,000 or any whole multiple of $1,000,000 in excess thereof. (c) Notices. All Borrowings, continuations and conversions of Committed Loans shall require advance written notice to the Administrative Agent (which shall promptly notify the Lenders) in the form of Exhibit G (or telephonic notice promptly confirmed by such a written notice), which in each case shall be irrevocable, from the Company on behalf of an Obligor to be received by the Administrative Agent not later than 10:00 a.m. Central time on the Business Day of each Base Rate Loan borrowing and three Business Days prior to the date of each Eurodollar Loan borrowing, continuation or conversion. Without in any way limiting the Company's obligation to confirm in writing any telephonic notice, the Administrative Agent may act without liability upon the basis of telephonic notice believed by the Administrative Agent in good faith to be from the Company prior to receipt of written confirmation. In each such case, each Obligor hereby waives the right to dispute the Administrative Agent's record of the terms of such telephonic notice except in the case of gross negligence or willful misconduct by the Administrative Agent. 15 (d) Continuation Options. With respect to Committed Loans and subject to the provisions made in this Section 2.02(d), the Company on behalf of an Obligor may elect to continue all or any part of any Borrowing of Eurodollar Loans beyond the expiration of the then current Interest Period relating thereto by giving advance notice as provided in Section 2.02(c) to the Administrative Agent (which shall promptly notify the Lenders) of such election, specifying the amount of such Loan to be continued and the Interest Period therefor. In the absence of such a timely and proper election, the Company on behalf of an Obligor shall be deemed to have elected to convert such Eurodollar Loan to a Base Rate Loan pursuant to Section 2.02(e). All or any part of any Eurodollar Loan may be continued as provided herein, provided that (i) any continuation of any such Loan shall be (as to each Borrowing as continued for an applicable Interest Period) in amounts of at least $10,000,000 or any whole multiple of $1,000,000 in excess thereof and (ii) no Default shall have occurred and be continuing. If a Default shall have occurred and be continuing, each Eurodollar Loan shall be converted to a Base Rate Loan on the last day of the Interest Period applicable thereto. (e) Conversion Options. With respect to Committed Loans, the Company on behalf of an Obligor may elect to convert all or any part of any Eurodollar Loan on the last day of the then current Interest Period relating thereto to a Base Rate Loan by giving notice as provided in Section 2.02(c) to the Administrative Agent (which shall promptly notify the Lenders) of such election. Subject to the provisions made in this Section 2.02(e), the Company on behalf of an Obligor may elect to convert all or any part of any Base Rate Loan at any time and from time to time to a Eurodollar Loan by giving advance notice as provided in Section 2.02(c) to the Administrative Agent (which shall promptly notify the Lenders) of such election. All or any part of any outstanding Base Rate Loan may be converted as provided herein, provided that (i) any conversion of any Base Rate Loan into a Eurodollar Loan shall be (as to each such Borrowing into which there is a conversion for an applicable Interest Period) in amounts of at least $10,000,000 or any whole multiple of $1,000,000 in excess thereof and (ii) no Default shall have occurred and be continuing. If a Default shall have occurred and be continuing, no Base Rate Loan may be converted into a Eurodollar Loan. (f) Advances. Not later than 1:00 p.m. (Central time) on the date specified for each Borrowing hereunder, each Lender shall make available the amount of the Committed Loan to be made by it on such date to the Administrative Agent, to an account which the Administrative Agent shall specify, in immediately available funds, for the account of the Company. The amounts so received by the Administrative Agent shall, subject to the terms and conditions of this Agreement, be made available to the Company on behalf of an Obligor by depositing the same, in immediately available funds, in an account of the Company, designated by the Company on behalf of an Obligor and maintained at the Principal Office, or to be deposited at the direction of the Company on behalf of an Obligor. 16 Section 2.03 Changes of Commitments. (a) The Company on behalf of an Obligor shall have the right to terminate or to reduce the amount of the Aggregate Commitments at any time or from time to time upon not less than two (2) Business Days' prior notice to the Administrative Agent (which shall promptly notify the Lenders) of each such termination or reduction, which notice shall specify the effective date thereof and the amount of any such reduction (which shall not be less than $10,000,000 or any whole multiple of $1,000,000 in excess thereof) and shall be irrevocable and effective only upon receipt by the Administrative Agent. (b) The Aggregate Commitments once terminated or reduced may not be reinstated. Section 2.04 Fees. (a) The Company shall pay to the Administrative Agent for the account of each Lender a facility fee on the daily average amount of the Aggregate Commitments (regardless of usage) for the period from and including the Closing Date up to but excluding the earlier of the date the Aggregate Commitments are terminated or the Revolving Credit Termination Date at a rate per annum equal to the amount set forth in the definition of Applicable Margin for the period designated therein. Accrued facility fees shall be payable quarterly in arrears on each Quarterly Date and on the earlier of the date the Aggregate Commitments are terminated or the Revolving Credit Termination Date. (b) The Company shall pay to the Administrative Agent for its own account an administration fee of $25,000.00 per annum payable on the Closing Date and each anniversary of the Closing Date during the term of this Agreement. Section 2.05 Several Obligations. The failure of any Lender to make any Loan to be made by it on the date specified therefor shall not relieve any other Lender of its obligation to make its Loan on such date, but no Lender shall be responsible for the failure of any other Lender to make a Loan to be made by such other Lender. Section 2.06 Notes. (a) The Committed Loans made by each Lender to an Obligor shall be evidenced by a single promissory note of such Obligor in substantially the form of Exhibit A, dated (i) the Closing Date or (ii) the effective date of an Assignment pursuant to Section 12.06(b) or (iii) the date that the Company designates a Designated Subsidiary pursuant to Section 2.10, payable to the order of such Lender in a principal amount equal to its Commitment and otherwise duly completed. The date, amount, Type, interest rate and Interest Period, if any, of each Committed Loan made by each Lender, and all payments made on account of the principal 17 thereof, shall be recorded by such Lender on its books for its Committed Note, and, prior to any transfer, endorsed by such Lender on the schedule attached to such Committed Note or any continuation thereof. Failure to make any such notation shall not affect the Obligor's obligations in respect of such Loans, or affect the validity of such transfer by any Lender of such Note. (b) The Competitive Loans made by each Lender to an Obligor shall be evidenced by a single promissory note of such Obligor in substantially the form of Exhibit B, dated (i) the Closing Date or (ii) the effective date of an Assignment pursuant to Section 12.06(b) or (iii) the date that the Company designates a Designated Subsidiary pursuant to Section 2.10, payable to the order of such Lender in a principal amount equal to the Aggregate Commitments and otherwise duly completed. The date, amount, Type, interest rate and Interest Period of each Competitive Loan made by each Lender, and all payments made on account of the principal thereof, shall be recorded by such Lender on its books for its Competitive Note, and, prior to any transfer, endorsed by such Lender on the schedule attached to such Competitive Note or any continuation thereof. Failure to make any such notation shall not affect the Obligor's obligations in respect of such Loans, or affect the validity of such transfer by any Lender of such Note. Section 2.07 Prepayments. (a) Any Obligor may prepay its Base Rate Loans upon prior notice to the Administrative Agent (which shall promptly notify the Lenders), which notice shall specify the prepayment date (which shall be a Business Day) and the amount of the prepayment (which shall be at least $5,000,000 or any whole multiple of $1,000,000 in excess thereof or the remaining aggregate principal balance outstanding on the Notes) and shall be irrevocable and effective only upon receipt by the Administrative Agent, provided that interest on the principal prepaid, accrued to the prepayment date, shall be paid on the prepayment date. Any Obligor may prepay its Eurodollar Loans and Fixed Rate Loans on the same condition as for Base Rate Loans and in addition such prepayments of Eurodollar Loans and Fixed Rate Loans shall be subject to the terms of Section 5.05 and shall be in an amount equal to all of the Eurodollar Loans and Fixed Rate Loans for such Obligor for the Interest Period prepaid. (b) If, after giving effect to any termination or reduction of the Aggregate Commitments pursuant to Section 2.03, the outstanding aggregate principal amount of the Loans exceeds the Aggregate Commitments, the Obligors shall prepay the Loans on the date of such termination or reduction in an aggregate principal amount equal to the excess, together with interest on the principal amount paid accrued to the date of such prepayment. 18 (c) Prepayments permitted or required under this Section 2.07 shall be without premium or penalty, except as required under Section 5.05 for prepayment of Eurodollar Loans or Fixed Rate Loans. Section 2.08 Lending Offices. The Loans of each Type made by each Lender shall be made and maintained at such Lender's Applicable Lending Office for Loans of such Type. Section 2.09 Competitive Loans. (a) In accordance with the terms, conditions and procedures set forth in this Section 2.09, the Company on behalf of any Obligor may on any Business Day prior to the Revolving Credit Termination Date request Competitive Bids. (i) Provided, however, no Lender shall be obligated to make Competitive Loans to an Obligor unless such Lender has irrevocably offered to make such a Competitive Loan pursuant to Section 2.09(c); and, provided, further, the aggregate principal amount of all Competitive Loans to any or all Obligors at any one time outstanding shall not, at any date, exceed an amount equal to (A) the Aggregate Commitments as of such date, less (B) the aggregate principal amount of the Committed Loans to any or all Obligors outstanding as of such date. For purposes of determining the amount to be calculated pursuant to the foregoing sentence, any Committed Loans that the Company on behalf of an Obligor has requested be made, which have not yet been made, shall be given effect as if made in the full requested amount with respect thereto. (ii) Notwithstanding the limitations on the aggregate amount of Competitive Loans that the Obligors may borrow under this Agreement set forth in clause (i) of this Section 2.09(a), the making of any Competitive Loan to an Obligor by any Lender shall not be deemed to be a utilization of such Lender's Commitment (although it shall be deemed to be a utilization of the Aggregate Commitments for all purposes of this Agreement). (b) In order to request Competitive Bids, the Company on behalf of an Obligor shall hand deliver, telex or telecopy to the Administrative Agent and the Auction Agent a duly completed request substantially in the form of Exhibit C, with the blanks appropriately completed (a "Competitive Bid Request"), to be received by such Agents (i) in the case of Eurodollar Loans, not later than 9:00 a.m. (Central time) four (4) Business Days before the date specified for a proposed Competitive Loan, and (ii) in the case of Fixed Rate Loans, not later than 9:00 a.m. (Central time) one (1) Business Day before the date specified for a proposed Competitive Loan. No Base Rate Loan shall be requested in, or made pursuant to, a Competitive Bid Request. A Competitive Bid Request that does not conform substantially to the format of Exhibit C may be rejected at the Auction Agent's sole 19 discretion, and the Auction Agent shall promptly notify the Company of such rejection by telex or telecopier. Each Competitive Bid Request shall in each case refer to this Agreement and specify (A) whether the Competitive Loans then being requested are to be Eurodollar Loans or Fixed Rate Loans, (B) the date of such Competitive Loans (which shall be a Business Day), (C) the aggregate principal amount thereof (which shall not be less than $10,000,000 and shall be an integral multiple of $1,000,000), and (D) the Interest Period with respect thereto. Promptly after its receipt of a Competitive Bid Request that is not rejected as aforesaid, the Auction Agent shall invite by telex or telecopier (in substantially the form set forth in Exhibit D) the Lenders to bid, on the terms and conditions of this Agreement, to make Competitive Loans pursuant to such Competitive Bid Request. Notwithstanding the foregoing, the Auction Agent shall have no obligation to invite any Lender to make a Competitive Bid pursuant to this Section 2.09(b) until such Lender has delivered a properly completed Competitive Bid Administrative Questionnaire to the Auction Agent. (c) Each Lender may, in its sole discretion, make one or more Competitive Bids to an Obligor responsive to each Competitive Bid Request. Each Competitive Bid by a Lender must be received by the Auction Agent via telex or telecopier, in the form of Exhibit E, (i) in the case of Eurodollar Loans, not later than 8:30 a.m. (Central time) three (3) Business Days before the date specified for a proposed Competitive Loan and (ii) in the case of Fixed Rate Loans, not later than 8:30 a.m. (Central time) on the date specified for a proposed Competitive Loan. Competitive Bids that do not conform substantially to the format of Exhibit E may be rejected by the Auction Agent after conferring with, and upon the instruction of, the Company on behalf of an Obligor, and the Auction Agent shall notify the applicable Lender of such rejection as soon as practicable. Each Competitive Bid shall refer to this Agreement and (A) specify the principal amount (which shall be in a minimum principal amount of $10,000,000 and in an integral multiple of $1,000,000 and which may equal the entire aggregate principal amount of the Competitive Loan requested by the Company on behalf of an Obligor) of the Competitive Loan that the applicable Lender is willing to make to such Obligor, (B) specify the Competitive Bid Rate at which such Lender is prepared to make such Competitive Loan and (C) confirm the Interest Period with respect thereto specified by the Company on behalf of an Obligor in its Competitive Bid Request. If any Lender shall elect not to make a Competitive Bid, such Lender shall so notify the Auction Agent via telex or telecopier in the case of Fixed Rate Loans, not later than 8:30 a.m. (Central time) on the date of the proposed Competitive Loan and in the case of Eurodollar Loans, not later than 8:30 a.m. (Central time) three (3) Business Days before the date specified for a proposed Competitive Loan; provided, however, that failure by any Lender to give such notice shall not cause such Lender to be obligated to make any Competitive Loan. A Competitive Bid submitted by a Lender pursuant to this Subsection 2.09(c) shall be irrevocable. 20 (d) The Auction Agent shall promptly notify the Company by telex or telecopier of all the Competitive Bids made, the Competitive Bid Rate and the maximum principal amount of each Competitive Loan in respect of which a Competitive Bid was made and the identity of the Lender that made each Competitive Bid. The Auction Agent shall send a copy of all Competitive Bids to the Company for its records as soon as practicable after completion of the bidding process set forth in this Section 2.09. (e) The Company on behalf of an Obligor may in the sole and absolute discretion of the applicable Obligor, subject only to the provisions of this Section 2.09(e), accept or reject any Competitive Bid referred to in Section 2.09(d); provided, however, that the aggregate amount of the Competitive Bids so accepted by the Company on behalf of an Obligor may not exceed the principal amount of the Competitive Loan requested by the Company on behalf of an Obligor. The Company on behalf of an Obligor shall notify the Auction Agent by telex or telecopier whether and to what extent the Obligor has decided to accept or reject any or all of the Competitive Bids referred to in Section 2.09(d), (i) in the case of Eurodollar Loans, not later than 9:30 a.m. (Central time) three (3) Business Days before the date specified for a proposed Competitive Loan, and (ii) in the case of Fixed Rate Loans, not later than 9:30 a.m. (Central time) on the date specified for a proposed Competitive Loan; provided, however, that (A) the failure by the Company on behalf of an Obligor to give such notice shall be deemed to be a rejection of all the Competitive Bids referred to in Section 2.03(c), (B) the Company on behalf of an Obligor shall not accept a Competitive Bid made at a particular Competitive Bid Rate if the Company on behalf of an Obligor has decided to reject a Competitive Bid made at a lower Competitive Bid Rate, (C) if the Company on behalf of an Obligor shall accept Competitive Bids made at a particular Competitive Bid Rate but shall be restricted by other conditions hereof from borrowing the maximum principal amount of Competitive Loans in respect of which Competitive Bids at such Competitive Bid Rate have been made, then the Company on behalf of an Obligor shall accept a pro rata portion of each Competitive Bid made at such Competitive Bid Rate based as nearly as possible on the respective maximum principal amounts of Competitive Loans for which such Competitive Bids were made and (D) no Competitive Bid shall be accepted for a Competitive Loan unless such Competitive Loan is in a minimum principal amount of $10,000,000 and an integral multiple of $1,000,000. Notwithstanding the foregoing, if it is necessary for the Company on behalf of an Obligor to accept a pro rata allocation of the Competitive Bids made in response to a Competitive Bid Request (whether pursuant to the events specified in clause (C) above or otherwise) and the available principal amount of Competitive Loans to be allocated among the Lenders is not sufficient to enable Competitive Loans to be allocated to each Lender in a minimum principal amount of $10,000,000 and in integral multiples of $1,000,000, then the Company on behalf of an Obligor shall select the Lenders to be allocated such Competitive Loans and shall round allocations up or down to the next higher or lower multiple of $1,000,000 as it shall deem appropriate. In addition, the Company on behalf of an Obligor shall 21 be permitted under the foregoing procedures to accept a Competitive Bid or Competitive Bids in a principal amount of less than $10,000,000 (i) in order to enable the Company on behalf of an Obligor to accept Competitive Bids equal to (but not in excess of) the principal amount of the Competitive Loan requested by the Company on behalf of an Obligor or (ii) in order to enable the Company on behalf of an Obligor to accept all remaining Competitive Bids, or all remaining Competitive Bids at a particular Competitive Bid Rate. A notice given by the Company on behalf of an Obligor pursuant to this Subsection (e) shall be irrevocable. (f) The Auction Agent shall promptly notify each bidding Lender by telex or telecopy whether or not its Competitive Bid has been accepted (and if so, in what amount and at what Competitive Bid Rate). Each successful bidder will thereupon become bound, subject to the other applicable conditions hereof, to make the Competitive Loan in respect of which its Competitive Bid has been accepted. After completing the notifications referred to in the immediately preceding sentence, the Auction Agent shall notify each Lender and the Administrative Agent of the aggregate principal amount of all Competitive Bids accepted. (g) Upon receipt from the Administrative Agent of the notice of Eurodollar Rate applicable to any Eurodollar Loan to be made by any Lender pursuant to a Competitive Bid that has been accepted by the Company on behalf of an Obligor pursuant to Section 2.03(e), the Auction Agent shall notify such Lender of (i) the applicable Eurodollar Rate and (ii) the sum of the applicable Eurodollar Rate plus the Margin bid by such Lender. (h) No Competitive Loan shall be made within five (5) Business Days of the date of any other Competitive Loan, unless the Company and the Auction Agent shall mutually agree otherwise. (i) If the Auction Agent shall at any time have a Commitment hereunder and shall elect to submit a Competitive Bid in its capacity as a Lender, it shall submit such Competitive Bid directly to the Company on behalf of an Obligor one quarter of an hour earlier than the time at which the other Lenders are required to submit their Competitive Bids to the Auction Agent pursuant to Section 2.09(c). (j) All notices required by this Section 2.09 shall be made in accordance with Section 12.02 and the Competitive Bid Administrative Questionnaire most recently placed on file by each Lender with the Auction Agent. (k) No Competitive Loan may be continued or converted, except to the extent converted to a Base Rate Loan pursuant to Section 5.04; provided, however, a Competitive Loan may be repaid with the proceeds of a Borrowing of Competitive Loans or Committed Loans made pursuant to the terms of this Agreement, and the Administrative Agent is authorized to net the Borrowing and repayments for convenience. 22 (l) Not later than 12:00 noon (Central time) on the date specified for each Borrowing hereunder, each Lender that is a successful bidder shall make available the amount of the Competitive Loan to be made by it on such date to the Administrative Agent, to an account which the Administrative Agent shall specify, in immediately available funds, for the account of the Company on behalf of an Obligor. The amounts so received by the Administrative Agent shall, subject to the terms and conditions of this Agreement, be made available to the Company on behalf of an Obligor by depositing the same, in immediately available funds, in an account of the Company on behalf of an Obligor, designated by the Company on behalf of an Obligor and maintained at the Principal Office. Section 2.10 Designated Subsidiaries. The Company may from time to time designate one or more of its Subsidiaries to have the right to borrow both Committed Loans and Competitive Loans by sending to the Administrative Agent a Notice of Designation of a Designated Subsidiary and otherwise complying with Section 6.03. Each Designated Subsidiary shall be liable for (i) the principal and interest on Loans made to it as requested in any Borrowing Request or Competitive Bid Requests signed by it or the Company on its behalf, (ii) all fees, indemnities and reimbursement obligations as set forth in this Agreement and (iii) to the extent the Designated Subsidiary is a Guarantor pursuant to Section 8.08, the obligations set forth in its Subsidiary Guaranty Agreement. No Designated Subsidiary shall be liable for any principal or interest on any Loan to another Obligor except to the extent that such Designated Subsidiary is a Guarantor pursuant to Section 8.08. The Company shall be liable for all Indebtedness of all Obligors as set forth either in this Agreement or the Parent Guaranty Agreement. As agreed to in each Notice of Designation of Designated Subsidiary executed and delivered by the Company and each Designated Subsidiary, each Designated Subsidiary appoints the Company as its agent to execute all Borrowing Requests and Competitive Bid Requests, give and receive all notices on its behalf and take whatever other action is required of it under the Loan Documents, and the Agents and Lenders are entitled to fully rely on all action taken and notices given by the Company on behalf of any Designated Subsidiary. ARTICLE III PAYMENTS OF PRINCIPAL AND INTEREST Section 3.01 Repayment of Loans. Each Obligor will pay to the Administrative Agent, for the account of each applicable Lender, the principal payments required by this Section 3.01. On the last day of the Interest Period for each Competitive Loan to an Obligor, such Obligor shall repay the outstanding aggregate principal and accrued and unpaid interest on such Loan. On the Revolving Credit Termination Date each Obligor shall repay the outstanding aggregate principal and accrued and unpaid interest under its Notes. 23 Section 3.02 Interest. Each Obligor will pay to the Administrative Agent, for the account of each Lender, interest on the unpaid principal amount of each Loan made by such Lender to such Obligor for the period commencing on the date such Loan is made to but excluding the date such Loan shall be paid in full, at the following rates per annum: (a) if such Loan is a Committed Loan and a Base Rate Loan, the Base Rate (as in effect from time to time), but in no event to exceed the Highest Lawful Rate; (b) if such Loan is a Committed Loan and a Eurodollar Loan, for each Interest Period relating thereto, the Eurodollar Rate for such Loan plus the Applicable Margin, but in no event to exceed the Highest Lawful Rate; (c) if such Loan is a Competitive Loan and a Eurodollar Loan, for each Interest Period relating thereto, the Eurodollar Rate for such Loan plus or minus the Margin as accepted by the Company on behalf of an Obligor, but in no event to exceed the Highest Lawful Rate; and (d) if such Loan is a Competitive Loan and a Fixed Rate Loan, for each Interest Period relating thereto, the fixed rate per annum offered by the respective Lender in its Competitive Bid and accepted by the Company on behalf of an Obligor pursuant to Section 2.09, but in no event to exceed the Highest Lawful Rate. Notwithstanding the foregoing, each Obligor will pay to the Administrative Agent, for the account of each applicable Lender interest at the applicable Post-Default Rate on any principal of any Loan made by such Lender to such Obligor, which shall not be paid in full when due (whether at stated maturity, by acceleration or otherwise), for the period commencing on the due date thereof until the same is paid in full. To the fullest extent permitted by law, each Obligor will pay to the Administrative Agent for the account of each applicable Lender interest at the Base Rate on interest and any other amount payable by such Obligor hereunder other than principal on the Loans, under any other Loan Document or under any Note held by such Lender to or for the account of such Lender, which shall not be paid in full when due (whether at stated maturity, by acceleration or otherwise), for the period commencing on the due date thereof until the same is paid in full. Accrued interest on Base Rate Loans shall be payable on each Quarterly Date commencing on June 30, 1995, and accrued interest on each Eurodollar Loan and Fixed Rate Loan shall be payable on the last day of the Interest Period therefor and, if such Interest Period is longer than three months at three-month intervals following the first day of such Interest Period, except that interest payable at the Post-Default Rate or otherwise accruing on past due amounts shall be payable from time to time on demand and interest on any Eurodollar Loan or Fixed Rate Loan that is converted into a Base Rate Loan (pursuant to Section 5.04) shall be payable on the date of conversion (but only to the extent so converted). 24 Promptly after the determination of any interest rate provided for herein or any change therein, the Administrative Agent or the Auction Agent shall notify the Lenders to which such interest is payable and the Company thereof. Each determination by the Administrative Agent or the Auction Agent of an interest rate or fee hereunder shall, except in cases of manifest error, be final, conclusive and binding on the parties. ARTICLE IV PAYMENTS; PRO RATA TREATMENT; COMPUTATIONS; ETC. Section 4.01 Payments. Except to the extent otherwise provided herein, all payments of principal, interest and other amounts to be made by each Obligor under this Agreement and the Notes shall be made in Dollars, in immediately available funds, to the Administrative Agent at such account as the Administrative Agent shall specify by notice to the Company on behalf of each Obligor from time to time, not later than 1:00 p.m. (Central time) on the date on which such payments shall become due (each such payment made after such time on such due date to be deemed to have been made on the next succeeding Business Day). Such payments shall be made without (to the fullest extent permitted by applicable law) defense, set-off or counterclaim. Each payment received by the Administrative Agent under this Agreement or any Note for the account of a Lender shall be paid promptly to such Lender in immediately available funds. If the due date of any payment under this Agreement or any Note would otherwise fall on a day which is not a Business Day such date shall be extended to the next succeeding Business Day and interest shall be payable for any principal so extended for the period of such extension. At the time of each payment to the Administrative Agent of any principal of or interest on any Borrowing, the Company on behalf of the Obligors shall notify the Administrative Agent of the Loans to which such payment shall apply. In the absence of such notice the Administrative Agent may specify the Loans to which such payment shall apply, but to the extent possible such payment or prepayment will be applied first to the Loans comprised of Base Rate Loans. Section 4.02 Pro Rata Treatment. Except to the extent otherwise provided herein each Lender agrees that: (i) each Borrowing from the Lenders under Section 2.01 shall be made from the Lenders pro rata in accordance with their Percentage Share, each payment of facility fees under Section 2.04(a) shall be made for the account of the Lenders pro rata in accordance with their Percentage Share, and each termination or reduction of the amount of the Aggregate Commitments under Section 2.03(a) shall be applied to the Commitment of each Lender, pro rata according to the amounts of its respective Commitment; (ii) each payment of principal of Loans by the Company on behalf of an Obligor shall be made for the account of the Lenders pro rata in accordance with the respective unpaid principal amount of the Loans held by the Lenders due or past due on such date or intended to be prepaid by the Company on behalf of such Obligor; and (iii) each payment of interest on Loans by the Company on behalf of an Obligor shall be 25 made for the account of the Lenders pro rata in accordance with the amounts of interest due and payable to the respective Lenders. Section 4.03 Computations. Interest on Eurodollar Loans and Fixed Rate Loans shall be computed on the basis of a year of 360 days and actual days elapsed (including the first day but excluding the last day) occurring in the period for which such interest is payable, unless such calculation would exceed the Highest Lawful Rate, in which case interest shall be calculated on the per annum basis of a year of 365 or 366 days, as the case may be. Interest on Base Rate Loans and fees shall be computed on the basis of a year of 365 or 366 days, as the case may be, and actual days elapsed (including the first day but excluding the last day) occurring in the period for which such interest or fee is payable. Section 4.04 Non-receipt of Funds by the Administrative Agent. Unless the Administrative Agent shall have been notified by a Lender or the Company on behalf of an Obligor prior to the date on which such notifying party is scheduled to make payment to the Administrative Agent (in the case of a Lender) of the proceeds of a Loan to be made by it hereunder or (in the case of an Obligor) a payment to the Administrative Agent for the account of one or more of the Lenders hereunder (such payment being herein called the "Required Payment"), which notice shall be effective upon receipt, that it does not intend to make the Required Payment to the Administrative Agent, the Administrative Agent may assume that the Required Payment has been made and may, in reliance upon such assumption (but shall not be required to), make the amount thereof available to the intended recipient(s) on such date and, if such Lender or the Company on behalf of an Obligor (as the case may be) has not in fact made the Required Payment to the Administrative Agent, the recipient(s) of such payment shall, on demand, repay to the Administrative Agent the amount so made available together with interest thereon in respect of each day during the period commencing on the date such amount was so made available by the Administrative Agent until but excluding the date the Administrative Agent recovers such amount at a rate per annum which, for any Lender as recipient, will be equal to the Federal Funds Rate, and for an Obligor as recipient, will be equal to the Post-Default Rate. Section 4.05 Sharing of Payments, Etc. If after an Event of Default and during its continuance any Lender shall obtain payment of any principal of or interest on any Loan made by it to an Obligor under this Agreement through whatever means other than an assignment pursuant to Section 12.06(b), and, as a result of such payment, such Lender shall have received a greater percentage of the principal or interest then due hereunder by such Obligor to such Lender than the percentage received by any other Lenders, it shall promptly (i) notify the Administrative Agent and each other Lender thereof and (ii) purchase from such other Lenders participations in (or, if and to the extent specified by such Lender, direct interests in) the Loans made by such other Lenders (or in interest due thereon, as the case may be) in such amounts, and make such other adjustments from time to time as shall be equitable, to the end that all the Lenders shall share the benefit of such excess payment (net of any expenses which may be incurred by such Lender in obtaining or preserving such excess payment) pro rata in accordance with 26 the unpaid principal and/or interest on the Loans to such Obligor held by each of the Lenders. To such end all the Lenders shall make appropriate adjustments among themselves (by the resale of participations sold or otherwise) if such payment is rescinded or must otherwise be restored. Section 4.06 Taxes. (a) Payments Free and Clear. Any and all payments by an Obligor hereunder shall be made, in accordance with Section 4.01, free and clear of and without deduction for any and all present or future taxes, levies, imposts, deductions, charges or withholdings, and all liabilities with respect thereto, excluding, in the case of each Lender and the Administrative Agent, taxes imposed on its income, and franchise or similar taxes imposed on it, by (i) any jurisdiction (or political subdivision thereof) of which the Administrative Agent or such Lender, as the case may be, is a citizen or resident or in which such Lender has an Applicable Lending Office, (ii) the jurisdiction (or any political subdivision thereof) in which the Administrative Agent or such Lender is organized, or (iii) any jurisdiction (or political subdivision thereof) in which such Lender or the Administrative Agent is presently doing business which taxes are imposed solely as a result of doing business in such jurisdiction (all such non-excluded taxes, levies, imposts, deductions, charges, withholdings and liabilities being hereinafter referred to as "Taxes"). If an Obligor shall be required by law to deduct any Taxes from or in respect of any sum payable hereunder to the Lenders or the Administrative Agent (i) the sum payable shall be increased by the amount necessary so that after making all required deductions (including deductions applicable to additional sums payable under this Section 4.06) such Lender or the Administrative Agent (as the case may be) shall receive an amount equal to the sum it would have received had no such deductions been made, (ii) such Obligor shall make such deductions and (iii) such Obligor shall pay the full amount deducted to the relevant taxing authority or other Governmental Authority in accordance with applicable law. (b) Other Taxes. In addition, to the fullest extent permitted by applicable law, each Obligor agrees to pay any present or future stamp or documentary taxes or any other excise or property taxes, charges or similar levies that arise from any payment made hereunder or from the execution, delivery or registration of, or otherwise with respect to, this Agreement, any Assignment or any other Loan Document (hereinafter referred to as "Other Taxes"). (c) INDEMNIFICATION. TO THE FULLEST EXTENT PERMITTED BY APPLICABLE LAW, EACH OBLIGOR WILL INDEMNIFY EACH LENDER AND THE AGENTS FOR THE FULL AMOUNT OF TAXES AND OTHER TAXES (INCLUDING, BUT NOT LIMITED TO, ANY TAXES OR OTHER TAXES IMPOSED BY ANY GOVERNMENTAL AUTHORITY ON AMOUNTS PAYABLE UNDER THIS SECTION 4.06) PAID BY SUCH LENDER OR ANY AGENT (ON THEIR BEHALF OR ON BEHALF OF ANY LENDER), AS THE CASE MAY BE, AND ANY LIABILITY (INCLUDING PENALTIES, INTEREST AND EXPENSES) ARISING THEREFROM OR WITH RESPECT 27 THERETO, WHETHER OR NOT SUCH TAXES OR OTHER TAXES WERE CORRECTLY OR LEGALLY ASSERTED UNLESS THE PAYMENT OF SUCH TAXES WAS NOT CORRECTLY OR LEGALLY ASSERTED AND SUCH LENDER'S PAYMENT OF SUCH TAXES OR OTHER TAXES WAS THE RESULT OF ITS GROSS NEGLIGENCE OR WILLFUL MISCONDUCT. ANY PAYMENT PURSUANT TO SUCH INDEMNIFICATION SHALL BE MADE WITHIN THIRTY (30) DAYS AFTER THE DATE ANY LENDER OR ANY AGENT, AS THE CASE MAY BE, MAKES WRITTEN DEMAND THEREFOR. IF ANY LENDER OR ANY AGENT RECEIVES A REFUND OR CREDIT IN RESPECT OF ANY TAXES OR OTHER TAXES FOR WHICH SUCH LENDER OR SUCH AGENT HAS RECEIVED PAYMENT FROM AN OBLIGOR IT SHALL PROMPTLY NOTIFY THE COMPANY ON BEHALF OF SUCH OBLIGOR OF SUCH REFUND OR CREDIT AND SHALL, IF NO DEFAULT HAS OCCURRED AND IS CONTINUING, WITHIN THIRTY (30) DAYS AFTER RECEIPT OF A REQUEST BY THE COMPANY ON BEHALF OF SUCH OBLIGOR (OR PROMPTLY UPON RECEIPT, IF THE COMPANY ON BEHALF OF SUCH OBLIGOR HAS REQUESTED APPLICATION FOR SUCH REFUND OR CREDIT PURSUANT HERETO), PAY AN AMOUNT EQUAL TO SUCH REFUND OR CREDIT TO THE COMPANY ON BEHALF OF SUCH OBLIGOR WITHOUT INTEREST (BUT WITH ANY INTEREST SO REFUNDED OR CREDITED), PROVIDED THAT SUCH OBLIGOR, UPON THE REQUEST OF SUCH LENDER OR SUCH AGENT, AGREES TO RETURN SUCH REFUND OR CREDIT (PLUS PENALTIES, INTEREST OR OTHER CHARGES) TO SUCH LENDER OR SUCH AGENT IN THE EVENT SUCH LENDER OR SUCH AGENT IS REQUIRED TO REPAY SUCH REFUND OR CREDIT. (d) Lender Representations. (i) Each Lender represents that it is either (i) a corporation organized under the laws of the United States of America or any state thereof or (ii) it is entitled to complete exemption from United States withholding tax imposed on or with respect to any payments, including fees, to be made to it pursuant to this Agreement (A) under an applicable provision of a tax convention to which the United States of America is a party or (B) because it is acting through a branch, agency or office in the United States of America and any payment to be received by it hereunder is effectively connected with a trade or business in the United States of America. Each Lender that is not a corporation organized under the laws of the United States of America or any state thereof agrees to provide to the Company and the Administrative Agent on the Closing Date, or on the date of its delivery of the Assignment pursuant to which it becomes a Lender, and at such other times as required by United States law or as the Company or the Administrative Agent shall reasonably request, two accurate and complete original signed copies of either (A) Internal Revenue Service Form 4224 (or successor form) certifying that all payments to be made to it hereunder will be effectively connected to a United States trade or business (the "Form 4224 Certification") or (B) Internal Revenue Service Form 1001 (or successor form) certifying that it is entitled to the benefit of a provision of a tax convention to which the United States of America is a party which completely exempts from United States withholding tax all payments to be made to it hereunder (the "Form 1001 28 Certification"). In addition, each Lender agrees that if it previously filed a Form 4224 Certification, it will deliver to the Company and the Administrative Agent a new Form 4224 Certification prior to the first payment date occurring in each of its subsequent taxable years; and if it previously filed a Form 1001 Certification, it will deliver to the Company and the Administrative Agent a new certification prior to the first payment date falling in the third year following the previous filing of such certification. Each Lender also agrees to deliver to the Company and the Administrative Agent such other or supplemental forms as may at any time be required as a result of changes in applicable law or regulation in order to confirm or maintain in effect its entitlement to exemption from United States withholding tax on any payments hereunder, provided that the circumstances of such Lender at the relevant time and applicable laws permit it to do so. If a Lender determines, as a result of any change in either (i) a Governmental Requirement or (ii) its circumstances, that it is unable to submit any form or certificate that it is obligated to submit pursuant to this Section 4.06, or that it is required to withdraw or cancel any such form or certificate previously submitted, it shall promptly notify the Company and the Administrative Agent of such fact. If a Lender is organized under the laws of a jurisdiction outside the United States of America, unless the Company and the Administrative Agent have received a Form 1001 Certification or Form 4224 Certification satisfactory to them indicating that all payments to be made to such Lender hereunder are not subject to United States withholding tax, the Company on behalf of each Obligor shall withhold taxes from such payments at the applicable statutory rate. Each Lender agrees to indemnify and hold harmless from any United States taxes, penalties, interest and other expenses, costs and losses incurred or payable by (i) the Administrative Agent as a result of such Lender's failure to submit any form or certificate that it is required to provide pursuant to this Section 4.06 or (ii) the Company or the Administrative Agent as a result of their reliance on any such form or certificate which such Lender has provided to them pursuant to this Section 4.06. (ii) For any period with respect to which a Lender required to do so has failed to provide the Company with the form required pursuant to this Section 4.06, if any (other than if such failure is due to a change in a Governmental Requirement occurring subsequent to the date on which a form originally was required to be provided), such Lender shall not be entitled to indemnification under Section 4.06 with respect to taxes imposed by the United States which taxes would not have been imposed but for such failure to provide such forms; provided, however, that should a Lender, which is otherwise exempt from or subject to a reduced rate of withholding tax, becomes subject to taxes because of its failure to deliver a form required hereunder, the Company on behalf of each Obligor shall take such steps as such Lender shall reasonably request to assist such Lender to recover such taxes. 29 (iii) Any Lender claiming any additional amounts payable pursuant to this Section 4.06 shall use reasonable efforts (consistent with legal and regulatory restrictions) to file any certificate or document requested by the Company or the Administrative Agent or to change the jurisdiction of its Applicable Lending Office or to contest any tax imposed if the making of such a filing or change or contesting such tax would avoid the need for or reduce the amount of any such additional amounts that may thereafter accrue and would not, in the sole determination of such Lender, be otherwise disadvantageous to such Lender. ARTICLE V CAPITAL ADEQUACY, ADDITIONAL COSTS, ETC. Section 5.01 Additional Costs. (a) Regulatory Changes. In the event of any introduction of and/or any change in any applicable law, rule, regulation (including Regulation D), official interpretation thereof or official directive after the date of this Agreement (whether or not having the force of law) which will result in an increase in the cost to any Lender of making or maintaining the Loans by reason of reserve or similar requirements, or which will result in a reduction of amounts otherwise receivable by any Lender from any Obligor of principal, interest or other fees and charges thereunder by reason of a tax, levy, impost, fee, charge, withholding or similar requirements of any kind, or modifies any capital adequacy or similar requirement (including, without limitation, a requirement which affects any Lender's or its parent's or its holding company's allocation of capital resources to its obligations or commitments) and, as a result, the cost to such Lender or its parent or holding company of making or maintaining amounts available under this Agreement is increased or the Lender's or its parent's or holding company's return under this Agreement or on all or any of its capital is reduced, the Obligors will pay to the Administrative Agent for such Lender upon notice as provided in Section 5.01(b) an amount equal to such actual increased cost or reduction of yield allocable to this facility. (b) Compensation Procedure. Any Lender notifying the Company of the incurrence of additional costs under this Section 5.01 shall in such notice to the Company and the Administrative Agent set forth in reasonable detail the basis and amount of its request for compensation. Determinations and allocations by each Lender for purposes of this Section 5.01 of the effect of any Regulatory Change pursuant to Section 5.01(a) on its costs or rate of return of maintaining Loans or its obligation to make Loans, or on amounts receivable by it in respect of Loans, and of the amounts required to compensate such Lender under this Section 5.01, shall be conclusive and binding for all purposes, provided that such determinations and 30 allocations are made on a reasonable basis. Any request for additional compensation under this Section 5.01 shall be paid by each Obligor to the Administrative Agent for the applicable Lender within thirty (30) days of the receipt by the Company of the notice described in this Section 5.01(b). Section 5.02 Limitation on Eurodollar Loans. Anything herein to the contrary notwithstanding, if, on or prior to the determination of any Eurodollar Rate for any Interest Period: (i) the Administrative Agent determines (which determination shall be conclusive, absent manifest error) that quotations of interest rates for the relevant deposits referred to in the definition of "Eurodollar Rate" in Section 1.02 are not being provided in the relevant amounts or for the relevant maturities for purposes of determining rates of interest for Eurodollar Loans as provided herein; or (ii) the Administrative Agent determines (which determination shall be conclusive, absent manifest error) that the relevant rates of interest referred to in the definition of "Eurodollar Rate" in Section 1.02 upon the basis of which the rate of interest for Eurodollar Loans for such Interest Period is to be determined are not sufficient to adequately cover the cost to the Lenders of making or maintaining Eurodollar Loans; then the Administrative Agent shall give the Company prompt notice thereof, and so long as such condition remains in effect, the Lenders shall be under no obligation to make additional Eurodollar Loans or continue or convert into Eurodollar Loans. Section 5.03 Illegality. Notwithstanding any other provision of this Agreement, in the event that it becomes unlawful or legally restricted for any Lender or its Applicable Lending Office to honor its obligation to make or maintain, continue or convert into Eurodollar Loans or Fixed Rate Loans hereunder, then such Lender shall promptly notify the Company thereof and such Lender's obligation to make, continue or convert into Eurodollar Loans or Fixed Rate Loans shall be suspended until such time as such Lender may again make and maintain, continue or convert into Eurodollar Loans or Fixed Rate Loans (in which case the provisions of Section 5.04 shall be applicable). Section 5.04 Base Rate Loans Pursuant to Sections 5.02 and 5.03. If the obligation of any Lender to make, continue or convert into Eurodollar Loans or Fixed Rate Loans shall be suspended pursuant to Sections 5.02 or 5.03 ("Affected Loans"), all Affected Loans which would otherwise be made by such Lender shall be made instead as Base Rate Loans (and, if an event referred to in Section 5.03 has occurred and such Lender so requests by notice to the Administrative Agent and the Company, all Affected Loans of such Lender then outstanding shall be automatically converted into Base Rate Loans on the date specified by such Lender in such notice) and, to the extent that Affected Loans are so made as (or converted into) Base Rate Loans, all payments of principal which would 31 otherwise be applied to such Lender's Affected Loans shall be applied instead to its Base Rate Loans. Section 5.05 Compensation. Each Obligor shall pay to the Administrative Agent for each Lender within thirty (30) days of receipt of written request of such Lender to the Administrative Agent and the Company (which request shall set forth, in reasonable detail, the basis for requesting such amounts and which shall be conclusive and binding for all purposes provided that such determinations are made on a reasonable basis), such amount or amounts as shall compensate it for any loss, cost, expense or liability which such Lender determines are attributable to: (i) any payment, prepayment or conversion of a Eurodollar Loan or Fixed Rate Loan properly made by such Lender or such Obligor for any reason (including, without limitation, the acceleration of the Loans pursuant to Section 10.01) on a date other than the last day of the Interest Period for such Loan; or (ii) any failure by such Obligor for any reason (including but not limited to, the failure of any of the conditions precedent specified in Article VI to be satisfied) to borrow, continue or convert into a Eurodollar Loan that is a Committed Loan or to borrow a Competitive Loan from such Lender on the date for such Borrowing, continuation or conversion specified in the relevant notice given pursuant to Section 2.02 or Section 2.09. ARTICLE VI CONDITIONS PRECEDENT Section 6.01 Initial Funding. The obligation of the Lenders to make the Initial Funding is subject to the receipt by the Administrative Agent and the Lenders of all fees payable pursuant to Section 2.04 on or before the Closing Date and the receipt by the Administrative Agent of the following documents and satisfaction of the other conditions provided in this Section 6.01: (a) A certificate of the Secretary or an Assistant Secretary of the Company setting forth (i) resolutions of its board of directors with respect to the authorization of the Company to execute and deliver the Loan Documents to which it is a party and to enter into the transactions contemplated in those documents, (ii) the officers of the Company (y) who are authorized to sign the Loan Documents to which the Company is a party and (z) who will, until replaced by another officer or officers duly authorized for that purpose, act as its representative for the purposes of signing documents and giving notices and other communications in connection with this Agreement and the transactions contemplated hereby, (iii) specimen signatures of 32 the authorized officers, and (iv) the articles or certificate of incorporation and bylaws of the Company, certified as being true and complete. The Administrative Agent and the Lenders may conclusively rely on such certificate until the Administrative Agent receives notice in writing from the Company to the contrary. (b) Certificates of the appropriate state agencies with respect to the existence, qualification and good standing of the Company in the State of Texas. (c) A compliance certificate which shall be substantially in the form of Exhibit H, duly and properly executed by a Responsible Officer and dated as of the date of the Initial Funding. (d) The Notes of the Company, duly completed and executed. (e) The Parent Guaranty Agreement, duly completed and executed. (f) An opinion of W. T. Satterwhite, counsel to the Company, substantially in the form of Exhibit I hereto. (g) A certificate of insurance for the Company and its Subsidiaries. Section 6.02 Initial and Subsequent Loans. The obligation of the Lenders to make Loans to any Obligor upon the occasion of each Borrowing hereunder (including the Initial Funding) is subject to the further conditions precedent that, as of the date of such Borrowing and after giving effect thereto: (i) no Default shall have occurred and be continuing and (ii) the representations and warranties made by the Company in Article VII and by each Designated Subsidiary in its respective Notice of Designation of a Designated Subsidiary shall be true on and as of the date of the making of such Borrowing with the same force and effect as if made on and as of such date and following such new Borrowing, except to the extent such representations and warranties are expressly limited to an earlier date or the Majority Lenders have expressly consented in writing to the contrary. Each request for a borrowing by the Company hereunder shall constitute a certification by the Company to the effect set forth in the preceding sentence (both as of the date of such notice and, unless the Company otherwise notifies the Administrative Agent prior to the date of and immediately following such Borrowing as of the date thereof). Section 6.03 Loans to Designated Subsidiaries. The obligation of the Lenders to make Loans to a Designated Subsidiary is subject to receipt by the Administrative Agent of the following documents and satisfaction of the conditions set forth in this Section 6.03 as well as the conditions set forth in Sections 6.01 and 6.02, each of which shall be satisfactory to the Administrative Agent in form and substance: (a) A Notice of Designation of Designated Subsidiary executed by the Company and such Designated Subsidiary. 33 (b) A certificate of the Secretary or an Assistant Secretary of such Designated Subsidiary setting forth (i) resolutions of its board of directors with respect to the authorization of such Subsidiary to execute and deliver the Loan Documents to which it is a party and to enter into the transactions contemplated in those documents, (ii) the officers of such Subsidiary (y) who are authorized to sign the Loan Documents to which such Subsidiary is a party and (z) who will, until replaced by another officer or officers duly authorized for that purpose, act as its representative for the purposes of signing documents and giving notices and other communications in connection with this Agreement and the transactions contemplated hereby, (iii) specimen signatures of the authorized officers, and (iv) the articles or certificate of incorporation and bylaws of such Subsidiary, certified as being true and complete. The Agents and the Lenders may conclusively rely on such certificate until the Administrative Agent receives notice in writing from the Company to the contrary. (c) The Notes of such Designated Subsidiary, duly completed and executed. (d) An opinion of counsel to such Designated Subsidiary, substantially in the form of Exhibit J. (e) Such Designated Subsidiary shall be a Subsidiary. (f) The most recent unaudited balance sheet of such Designated Subsidiary certified by a Responsible Officer. (g) Such other documents as the Administrative Agent may reasonably request. ARTICLE VII REPRESENTATIONS AND WARRANTIES The Company represents and warrants to the Administrative Agent and the Lenders that (each representation and warranty herein is given as of the Closing Date and shall be deemed repeated and reaffirmed on the dates of each Borrowing as provided in Section 6.02): Section 7.01 Corporate Existence. Each of the Company and each Designated Subsidiary and each Subsidiary Guarantor: (i) is a corporation duly organized, legally existing and in good standing under the laws of the jurisdiction of its incorporation; (ii) has all requisite corporate power, and has all material governmental licenses, authorizations, consents and approvals necessary to own its assets and carry on its business as now being or as proposed to be conducted; and (iii) is qualified to do business in all 34 jurisdictions in which the nature of the business conducted by it makes such qualification necessary and where failure so to qualify would have a Material Adverse Effect. Section 7.02 Financial Condition. The audited balance sheet of the Company as at December 31, 1994 and the related statements of operations, cash flows and changes in partners' capital and common shareholders' equity of the Company and its predecessor for each of the three years in the period ended on said date, with the opinion thereon of Deloitte & Touche LLP heretofore furnished to each of the Lenders, are complete and correct and fairly present the financial condition of the Company as at said date and the results of operations and cash flows of the Company and its predecessor for the stated periods then ended, all in accordance with GAAP. Neither the Company nor any Subsidiary has on the Closing Date any material Debt, contingent liabilities, liabilities for taxes, unusual forward or long-term commitments or unrealized or anticipated losses from any unfavorable commitments, except as referred to or reflected or provided for in the Financial Statements or in Schedule 7.02. Since December 31, 1994 to the Closing Date, there has been no change or event having a Material Adverse Effect. Since the date of the Financial Statements to the Closing Date, neither the business nor the Properties of the Company or any Subsidiary have been materially and adversely affected as a result of any fire, explosion, earthquake, flood, drought, windstorm, accident, strike or other labor disturbance, embargo, requisition or taking of Property or cancellation of contracts, permits or concessions by any Governmental Authority, riot, activities of armed forces or acts of God or of any public enemy. Section 7.03 Litigation. As of the Closing Date, except as disclosed to the Lenders in Schedule 7.03, there is no litigation, legal, administrative or arbitral proceeding, investigation or other action of any nature pending or, to the knowledge of the Company threatened against or affecting the Company or any Subsidiary which involves the possibility of any judgment or liability against the Company or any Subsidiary not fully covered by insurance (except for normal deductibles), and which would have a Material Adverse Effect. Section 7.04 No Breach. Neither the execution and delivery of the Loan Documents, nor compliance with the terms and provisions hereof will conflict with or result in a breach of, or require any consent which has not been obtained as of the Closing Date under, the respective charter or by-laws of the Company or any Subsidiary, or any Governmental Requirement or any agreement or instrument for borrowed money to which the Company or any Subsidiary is a party or by which it is bound or to which it or its Properties are subject, or constitute a default under any such agreement or instrument, or result in the creation or imposition of any Lien upon any of the revenues or assets of the Company or any Subsidiary pursuant to the terms of any such agreement or instrument other than the Liens created by the Loan Documents. Section 7.05 Authority. The Company and each Subsidiary have all necessary corporate power and authority to execute, deliver and perform its obligations under the Loan Documents to which it is a party; and the execution, delivery and performance by the 35 Company and each Subsidiary of the Loan Documents to which it is a party, have been duly authorized by all necessary corporate action on its part; and the Loan Documents constitute the legal, valid and binding obligations of the Company and each Subsidiary, enforceable in accordance with their terms, except to the extent that enforcement may be limited by bankruptcy, insolvency or similar laws affecting the enforcement of creditor's rights generally. Section 7.06 Approvals. No authorizations, approvals or consents of, and no filings or registrations with, any Governmental Authority are necessary for the execution, delivery or performance by the Company or any Subsidiary of the Loan Documents or for the validity or enforceability thereof. Section 7.07 Use of Loans. The proceeds of the Loans shall be used for acquisition funding, working capital or general corporate purposes of the Company. Neither the Company nor any Designated Subsidiary is engaged principally, or as one of its important activities, in the business of extending credit for the purpose, whether immediate, incidental or ultimate, of buying or carrying margin stock (within the meaning of Regulation G, U or X of the Board of Governors of the Federal Reserve System). Following application of the proceeds of each Borrowing, not more than 25 percent of the value of the assets (either of each Obligor only or of the Company and its Subsidiaries on a consolidated basis), which are subject to any arrangement with the Administrative Agent or any Lender (herein or otherwise) whereby the Company's or any Subsidiary's right or ability to sell, pledge or otherwise dispose of assets is in any way restricted, will be margin stock (within the meaning of Regulation U of the Board of Governors of the Federal Reserve System). Section 7.08 ERISA. As of the Closing Date, except as would not have a Material Adverse Effect: (a) The Company, the Subsidiaries and each ERISA Affiliate have complied in all material respects with ERISA and, where applicable, the Code regarding each Plan. (b) No act, omission or transaction has occurred which could result in imposition on the Company, any Subsidiary or any ERISA Affiliate (whether directly or indirectly) of (i) either a material civil penalty assessed pursuant to subsections (c), (i) or (l) of section 502 of ERISA or a tax imposed pursuant to Chapter 43 of Subtitle D of the Code or (ii) breach of fiduciary duty liability damages under section 409 of ERISA. (c) No liability to the PBGC (other than for the payment of current premiums which are not past due) by the Company, any Subsidiary or any ERISA Affiliate has been or is expected by the Company, any Subsidiary or any ERISA Affiliate to be incurred with respect to any Plan. No ERISA Event with respect to any Plan has occurred which could result in a liability of the Company, any Subsidiary or any ERISA Affiliate. 36 (d) Full payment when due has been made of all amounts which the Company, the Subsidiaries or any ERISA Affiliate is required under the terms of each Plan or applicable law to have paid as contributions to such Plan as of the date hereof, and no accumulated funding deficiency (as defined in section 302 of ERISA and section 412 of the Code), whether or not waived, exists with respect to any Benefit Plan. (e) The actuarial present value of the benefit liabilities under each Benefit Plan which is subject to Title IV of ERISA does not, as of the end of the Company's most recently ended fiscal year, exceed the current value of the assets (computed on a plan termination basis in accordance with Title IV of ERISA) of such Benefit Plan allocable to such benefit liabilities. The term "actuarial present value of the benefit liabilities" shall have the meaning specified in section 4041 of ERISA. (f) Neither the Company, the Subsidiaries nor any ERISA Affiliate has received any notification (or has knowledge of any reason to expect) that any Multiemployer Plan is in reorganization, is insolvent or has been terminated, within the meaning of Title IV of ERISA. (g) Neither the Company, the Subsidiaries nor any ERISA Affiliate is required to provide security under section 401(a)(29) of the Code due to a Plan amendment that results in an increase in current liability for the Plan. Section 7.09 Taxes. Except as set out in Schedule 7.09, each of the Company and its Subsidiaries has filed all United States Federal income tax returns and all other tax returns which are required to be filed by them and has paid all material taxes due pursuant to such returns or pursuant to any assessment received by the Company or any Subsidiary except for any such tax, assessment, charge or levy the payment of which is being contested in good faith and by proper proceedings and against which adequate reserves are being maintained. The charges, accruals and reserves on the books of the Company and its Subsidiaries in respect of taxes and other governmental charges are, in the opinion of the Company, adequate. No tax lien has been filed and, to the knowledge of the Company, no claim is being asserted with respect to any such tax, fee or other charge. Section 7.10 Titles, etc. To the best of the Company's knowledge: (a) Except as set out in Schedule 7.10, each of the Company and the Designated Subsidiaries and Subsidiary Guarantors has good and defensible title to its material (individually or in the aggregate) Properties in all material respects, free and clear of all Liens except Liens permitted by Section 9.02. (b) All leases and agreements necessary for the conduct of the business of the Company and the Designated Subsidiaries and Subsidiary Guarantors are valid and subsisting, in full force and effect and there exists no default or event or circumstance which with the giving of notice or the passage of time or both would 37 give rise to a default under any such lease or leases, which would affect in any material respect the conduct of the business of the Company and the Designated Subsidiaries and Subsidiary Guarantors. (c) The rights, properties and other assets presently owned, leased or licensed by the Company and the Designated Subsidiaries and Subsidiary Guarantors including, without limitation, all easements and rights of way, include all rights, Properties and other assets necessary to permit the Company and the Designated Subsidiaries and Subsidiary Guarantors to conduct their business in all material respects in the same manner as its business has been conducted prior to the Closing Date. Section 7.11 No Material Misstatements. No information, exhibit or report furnished to the Agents or the Lenders by or on behalf of the Company or any Subsidiary in connection with the negotiation and administration of this Agreement contains any material misstatement of fact or omits to state a material fact necessary in order to make the statements contained therein not misleading. Section 7.12 Investment Company Act. Neither the Company nor any Subsidiary is an "investment company" or a company "controlled" by an "investment company," within the meaning of the Investment Company Act of 1940, as amended. Section 7.13 Public Utility Holding Company Act. Neither the Company nor any Subsidiary is a "holding company," or a "subsidiary company" of a "holding company," or an "affiliate" of a "holding company" or of a "subsidiary company" of a "holding company," or a "public utility" within the meaning of the Public Utility Holding Company Act of 1935, as amended. Section 7.14 Subsidiaries and Partnerships. On the Closing Date, except as set forth on Schedule 7.14, the Company has no Subsidiaries and neither the Company nor any Subsidiary has any interest in any general or limited partnerships, but excluding solely tax partnerships and oil and gas joint ventures under joint operating agreements. Section 7.15 Location of Business and Offices. On the Closing Date, the Company's chief executive offices are located at the address stated on the signature page of this Agreement. On the Closing Date, the chief executive office of each Subsidiary is located at the addresses stated on Schedule 7.14. Section 7.16 Defaults. (a) As of the Closing Date, neither the Company nor any Subsidiary is in default nor has any event or circumstance occurred which, but for the expiration of any applicable grace period or the giving of notice, or both, would constitute a default under any agreement or instrument for borrowed money to which the 38 Company or any Subsidiary is a party or by which the Company or any Subsidiary is bound. (b) No Default has occurred and is continuing. Section 7.17 Environmental Matters. As of the Closing Date except (i) as provided in Schedule 7.17 or (ii) as would not have a Material Adverse Effect (or with respect to (c), (d) and (e) below, where the failure to take such actions would not have a Material Adverse Effect): (a) Neither any Property of the Company or any Subsidiary nor the operations conducted thereon violate any order or requirement of any court or Governmental Authority or any Environmental Laws; (b) Without limitation of clause (a) above, no Property of the Company or any Subsidiary nor the operations currently conducted thereon or, to the best knowledge of the Company, by any prior owner or operator of such Property or operation, are in violation of or subject to any existing, pending or threatened action, suit, investigation, inquiry or proceeding by or before any court or Governmental Authority or to any remedial obligations under Environmental Laws; (c) All notices, permits, licenses or similar authorizations, if any, required to be obtained or filed in connection with the operation or use of any and all Property of the Company and each Subsidiary, including without limitation past or present treatment, storage, disposal or release of a hazardous substance or solid waste into the environment, have been duly obtained or filed, and the Company and each Subsidiary are in compliance with the terms and conditions of all such notices, permits, licenses and similar authorizations; (d) All hazardous substances, solid waste, and oil and gas exploration and production wastes, if any, generated at any and all Property of the Company or any Subsidiary have in the past been transported, treated and disposed of in accordance with Environmental Laws and so as not to pose an imminent and substantial endangerment to public health or welfare or the environment, and, to the best knowledge of the Company, all such transport carriers and treatment and disposal facilities have been and are operating in compliance with Environmental Laws and so as not to pose an imminent and substantial endangerment to public health or welfare or the environment, and are not the subject of any existing, pending or threatened action, investigation or inquiry by any Governmental Authority in connection with any Environmental Laws; (e) The Company has taken all steps reasonably necessary to determine and has determined that no hazardous substances, solid waste, or oil and gas exploration and production wastes, have been disposed of or otherwise released and there has been no threatened release of any hazardous substances on or to any 39 Property of the Company or any Subsidiary except in compliance with Environmental Laws and so as not to pose an imminent and substantial endangerment to public health or welfare or the environment; (f) To the extent applicable, all Property of the Company and each Subsidiary currently satisfies all design, operation, and equipment requirements imposed by the OPA or scheduled as of the Closing Date to be imposed by OPA during the term of this Agreement, and the Company does not have any reason to believe that such Property, to the extent subject to OPA, will not be able to maintain compliance with the OPA requirements during the term of this Agreement; and (g) Neither the Company nor any Subsidiary has any known contingent liability in connection with any release or threatened release of any oil, hazardous substance or solid waste into the environment. Section 7.18 Compliance with Laws. As of the Closing Date, neither the Company nor any Subsidiary has violated any Governmental Requirement or failed to obtain any license, permit, franchise or other governmental authorization necessary for the ownership of any of its Properties or the conduct of its business, which violation or failure would have (in the event such violation or failure were asserted by any Person through appropriate action) a Material Adverse Effect. Section 7.19 Pari Passu. The Indebtedness ranks and will rank at least pari passu in priority with all other senior debt of each Obligor, except for secured debt permitted by Section 9.02. ARTICLE VIII AFFIRMATIVE COVENANTS The Company covenants and agrees that, so long as any of the Commitments are in effect and until payment in full of all Loans hereunder, all interest thereon and all other amounts payable by the Obligors hereunder: Section 8.01 Financial Statements. The Company shall deliver, or shall cause to be delivered, to the Administrative Agent with sufficient copies of each for the Lenders: (a) As soon as available and in any event within one hundred twenty (120) days after the end of each fiscal year of the Company, (i) the Company's Form 10-K filed with the SEC or (ii) the audited consolidated statements of income, shareholders' equity, and cash flows of the Company and its Consolidated Subsidiaries for such fiscal year, and the related consolidated balance sheet of the Company and its Consolidated Subsidiaries as at the end of such fiscal year, and setting forth in each case in comparative form the corresponding figures as of the 40 end of and for the preceding fiscal year, and accompanied by the related opinion of independent public accountants of recognized national standing acceptable to the Administrative Agent which opinion shall state that said financial statements fairly present the consolidated financial condition, results of operations and cash flows of the Company and its Consolidated Subsidiaries as at the end of, and for, such fiscal year and that such financial statements have been prepared in accordance with GAAP except for such changes in such principles with which the independent public accountants shall have concurred and such opinion shall not contain a "going concern" or like qualification or exception, and a certificate of such accountants stating that, in making the examination necessary for their opinion, they obtained no knowledge, except as specifically stated, of any Default. (b) As soon as available and in any event within sixty (60) days after the end of each of the first three fiscal quarterly periods of each fiscal year of the Company, (i) the Company's Form 10-Q filed with the SEC or (ii) unaudited consolidated statements of income, shareholders' equity, and cash flows of the Company and its Consolidated Subsidiaries for such period and for the period from the beginning of the respective fiscal year to the end of such period, and the related consolidated balance sheets as at the end of such period, and setting forth in each case in comparative form the corresponding figures as of the end of and for the corresponding period in the preceding fiscal year, accompanied by the certificate of a Responsible Officer, which certificate shall state that said financial statements fairly present the consolidated financial condition, results of operations and cash flows of the Company and its Consolidated Subsidiaries in accordance with GAAP, as at the end of, and for, such period (subject to normal year-end adjustments). (c) Promptly after a Responsible Officer of the Company knows that any Default has occurred, a notice of such Default, describing the same in reasonable detail and the action the Company proposes to take with respect thereto. (d) Promptly upon its becoming available, each financial statement, report, notice or proxy statement sent by the Company to stockholders generally and each regular or periodic report and any registration statement or prospectus in respect thereof filed by the Company with or received by the Company in connection therewith from any securities exchange or the SEC or any successor agency, including without limitation, Form 10-K's and Form 10-Q's. (e) As soon as available and in any event within one hundred twenty (120) days after the end of the fiscal year of the Company, the unaudited balance sheet of each Designated Subsidiary as at the end of the Company's fiscal year, certified by a Responsible Officer, which certificate shall state that said balance sheet fairly presents the financial condition of the respective Designated Subsidiary. The Company will furnish to the Administrative Agent, with sufficient copies for the Lenders, at the time it furnishes each set of financial statements pursuant to paragraph (a) 41 or (b) above, a certificate substantially in the form of Exhibit H executed by a Responsible Officer (i) certifying as to the matters set forth therein and stating that no Default has occurred and is continuing (or, if any Default has occurred and is continuing, describing the same in reasonable detail), (ii) setting forth in reasonable detail the computations necessary to determine whether the Company is in compliance with Section 9.01 as of the end of the respective fiscal quarter or fiscal year and (iii) certifying that the Company is in compliance with Section 8.08 or will be in compliance within the next 30 days and listing the Subsidiaries and Special Entities, if any, that will be executing Guaranty Agreements. Section 8.02 Litigation. The Company shall promptly give to the Administrative Agent, with sufficient copies for the Lenders, notice of all legal or arbitral proceedings, and of all proceedings before any Governmental Authority affecting the Company or any Subsidiary, except proceedings which, if adversely determined, would not have a Material Adverse Effect. Section 8.03 Maintenance, Etc. (a) The Company shall and shall cause each Subsidiary Guarantor and Designated Subsidiary to: preserve and maintain the Company's corporate existence and all of its material rights, privileges and franchises; keep books of record and account in which full, true and correct entries will be made of all dealings or transactions in relation to its business and activities; comply with all Governmental Requirements if failure to comply with such requirements will have a Material Adverse Effect; pay and discharge all taxes, assessments and governmental charges or levies imposed on it or on its income or profits or on any of its Property prior to the date on which penalties attach thereto, except for any such tax, assessment, charge or levy the payment of which is being contested in good faith and by proper proceedings and against which adequate reserves are being maintained; during the continuance of an Event of Default and upon reasonable notice, permit representatives of the Administrative Agent, during normal business hours, to examine its books and records, to inspect its Properties, and to discuss its business and affairs with its financial officers, all to the extent reasonably requested by the Administrative Agent and to the extent requested by the President of the Administrative Agent, copy and make extracts of its books and records; and keep, or cause to be kept, insured by financially sound and reputable insurers all Property of a character usually insured by Persons engaged in the same or similar business similarly situated against loss or damage of the kinds and in the amounts customarily insured against by such Persons and carry such other insurance as is usually carried by such Persons including, without limitation, pollution liability insurance to the extent reasonably available. (b) Contemporaneously with the delivery of the financial statements required by Section 8.01(a) to be delivered for each year, the Company will furnish or cause to be furnished to the Administrative Agent a certificate of insurance coverage from the insurer in substantially the form provided at the closing of this 42 Agreement and, if requested, will furnish the Administrative Agent copies of the applicable policies. Section 8.04 Environmental Matters. (a) The Company will and will cause each Subsidiary to establish and implement such procedures as may be reasonably necessary to continuously determine and assure that any failure of the following does not have a Material Adverse Effect: (i) all Property of the Company and its Subsidiaries and the operations conducted thereon and other activities of the Company and its Subsidiaries are in compliance with and do not violate the requirements of any Environmental Laws, (ii) no oil, hazardous substances or solid wastes are disposed of or otherwise released on or to any Property owned by any such party except in compliance with Environmental Laws, (iii) no hazardous substance will be released on or to any such Property in a quantity equal to or exceeding that quantity which requires reporting pursuant to Section 103 of CERCLA, and (iv) no oil, oil and gas exploration and production wastes or hazardous substance is released on or to any such Property so as to pose an imminent and substantial endangerment to public health or welfare or the environment. (b) The Company will promptly notify the Administrative Agent and the Lenders in writing of any threatened action, investigation or inquiry by any Governmental Authority of which the Company has knowledge in connection with any Environmental Laws which may have a Material Adverse Effect. Section 8.05 Further Assurances. The Company will and will cause each Subsidiary to cure promptly any defects in the creation and issuance of the Notes and the execution and delivery of the other Loan Documents and this Agreement. The Company at its expense will and will cause each Subsidiary to promptly execute and deliver to the Administrative Agent upon request all such other documents, agreements and instruments to comply with or accomplish the covenants and agreements of the Company or any Subsidiary, as the case may be, in the other Loan Documents and this Agreement, or to further evidence and more fully describe the collateral intended as security for the Notes, or to correct any omissions in the other Loan Documents, or to perfect, protect or preserve any Liens created pursuant to any of the other Loan Documents, or to make any recordings, to file any notices or obtain any consents, all as may be necessary or appropriate in connection therewith. Section 8.06 ERISA Information and Compliance. The Company will promptly furnish and will cause the Subsidiaries and any ERISA Affiliate to promptly furnish to the Administrative Agent (i) immediately upon becoming aware of the occurrence of any ERISA Event which could result in a liability of the Company, any Subsidiary or any ERISA Affiliate having a Material Adverse Effect (individually or in the aggregate with respect to all ERISA Events), a written notice signed by the President or the principal financial officer of the Company, the Subsidiary or the ERISA Affiliate, as the case may be, 43 specifying the nature thereof, what action the Company, the Subsidiary or the ERISA Affiliate is taking or proposes to take with respect thereto, and, when known, any action taken or proposed by the Internal Revenue Service, the Department of Labor or the PBGC with respect thereto, (ii) promptly after request by the Administrative Agent, a true and correct copy of each actuarial report for any Plan and each annual report for any Multiemployer Plan, (iii) immediately upon receipt of a notice from a Multiemployer Plan regarding the imposition of Withdrawal Liability having a Material Adverse Effect, a true and complete copy of such notice, (iv) immediately upon becoming aware that a Multiemployer Plan has been terminated, that the administrator or plan sponsor of a Multiemployer Plan intends to terminate a Multiemployer Plan, or that the PBGC has instituted or intends to institute proceedings under section 4042 of ERISA to terminate a Multiemployer Plan which occurrence would have a Material Adverse Effect, a written notice signed by the President or the principal financial officer of the Company, the Subsidiary or the ERISA Affiliate, as the case may be, specifying the nature of such occurrence and any other information relating thereto requested by the Administrative Agent, and (v) immediately upon receipt thereof, copies of any notice of the PBGC's intention to terminate or to have a trustee appointed to administer any Benefit Plan which occurrence would have a Material Adverse Effect. Section 8.07 Lease Payments. The Company will cause its obligations to Enserch Exploration Holdings, Inc. to be subordinated to the Indebtedness on terms substantially similar to the terms set forth on Exhibit M or on terms and subject to documentation satisfactory to the Administrative Agent. Section 8.08 Subsidiary Guaranty Agreements. The Company will cause each of its Subsidiaries and Special Entities to execute a Subsidiary Guaranty Agreement, except for such Subsidiaries and Special Entities that in the aggregate do not have assets at book value in excess of 15% of the total consolidated assets at book value of the Company. The Company shall have 30 days from the date of delivery of each Compliance Certificate to comply with this covenant. At the time that a Subsidiary or Special Entity executes and delivers a Subsidiary Guaranty Agreement to the Administrative Agent it shall also deliver to the Administrative Agent the following in form and substance acceptable to the Administrative Agent: (a) A certificate of the Secretary or an Assistant Secretary of each Subsidiary Guarantor setting forth (i) resolutions of its board of directors or appropriate Persons with respect to the authorization of such Subsidiary Guarantor to execute and deliver the Loan Documents to which it is a party and to enter into the transactions contemplated in those documents, (ii) the officers of such Subsidiary Guarantor (y) who are authorized to sign the Loan Documents to which such Subsidiary Guarantor is a party and (z) who will, until replaced by another officer or officers duly authorized for that purpose, act as its representative for the purposes of signing documents and giving notices and other communications in connection with this Agreement and the transactions contemplated hereby, (iii) specimen signatures of the authorized officers, and (iv) the articles or certificate of 44 incorporation and bylaws or appropriate document of governance of such Subsidiary Guarantor, certified as being true and complete. The Agents and the Lenders may conclusively rely on such certificate until they receive notice in writing from the Company to the contrary. (b) An opinion of counsel to the Subsidiary Guarantor, substantially in the form of Exhibit N. ARTICLE IX NEGATIVE COVENANTS The Company covenants and agrees that, so long as any of the Commitments are in effect and until payment in full of Loans hereunder and all interest thereon without the prior written consent of the Majority Lenders: Section 9.01 Debt to Capital Ratio. The Company will not permit its ratio ("Debt to Capital Ratio") expressed as a percentage of (i) Debt of the Company and its Consolidated Subsidiaries on a consolidated basis ("Consolidated Debt") to (ii) the sum of Consolidated Debt plus Net Worth to exceed 60% at any time; provided that in no event will Consolidated Debt ever exceed $750,000,000. Section 9.02 Liens. Except as expressly permitted in this Section 9.02, the Company will not at any time, directly or indirectly, create, assume or suffer to exist, and will not cause, suffer or permit any Designated Subsidiary or Subsidiary Guarantor as long as it remains a Designated Subsidiary or Subsidiary Guarantor, directly or indirectly, to create, assume or suffer to exist, except in favor of the Company, any Lien upon any of its Properties (now owned or hereafter acquired), without making effective provision (and the Company covenants that in any such case it will make or cause to be made effective provision) whereby the Indebtedness and any other Debt of the Company or any Designated Subsidiary or Subsidiary Guarantor then entitled thereto shall be secured by such Lien equally and ratably with any and all other obligations and indebtedness thereby secured, so long as any such other obligations or indebtedness shall be so secured. Nothing in this Agreement shall be construed to prevent the Company or any Designated Subsidiary or Subsidiary Guarantor without so securing the amounts outstanding hereunder, from creating, assuming or suffering to exist the following Liens, to which the provisions of this paragraph shall not be applicable: (a) Liens upon any Property presently owned or hereafter acquired, created at the time of acquisition to secure a portion of the purchase price thereof, or existing thereon at the date of acquisition, whether or not assumed by the Company or one of its Designated Subsidiaries or Subsidiary Guarantors, provided that every such Lien shall apply only to the Property so acquired and fixed improvements thereon; 45 (b) any extension, renewal, or refunding of any Lien permitted by Section 9.02(a), if limited to the same Property subject to, and securing not more than the amount secured by, the Lien extended, renewed or refunded; (c) the pledge of current assets in the ordinary course of business, to secure current liabilities; (d) Liens upon (i) Property, to secure obligations to pay all or a part of the purchase price of such Property only out of or measured by the production, or the proceeds of such production, from such Property of oil or gas or products or by-products thereof, or (ii) the production from Property of oil or gas or products or by-products thereof, or the proceeds of such production, to secure obligations to pay all or a part of the expenses of exploration, drilling or development of such Property only out of such production or the proceeds of such production; (e) mechanics' or materialmen's liens, good faith deposits in connection with tenders, leases of real estate, bids or contracts (other than contracts for the payment of money), deposits to secure public or statutory obligations, deposits to secure, or in lieu of, surety, stay or appeal bonds, and deposits as security for the payment of taxes or assessments or similar charges, Liens given in connection with bid or completion bonds; provided that such obligations secured are not yet due or are being contested in good faith by appropriate action and against which an adequate reserve has been established; (f) any Lien arising by reason of deposits with, or the giving of any form of security to, any governmental agency or any body created or approved by law or governmental regulation for any purposes at any time as required by law or governmental regulation as a condition to the transaction of any business or the exercise of any privilege or license, or to enable the Company or a Subsidiary to maintain self-insurance or to participate in any funds established to cover any insurance risks or in connection with workmen's compensation, unemployment insurance, old age pensions or other social security, or to share in the privileges or benefits required for companies participating in such arrangements; provided that such obligations secured are not yet due or are being contested in good faith by appropriate action and against which an adequate reserve has been established; (g) the pledge or assignment of accounts receivable, including customers' installment paper, to banks or others made in the ordinary course of business (including to or by a Subsidiary which is principally engaged in the business of financing the business of the Company and its Subsidiaries); (h) the Liens of taxes or assessments for the then current year or not at the time due, or the Liens of taxes or assessments already due but the validity of which is being contested in good faith by appropriate action and against which an adequate reserve has been established; 46 (i) any judgment or Lien against the Company or a Designated Subsidiary or Subsidiary Guarantor, so long as the finality of such judgment is being contested in good faith by appropriate action and the execution thereon is stayed; (j) assessments or similar encumbrances, the existence of which does not impair the value or the use of the Property subject thereto for the purposes for which it was acquired; (k) landlords' liens on fixtures and movable Property located on premises leased by the Company or a Designated Subsidiary or Subsidiary Guarantor in the ordinary course of business so long as the rent secured thereby is not in default; (l) Liens on the assets of any limited liability company organized under a limited liability company act of any state in which a limited liability company is treated as a partnership for federal income tax purposes; provided that neither the Company nor any Designated Subsidiary or Subsidiary Guarantor is liable for the Debt of such limited liability company; and (m) other Liens on any Properties of the Company or any Subsidiary with an aggregate value not exceeding 1% of the book value of the total assets of the Company on a consolidated basis. Section 9.03 Investments, Loans and Advances. So long as any Loans are outstanding, neither the Company nor any Subsidiary will make any loans or advances to ENSERCH Corporation or any of its subsidiaries (but excluding the Company and its Subsidiaries) after the occurrence and during the continuance of an Event of Default or in excess of $50,000,000 in the aggregate outstanding at any one time for greater than a 90 day period. Section 9.04 Dividends, Distributions and Redemptions. The Company will not declare or pay any dividend, purchase, redeem or otherwise acquire for value any of its stock now or hereafter outstanding, return any capital to its stockholders or make any distribution of its assets to its stockholders after the occurrence and during the continuance of an Event of Default. Section 9.05 Nature of Business. The Company will not allow any material change to be made in the character of its business as an independent oil and gas exploration and production company. Section 9.06 Mergers, Etc. Neither the Company nor any Subsidiary will merge into or with or consolidate with any other Person, or sell, lease or otherwise dispose of (whether in one transaction or in a series of transactions) all or substantially all of its Property or assets to any other Person ("Disposition") unless (i) no Default exists or would result from such merger or Disposition and (ii) for any merger the Company is the survivor, or for any merger or Disposition, if the surviving Person or acquiring Person is not the Company, such surviving Person or acquiring Person assumes the Indebtedness and all other 47 obligations of the Company under the Loan Documents and is approved by the Majority Lenders. Section 9.07 Proceeds of Notes. The Company will not permit the proceeds of the Notes to be used for any purpose other than those permitted by Section 7.07. Neither the Company nor any Person acting on behalf of the Company has taken or will take any action which might cause any of the Loan Documents to violate Regulation G, U or X or any other regulation of the Board of Governors of the Federal Reserve System or to violate Section 7 of the Securities Exchange Act of 1934, as amended, or any rule or regulation thereunder, in each case as now in effect or as the same may hereafter be in effect. Section 9.08 ERISA Compliance. The Company and the Subsidiaries will not at any time: (a) Engage in, or permit any ERISA Affiliate to engage in, any transaction in connection with which the Company, a Subsidiary or any ERISA Affiliate could be subjected to either a civil penalty assessed pursuant to subsections (c), (i) or (l) of section 502 of ERISA or a tax imposed by Chapter 43 of Subtitle D of the Code; (b) Terminate, or permit any ERISA Affiliate to terminate, any Benefit Plan in a manner, or take any other action with respect to any Benefit Plan, which could result in any liability of the Company, a Subsidiary or any ERISA Affiliate to the PBGC; (c) Fail to make, or permit any ERISA Affiliate to fail to make, full payment when due of all amounts which, under the provisions of any Plan, agreement relating thereto or applicable law, the Company, a Subsidiary or any ERISA Affiliate is required to pay as contributions thereto; (d) Permit to exist, or allow any ERISA Affiliate to permit to exist, any accumulated funding deficiency within the meaning of section 302 of ERISA or section 412 of the Code, whether or not waived, with respect to any Benefit Plan; (e) Permit, or allow any ERISA Affiliate to permit, the actuarial present value of the benefit liabilities under any Benefit Plan maintained by the Company, a Subsidiary or any ERISA Affiliate which is regulated under Title IV of ERISA to exceed the current value of the assets (computed on a plan termination basis in accordance with Title IV of ERISA) of such Benefit Plan allocable to such benefit liabilities. The term "actuarial present value of the benefit liabilities" shall have the meaning specified in section 4041 of ERISA; (f) Incur, or permit any ERISA Affiliate to incur, a liability to or on account of a Plan under sections 4062, 4063, or 4064 of ERISA; 48 (g) Amend, or permit any ERISA Affiliate to amend, a Plan resulting in an increase in current liability such that the Company, a Subsidiary or any ERISA Affiliate is required to provide security to such Plan under section 401(a)(29) of the Code; or (h) Incur or permit Withdrawal Liability and liability in connection with a reorganization or termination of a Multiemployer Plan of the Company, the Subsidiaries and the ERISA Affiliates; provided, however, that the transactions, events and occurrences described in this Section 9.08 shall be permitted so long as such transactions, events and occurrences (individually and in the aggregate) will not result in a Material Adverse Effect. Section 9.09 Environmental Matters. Neither the Company nor any Subsidiary will cause or permit any of its Property to be in violation of, or do anything or permit anything to be done which will subject any such Property to any remedial obligations under, any Environmental Laws, assuming disclosure to the applicable Governmental Authority of all relevant facts, conditions and circumstances, if any, pertaining to such Property where such violations or remedial obligations would have a Material Adverse Effect. Section 9.10 Transactions with Affiliates. Neither the Company nor any Designated Subsidiary nor any Subsidiary Guarantor will enter into any material transaction, including, without limitation, any purchase, sale, lease or exchange of Property including the purchase or sale of oil and gas properties and hydrocarbons or the rendering of any service, with any Affiliate unless such transactions are in the ordinary course of its business and are upon fair and reasonable terms no less favorable to it than it would obtain in a comparable arm's length transaction with a Person not an Affiliate. Section 9.11 Restrictive Dividend Agreements. Neither the Company nor any Designated Subsidiary nor any Subsidiary Guarantor will create, incur, assume or suffer to exist any financing agreement (other than this Agreement and the other Loan Documents) which in any way restricts any Designated Subsidiary or Subsidiary Guarantor from paying dividends to the Company. ARTICLE X EVENTS OF DEFAULT; REMEDIES Section 10.01 Events of Default. One or more of the following events shall constitute an "Event of Default": (a) (i) any Obligor shall default in the payment or prepayment of any principal on any Loan when due or (ii) any Obligor shall default in the payment of any interest on any Loan or any facility fees payable by it hereunder and such default, other than a default of a payment or prepayment of principal, shall continue 49 unremedied for a period of five (5) days or (iii) any Obligor shall default in the payment of any other amount payable by it hereunder or under any other Loan Document and such default shall continue unremedied for a period of thirty (30) days after notice of such default by the Administrative Agent to the Company; or (b) the Company or any Subsidiary shall default in the payment when due of any principal of or interest on any of its other Debt of $25,000,000 or more, or any event specified in any note, agreement, indenture or other document evidencing or relating to any Debt of $25,000,000 or more shall occur if the effect of such event causes, or after the giving of any notice or the lapse of time or both, if applicable, permits the holder or holders of such Debt (or a trustee or agent on behalf of such holder or holders) to cause, such Debt to become due prior to its stated maturity; or (c) any representation, warranty or certification made or deemed made herein or in any other Loan Documents by the Company, any Designated Subsidiary or any Subsidiary Guarantor, or any certificate furnished to any Lender or the Administrative Agent pursuant to the provisions hereof or any other Loan Documents, shall prove to have been false or misleading as of the time made, deemed made or furnished in any material adverse respect; or (d) the Company shall default in the performance of any of its obligations under Article IX; or (e) the Company shall default in the performance of any of its obligations under Article VIII or any other Loan Document or any other Article of this Agreement other than under Article IX (other than the payment of amounts due which shall be governed by Section 10.01(a)) and such default shall continue unremedied for a period of thirty (30) days after the earlier to occur of (i) notice thereof to the Company by the Administrative Agent or any Lender (through the Administrative Agent), or (ii) a Responsible Officer of the Company otherwise becoming aware of such default; or (f) the Company, any Designated Subsidiary or any Subsidiary Guarantor shall admit in writing its inability to, or be generally unable to, pay its debts as such debts become due; or (g) the Company, any Designated Subsidiary or any Subsidiary Guarantor shall (i) apply for or consent to the appointment of, or the taking of possession by, a receiver, custodian, trustee or liquidator of itself or of all or a substantial part of its Property, (ii) make a general assignment for the benefit of its creditors, (iii) commence a voluntary case under the Federal Bankruptcy Code (as now or hereafter in effect), (iv) file a petition seeking to take advantage of any other law relating to bankruptcy, insolvency, reorganization, winding-up, or composition or readjustment of debts, (v) fail to controvert in a timely and appropriate manner, or 50 acquiesce in writing to, any petition filed against it in an involuntary case under the Federal Bankruptcy Code, or (vi) take any corporate or partnership action for the purpose of effecting any of the foregoing; or (h) a proceeding or case shall be commenced, without the application or consent of the Company, any Designated Subsidiary or any Subsidiary Guarantor, in any court of competent jurisdiction, seeking (i) its liquidation, reorganization, dissolution or winding-up, or the composition or readjustment of its debts, (ii) the appointment of a trustee, receiver, custodian, liquidator or the like of the Company, any Designated Subsidiary or any Subsidiary Guarantor of all or any substantial part of its Property, or (iii) similar relief in respect of the Company, any Designated Subsidiary or any Subsidiary Guarantor under any law relating to bankruptcy, insolvency, reorganization, winding-up, or composition or adjustment of debts, and such proceeding or case shall continue undismissed, or an order, judgment or decree approving or ordering any of the foregoing shall be entered and continue unstayed and in effect, for a period of 90 days; or (iv) an order for relief against the Company, any Designated Subsidiary or any Subsidiary Guarantor shall be entered in an involuntary case under the Federal Bankruptcy Code; or (i) a judgment or judgments for the payment of money in excess of $25,000,000 in the aggregate shall be rendered by a court against the Company or any Subsidiary Guarantor or Designated Subsidiaries and the same shall not be discharged (or provision shall not be made for such discharge), or a stay of execution thereof shall not be procured, within thirty (30) days from the date of entry thereof and the Company or such Subsidiary shall not, within said period of 30 days, or such longer period during which execution of the same shall have been stayed, appeal therefrom and cause the execution thereof to be stayed during such appeal; or (j) the Guaranty Agreements after delivery thereof shall for any reason, except to the extent permitted by the terms thereof, cease to be in full force and effect and valid, binding and enforceable in accordance with their terms, except to the extent permitted by the terms of this Agreement, or the Company or any Subsidiary Guarantor shall so state in writing; or (k) ENSERCH Corporation shall cease to own, directly or indirectly, at least 50% of the outstanding voting stock of the Company. Section 10.02 Remedies. (a) In the case of an Event of Default other than one referred to in clauses (f), (g), or (h) of Section 10.01, the Administrative Agent may and, upon request of the Majority Lenders, shall, by notice to the Company, cancel the Commitments and/or declare the principal amount then outstanding of, and the accrued interest on, the Loans and all other amounts payable by the Company hereunder and under the Notes to be forthwith due and payable, whereupon such amounts shall be 51 immediately due and payable without presentment, demand, protest, notice of intent to accelerate, notice of acceleration or other formalities of any kind, all of which are hereby expressly waived by the Company. (b) In the case of the occurrence of an Event of Default referred to in clauses (f), (g), or (h) of Section 10.01, the Commitments shall be automatically cancelled and the principal amount then outstanding of, and the accrued interest on, the Loans and all other amounts payable by the Company hereunder and under the Notes shall become automatically immediately due and payable without presentment, demand, protest, notice of intent to accelerate, notice of acceleration or other formalities of any kind, all of which are hereby expressly waived by the Company. (c) All proceeds received after maturity of the Notes, whether by acceleration or otherwise shall be applied first to reimbursement of expenses and indemnities provided for in this Agreement and the other Loan Documents; second to accrued interest on the Notes; third to fees; fourth pro rata to principal outstanding on the Notes and other Indebtedness; and any excess shall be paid to the Company or as otherwise required by any Governmental Requirement. ARTICLE XI THE ADMINISTRATIVE AGENT Section 11.01 Appointment, Powers and Immunities. Each Lender hereby irrevocably appoints and authorizes Texas Commerce Bank National Association, as the Administrative Agent, and Chemical Bank, as the Auction Agent, each to act as its agent hereunder and under the other Loan Documents with such powers as are specifically delegated to the Administrative Agent and Auction Agent respectively by the terms of this Agreement and the other Loan Documents, together with such other powers as are reasonably incidental thereto. The Syndication Agent, in such capacity, shall have no duties or responsibilities and shall incur no liabilities under the Loan Documents. Each Agent (which term as used in this sentence and in Section 11.05 and the first sentence of Section 11.06 shall include reference to its Affiliates and its and its Affiliates' officers, directors, employees, attorneys, accountants, experts and agents): (i) shall have no duties or responsibilities except those expressly set forth in this Agreement, and shall not by reason of this Agreement be a trustee or fiduciary for any Lender; (ii) makes no representation or warranty to any Lender and shall not be responsible to the Lenders for any recitals, statements, representations or warranties contained in this Agreement, or in any certificate or other document referred to or provided for in, or received by any of them under, this Agreement, or for the value, validity, effectiveness, genuineness, execution, effectiveness, legality, enforceability or sufficiency of this Agreement, any Note or any other document referred to or provided for herein or for any failure by the Company or any other Person (other than such Agent) to perform any of its obligations hereunder or thereunder or for the existence, value, perfection or priority of any collateral security or the financial or other 52 condition of the Company, its Subsidiaries or any other obligor or guarantor; (iii) except pursuant to Section 11.07 shall not be required to initiate or conduct any litigation or collection proceedings hereunder; and (iv) shall not be responsible for any action taken or omitted to be taken by it hereunder or under any other document or instrument referred to or provided for herein or in connection herewith including its own ordinary negligence, except for its own gross negligence or willful misconduct. The Administrative Agent may employ agents, accountants, attorneys and experts and shall not be responsible for the negligence or misconduct of any such agents, accountants, attorneys or experts selected by it in good faith or any action taken or omitted to be taken in good faith by it in accordance with the advice of such agents, accountants, attorneys or experts. Each Agent may deem and treat the payee of any Note as the holder thereof for all purposes hereof unless and until a written notice of the assignment or transfer thereof permitted hereunder shall have been filed with the Administrative Agent. Section 11.02 Reliance by Agent. Each Agent shall be entitled to rely upon any certification, notice or other communication (including any thereof by telephone, telex, telecopier, telegram or cable) believed by it to be genuine and correct and to have been signed or sent by or on behalf of the proper Person or Persons, and upon advice and statements of legal counsel, independent accountants and other experts selected by such Agent. Section 11.03 Defaults. No Agent shall be deemed to have knowledge of the occurrence of a Default (other than the Administrative Agent's notice of the non-payment of principal of or interest on Loans or of fees). In the event that the Administrative Agent receives a notice of the occurrence of a Default specifying such Default and stating that such notice is a "Notice of Default", the Administrative Agent shall give prompt notice thereof to the Lenders. In the event of a payment Default, the Administrative Agent shall give each Lender prompt notice of each such payment Default. Section 11.04 Rights as a Lender. With respect to its Commitments and the Loans made by it, each Agent (and any successor acting as an Agent) in its capacity as a Lender hereunder shall have the same rights and powers hereunder as any other Lender and may exercise the same as though it were not acting as an Agent, and the term "Lender" or "Lenders" shall, unless the context otherwise indicates, include each Agent in its individual capacity. Each Agent (and any successor acting as an Agent) and its Affiliates may (without having to account therefor to any Lender) accept deposits from, lend money to and generally engage in any kind of banking, trust or other business with the Company (any and of its Affiliates) as if it were not acting as an Agent, and each Agent and its Affiliates may accept fees and other consideration from the Company for services in connection with this Agreement or otherwise without having to account for the same to the Lenders. Section 11.05 INDEMNIFICATION. THE LENDERS AGREE TO INDEMNIFY EACH AGENT RATABLY IN ACCORDANCE WITH ITS PERCENTAGE SHARES FOR THE INDEMNITY MATTERS AS DESCRIBED IN SECTION 12.03 TO THE EXTENT NOT INDEMNIFIED OR REIMBURSED 53 BY THE COMPANY UNDER SECTION 12.03, BUT WITHOUT LIMITING THE OBLIGATIONS OF THE COMPANY UNDER SAID SECTION 12.03 AND FOR ANY AND ALL OTHER LIABILITIES, OBLIGATIONS, LOSSES, DAMAGES, PENALTIES, ACTIONS, JUDGMENTS, SUITS, COSTS, EXPENSES OR DISBURSEMENTS OF ANY KIND AND NATURE WHATSOEVER WHICH MAY BE IMPOSED ON, INCURRED BY OR ASSERTED AGAINST SUCH AGENT IN ANY WAY RELATING TO OR ARISING OUT OF: (I) THIS AGREEMENT, THE OTHER LOAN DOCUMENTS OR ANY OTHER DOCUMENTS CONTEMPLATED BY OR REFERRED TO HEREIN OR THE TRANSACTIONS CONTEMPLATED HEREBY, BUT EXCLUDING, UNLESS A DEFAULT HAS OCCURRED AND IS CONTINUING, NORMAL ADMINISTRATIVE COSTS AND EXPENSES INCIDENT TO THE PERFORMANCE OF ITS AGENCY DUTIES HEREUNDER OR (II) THE ENFORCEMENT OF ANY OF THE TERMS OF THIS AGREEMENT, OTHER LOAN DOCUMENTS OR OF ANY SUCH OTHER DOCUMENTS; WHETHER OR NOT ANY OF THE FOREGOING SPECIFIED IN THIS SECTION 11.05 ARISES FROM THE SOLE OR CONCURRENT NEGLIGENCE OF SUCH AGENT, PROVIDED THAT NO LENDER SHALL BE LIABLE FOR ANY OF THE FOREGOING TO THE EXTENT THEY ARISE FROM THE GROSS NEGLIGENCE OR WILLFUL MISCONDUCT OF SUCH AGENT. Section 11.06 Non-Reliance on the Agents and other Lenders. Each Lender acknowledges and agrees that it has, independently and without reliance on any Agent or any other Lender, and based on such documents and information as it has deemed appropriate, made its own credit analysis of the Company and its decision to enter into this Agreement, and that it will, independently and without reliance upon any Agent or any other Lender, and based on such documents and information as it shall deem appropriate at the time, continue to make its own analysis and decisions in taking or not taking action under this Agreement. The Agents shall not be required to keep themselves informed as to the performance or observance by the Company of this Agreement, the Notes, the other Loan Documents or any other document referred to or provided for herein or to inspect the properties or books of the Company. Except for notices, reports and other documents and information expressly required to be furnished to the Lenders by the Administrative Agent or Auction Agent hereunder, the Agents shall not have any duty or responsibility to provide any Lender with any credit or other information concerning the affairs, financial condition or business of the Company (or any of its Affiliates) which may come into the possession of any Agent, or any of its Affiliates. Section 11.07 Action by Agent. Except for action or other matters expressly required of the Administrative Agent or Auction Agent hereunder, the Administrative Agent or Auction Agent shall in all cases be fully justified in failing or refusing to act hereunder unless it shall (i) receive written instructions from the Majority Lenders (or if this Agreement requires, all of the Lenders) specifying the action to be taken, and (ii) be indemnified to its satisfaction by the Lenders against any and all liability and expenses which may be incurred by it by reason of taking or continuing to take any such action except for gross negligence or wilful misconduct. The instructions of the Majority Lenders (or if this Agreement requires, all of the Lenders) and any action taken or failure to act pursuant thereto by the Administrative Agent or Auction Agent shall be binding on all of the Lenders. If a Default has occurred and is continuing, the Administrative Agent or Auction Agent shall take such action with respect to such Default as shall be directed by the 54 Majority Lenders (or if this Agreement requires, all of the Lenders) in the written instructions (with indemnities) described in this Section 11.07, provided that, unless and until the Administrative Agent or Auction Agent shall have received such directions, the Administrative Agent or Auction Agent may (but shall not be obligated to) take such action, or refrain from taking such action, with respect to such Default as it shall deem advisable in the best interests of the Lenders. In no event, however, shall any Agent be required to take any action which exposes such Agent to personal liability or which is contrary to this Agreement and the other Loan Documents or applicable law. Section 11.08 Resignation or Removal of the Agents. Subject to the appointment and acceptance of a successor as provided below, the Administrative Agent or Auction Agent may resign at any time by giving notice thereof to the Lenders and the Company, and the Administrative Agent or Auction Agent may be removed at any time with or without cause by the Majority Lenders. Upon any such resignation or removal, the Majority Lenders shall have the right to appoint a successor Administrative Agent or Auction Agent as the case may be. If no successor Administrative Agent or Auction Agent shall have been so appointed by the Majority Lenders and shall have accepted such appointment within thirty (30) days after the retiring Administrative Agent's or Auction Agent's giving of notice of resignation or the Majority Lenders' removal of the retiring Administrative Agent or Auction Agent, then the retiring Administrative Agent or Auction Agent, as the case may be, may, on behalf of the Lenders, appoint a respective successor Administrative Agent or Auction Agent. Upon the acceptance of such appointment hereunder by a successor Administrative Agent or Auction Agent, such successor Administrative Agent or Auction Agent shall thereupon succeed to and become vested with all the rights, powers, privileges and duties of the retiring Administrative Agent or Auction Agent, as the case may be, and the retiring Administrative Agent or Auction Agent shall be discharged from its duties and obligations hereunder. After any retiring Administrative Agent's or Auction Agent's resignation or removal hereunder as Administrative Agent or Auction Agent, the provisions of this Article XI and Section 12.03 shall continue in effect for its benefit in respect of any actions taken or omitted to be taken by it while it was acting as the Administrative Agent or Auction Agent. ARTICLE XII MISCELLANEOUS Section 12.01 Waiver. No failure on the part of any Agent or any Lender to exercise and no delay in exercising, and no course of dealing with respect to, any right, power or privilege under any of the Loan Documents shall operate as a waiver thereof, nor shall any single or partial exercise of any right, power or privilege under any of the Loan Documents preclude any other or further exercise thereof or the exercise of any other right, power or privilege. The remedies provided herein are cumulative and not exclusive of any remedies provided by law. 55 Section 12.02 Notices. All notices and other communications provided for herein and in the other Loan Documents (including, without limitation, any modifications of, or waivers or consents under, this Agreement or the other Loan Documents) shall be given or made by telex, telecopy, telegraph, cable, courier or U.S. Mail or in writing and telexed, telecopied, telegraphed, cabled, mailed or delivered to the intended recipient at the "Address for Notices" specified below its name on the signature pages hereof or in the other Loan Documents or, as to any party, at such other address as shall be designated by such party in a notice to each other party. Except as otherwise provided in this Agreement or in the other Loan Documents, all such communications shall be deemed to have been duly given when transmitted by telex or telecopier, delivered to the telegraph or cable office or personally delivered or, in the case of a mailed notice, three (3) Business Days after the date deposited in the mails, postage prepaid, in each case given or addressed as aforesaid. The Company shall be the agent of each Designated Subsidiary for the receiving and giving of any notices or other communications under the Loan Documents. Section 12.03 Payment of Expenses, Indemnities, etc. Each Obligor agrees: (a) whether or not the transactions hereby contemplated are consummated, to pay all reasonable expenses of the Agents in the administration (both before and after the execution hereof and including advice of counsel as to the rights and duties of the Agents and the Lenders with respect thereto) of, and in connection with the negotiation, syndication, investigation, preparation, execution and delivery of, recording or filing of, preservation of rights under, enforcement of, and refinancing, renegotiation or restructuring of, the Loan Documents and any amendment, waiver or consent relating thereto (including, without limitation, travel, photocopy, mailing, courier, telephone and other similar expenses of the Agents, the cost of environmental audits, surveys and appraisals at reasonable intervals, the reasonable fees and disbursements of counsel for the Agents and in the case of enforcement for any of the Lenders); and promptly reimburse the Agents for the account of the Agents and the Lenders for all amounts expended, advanced or incurred by the Agents or the Lenders to satisfy any obligation of the Company under this Agreement or any other Loan Document; (b) TO INDEMNIFY EACH AGENT AND EACH LENDER AND EACH OF THEIR AFFILIATES AND EACH OF THEIR OFFICERS, DIRECTORS, EMPLOYEES, REPRESENTATIVES, AGENTS, ATTORNEYS, ACCOUNTANTS AND EXPERTS ("INDEMNIFIED PARTIES") FROM, HOLD EACH OF THEM HARMLESS AGAINST AND PROMPTLY UPON DEMAND PAY OR REIMBURSE EACH OF THEM FOR, THE INDEMNITY MATTERS WHICH MAY BE INCURRED BY OR ASSERTED AGAINST OR INVOLVE ANY OF THEM (WHETHER OR NOT ANY OF THEM IS DESIGNATED A PARTY THERETO) AS A RESULT OF, ARISING OUT OF OR IN ANY WAY RELATED TO (I) ANY ACTUAL OR PROPOSED USE BY ANY OBLIGOR OF THE PROCEEDS OF ANY OF THE LOANS, (II) THE EXECUTION, DELIVERY AND PERFORMANCE OF THE LOAN DOCUMENTS, (III) THE OPERATIONS OF THE BUSINESS OF THE COMPANY AND ITS SUBSIDIARIES, (IV) THE FAILURE OF THE COMPANY OR ANY SUBSIDIARY TO COMPLY WITH THE TERMS OF ANY LOAN DOCUMENT, OR WITH ANY GOVERNMENTAL 56 REQUIREMENT, (V) ANY INACCURACY OF ANY REPRESENTATION OR ANY BREACH OF ANY WARRANTY OF THE COMPANY SET FORTH IN ANY OF THE LOAN DOCUMENTS, (VI) ANY ASSERTION THAT THE LENDERS WERE NOT ENTITLED TO RECEIVE THE PROCEEDS RECEIVED PURSUANT TO THE LOAN DOCUMENTS OR (VII) ANY OTHER ASPECT OF THE LOAN DOCUMENTS, INCLUDING, WITHOUT LIMITATION, THE REASONABLE FEES AND DISBURSEMENTS OF COUNSEL AND ALL OTHER EXPENSES INCURRED IN CONNECTION WITH INVESTIGATING, DEFENDING OR PREPARING TO DEFEND ANY SUCH ACTION, SUIT, PROCEEDING (INCLUDING ANY INVESTIGATIONS, LITIGATION OR INQUIRIES) OR CLAIM AND INCLUDING ALL INDEMNITY MATTERS ARISING BY REASON OF THE ORDINARY NEGLIGENCE OF ANY INDEMNIFIED PARTY, BUT EXCLUDING ALL INDEMNITY MATTERS ARISING SOLELY BY REASON OF CLAIMS BETWEEN THE LENDERS OR ANY LENDER AND ANY AGENT OR A LENDER'S SHAREHOLDERS AGAINST ANY AGENT OR LENDER OR BY REASON OF THE GROSS NEGLIGENCE OR WILLFUL MISCONDUCT ON THE PART OF SUCH INDEMNIFIED PARTY; AND (c) TO INDEMNIFY AND HOLD HARMLESS FROM TIME TO TIME EACH INDEMNIFIED PARTY FROM AND AGAINST ANY AND ALL LOSSES, CLAIMS, COST RECOVERY ACTIONS, ADMINISTRATIVE ORDERS OR PROCEEDINGS, DAMAGES AND LIABILITIES TO WHICH ANY SUCH PERSON MAY BECOME SUBJECT (I) UNDER ANY ENVIRONMENTAL LAW APPLICABLE TO THE COMPANY OR ANY SUBSIDIARY OR ANY OF THEIR PROPERTIES, INCLUDING WITHOUT LIMITATION THE TREATMENT OR DISPOSAL OF HAZARDOUS SUBSTANCES ON ANY OF THEIR PROPERTIES AND RESULTING FROM THE FACT THAT THE AGENTS OR LENDERS ARE A PARTY TO ANY LOAN DOCUMENT, (II) AS A RESULT OF THE BREACH OR NON-COMPLIANCE BY THE COMPANY OR ANY SUBSIDIARY WITH ANY ENVIRONMENTAL LAW APPLICABLE TO THE COMPANY OR ANY SUBSIDIARY, (III) DUE TO PAST OWNERSHIP BY THE COMPANY OR ANY SUBSIDIARY OF ANY OF THEIR PROPERTIES OR PAST ACTIVITY ON ANY OF THEIR PROPERTIES WHICH, THOUGH LAWFUL AND FULLY PERMISSIBLE AT THE TIME, COULD RESULT IN PRESENT LIABILITY, (IV) THE PRESENCE, USE, RELEASE, STORAGE, TREATMENT OR DISPOSAL OF HAZARDOUS SUBSTANCES ON OR AT ANY OF THE PROPERTIES OWNED OR OPERATED BY THE COMPANY OR ANY SUBSIDIARY, OR (V) ANY OTHER ENVIRONMENTAL, HEALTH OR SAFETY CONDITION IN CONNECTION WITH THE LOAN DOCUMENTS, PROVIDED, HOWEVER, NO INDEMNITY SHALL BE AFFORDED UNDER THIS SECTION 12.03(C) IN RESPECT OF ANY PROPERTY FOR ANY OCCURRENCE ARISING FROM THE ACTS OR OMISSIONS OF ANY AGENT OR ANY LENDER DURING THE PERIOD AFTER WHICH SUCH PERSON, ITS SUCCESSORS OR ASSIGNS SHALL HAVE OBTAINED POSSESSION OF SUCH PROPERTY (WHETHER BY FORECLOSURE OR DEED IN LIEU OF FORECLOSURE, AS MORTGAGEE-IN-POSSESSION OR OTHERWISE). (d) No Indemnified Party may settle any claim to be indemnified without the consent of the indemnitor, such consent not to be unreasonably withheld; provided, that the indemnitor may not reasonably withhold consent to any settlement that an Indemnified Party proposes, if the indemnitor does not have the financial ability to pay all its obligations outstanding and asserted against the indemnitor at 57 that time, including the maximum potential claims against the Indemnified Party to be indemnified pursuant to this Section 12.03. (e) In the case of any indemnification hereunder, the Administrative Agent or a Lender, as appropriate shall give notice to the Company of any such claim or demand being made against such Indemnified Party and the Company shall have the non-exclusive right to join in the defense against any such claim or demand provided that if the Company provides a defense, such Indemnified Party shall bear its own cost of defense unless there is a conflict between the Company and such Indemnified Party. (f) THE FOREGOING INDEMNITIES SHALL EXTEND TO THE INDEMNIFIED PARTIES NOTWITHSTANDING THE NEGLIGENCE OF EVERY KIND OR CHARACTER WHATSOEVER, WHETHER ACTIVE OR PASSIVE, WHETHER AN AFFIRMATIVE ACT OR AN OMISSION, INCLUDING WITHOUT LIMITATION, ALL TYPES OF NEGLIGENT CONDUCT IDENTIFIED IN THE RESTATEMENT (SECOND) OF TORTS OF ONE OR MORE OF THE INDEMNIFIED PARTIES OR BY REASON OF STRICT LIABILITY IMPOSED WITHOUT FAULT ON ANY ONE OR MORE OF THE INDEMNIFIED PARTIES. TO THE EXTENT THAT AN INDEMNIFIED PARTY IS FOUND TO HAVE COMMITTED AN ACT OF GROSS NEGLIGENCE OR WILLFUL MISCONDUCT, THIS CONTRACTUAL OBLIGATION OF INDEMNIFICATION SHALL CONTINUE BUT SHALL ONLY EXTEND TO THE PORTION OF THE CLAIM THAT IS DEEMED TO HAVE OCCURRED BY REASON OF EVENTS OTHER THAN THE GROSS NEGLIGENCE OR WILLFUL MISCONDUCT OF THE INDEMNIFIED PARTY. (g) Each Obligor's obligation under this Section 12.03 shall survive any termination of this Agreement and the payment of the Notes and shall continue thereafter in full force and effect. (h) The Obligors shall pay any amounts due under this Section 12.03 within thirty (30) days of the receipt by the Company of notice of the amount due. Section 12.04 Amendments, Etc. Any provision of this Agreement or any other Loan Document may be amended, modified or waived with the Company's and the Majority Lenders' prior written consent; provided that (i) no amendment, modification or waiver which extends the maturity of the Loans, or the interest or fee payment dates, increases the Aggregate Commitments, forgives the principal amount of any Indebtedness outstanding under this Agreement, reduces the interest rate applicable to the Loans or the fees payable to the Lenders generally, affects this Section 12.04 or Section 12.06(a) or modifies the definition of "Majority Lenders" or any provision which by its terms requires the consent or approval of all of the Lenders shall be effective without consent of all Lenders; (ii) no amendment, modification or waiver which increases or extends the Commitment of any Lender shall be effective without the consent of such Lender; and (iii) no amendment, modification or waiver which modifies the rights, duties or obligations of the Administrative Agent, Auction Agent or the Syndication Agent shall be effective without the consent of such Agent. 58 Section 12.05 Successors and Assigns. This Agreement shall be binding upon and inure to the benefit of the parties hereto and their respective successors and permitted assigns. Section 12.06 Assignments and Participations. (a) No Obligor may assign its rights or obligations hereunder or under the Notes without the prior consent of all of the Lenders and the Agents. (b) Any Lender may, upon the written consent of the Company (which consent shall not be unreasonably withheld) assign to one or more assignees all or a portion of its rights and obligations under this Agreement and the other Loan Documents pursuant to an Assignment Agreement substantially in the form of Exhibit K (an "Assignment") provided, however, that (i) any such assignment shall be in the amount of at least $10,000,000 or such lesser amount to which the Company has consented and (ii) the assignor or assignee shall pay to the Administrative Agent a processing and recordation fee of $2500 for each assignment. Any such assignment will become effective upon the execution and delivery to the Administrative Agent of the Assignment and the written consent of the Company. Promptly after receipt of an executed Assignment, the Administrative Agent shall send to the Company a copy of such executed Assignment. Upon receipt of such executed Assignment, the Company, will, at its own expense, execute and deliver new Notes to the assignor and/or assignee, as appropriate, in accordance with their respective interests as they appear. Upon the effectiveness of any assignment pursuant to this Section 12.06(b), the assignee will become a "Lender," if not already a "Lender," for all purposes of this Agreement and the other Loan Documents. The assignor shall be relieved of its obligations hereunder to the extent of such assignment (and if the assigning Lender no longer holds any rights or obligations under this Agreement, such assigning Lender shall cease to be a "Lender" hereunder except that its rights under Sections 4.06, 5.01, 5.05 and 12.03 shall not be affected). The Administrative Agent will prepare on the last Business Day of each month during which an assignment has become effective pursuant to this Section 12.06(b), a new Annex 1 giving effect to all such assignments effected during such month, and will promptly provide the same to the Company and each of the Lenders. (c) Each Lender may transfer, grant or assign participations in all or any part of such Lender's interests, rights and obligations hereunder pursuant to this Section 12.06(c) to any Person, provided that: (i) such Lender shall remain a "Lender" for all purposes of this Agreement and the transferee of such participation shall not constitute a "Lender" hereunder; and (ii) no participant under any such participation shall have rights to approve any amendment to or waiver of any of the Loan Documents except to the extent such amendment or waiver would (x) extend the Revolving Credit Termination Date, (y) reduce the interest rate (other than as a result of waiving the applicability of any post- default increases in interest rates) or fees applicable to any of the Commitments or Loans in which such participant is 59 participating, or postpone the payment of any thereof, or (z) release all or substantially all of the collateral (except as expressly provided in the other Loan Documents) supporting any of the Commitments or Loans in which such participant is participating. In the case of any such participation, the participant shall not have any rights under this Agreement or any of the other Loan Documents (the participant's rights against the granting Lender in respect of such participation to be those set forth in the agreement with such Lender creating such participation), and all amounts payable by the Company hereunder shall be determined as if such Lender had not sold such participation, provided that such participant shall be entitled to receive additional amounts under Article V on the same basis as if it were a Lender and be indemnified under Section 12.03 as if it were a Lender. In addition, each agreement creating any participation must include an agreement by the participant to be bound by the provisions of Section 12.15. (d) The Lenders may furnish any information concerning the Company in the possession of the Lenders from time to time to assignees and participants (including prospective assignees and participants); provided such Persons agree in writing to be bound by the provisions of Section 12.15. (e) Notwithstanding anything in this Section 12.06 to the contrary, any Lender may assign and pledge its Note to any Federal Reserve Bank or the United States Treasury as collateral security pursuant to Regulation A of the Board of Governors of the Federal Reserve System and any operating circular issued by such Federal Reserve System and/or such Federal Reserve Bank. No such assignment and/or pledge shall release the assigning and/or pledging Lender from its obligations hereunder. (f) Notwithstanding any other provisions of this Section 12.06, no transfer or assignment of the interests or obligations of any Lender or any grant of participations therein shall be permitted if such transfer, assignment or grant would require the Company to file a registration statement with the SEC or to qualify the Loans under the "Blue Sky" laws of any state. Section 12.07 Invalidity. In the event that any one or more of the provisions contained in any of the Loan Documents shall, for any reason, be held invalid, illegal or unenforceable in any respect, such invalidity, illegality or unenforceability shall not affect any other provision of the Notes, this Agreement or any other Loan Document. Section 12.08 Counterparts. This Agreement may be executed in any number of counterparts, all of which taken together shall constitute one and the same instrument and any of the parties hereto may execute this Agreement by signing any such counterpart. Section 12.09 References. The words "herein," "hereof," "hereunder" and other words of similar import when used in this Agreement refer to this Agreement as a whole, and not to any particular article, section or subsection. Any reference herein to a 60 Section shall be deemed to refer to the applicable Section of this Agreement unless otherwise stated herein. Any reference herein to an exhibit or schedule shall be deemed to refer to the applicable exhibit or schedule attached hereto unless otherwise stated herein. Section 12.10 Survival. The obligations of the parties under Section 4.06, Article V, and Sections 11.05 and 12.03 shall survive the repayment of the Loans and the termination of the Commitments. To the extent that any payments on the Indebtedness or proceeds of any collateral are subsequently invalidated, declared to be fraudulent or preferential, set aside or required to be repaid to a trustee, debtor in possession, receiver or other Person under any bankruptcy law, common law or equitable cause, then to such extent, the Indebtedness so satisfied shall be revived and continue as if such payment or proceeds had not been received and the Administrative Agent's and the Lenders' Liens, security interests, rights, powers and remedies under this Agreement and each other Loan Document shall continue in full force and effect. In such event, each Loan Document shall be automatically reinstated and the Company shall take such action as may be reasonably requested by the Administrative Agent and the Lenders to effect such reinstatement. Section 12.11 Captions. Captions and section headings appearing herein and the table of contents hereto are included solely for convenience of reference and are not intended to affect the interpretation of any provision of this Agreement. Section 12.12 NO ORAL AGREEMENTS. THE LOAN DOCUMENTS EMBODY THE ENTIRE AGREEMENT AND UNDERSTANDING BETWEEN THE PARTIES AND SUPERSEDE ALL OTHER AGREEMENTS AND UNDERSTANDINGS BETWEEN SUCH PARTIES RELATING TO THE SUBJECT MATTER HEREOF AND THEREOF. THE LOAN DOCUMENTS REPRESENT THE FINAL AGREEMENT BETWEEN THE PARTIES AND MAY NOT BE CONTRADICTED BY EVIDENCE OF PRIOR, CONTEMPORANEOUS OR SUBSEQUENT ORAL AGREEMENTS OF THE PARTIES. THERE ARE NO UNWRITTEN ORAL AGREEMENTS BETWEEN THE PARTIES. Section 12.13 GOVERNING LAW; SUBMISSION TO JURISDICTION. (A) THIS AGREEMENT AND THE NOTES SHALL BE GOVERNED BY, AND CONSTRUED IN ACCORDANCE WITH, THE LAWS OF THE STATE OF TEXAS EXCEPT TO THE EXTENT THAT UNITED STATES FEDERAL LAW PERMITS ANY LENDER TO CHARGE INTEREST AT THE RATE ALLOWED BY THE LAWS OF THE STATE WHERE SUCH LENDER IS LOCATED. TEX. REV. CIV. STAT. ANN. ART. 5069, CH. 15 (WHICH REGULATES CERTAIN REVOLVING CREDIT LOAN ACCOUNTS AND REVOLVING TRI-PARTY ACCOUNTS) SHALL NOT APPLY TO THIS AGREEMENT OR THE NOTES. (B) ANY LEGAL ACTION OR PROCEEDING WITH RESPECT TO THE LOAN DOCUMENTS MAY BE BROUGHT IN THE COURTS OF THE STATE OF TEXAS OR OF THE UNITED STATES OF AMERICA FOR THE SOUTHERN DISTRICT OF TEXAS, AND, BY EXECUTION AND DELIVERY OF THIS AGREEMENT, THE COMPANY HEREBY ACCEPTS FOR ITSELF AND (TO THE EXTENT PERMITTED BY LAW) IN RESPECT OF ITS PROPERTY, GENERALLY AND UNCONDITIONALLY, THE JURISDICTION OF THE AFORESAID COURTS. 61 THE COMPANY HEREBY IRREVOCABLY WAIVES ANY OBJECTION, INCLUDING, WITHOUT LIMITATION, ANY OBJECTION TO THE LAYING OF VENUE OR BASED ON THE GROUNDS OF FORUM NON CONVENIENS, WHICH IT MAY NOW OR HEREAFTER HAVE TO THE BRINGING OF ANY SUCH ACTION OR PROCEEDING IN SUCH RESPECTIVE JURISDICTIONS. THIS SUBMISSION TO JURISDICTION IS NON-EXCLUSIVE AND DOES NOT PRECLUDE THE ADMINISTRATIVE AGENT OR ANY LENDER FROM OBTAINING JURISDICTION OVER THE COMPANY IN ANY COURT OTHERWISE HAVING JURISDICTION. (C) NOTHING HEREIN SHALL AFFECT THE RIGHT OF THE ADMINISTRATIVE AGENT OR ANY LENDER OR ANY HOLDER OF A NOTE TO SERVE PROCESS IN ANY MANNER PERMITTED BY LAW OR TO COMMENCE LEGAL PROCEEDINGS OR OTHERWISE PROCEED AGAINST THE COMPANY IN ANY OTHER JURISDICTION. (D) EACH OF THE COMPANY AND EACH LENDER HEREBY (I) IRREVOCABLY AND UNCONDITIONALLY WAIVES, TO THE FULLEST EXTENT PERMITTED BY LAW, TRIAL BY JURY IN ANY LEGAL ACTION OR PROCEEDING RELATING TO THIS AGREEMENT OR ANY OTHER LOAN DOCUMENT AND FOR ANY COUNTERCLAIM THEREIN; (II) IRREVOCABLY WAIVES, TO THE MAXIMUM EXTENT NOT PROHIBITED BY LAW, ANY RIGHT IT MAY HAVE TO CLAIM OR RECOVER IN ANY SUCH LITIGATION ANY SPECIAL, EXEMPLARY, PUNITIVE OR CONSEQUENTIAL DAMAGES, OR DAMAGES OTHER THAN, OR IN ADDITION TO, ACTUAL DAMAGES; (III) CERTIFIES THAT NO PARTY HERETO NOR ANY REPRESENTATIVE OR AGENT OF COUNSEL FOR ANY PARTY HERETO HAS REPRESENTED, EXPRESSLY OR OTHERWISE, OR IMPLIED THAT SUCH PARTY WOULD NOT, IN THE EVENT OF LITIGATION, SEEK TO ENFORCE THE FOREGOING WAIVERS, AND (IV) ACKNOWLEDGES THAT IT HAS BEEN INDUCED TO ENTER INTO THIS AGREEMENT, THE OTHER LOAN DOCUMENTS AND THE TRANSACTIONS CONTEMPLATED HEREBY AND THEREBY BY, AMONG OTHER THINGS, THE MUTUAL WAIVERS AND CERTIFICATIONS CONTAINED IN THIS SECTION 12.13. Section 12.14 Interest. It is the intention of the parties hereto that each Lender shall conform strictly to usury laws applicable to it. Accordingly, if the transactions contemplated hereby would be usurious as to any Lender under laws applicable to it (including the laws of the United States of America and the State of Texas or any other jurisdiction whose laws may be mandatorily applicable to such Lender notwithstanding the other provisions of this Agreement), then, in that event, notwithstanding anything to the contrary in any of the Loan Documents or any agreement entered into in connection with or as security for the Notes, it is agreed as follows: (i) the aggregate of all consideration which constitutes interest under law applicable to any Lender that is contracted for, taken, reserved, charged or received by such Lender under any of the Loan Documents or agreements or otherwise in connection with the Notes shall under no circumstances exceed the maximum amount allowed by such applicable law, and any excess shall be cancelled automatically and if theretofore paid shall be credited by such Lender on the principal amount of the Indebtedness (or, to the extent that the principal amount of the Indebtedness shall have been or would thereby be paid in full, refunded by such Lender to the Company); 62 and (ii) in the event that the maturity of the Notes is accelerated by reason of an election of the holder thereof resulting from any Event of Default or otherwise, or in the event of any required or permitted prepayment, then such consideration that constitutes interest under law applicable to any Lender may never include more than the maximum amount allowed by such applicable law, and excess interest, if any, provided for in this Agreement or otherwise shall be cancelled automatically by such Lender as of the date of such acceleration or prepayment and, if theretofore paid, shall be credited by such Lender on the principal amount of the Indebtedness (or, to the extent that the principal amount of the Indebtedness shall have been or would thereby be paid in full, refunded by such Lender to the Company). All sums paid or agreed to be paid to any Lender for the use, forbearance or detention of sums due hereunder shall, to the extent permitted by law applicable to such Lender, be amortized, prorated, allocated and spread throughout the full term of the Loans evidenced by the Notes until payment in full so that the rate or amount of interest on account of any Loans hereunder does not exceed the maximum amount allowed by such applicable law. If at any time and from time to time (i) the amount of interest payable to any Lender on any date shall be computed at the Highest Lawful Rate applicable to such Lender pursuant to this Section 12.14 and (ii) in respect of any subsequent interest computation period the amount of interest otherwise payable to such Lender would be less than the amount of interest payable to such Lender computed at the Highest Lawful Rate applicable to such Lender, then the amount of interest payable to such Lender in respect of such subsequent interest computation period shall continue to be computed at the Highest Lawful Rate applicable to such Lender until the total amount of interest payable to such Lender shall equal the total amount of interest which would have been payable to such Lender if the total amount of interest had been computed without giving effect to this Section 12.14. To the extent that Article 5069-1.04 of the Texas Revised Civil Statutes is relevant for the purpose of determining the Highest Lawful Rate, such Lender elects to determine the applicable rate ceiling under such Article by the indicated weekly rate ceiling from time to time in effect. Section 12.15 Confidentiality. In the event that the Company provides to the Agents or the Lenders written confidential information belonging to the Company, if the Company shall denominate such information in writing as "confidential", the Agents and the Lenders shall thereafter maintain such information in confidence in accordance with the standards of care and diligence that each utilizes in maintaining its own confidential information. This obligation of confidence shall not apply to such portions of the information which (i) are in the public domain, (ii) hereafter become part of the public domain without the Agents or the Lenders breaching their obligation of confidence to the Company, (iii) are previously known by the Agents or the Lenders from some source other than the Company, (iv) are hereafter developed by the Agents or the Lenders without using the Company's information, (v) are hereafter obtained by or available to the Agents or the Lenders from a third party who owes no obligation of confidence to the Company with respect to such information or through any other means other than through disclosure by the Company, (vi) are disclosed with the Company's consent, (vii) must be disclosed either pursuant to any Governmental Requirement or to Persons regulating the activities of the Agents or the Lenders, or (viii) as may be required by law or regulation or order of any 63 Governmental Authority in any judicial, arbitration or governmental proceeding. Further, an Agent or a Lender may disclose any such information to any other Lender, any Affiliate of such Agent or Lender, any independent petroleum engineers or consultants, any independent certified public accountants, any legal counsel employed by such Person in connection with this Agreement or any other Loan Document, including without limitation, the enforcement or exercise of all rights and remedies thereunder, or any assignee or participant (including prospective assignees and participants) in the Loans; provided, however, that such Agent or Lender imposes on the Person to whom such information is disclosed the same obligation to maintain the confidentiality of such information as is imposed upon it hereunder. Notwithstanding anything to the contrary provided herein, this obligation of confidence shall cease three (3) years from the date the information was furnished, unless the Company requests in writing at least thirty (30) days prior to the expiration of such three year period, to maintain the confidentiality of such information for an additional three year period. The Company waives any and all other rights it may have to confidentiality as against the Agents and the Lenders arising by contract, agreement, statute or law except as expressly stated in this Section 12.15. Section 12.16 Effectiveness. This Agreement shall not be effective until executed by all parties hereto and delivered to and accepted by the Administrative Agent, and the other conditions listed in the definition of "Effective Date" have occurred. Section 12.17 EXCULPATION PROVISIONS. EACH OF THE PARTIES HERETO SPECIFICALLY AGREES THAT IT HAS A DUTY TO READ THIS AGREEMENT AND THE OTHER LOAN DOCUMENTS AND AGREES THAT IT IS CHARGED WITH NOTICE AND KNOWLEDGE OF THE TERMS OF THIS AGREEMENT AND THE OTHER LOAN DOCUMENTS; THAT IT HAS IN FACT READ THIS AGREEMENT AND THE OTHER LOAN DOCUMENTS AND IS FULLY INFORMED AND HAS FULL NOTICE AND KNOWLEDGE OF THE TERMS, CONDITIONS AND EFFECTS OF THIS AGREEMENT; THAT IT HAS BEEN REPRESENTED BY INDEPENDENT LEGAL COUNSEL OF ITS CHOICE THROUGHOUT THE NEGOTIATIONS PRECEDING ITS EXECUTION OF THIS AGREEMENT AND THE OTHER LOAN DOCUMENTS; AND HAS RECEIVED THE ADVICE OF ITS ATTORNEY IN ENTERING INTO THIS AGREEMENT AND THE OTHER LOAN DOCUMENTS; AND THAT IT RECOGNIZES THAT CERTAIN OF THE TERMS OF THIS AGREEMENT AND THE OTHER LOAN DOCUMENTS RESULT IN ONE PARTY ASSUMING THE LIABILITY INHERENT IN SOME ASPECTS OF THE TRANSACTION AND RELIEVING THE OTHER PARTY OF ITS RESPONSIBILITY FOR SUCH LIABILITY. EACH PARTY HERETO AGREES AND COVENANTS THAT IT WILL NOT CONTEST THE VALIDITY OR ENFORCEABILITY OF ANY EXCULPATORY PROVISION OF THIS AGREEMENT AND THE OTHER LOAN DOCUMENTS ON THE BASIS THAT THE PARTY HAD NO NOTICE OR KNOWLEDGE OF SUCH PROVISION OR THAT SUCH PROVISION IS NOT "CONSPICUOUS." The parties hereto have caused this Agreement to be duly executed as of the day and year first above written. 64 ENSERCH EXPLORATION, INC. ATTEST: /s/ By: /s/ A. E. Gallatin - ------------------------------ ------------------------------------------ Assistant Corporate Secretary Name: A. E. Gallatin Title: Vice President and Treasurer LENDER AND TEXAS COMMERCE BANK NATIONAL ADMINISTRATIVE AGENT: ASSOCIATION By: /s/ Dale S. Hurd -------------------------------------------- Name: Dale S. Hurd Title: Senior Vice President Lending Office for Base Rate Loans: 2200 Ross Avenue Dallas, TX 75201 Lending Office for Eurodollar Loans: 2200 Ross Avenue Dallas, TX 75201 Address for Notices: 2200 Ross Avenue Dallas, TX 75201 Telecopier No.: (214) 922-2389 Telephone No.: (214) 922-2583 Attention: Dale Hurd SYNDICATION AGENT AND LENDER: THE CHASE MANHATTAN BANK, N.A. By: /s/ Bettylou J. Robert --------------------------------------------- Name: Bettylou J.Robert Title: Vice President Lending Office for Base Rate Loans: The Chase Manhattan Bank, N.A. 1 Chase Manhattan Plaza New York, New York 10005 Lending Office for Eurodollar Loans: The Chase Manhattan Bank, N.A. 1 Chase Manhattan Plaza New York, New York 10005 Address for Notices: The Chase Manhattan Bank, N.A. 2 Chase Manhattan Plaza, 5th Floor New York, New York 10005 Telecopier No.: (212) 552-4455 Telephone No.: (212) 552-3017 Attention: Joselin Fernandes [With copy to:] Chase National Corporate Services, Inc. One Houston Center 1221 McKinney, Suite 3000 Houston, Texas 77010 Telecopier No.: (713) 751-9122 Telephone No.: (713) 751-5657 Attention: Scott Porter LENDER: CITIBANK, N.A. By: /s/ Mark J. Lyons --------------------------------------------- Name: Mark. J. Lyons Title: Vice President Lending Office for Base Rate Loans: Citibank, N.A. 399 Park Avenue New York, NY 10043 Lending Office for Eurodollar Loans: Same as above Address for Notices: One Court Square -- 7th Floor Long Island City, NY 11120 Telecopier No.: (718) 248-4844 Telephone No.: (718) 248-5762 Attention: Leena Hiranandani LENDER: THE LONG-TERM CREDIT BANK OF JAPAN, LTD. By: /s/ Satoru Otsubo ------------------------------------------- Name: Satoru Otsubo Title: Joint General Manager Lending Office for Base Rate Loans: The Long-Term Credit Bank of Japan, Ltd. 165 Broadway, 48th Floor New York, NY 10006 Lending Office for Eurodollar Loans: The Long-Term Credit Bank of Japan, Ltd. 165 Broadway, 48th Floor New York, NY 10006 Addresses for Notices: The Long-Term Credit Bank of Japan, Ltd. 165 Broadway, 48th Floor New York, NY 10006 Telecopier No.: (212) 608-3452 Telephone No.: (212) 335-4801 Attention: Bob Pacifici [With copy to:] LENDER: BANKERS TRUST COMPANY By: /s/ Mary Jo Jolly ------------------------------------------- Name: Mary Jo Jolly Title: Assistant Vice President Lending Office for Base Rate Loans: 130 Liberty Street New York, NY 10006 Lending Office for Eurodollar Loans: 130 Liberty Street New York, NY 10006 Addresses for Notices: 130 Liberty Street Loan Division, 14th Floor New York, NY 10006 Telecopier No.: (212) 250-6029 Telephone No.: (212) 250-7561 Attention: Stephen Snizek [With copy to:] Roberta K. Bohn Bankers Trust Company 909 Fannin, Suite 3000 Houston, Texas 77010 Telecopier No.: (713) 759-6708 Telephone No.: (713) 759-6731 LENDER: THE BANK OF NOVA SCOTIA By: /s/ F.C.H. ASHBY ------------------------------------------- Name: F.C.H. ASHBY Title: SENIOR MANAGER LOAN OPERATIONS Lending Office for Base Rate Loans: 600 PEACHTREE STREET N.E. SUITE 2700 ATLANTA, GA 30308 Lending Office for Eurodollar Loans: 600 PEACHTREE STREET N.E. SUITE 2700 ATLANTA, GA 30308 Addresses for Notices: 600 PEACHTREE STREET N.E. SUITE 2700 ATLANTA, GA 30308 Telecopier No.: 404-888-8998 Telephone No.: 404-877-1549 Attention: JEFREY JONES [With copy to:] (DOCUMENTS) 1100 LOUISIANA STREET SUITE 3000 HOUSTON, TX 77002 ATTN: D. MATT HARRIS LENDER: CANADIAN IMPERIAL BANK OF COMMERCE By: /s/ GARY C. GASKILL ------------------------------------------- Name: GARY C. GASKILL Title: AUTHORIZED SIGNATORY Lending Office for Base Rate Loans: TWO PACES WEST 2727 PACES FERRY ROAD, SUITE 1200 ATLANTA, GA 30339 Lending Office for Eurodollar Loans: TWO PACES WEST 2727 PACES FERRY ROAD, SUITE 1200 ATLANTA, GA 30339 Addresses for Notices: TWO PACES WEST 2727 PACES FERRY ROAD, SUITE 1200 ATLANTA, GA 30339 Telecopier No.: (404) 319-4950 Telephone No.: (404) 319-4835 Attention: MS. ADRIENNE BURCH [With copy to:] National Westminster Bank Plc New York Branch By: /s/ Stephen R. Parker ------------------------------------------- Name: Stephen R. Parker Title: Vice President National Westminster Bank Plc Nassau Branch By: /s/ Stephen R. Parker ------------------------------------------- Name: Stephen R. Parker Title: Vice President Lending Office for Base Rate Loans: National Westminister Bank Plc New York Branch Lending Office for Eurodollar Loans: National Westminster Bank Plc Nassau Branch Addresses for Notices: National Westminster Bank Plc 175 Water Street New York, New York 10038 Telecopier No.: (212) 602-4118 Telephone No.: (212) 602-4180 Attention: Nadira Fauder LENDER: The First National Bank of Chicago By: /s/ Dixon P. Schultz ------------------------------------------- Name: Dixon P. Schultz Title: Vice President Lending Office for Base Rate Loans: The First National Bank of Chicago 1 First National Plaza, Suite 0634 Chicago, Illinois 60670 Lending Office for Eurodollar Loans: The First National Bank of Chicago 1 First National Plaza, Suite 0634 Chicago, Illinois 60670 Addresses for Notices: The First National Bank of Chicago 1 First National Plaza, Suite 0634 Chicago, Illinois 60670 Telecopier No.: (312) 732-4840 Telephone No.: (312) 732-8705 Attention: Lynn Pozsgay [With copy to:] LENDER: THE BANK OF NEW YORK By: /s/ Raymond J. Palmer ------------------------------------------- Name: Raymond J. Palmer Title: Vice President Lending Office for Base Rate Loans: The Bank of New York One Wall Street, 19th Fl. New York, New York 10286 Lending Office for Eurodollar Loans: The Bank of New York One Wall Street, 19th Fl. New York, New York 10286 Addresses for Notices: The Bank of New York One Wall Street, 19th Fl. New York, New York 10286 Telecopier No.: (212) 635-7923 Telephone No.: (212) 635-7921 Attention: Nina Russo-Valdes [With copy to:] LENDER: NationsBank of Texas, N.A. By: /s/ Denise Ashford Smith ------------------------------------------- Name: Denise Ashford Smith Title: Senior Vice President Lending Office for Base Rate Loans: 901 Main Street, 64th Floor Dallas, TX 75202 Attn: Denise Ashford Smith Lending Office for Eurodollar Loans: 901 Main Street, 64th Floor Dallas, TX 75202 Attn: Denise Ashford Smith Addresses for Notices: Corporate Credit Services 901 Main Street, 14th Floor Dallas, TX 75202 Telecopier No.: 214/508-1215 Telephone No.: 214/508-1225 Attention: Betty Canales [With copy to:] LENDER: THE BANK OF TOKYO, LTD. DALLAS AGENCY By: /s/ John M. McIntyre ------------------------------------------- Name: John M. McIntyre Title: Vice President Lending Office for Base Rate Loans: The Bank of Tokyo, Ltd. 2001 Ross Avenue, Suite 3150 Dallas, Texas 75201 Lending Office for Eurodollar Loans: The Bank of Tokyo, Ltd. 2001 Ross Avenue, Suite 3150 Dallas, Texas 75201 Addresses for Notices: The Bank of Tokyo, Ltd. 909 Fannin, 2 Houston Center, Ste. 1104 Dallas, Texas 77010 Telecopier No.: (713) 658-8341 Telephone No.: (713) 658-1021 Attention: Nadra H. Breir LENDER: The Fuji Bank, Ltd. By: /s/ Soichi Yoshida ------------------------------------------- Name: Soichi Yoshida Title: Vice President and Senior Manager Lending Office for Base Rate Loans: The Fuji Bank, Ltd. Houston Agency 1221 McKinney St. Suite 4100 Houston, TX 77010 Lending Office for Eurodollar Loans: The Fuji Bank, Ltd. Houston Agency 1221 McKinney St. Suite 4100 Houston, TX 77010 Addresses for Notices: The Fuji Bank, Ltd. Houston Agency 1221 McKinney St. Suite 4100 Houston, TX 77010 Telecopier No.: (713) 759-0048 Telephone No.: (713) 650-7826 Attention: Teri McPherson LENDER: Union Bank of Switzerland Houston Agency By: /s/ Evans Swann ------------------------------------------- Name: Evans Swann Title: Managing Director By: /s/ Alfred Imholz ------------------------------------------- Name: Alfred Imholz Title: Managing Director Lending Office for Base Rate Loans: 1100 Louisiana, Suite 4500 Houston, TX 77002 Lending Office for Eurodollar Loans: 1100 Louisiana, Suite 4500 Houston, TX 77002 Addresses for Notices: 1100 Louisiana, Suite 4500 Houston, TX 77002 Telecopier No.: (713) 655-6555 Telephone No.: (713) 655-6500 Attention: Alfred Imholz Managing Director With copy to: James Broadus Telecopier No.: (212) 821-3269 Telephone No.: (212) 821-3227 LENDER: Dresdner Bank AG New York and Grand Cayman Branches By: /s/ J. Curtin Beaudouin ------------------------------------------- Name: J. Curtin Beaudouin Title: Vice President By: /s/ Ernest C. Fung ------------------------------------------- Name: Ernest C. Fung Title: Vice President Lending Office for Base Rate Loans: Dresdner Bank AG, Grand Cayman Branch 75 Wall Street New York, New York 10005-2889 Lending Office for Eurodollar Loans: Dresdner Bank AG, Grand Cayman Branch 75 Wall Street New York, New York 10005-2889 Addresses for Notices: Dresdner Bank AG, Grand Cayman Branch 75 Wall Street New York, New York 10005-2889 Telecopier No.: (212) 898-0524 Telephone No.: (212) 574-0183 Attention: Craig Erickson With copy to: Credit Department Dresdner Bank AG, New York Attn: Ms. Yunie Shin-Thomas 75 Wall Street New York, NY 10005-2889 CREDIT LYONNAIS CAYMAN ISLAND BRANCH By: /s/ Xavier Ratouis ------------------------------------------- Name: Xavier Ratouis Title: Authorized Signature Lending Office for Base Rate Loans: Credit Lyonnais Cayman Island Branch 1301 Avenue of the Americas New York, New York 10019 Attention: Loan Servicing Lending Office for Eurodollar Loans: Credit Lyonnais Cayman Island Branch 1301 Avenue of the Americas New York, New York 10019 Attention: Loan Servicing Addresses for Notices: c/o Credit Lyonnais Representative Office 1000 Louisiana, Suite 5360 Houston, TX 77002 Telecopier No.: (713) 751-0307 Telephone No.: (713) 751-0500 Attention: Mr. A. David Dodd LENDER: The Industrial Bank of Japan Trust Company By: /s/ Robert W. Ramage, Jr. ------------------------------------------- Name: Robert W. Ramage, Jr. Title: Senior Vice President Lending Office for Base Rate Loans: The Industrial Bank of Japan Trust Company 245 Park Avenue New York, NY 10167 Lending Office for Eurodollar Loans: The Industrial Bank of Japan Trust Company 245 Park Avenue New York, NY 10167 Addresses for Notices: The Industrial Bank of Japan Trust Company 245 Park Avenue New York, NY 10167 Telecopier No.: (212) 949-0134 Telephone No.: (212) 309-6521 Attention: Credit Administration [With copy to:] LENDER: Royal Bank of Canada By: /s/ Gil J. Benard ------------------------------------------- Name: Gil J. Benard Title: Senior Manager Lending Office for Base Rate Loans: Royal Bank of Canada 1 Financial Square, 24th Floor New York, New York 10005-3531 Lending Office for Eurodollar Loans: Royal Bank of Canada 1 Financial Square, 24th Floor New York, New York 10005-3531 Addresses for Notices: Royal Bank of Canada 600 Wilshire Blvd., Suite 800 Los Angeles, CA 90017 Telecopier No.: (213) 955-5350 Telephone No.: (213) 955-5321 Attention: Gil J. Benard [With copy to:] LENDER: Westdeutsche Landesbank Girozentrale By: /s/ Richard R. Newman ------------------------------------------- Name: Richard R. Newman Title: Vice President By: /s/ Sal Battinelli ------------------------------------------- Name: Sal Battinelli Title: Vice President Lending Office for Base Rate Loans: Westdeutsche Landesbank Girozentrale 1211 Avenue of the Americas New York, New York 10036 Lending Office for Eurodollar Loans: Westdeutsche Landesbank Girozentrale 1211 Avenue of the Americas New York, New York 10036 Addresses for Notices: Westdeutsche Landesbank Girozentrale 1211 Avenue of the Americas New York, New York 10036 Telecopier No.: (212) 852-6307 Telephone No.: (212) 852-6120 Attention: Richard R. Newman LENDER: Caisse Nationale de Credit Agricole By: /s/ David Bouhl ------------------------------------------- Name: David Bouhl Title: First Vice President and Head of Corporate Banking -- Chicago Lending Office for Base Rate Loans: Caisse Nationale de Credit Agricole 55 East Monroe Street Chicago, Illinois 60603-5702 Lending Office for Eurodollar Loans: Caisse Nationale de Credit Agricole 55 East Monroe Street Chicago, Illinois 60603-5702 Addresses for Notices: Caisse Nationale de Credit Agricole 55 East Monroe Street Chicago, Illinois 60603-5702 Telecopier No.: 312/372-3724 Telephone No.: 312/917-7560 Attention: Stacey Mannion [With copy to:] Brian D. Knezeak Telephone: 312/917-7546 FIRST AMENDMENT TO CREDIT AGREEMENT THIS FIRST AMENDMENT TO CREDIT AGREEMENT (this "Amendment") is among: ENSERCH EXPLORATION, INC., a corporation formed under the laws of the State of Texas (the "Company"); each of the Lenders (as defined in the Credit Agreement as hereafter defined) that is a signatory hereto; THE CHASE MANHATTAN BANK, a New York banking corporation (in its individual capacity, "Chase"), as administrative agent for the Lenders (in such capacity, together with its successors in such capacity, the "Administrative Agent"); as auction agent for the Lenders (in such capacity, together with its successors in such capacity, the "Auction Agent"); and as syndication agent for the Lenders (in such capacity, together with its successors in such capacity, the "Syndication Agent") and Citibank, N.A. a national banking association (in its individual capacity, "Citibank") and as documentation agent for the Lenders (in such capacity, together with its successors in such capacity, the "Documentation Agent"). R E C I T A L S A. The Company, the Agents, and the Lenders have entered into that certain Credit Agreement dated as of May 1, 1995 (the "Credit Agree ment"), pursuant to which the Lenders have agreed to make certain loans and extensions of credit to the Company upon the terms and conditions as provided therein; and B. The Company, the Agents, and the Lenders now desire to make certain amendments to the Credit Agreement. NOW, THEREFORE, in consideration of the premises and other good and valuable consideration and the mutual benefits, covenants and agreements herein expressed, the parties hereto now agree as follows: 1. All capitalized terms used in this Amendment and not otherwise defined herein shall have the meanings ascribed to such terms in the Credit Agreement. 2. As used in the Agreement, the terms "Administrative Agent," "Auction Agent," "Citibank," "Documentation Agent" and Syndication Agent" shall have the meaning indicated above. 3. The definitions of "Agents", "Debt" and "Principal Office" in Section 1.02 of the Credit Agreement are hereby amended to read as follows: "Agents" shall mean the Administrative Agent, the Auction Agent, the Documentation Agent and the Syndication Agent. "Debt" shall mean, for the Company or any Subsidiary the sum of the following (without duplication): (i) all obligations for borrowed money or evidenced by bonds, debentures, mandatorily redeemable preferred stock (including such stock of Affiliates) with maturities before the Revolving Credit Termination Date, notes or other similar instruments (excluding interest, fees and charges); (ii) all obligations in respect of bankers' acceptances, unreimbursed drawings on letters of credit, surety or other bonds; (iii) all Capital Lease Obligations; (iv) all Operating Lease Obligations; (v) all financial guaranties in respect of Debt of unconsolidated Affiliates and unrelated Persons; (vi) all obligations secured by a Lien on any asset, whether or not such Debt is assumed, but excluding obligations secured by Liens permitted by Sections 9.02(c), (e), (f), (h), (i), (j), (k) and (l); (vii) all production payments in connection with oil and gas properties; and (viii) all Debt of Special Entities to the extent the Company or any Subsidiary is liable for such Debt under GAAP or such Debt is reflected on the consolidated balance sheet of the Company or any Subsidiary. "Debt" shall not include Permitted Subordinated Debt." "Principal Office" shall mean 270 Park Avenue, New York, New York 10017. 4. The definition "Revolving Credit Termination Date" in Section 1.02 of the Credit Agreement is hereby amended to read as follows: "Revolving Credit Termination Date" shall mean, unless the Commitments are sooner terminated pursuant to Sections 2.03(a) or 10.02, August 1, 2001". 5. Section 1.02 of the Credit Agreement is hereby supplemented, where alphabetically appropriate, with the addition of the following definition: "First Amendment" shall mean that certain First Amendment to Credit Agreement dated as of September 16, 1996, among the Company, the Lenders and the Agents." 6. Section 8.07 of the Credit Agreement is hereby amended to read as follows: "Section 8.07 Lease Payments. The Company, at its option, may cause its obligations to Enserch Exploration Holdings, Inc. to be subordinated to the Indebtedness on terms substantially similar to the terms set forth on Exhibit M or on terms and subject to documentation satisfactory to the Administrative Agent. 7. Section 9.01 of the Credit Agreement is hereby amended to read as follows: "Section 9.01 Debt to Capital Ratio. The Company will not permit its ratio ("Debt to Capital Ratio") expressed as a percentage of (i) Debt of the Company and its Consolidated Subsidiaries on a consolidated basis ("Consolidated Debt") to (ii) the sum of Consolidated Debt plus Net Worth to exceed 60% at any time; provided that in no event will Consolidated Debt ever exceed $900,000,000." 8. Section 9.03 of the Credit Agreement is hereby amended by adding the following sentence at the end of such Section: "From and after the date that the Company ceases to be an Affiliate of ENSERCH Corporation, neither the Company nor any Subsidiary may make loans or advances to ENSERCH Corporation or any of its subsidiaries, and any outstanding loans and advances to ENSERCH Corporation and its subsidiaries from the Company and its Subsidiaries on such date of disaffiliation shall be immediately repaid." 9. Section 10.01(k) of the Credit Agreement is hereby amended to read as follows: "(k) any Change of Control shall occur. For purposes of this Section 10.01(k), "Change of Control" shall mean other than Enserch Corporation's ownership, the acquisition by any Person, or two or more Persons acting in concert, of beneficial ownership (within the meaning of the Securities Exchange Act of 1934) of 35% or more of the outstanding share of voting stock of the Company." 10. The first two sentences of Section 11.01 of the Credit Agreement are hereby amended to read as follows: "Each Lender hereby irrevocably appoints and authorizes Chase as the Administrative Agent and the Auction Agent to act as its agents hereunder and under the other Loan Documents with such powers as are specifically delegated to the Administrative Agent and the Auction Agent respectively by the terms of this Agreement and the other Loan Documents, together with such powers as reasonably incidental thereto. The Syndication Agent and Documentation Agent, in such capacities, shall have no duties or responsibilities and shall incur no liabilities under the Loan Documents." 11. Attached to this Amendment is a new Annex 1 to the Credit Agreement. 12. This Amendment shall become binding on the Lenders when, and only when, the Administrative Agent shall have received each of the following in form and substance satisfactory to the Administrative Agent or its counsel: (a) counterparts of this Amendment executed by the Company, the Agents and the Lenders; (b) prepayment by the Company of all outstanding Loans, accrued interest, accrued fees and other expenses due under the Credit Agreement to September 16, 1996, including without limitation, payment of breakage costs under Section 5.05 of the Credit Agreement in connection with this prepayment of the Loans within 10 days of presentation of a bill by each Lender; (c) refunding of the Loans prepaid in clause (b) above by the Lenders set forth on Annex 1 attached hereto in proportion to their respective Percentage Shares, with the Administrative Agent netting such prepayments and fundings to the extent administratively convenient; (d) issuance of new Notes to the Lenders on Annex 1 attached hereto, duly completed and executed; (e) a certificate of the Secretary or an Assistant Secretary of the Company setting forth resolutions of its board of directors with respect to the authorization of the Company to execute, deliver and perform this Amendment; and (f) such other documents as it or its counsel may reasonably request. 13. The parties hereto hereby acknowledge and agree that, except as specifically supplemented and amended, changed or modified hereby, the Credit Agreement shall remain in full force and effect in accordance with its terms. 14. The Company hereby reaffirms that as of the date of this Amendment, the representations and warranties contained in Article VII of the Credit Agreement are true and correct on the date hereof as though made on and as of the date of this Amendment, except as such representations and warranties are expressly limited to an earlier date. 15. THIS AMENDMENT (INCLUDING, BUT NOT LIMITED TO, THE VALIDITY AND ENFORCEABILITY HEREOF) SHALL BE GOVERNED BY, AND CONSTRUED IN ACCORDANCE WITH, THE LAWS OF THE STATE OF TEXAS, OTHER THAN THE CONFLICT OF LAWS RULES THEREOF. 16. This Amendment may be executed in two or more counterparts, and it shall not be necessary that the signatures of all parties hereto be contained on any one counterpart hereof; each counterpart shall be deemed an original, but all of which together shall constitute one and the same instrument. 17. The Lenders listed on Annex 1 attached hereto are for all purposes Lenders under the Loan Documents. IN WITNESS WHEREOF, the parties hereto have caused this Amendment to be executed as of September 16, 1996. COMPANY: ENSERCH EXPLORATION, INC. By: /s/ J. T. Leary Name: J. T. Leary Title: Vice President, Finance, and Treasurer LENDER AND ADMINISTRATIVE AGENT, THE CHASE MANHATTAN BANK SYNDICATION AGENT AND AUCTION AGENT: By: /s/ Martha Ann Fetner Name: Martha Ann Fetner Title: Vice President LENDER AND DOCUMENTATION CITIBANK, N.A. AGENT: By: /s/ Arezoo Jafari Name: Arezoo Jafari Title: Assistant Vice President LENDERS: THE BANK OF NOVA SCOTIA By: /s/ J. H. Youssef Name: J. H. Youssef Title: Senior Manager, Finance & Administration NATIONSBANK OF TEXAS, N.A. By: /s/ Dale T. Wilson Name: Dale T. Wilson Title: Vice President ROYAL BANK OF CANADA By: /s/ B. J. Belliveau Name: B. J. Belliveau Title: Senior Manager BANKERS TRUST COMPANY By: /s/ Robert R. Telesca Name: Robert R. Telesca Title: Senior Manager CANADIAN IMPERIAL BANK OF COMMERCE By: /s/ Gary C. Gaskill Name: Gary C. Gaskill Title: Authorized Signatory THE FIRST NATIONAL BANK OF CHICAGO By: /s/ Gail F. Scannell Name: Gail F. Scannell Title: Corporate Banking Officer THE BANK OF NEW YORK By: /s/ Ian K. Stewart Name: Ian K. Stewart Title: Senior Vice President THE LONG-TERM CREDIT BANK OF JAPAN, LTD. By: /s/ Satoru Otsubo Name: Satoru Otsubo Title: Joint General Manager THE BANK OF TOKYO-MITSUBISHI, LTD. By: /s/ Michael Meiss Name: Michael Meiss Title: Vice President CREDIT LYONNAIS NEW YORK BRANCH By: /s/ Pascal Poupelle Name: Pascal Poupelle Title: Senior Vice President THE INDUSTRIAL BANK OF JAPAN TRUST COMPANY By: /s/ Akijiro Yoshino Name: Akijiro Yoshino Title: Executive Vice President THE SANWA BANK, LIMITED By: /s/ Matthew G. Patrick Name: Matthew G. Patrick Title: Vice President CAISSE NATIONALE DE CREDIT AGRICOLE By: /s/ David Bouhl Name: David Bouhl Title: Head of Corporate Banking, Chicago THE FUJI BANK, LTD. By: /s/ Yoshiaki Inoue Name: Yoshiaki Inoue Title: Vice President & Manager TORONTO DOMINION (TEXAS), INC. By: /s/ Lisa Allison Name: Lisa Allison Title: Vice President UNION BANK OF SWITZERLAND HOUSTON AGENCY By: /s/ Evans Swann Name: Evans Swann Title: Managing Director By: /s/ J. Finley Biggerstaff Name: J. Finley Biggerstaff Title: Assistant Treasurer DRESDNER BANK AG NEW YORK AND GRAND CAYMAN BRANCHES By: /s/ B. Craig Erickson Name: B. Craig Erickson Title: Vice President By: /s/ Anthony Berti Name: Anthony Berti Title: Assistant Treasurer BANKS THAT WILL NO LONGER BE LENDERS AS OF SEPTEMBER 16, 1996. NATIONAL WESTMINSTER BANK PLC NEW YORK BRANCH By: /s/ Paul K. Carter Name: Paul K. Carter Title: Manager & Vice President NATIONAL WESTMINSTER BANK PLC NASSAU BRANCH By: /s/ Paul K. Carter Name: Paul K. Carter Title: Manager & Vice President WESTDEUTSCHE LANDESBANK GIROZENTRALE By: /s/ Richard R. Newman Name: Richard R. Newman Title: Vice President By: /s/ R. Carino Name: R. Carino Title: Vice President TEXAS COMMERCE BANK NATIONAL ASSOCIATION By: /s/ Dale S. Hurd Name: Dale S. Hurd Title: Senior Vice President ANNEX 1 LIST OF COMMITMENTS
Name of Lender Percentage Share Commitment -------------- ---------------- ---------- 1. The Chase Manhattan Bank 7.714285714% $27,000,000 2. Citibank, N.A. 7.714285714% $27,000,000 3. Bankers Trust Company 6.000000000% $21,000,000 4. The Bank of Nova Scotia 6.000000000% $21,000,000 5. Canadian Imperial Bank of Commerce 6.000000000% $21,000,000 6. The First National Bank of Chicago 6.000000000% $21,000,000 7. The Bank of New York 6.000000000% $21,000,000 8. NationsBank of Texas, N.A. 6.000000000% $21,000,000 9. Royal Bank of Canada 6.000000000% $21,000,000 10. The Long-Term Credit Bank of Japan, Ltd. 4.857142857% $17,000,000 11. The Bank of Tokyo-Mitsubishi, Ltd. 4.857142857% $17,000,000 12. Credit Lyonnais New York Branch 4.857142857% $17,000,000 13. The Fuji Bank, Ltd. 4.000000000% $14,000,000 14. Union Bank of Switzerland 4.000000000% $14,000,000 15. Dresdner Bank AG 4.000000000% $14,000,000 16. The Industrial Bank of Japan, 4.000000000% Ltd., New York Branch 4.000000000% $14,000,000 17. Caisse Nationale de Credit Agricole 4.000000000% $14,000,000 18. The Sanwa Bank, Limited 4.000000000% $14,000,000 19. Toronto Dominion (Texas), Inc. 4.000000000% $14,000,000 ----------- ----------- Total 100.000000000% $350,000,000
EX-10.15 4 PERFORMANCE INCENTIVE PLAN CALENDAR YEAR 1997 EXHIBIT 10.15 ENSERCH EXPLORATION, INC. FORM OF BONUS INCENTIVE PLAN This Bonus Incentive Plan (the "Plan") is proprietary and constitutes a trade secret of Enserch Exploration, Inc. (the "Company"). The Plan is confidential and is not to be disclosed outside the Company. I. PURPOSES -------- The purposes of the Plan are to: A. Encourage and reward the creation of Net Present Value through the discovery, development, and exploitation of economic oil and gas reserves by project teams. B. Encourage and reward the achievement of operating goals and objectives. C. Encourage and reward continued employment of key individuals assigned to project teams. D. Facilitate the recruitment or assignment of key employees who qualify as Plan participants. II. ELIGIBILITY ----------- All full-time employees of the Company not included in the Company's Performance Incentive Plan or other project bonus plans are eligible to receive awards in accordance with the Plan. No employee covered under the Plan shall be entitled to any award or portion thereof until such award is approved in writing by the President, Enserch Exploration, Inc. III. DEFINITIONS ----------- A. Participants ------------ Participants for purposes of this program will normally be project team members and will be determined at the time a Bonus Pool is established pursuant to First Production from a project in which an increase in Net Present Value has been certified. Such Participants will be approved by the President, Enserch Exploration, Inc. upon recommendation by the Regional Director or the Vice President, Production. B. Effective Date -------------- The Plan shall be effective for all reserves resulting from wells spudded on or after January 1, 1993. It will be reevaluated annually, and may be amended, suspended, or terminated at any time by the Chairman or President, Enserch Exploration, Inc. No such amendment, suspension, or termination shall eliminate any payments under the Plan or any previous plan which may have accrued prior to the date of any such amendment, suspension, or termination. C. Net Present Value (NPV) ----------------------- NPV shall be defined as the discounted net present value of the Company's net revenue interest in a well (or project) assuming the Company's assessment of the appropriate rate of return for discounting; of product prices; of operating expenses; and of all costs of acquisition, drilling, and development including future development costs. For purposes of discounting, time zero shall be the initial investment in the first well drilled on an onshore project, the filing of a DOCD for an offshore project and the decision to proceed with full development for an international project. The cost of investments prior to time zero shall be compounded at current cost of capital up to time zero. The initially assumed rate of return, which may be altered at any time by the Company, shall be XXX percent for onshore, XXX percent for offshore, and XXX percent for international. D. First Production ---------------- The date an oil or gas well is completed through the meter or tank, such that product is available for sale. IV. BONUS POOL ---------- Awards shall be made at the discretion of the Company from a Bonus Pool, the maximum amount of which shall be determined by the NPV of exploratory and exploitation reserve additions as follows: $XXXXX per million dollars of incremental NPV which results from reserve additions, technology applications, or expense reduction. The actual amount of the Bonus Pool will be equal to or less than the maximum set above, with the amount awarded based upon management assessment of relevant factors in evaluating overall team performance. Among the factors which will be considered are the following: 1. Value added - did the team make a material contribution in an area such as enticing a submittal, trading the deal, originating a geologic concept, putting a land deal together, etc. which represented an extraordinary contribution to the viability of the project? 2. Originality - was the project the result of a new concept or an extension of a proven concept? 3. Technical difficulty - did the project involve a unique application of technology or leverage technical expertise from prior experience? 3 V. TYPES OF AWARDS --------------- A. Team Awards ----------- A portion of each Bonus Pool will be made available for awards to project team members responsible for the initiation of a project which adds economic reserves and thereby enhances the value of the Company as measured by NPV analysis . Eighty shares, as defined in Section VI, of a given Bonus Pool arising out of an NPV addition as previously defined will be allocated for individual awards to applicable team members as described in Section VI.,A. (1) Onshore ------- a. Primary Awards - will be based on the expected NPV of the well or wells in the calendar year in which first production occurs. b. Subsequent Awards - subsequent NPV will be established at the end of the second calendar year after the year of the Primary Award evaluation and not later than five years after the year of the Primary Award evaluation. Awards after the Primary Award will be based on NPV enhancement for the project beyond that which was the basis for prior awards. (2) Offshore/International ---------------------- a. Primary Awards - will be evaluated at the end of the calendar year in which the DOCD is filed with the MMS or international project development approval is given and will be based on the projected NPV proven at that time. b. Subsequent Awards - will be based on the expected incremental NPV of the "project" beyond that serving as the basis of the Primary Award. These will be awarded at the end of the calendar year in which (a) project startup occurs (initial production); and (b) two years after project startup. B. District Awards --------------- A portion of each Bonus Pool awarded within a district will be made available at the discretion of the Company for awards to eligible district employees for contribution to the achievement of district operating goals and objectives within a budget year. In order for discretionary District Awards to be granted, all district operating goals and objectives must have been achieved. District Awards will be funded through the 4 allocation of a portion of each Bonus Pool generated through an NPV increase as described in Section IV. Any such funding for District Awards will either be granted in accordance with this provision or will expire on an annual basis. No such pool will carry over from year to year with respect to District Awards. Twenty shares, as defined in Section VI, of any Bonus Pool created during a given budget year will be eligible for allocation for discretionary awards to eligible district employees as described in Section VI.,B. VI. BONUS AWARDS ------------ Individual bonus awards shall be based upon the number of bonus "shares" which are awarded to each Participant. Each Bonus Pool shall be divided into 100 equal shares, and shall be allocated for either Team or District Awards. The value of each share shall be the total value of that Bonus Pool divided by 100. A. Team Bonus Share Distribution ----------------------------- The final team bonus share distribution will be determined by the President, Enserch Exploration, Inc. in consultation with the Regional Director or Vice President, Production. Team members, including the Team Leader, who are Participants in a Bonus Pool will be provided a confidential envelope addressed to the Controller, ENSERCH Corporation. Each team member will individually suggest a bonus share distribution for the pool. These suggestions will be tabulated and provided anonymously to the President, Enserch Exploration, Inc. who will consider them along with the recommendation of the Regional Director or Vice President, Production in determining the actual bonus share distribution. B. District Bonus Share Distribution --------------------------------- The final district bonus share distribution will be determined by the President, Enserch Exploration, Inc. in consultation with the Regional Director or Vice President, Production. District bonus awards shall be totally discretionary. The Regional Director and VP, Production may make recommendations as to both participants and individual awards based upon individual contribution to the achievement of district operating goals and objectives. They may solicit input as appropriate from district operating personnel. These recommendations will be submitted to the President, Enserch Exploration, Inc. who will determine the actual bonus share distribution. C. Credited Awards --------------- An award shall be "credited" at the time a determination is made as to the Participants, the Bonus Pool, and the bonus share distribution, upon authorization by the President, Enserch Exploration, Inc. Rights to payments are "earned" at the time the payment is made. 5 VII. PAYMENTS -------- Each award shall be paid in equal annual payments over a three-year period ---------------------------------------------- subject to the following limitations: A. The first payment due a Participant under an award will be made prior to April 1 of the calendar year following the year of the Primary Award or any Subsequent Award. Equal annual payments due will be made by April 1 of subsequent calendar years. B. Annual payments under the Plan will be limited to a maximum of 100 percent of a Participant's annualized base salary (exclusive of employee benefits and any other compensation). For example, a Participant earning an annual salary of $50,000 would not receive an annual award payment in excess of $50,000. If any Participant earns awards greater than his or her annualized base salary in an award year, or has cumulative awards which if paid would result in an amount greater than the annualized base salary, that portion of the award or awards shall be carried forward into succeeding calendar years such that in no calendar year will cumulative awards exceed 100 percent of the Participant's annualized base salary. Any such award carried forward into a succeeding calendar year will be treated the same as a subsequent award with respect to its being "credited." C. To be eligible for receipt of any payment, a Participant must continue to be employed by the Corporation at the time each payment is to be paid unless the Participant's employment terminates by reason of retirement, death, or disability as described below: Effect of Termination of Employment, Retirement or Death -------------------------------------------------------- 1. Participants who voluntarily terminate their employment, excluding normal retirement, or who are terminated by the Corporation for cause will not be eligible to receive any bonus payments under the terms of this Plan. 2. Any Participant who takes normal retirement at age 65 or above in accordance with the Corporation's approved retirement plan, becomes disabled and receives disability benefits in accordance with the Corporation's long-term disability plan, or is terminated at the Corporation's motion not for cause shall be eligible to receive all bonus awards credited under this Plan during his or her active employment. Any such credited but unpaid awards will be pooled and paid out in three (3) equal installments over the three (3) years following such retirement, disability, or termination. 3. Any Participant who voluntarily retires after age 60 but prior to age 65 or above shall be eligible to petition 6 for payment of any credited but unpaid awards with the decision regarding such payment to be at the discretion of the President, Enserch Exploration, Inc. 4. In the event of a Participant's death, all bonus awards which have been credited to such Participant prior to the date of death but remain unpaid and which would otherwise have been received will be paid to the designated beneficiary, or if no beneficiary is designated, to the employee's estate, in one lump sum as soon as is practicable but no later than six months following the death of the employee. 5. In the event that ENSERCH Corporation shall, pursuant to action by its Board, at any time propose to merge into, consolidate with, sell, or otherwise transfer all or substantially all of the assets of Enserch Exploration, Inc., to another non-related or non- affiliated corporation, all bonus awards which have been credited but remain unpaid shall be immediately paid to the Participant, and the Participant shall not be required to be employed by the Corporation in order to receive payment. VIII. PROVEN RESERVES --------------- Any awards shall be based on the discounted NPV of the proven reserves, as determined and defined by DeGolyer and MacNaughton, at the time of the evaluation, attributable to the Company's net revenue interest in each well. The Company retains total discretion over which investments or sales it shall make or not make which may affect this NPV. IX. ADMINISTRATIVE PROVISIONS ------------------------- A. Compensation Committee ---------------------- The Compensation Committee of the Board of Directors of ENSERCH Corporation must approve any award for any Participant whose total annual compensation, including such bonus, would exceed $150,000. B. Discretionary ------------- Notwithstanding any calculation of bonus in accordance with the foregoing provisions, the President of ENSERCH Corporation may within his sole discretion alter or eliminate any bonus award developed under this Plan in order to achieve equity in the administration of the Plan within ENSERCH Corporation as a whole. C. No Contract ----------- Nothing in this Bonus Incentive Plan shall be deemed by implication or otherwise to constitute a contract of employment or otherwise to impose any limitation on any right of the 7 Corporation nor any of its operating units to terminate a Participant's employment at any time. D. Termination of Plan ------------------- This Plan may be terminated by the Company at any time, either in its entirety or with respect to individual Participants. Plan termination will not prevent payment of bonuses already credited but unpaid as of the date of Plan termination. E. Statement of Policies --------------------- If at any time an eligible Participant 1. is determined to be in violation of the statement of policies of ENSERCH Corporation, including but not limited to the Employee Statement of Acknowledgement, Disclosure and Commitment or, 2. engages in the employment, consultation, or representation of any corporation, partnership, individual, political subdivision, or any enterprise that is engaged in any action or proceeding that the Corporation considers adverse to or in competition with the interests of the Corporation, the Participant and his or her beneficiaries or heirs shall forfeit all rights to receive payments or bonus awards provided under this Plan regardless of whether or not such payments had been previously approved by the Corporation except that before any such termination under this section of the Participant's right to receive payments, the Corporation shall notify the Participant in writing of this opinion about the adverse situation, after which time the Participant shall have a period of fifteen (15) days to correct the situation to the satisfaction of the Corporation as to preclude benefit termination. 8 EX-10.16 5 DEFERRED COMPENSATION PLAN EXHIBIT 10.16 ENSERCH CORPORATION DEFERRED COMPENSATION PLAN THIS PLAN, made and executed at Dallas, Texas by ENSERCH Corporation, a Texas corporation (the "Company"), is being established primarily for the purpose of providing deferred compensation for a select group of management or highly compensated employees of the Company and its participating affiliates. ARTICLE I. DEFINITIONS Section 1.1 Definitions. Unless the context clearly indicates otherwise, when used in this Plan: (a) "Adjustment Date" means the last day of each calendar quarter and such other dates as the Administrative Committee in its discretion may prescribe. (b) "Affiliated Company" means any corporation or organization which together with the Company would be treated as a single employer under Section 414 of the Code. (c) "Administrative Committee" means the committee designated pursuant to Section 2.1 to administer this Plan. (d) "Board" means the Board of Directors of ENSERCH Corporation. (e) "Change of Control" means a change in control of a nature that would be required to be reported in response to Item 1(a) of the Securities and Exchange Commission Form 8-K, as in effect on the date hereof, pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934, as amended ("Exchange Act"), or would have been required to be so reported but for the fact that such event had been "previously reported" as that term is defined Rule 12b- 2 of Regulation 12B under the Exchange Act; provided that, without limitation, such a change in control shall be deemed to have occurred if (i) any Person is or becomes the beneficial owner (as defined in Rule 13d-3 under the Exchange Act), directly or indirectly, of securities of the Company representing 20% or more of the combined voting power of the Company's then outstanding securities ordinarily (apart from rights accruing under special circumstances) having the right to vote at elections of directors ("Voting Securities"), or (ii) individuals who constitute the Board on the date hereof (the "Incumbent Board") cease for any reason to constitute at least a majority thereof, provided that any person becoming a director subsequent to the date hereof whose election, or nomination for election by the Company's shareholders, was approved by a vote of at least three-quarters of the directors comprising the Incumbent Board (either by a specific vote or by approval of the proxy statement of the Company in which such person is named as a nominee for director, without objection to such nomination) shall be, for purposes of this clause (ii), considered as though such person were a member of the Incumbent Board, or (iii) a recapitalization of the Company occurs which results in either a decrease by 33% or more in the aggregate percentage ownership of Voting Securities held by Independent Shareholders (on a primary basis or on a fully diluted basis after giving effect to the exercise of stock options and warrants) or an increase in the aggregate percentage ownership of Voting Securities held by non- Independent Shareholders (on a primary basis or on a fully diluted basis after giving effect to the exercise of stock options and warrants) to greater than 50%. For purposes of this subsection (e), the term "Person" shall mean and include any individual, corporation, partnership, group, association or other "person", as such term is used in Section 14(d) of the Exchange Act, other than the Company, a subsidiary of the Company or any employee benefit plan(s) sponsored or maintained by the Company or any subsidiary thereof, and the term "Independent Shareholder" shall mean any shareholder of the Company except any employee(s) or director(s) of the Company or any employee benefit plan(s) sponsored or maintained by the Company or any subsidiary thereof. (f) "Code" means the Internal Revenue Code of 1986, as amended from time to time. (g) "Company" means ENSERCH Corporation and its successors. (h) "Compensation Committee" means the Compensation Committee of the Board. (i) "Deferral Account" means the account established and maintained on the books of an Employer to record a Participant's interest under this Plan attributable to amounts credited to such Participant pursuant to Plan Section 3.1 and Section 3.2. (j) "Disability" means total and permanent disability of the Participant as determined under the provisions of his or her Employer's group long-term disability plan. (k) "Election Period" means such period immediately prior to the beginning of a Plan Year (or, with respect to the Plan's first Plan Year, the period immediately prior to October 1, 1994) specified by the Administrative Committee for the making of deferral elections for such Plan Year pursuant to Plan Sections 3.1 and 3.2. (l) "Eligible Employee" means any employee of an Employer who is one of a select group of management or highly compensated employees and (i) whose annual base salary equals or exceeds $125,000 or (ii) whose annual base salary equals or exceeds $100,000 and whose position is of significant impact on the operations of his or her Employer as determined by the Administrative Committee in its absolute discretion. (m) "Employer" includes the Company and any Affiliated Company which adopts this Plan. (n) "Participant" means an Eligible Employee or former Eligible Employee for whom a Deferral Account is being maintained under this Plan. (o) "Plan" means this ENSERCH Corporation Deferred Compensation Plan as in effect from time to time on and after October 1, 1994. (p) "Plan Year" means the twelve-month period commencing January 1 and ending the following December 31. (q) "Retirement Age" means the age used as the retirement age for the Participant under Section 216(l) of the Social Security Act. ARTICLE II. PLAN ADMINISTRATION Section 2.1 Administrative Committee. This Plan shall be administered by an Administrative Committee composed of at least three individuals appointed by the Compensation Committee. Each member of the Administrative Committee so appointed shall serve in such office until his or her death, resignation or removal by the Compensation Committee. The Compensation Committee may remove any member of the Administrative Committee at any time by giving written notice thereof to the members of the Administrative Committee. Vacancies shall likewise be filled from time to time by the Compensation Committee. The Administrative Committee shall have discretionary and final authority to interpret and implement the provisions of the Plan, including without limitation, authority to determine eligibility for benefits under the Plan. The Administrative Committee shall act by a majority of its members at the time in office and such action may be taken either by a vote at a meeting or in writing without a meeting. The Administrative Committee may adopt such rules and procedures for the administration of the Plan as are consistent with the terms hereof and shall keep adequate records of its proceedings and acts. Every interpretation, choice, determination or other exercise by the Administrative Committee of any power or discretion given either expressly or by implication to it shall be conclusive and binding upon all parties having or claiming to have an interest under the Plan or otherwise directly or indirectly affected by such action, without restriction, however, on the right of the Administrative Committee to reconsider and redetermine such action. ARTICLE III. DEFERRED COMPENSATION PROVISIONS Section 3.1 Compensation Deferral Election. During the Election Period prior to the beginning of each Plan Year, an Eligible Employee may elect to have the payment of an amount of up to 50% of the annual base salary otherwise payable by an Employer to such Eligible Employee for such Plan Year deferred for payment in the manner and at the time specified in Article IV; provided, however, that the minimum amount that may be deferred by an Eligible Employee for a Plan Year pursuant to this Section 3.1 is $5,000 (or such other amount as shall be determined by the Administrative Committee in its discretion). The amount of annual base salary a Participant elects to defer pursuant to this Section 3.1 shall be deducted from the Participant's pay in substantially equal amounts over all pay periods during the Plan Year. All elections made pursuant to this Plan Section 3.1 shall be made in writing on a form prescribed by and filed with the Administrative Committee and shall be irrevocable; provided, however, that effective as of the first day of any calendar quarter during a Plan Year, an Eligible Employee may revoke his or her deferral election and thereby suspend further salary deferrals for the remainder of such Plan Year by providing written notice thereof to the Administrative Committee no later than 15 days prior to the effective date of such suspension. Any Eligible Employee who so suspends his or her salary deferrals pursuant to this Section shall not be permitted to elect future salary deferrals pursuant to this Section to be effective earlier than the first day of the next Plan Year. Section 3.2 Bonus Deferral Election. During the Election Period prior to the beginning of each Plan Year (other than the first Plan Year), an Eligible Employee may elect to have the payment of an amount up to 100% of the cash portion of any future bonus otherwise payable by an Employer with respect to services to be performed by such Eligible Employee during such Plan Year deferred for payment in the manner and at the time specified in Article IV; provided, however, that the minimum amount that may be deferred by an Eligible Employee pursuant to this Section 3.2 is $5,000 (or such other amount as shall be determined by the Administrative Committee in its discretion); provided, further, that there shall be no minimum deferral amount pursuant to this Section 3.2 with respect to an Eligible Employee who elects to defer in the same Plan Year at least $5,000 (or such other amount as shall be determined by the Administrative Committee in its discretion) pursuant to Section 3.1. All elections made pursuant to this Plan Section 3.2 shall be made in writing on a form prescribed by and filed with the Administrative Committee and shall be irrevocable. Section 3.3 Participant Deferral Accounts. An Employer shall establish and maintain on its books a Deferral Account for each Eligible Employee employed by such Employer who elects to participate in this Plan. Each such Deferral Account shall be designated by the name of the Participant for whom it is established. The amount of any base salary and/or cash bonus from an Employer for a Plan Year that is deferred for a Participant pursuant to Section 3.1 and/or Section 3.2 shall be credited by such Employer to such Participant's Deferral Account as of the date such amount would otherwise have been paid to such Participant by such Employer. An Employer shall continue maintaining a Deferral Account as long as a positive balance remains credited to such Deferral Account. Section 3.4 Deferral Account Adjustments. As of each Adjustment Date, the amount credited to a Deferral Account shall be adjusted to reflect such gain, loss and/or expenses incurred based on the experience of the investments selected by the Participant prior to the date prescribed by the Administrative Committee for the investment of his or her Deferral Account and taking into account additional deferrals credited to and distributions made from such Deferral Account since the last Adjustment Date. The Administrative Committee shall have sole and absolute discretion with respect to the number and type of investment choices made available for selection by Participants pursuant to this Section, the timing of Participant elections and the method by which adjustments are made. The designation of investment choices by the Administrative Committee shall be for the sole purpose of adjusting Deferral Accounts pursuant to this Section and this provision shall not obligate the Employers to invest or set aside any assets for the payment of benefits hereunder; provided, however, that an Employer may invest a portion of its general assets in investments, including investments which are the same as or similar to the investment choices designated by the Administrative Committee and selected by Participants, but any such investments shall remain part of the general assets of such Employer and shall not be deemed or construed to grant a property interest of any kind to any Participant, designated beneficiary or estate. The Administrative Committee shall notify the Participants of the investment choices available and the procedures for making and changing investment elections. Section 3.5 Vesting. Subject to Section 4.6, all amounts credited to a Participant's Deferral Account shall be fully vested and nonforfeitable at all times. ARTICLE IV. BENEFITS Section 4.1 Source of Benefit Payments. Benefit payments to be made with respect to a Participant's Deferral Account maintained pursuant to the Plan will be paid in cash and will be the obligation solely of the Employer maintaining such Deferral Account; provided, however, that whenever a payment hereunder is to be made by an Employer, the Company may, in its discretion, satisfy such payment obligation on behalf of such Employer, and the Company will be obligated to satisfy any such payment obligation in the event the Employer otherwise liable therefor fails to pay such amount when due for any reason. Section 4.2 Amount of Benefit Payments. The amount payable from a Participant's Deferral Account shall be determined based upon the amount credited to such Deferral Account as of the Adjustment Date last preceding the date of payment plus any deferrals credited to and less any distributions made from such Deferral Account since such Adjustment Date. The amount of each payment made with respect to a Deferral Account and any forfeiture amounts applied pursuant to Section 4.6 shall be deducted from the balance credited to such Deferral Account at the time of payment or forfeiture. Section 4.3 Early Termination. Upon a Participant's termination of employment with an Employer or Affiliated Company prior to the date which is ten years prior to such Participant's Retirement Age for any reason other than death, Disability or transfer to employment with another Employer or Affiliated Company, the amount payable from such Participant's Deferral Account, as determined in accordance with Section 4.2, shall be paid by the Employer to such Participant in a single lump sum as soon as practicable following such termination of employment. Section 4.4 Death. Upon a Participant's termination of employment by reason of death, the amount payable from such Participant's Deferral Account, as determined in accordance with Section 4.2, shall be paid by the Employer to the beneficiary or beneficiaries designated by such Participant pursuant to Section 4.7 in one of the following forms as elected by the Participant during the Participant's initial Election Period: (a) a single lump sum to be paid as soon as practicable following the Participant's death; or (b) if the amount payable from a Deferral Account is $50,000 or more as of the date of the Participant's death, annual installments over the period certain selected by the Participant not to exceed 15 years commencing in payment as soon as practicable following the Participant's death with each annual installment equal to the Deferral Account balance multiplied by a fraction the numerator of which is one and the denominator of which is the number of payments remaining; provided, however, that if a beneficiary of a deceased Participant who is entitled to installment payments hereunder encounters an unforeseeable emergency (as determined in accordance with Section 4.8 hereof), the Administrative Committee, in its absolute discretion, may direct the Employer to accelerate such portion of the installment payments as the Administrative Committee shall determine to be necessary to alleviate the severe financial hardship of the beneficiary caused by such unforeseeable emergency. Section 4.5 Retirement or Disability. Upon a Participant's termination of employment with an Employer or Affiliated Company (i) on or after the date which is ten years prior to such Participant's Retirement Age for any reason other than death or transfer to employment with another Employer or Affiliated Company or (ii) on account of his or her Disability, the amount payable from such Participant's Deferral Account, as determined in accordance with Section 4.2, shall be paid by the Employer to such Participant (or, in the event of his or her subsequent death, to the beneficiary or beneficiaries designated by such Participant pursuant to Plan Section 4.7) in one of the following forms as elected by the Participant during the Participant's initial Election Period: (a) a single lump sum to be paid as soon as practicable following the Participant's termination of employment or, in the case of termination of employment on account of Disability or prior to Retirement Age and the Participant so elects, the Participant's Retirement Age; or (b) if the amount payable from a Deferral Account is $50,000 or more as of the date of the Participant's termination of employment, annual installments over the period certain selected by the Participant not to exceed 15 years commencing in payment as soon as practicable following the Participant's termination of employment or, in the case of termination of employment on account of Disability or prior to Retirement Age and the Participant so elects, the Participant's Retirement Age, with each annual installment equal to the Deferral Account balance multiplied by a fraction the numerator of which is one and the denominator of which is the number of payments remaining; provided, however, that if a Participant who is entitled to a delayed lump sum or installment payments hereunder encounters an unforeseeable emergency (as determined in accordance with Section 4.8 hereof), the Administrative Committee, in its absolute discretion, may direct the Employer to accelerate such portion of the lump sum or installment payments as the Administrative Committee shall determine to be necessary to alleviate the severe financial hardship of the Participant caused by such unforeseeable emergency. Section 4.6 Option to Request Immediate Payout. In lieu of any other benefits or payments to be made pursuant to this Plan, each Participant (or beneficiary in the case of a deceased Participant) shall have the right at any time to elect a lump sum payment in an amount equal to: (a) the amount payable from the Participant's Deferral Account, determined in accordance with Section 4.2, minus ----- (b) a forfeiture amount equal to 20% of (a) above, provided, however, that if the election is made on or within two years following the date a Change of Control occurs, such forfeiture amount shall be determined substituting 10% for 20%. A Participant's election for an immediate payout pursuant to this Section must be in the form of a written notice provided to the Administrative Committee. The Administrative Committee shall notify any Employer maintaining a Deferral Account with respect to such Participant of the election and the amount so determined shall be paid to the Participant (or, in the case of a deceased Participant, to the beneficiary or beneficiaries designated by such Participant pursuant to Plan Section 4.7) by the Employers no later than fifteen days following receipt of notice by the Administrative Committee. Any amount remaining credited to the Participant's Deferral Account shall be forfeited at the time payment is made. Section 4.7 Designation of Beneficiaries. Any amount payable under this Plan on account of the death of a Participant shall be paid when otherwise due hereunder to the beneficiary or beneficiaries designated by such Participant. Such designation of beneficiary or beneficiaries shall be made in writing on a form prescribed by and filed with the Administrative Committee and shall remain in effect until changed by such Participant by the filing of a new beneficiary designation form with the Administrative Committee. If a Participant fails to so designate a beneficiary, or in the event all of the designated beneficiaries are individuals who either predecease the Participant or survive the Participant but die prior to receiving the full amount payable under this Plan, any remaining amount payable under this Plan shall be paid to such Participant's estate when otherwise due hereunder. Section 4.8 Hardship Distributions. If a Participant encounters an unforeseeable emergency, the Administrative Committee in its absolute discretion may direct the Employer maintaining such Deferral Account to pay to such Participant and deduct from such Deferral Account such portion of the amount then credited to such Deferral Account (including, if appropriate, the entire amount determined in accordance with Section 4.2) as the Administrative Committee shall determine to be necessary to alleviate the severe financial hardship of such Participant caused by such unforeseeable emergency. For this purpose, an "unforeseeable emergency" shall be a severe financial hardship to the Participant resulting from a sudden and unexpected illness or accident of the Participant or of a dependent of the Participant, loss of the Participant's property due to casualty, or other similar extraordinary and unforeseeable circumstances arising as a result of events beyond the control of the Participant. The circumstances that will constitute an unforeseeable emergency will depend upon the facts of each case, but in any case, payment may not be made to the extent that such hardship is or may be relieved (i) through reimbursement or compensation by insurance or otherwise, (ii) by liquidation of the Participant's assets, to the extent liquidation of such assets would not itself cause severe financial hardship, or (iii) by cessation of deferrals under the Plan. No distribution shall be made to a Participant pursuant to this Section 4.8 unless such Participant requests such a distribution in writing and provides to the Administrative Committee such information and documentation with respect to his or her unforeseeable emergency as may be requested by the Administrative Committee. Section 4.9 Change of Distribution Form. Each Participant may elect at any time after a Participant's initial Election Period, but no more often than once during each calendar year, to change the distribution forms elected with respect to all amounts credited to such Participant's Deferral Account; provided, however, that such election shall not be effective unless made by the end of the second calendar year preceding the calendar year in which distributions are to be made or commence to such Participant pursuant to Sections 4.4 or 4.5 hereof. ARTICLE V. AMENDMENT AND TERMINATION Section 5.1 Amendment and Termination. The Compensation Committee shall have the right and power at any time and from time to time to amend this Plan, in whole or in part, on behalf of all Employers, and the Board shall have the right and power at any time to terminate this Plan or any Employer's participation hereunder. Any amendment to or termination of this Plan shall be made by or pursuant to a resolution duly adopted by the Compensation Committee or the Board, as the case may be, and shall be evidenced by such resolution or by a written instrument executed by such person as the Compensation Committee or the Board, as the case may be, shall authorize for such purpose. Any provision of this Plan to the contrary notwithstanding, no amendment to or termination of this Plan shall reduce the amounts actually credited to a Participant's Deferral Accounts as of the date of such amendment or termination, or further defer the dates for the payment of such amounts, without the consent of the affected Participant. Upon termination of this Plan, the Board, in its sole discretion, may require the Administrative Committee to calculate final Deferral Account balances as of such Adjustment Date as it may prescribe, and direct each Employer to make immediate lump sum payments to each Participant (or beneficiary in the case of a deceased Participant) with respect to which such Employer maintains a Deferral Account in the amount determined to be credited to such Participant's Deferral Account as of such final Adjustment Date. Section 5.2 Change of Control. The preceding provisions of this Article to the contrary notwithstanding, no action taken on or within two years following a Change of Control to amend or terminate this Plan shall be effective unless written consent thereto is obtained from a majority of the Participants. ARTICLE VI. MISCELLANEOUS PROVISIONS Section 6.1 Nature of Plan and Rights. This Plan is unfunded and maintained by the Employers primarily for the purpose of providing deferred compensation for a select group of management or highly compensated employees of the Employers. The Deferral Accounts established and maintained under this Plan by an Employer are for its accounting purposes only and shall not be deemed or construed to create a trust fund or security interest of any kind for or to grant a property interest of any kind to any Participant, designated beneficiary or estate. The amounts credited by an Employer to Deferral Accounts maintained under this Plan are and for all purposes shall continue to be a part of the general assets and liabilities of such Employer, and to the extent that a Participant, designated beneficiary or estate acquires a right to receive a payment from such Employer pursuant to this Plan, such right shall be no greater than the right of any unsecured general creditor of such Employer. Section 6.2 Spendthrift Provision. No Deferral Account balance or other right or interest under this Plan of a Participant, designated beneficiary or estate may be assigned, transferred or alienated, in whole or in part, either directly or by operation of law, and no such balance, right or interest shall be liable for or subject to any debt, obligation or liability of such Participant, designated beneficiary or estate. Section 6.3 Employment Noncontractual. The establishment of this Plan shall not enlarge or otherwise affect the terms of any Participant's employment with an Employer, and such Employer may terminate the employment of such Participant as freely and with the same effect as if this Plan had not been established. Section 6.4 Adoption by Other Employers. With the consent of the Compensation Committee, this Plan may be adopted by any Affiliated Company, such adoption to be effective as of the date specified by such Affiliated Company at the time of adoption. Section 6.5 Claims Procedure. If any person (hereinafter called the "Claimant") feels that he or she is being denied a benefit to which he or she is entitled under this Plan, such Claimant may file a written claim for said benefit with the Administrative Committee. Within sixty days following the receipt of such claim the Administrative Committee shall determine and notify the Claimant as to whether he or she is entitled to such benefit. Such notification shall be in writing and, if denying the claim for benefit, shall set forth the specific reason or reasons for the denial, make specific reference to the pertinent provisions of this Plan, and advise the Claimant that he or she may, within sixty days following the receipt of such notice, in writing request to appear before the Administrative Committee or its designated representative for a hearing to review such denial. Any such hearing shall be scheduled at the mutual convenience of the Administrative Committee or its designated representative and the Claimant, and at any such hearing the Claimant and/or his or her duly authorized representative may examine any relevant documents and present evidence and arguments to support the granting of the benefit being claimed. The final decision of the Administrative Committee with respect to the claim being reviewed shall be made within sixty days following the hearing thereon, and Administrative Committee shall in writing notify the Claimant of said final decision, again specifying the reasons therefor and the pertinent provisions of this Plan upon which said final decision is based. The final decision of the Administrative Committee shall be conclusive and binding upon all parties having or claiming to have an interest in the matter being reviewed. Section 6.6 Reimbursement of Expenses. In the event that a dispute arises between a Participant or beneficiary and the Participant's Employer or the Company with respect to the payment of benefits hereunder and the Participant or beneficiary is successful in pursuing a benefit to which he or she is entitled under the terms of the Plan against the Participant's Employer, the Company or any other party in the course of litigation or otherwise and incurs attorneys' fees, expenses and costs in connection therewith, the Participant's Employer and the Company shall reimburse the Participant or beneficiary for the full amount of any such attorneys' fees, expenses and costs. Section 6.7 Withholding Tax. There shall be deducted from all amounts paid under this Plan any taxes required to be withheld by any Federal, state, local or other government. The Participant and/or his or her beneficiary (including his or her estate) shall bear all taxes on amounts paid under this Plan to the extent that no taxes are withheld, irrespective of whether withholding is required. Section 6.8 Applicable Law. This Plan shall be governed and construed in accordance with the internal laws (and not the principles relating to conflicts of laws) of the State of Texas, except where superseded by federal law. IN WITNESS WHEREOF, this Plan has been executed on this 30th day of September, 1994 to be effective as of October 1, 1994. ENSERCH CORPORATION By /s/ D. W. Biegler Title: Chairman, President and Chief Executive Officer AMENDMENT NO. 1 TO THE ENSERCH CORPORATION DEFERRED COMPENSATION PLAN Pursuant to the provisions of Section 5.1 thereof, the ENSERCH Corporation Deferred Compensation Plan (the "Plan") is hereby amended in the following respect only: Article III of the Plan is hereby amended effective as of January 1, 1995 by adding the following new Section to the end thereof: Section 3.6 Deferred Compensation Awards. Effective as of January 1, 1995, the President of ENSERCH Corporation may enter into "Deferred Compensation Award Agreements" with such Eligible Employees as may from time to time be approved by the Compensation Committee. Such Agreements shall provide for the grant of a deferred compensation award, either fixed as to amount or determinable pursuant to a formula, to the Eligible Employee subject to such vesting requirements, including performance criteria, as shall be approved by the Compensation Committee. The amount of any deferred compensation award which vests pursuant to the terms of a Deferred Compensation Award Agreement entered into with an Eligible Employee shall be credited to such Participant's Deferral Account as of the date of such vesting, if such individual is an Eligible Employee as of the date of vesting, and any such vested award so credited to a Deferral Account shall for all purposes be considered to be, and shall be treated in the same manner as, a deferral credited to such Deferral Account. The Administrative Committee may maintain separate subaccounts within a Participant's Deferral Account for amounts attributable to deferrals and deferred compensation awards if separate identification is desired, but the amounts credited to any subaccounts shall be treated the same for all purposes of this Plan. IN WITNESS WHEREOF, this Amendment has been executed this 28th day of March, 1995. ENSERCH CORPORATION By /s/ D. W. Biegler Title: Chairman and President AMENDMENT NO. 2 TO THE ENSERCH CORPORATION DEFERRED COMPENSATION PLAN Pursuant to the provisions of Section 5.1 thereof, the ENSERCH Corporation Deferred Compensation Plan (the "Plan") is hereby amended in the following respects only: FIRST: Effective as of January 1, 1996, Article I, Section 1.1 of the Plan is hereby amended by restating subsection (i) thereof to read as follows: (i) "Deferral Account" means the account established and maintained on the books of an Employer to record a Participant's interest under this Plan attributable to amounts credited to such Participant pursuant to Plan Sections 3.1, 3.2, 3.6 and 3.7. SECOND: Effective as of January 1, 1996, Article I, Section 1.1 of the Plan is hereby amended by adding the following new subsections to the end thereof: (r) "Compensation" shall mean Compensation as defined in Section 1.2(f) of the ENSERCH Corporation Employee Stock Purchase and Savings Plan. (s) "Contribution Service" shall mean Contribution Service as described in Section 2.1 of the ENSERCH Corporation Employee Stock Purchase and Savings Plan. THIRD: Effective as of January 1, 1996, Article III of the Plan is hereby amended by adding the following new section to the end thereof: Section 3.7 Employer Contributions. (a) Matching Contributions. For each payroll period, each Employer shall make a matching contribution to the Plan for each Participant who is an Eligible Employee during such pay period in an amount which will equal: (1) with respect to a Participant who has completed less than five years of Contribution Service as of the end of that pay period, 30% of the amounts deferred by such Participant pursuant to Section 3.1 for that pay period to the extent that such amounts deferred do not exceed 2% of such Participant's Compensation for such pay period; (2) with respect to a Participant who has completed at least five but less than fifteen years of Contribution Service as of the end of that pay period, 40% of the amounts deferred by such Participant pursuant to Section 3.1 for that pay period to the extent that such amounts deferred do not exceed 3% of such Participant's Compensation for such pay period; (3) with respect to a Participant who has completed at least fifteen but less than twenty-five years of Contribution Service as of the end of that pay period, 50% of the amounts deferred by such Participant pursuant to Section 3.1 for that pay period to the extent that such amounts deferred do not exceed 4% of such Participant's Compensation for such pay period; and (4) with respect to a Participant who has completed at least twenty-five years of Contribution Service as of the end of that pay period, 60% of the amounts deferred by such Participant pursuant to Section 3.1 for that pay period to the extent that such amounts deferred do not exceed 5% of such Participant's Compensation for such pay period. Employer matching contributions made under this Plan for a Participant shall be credited each month to such Participant's Deferral Account under the Plan. (b) Discretionary Contributions. In addition to the Employer contributions made pursuant to Section 3.7(a), for each Plan Year each Employer shall contribute to the Plan as an Employer contribution such amount, if any, to be determined by the Compensation Committee. Any Employer contribution made for a Plan Year pursuant to this Section shall be credited to the Deferral Accounts of those Participants specified by the Compensation Committee in the manner determined by the Compensation Committee in its absolute discretion. IN WITNESS WHEREOF, this Amendment has been executed this 1st day of January, 1996. ENSERCH Corporation By /s/ D. W. Biegler Title: President AMENDMENT NO. 3 TO THE ENSERCH CORPORATION DEFERRED COMPENSATION PLAN Pursuant to the provisions of Section 5.1 thereof, the ENSERCH Corporation Deferred Compensation Plan (the "Plan") is hereby amended in the following respects only: FIRST: Section 3.2 of the Plan is hereby amended effective as of January 1, 1996 by adding the following to the end thereof: In addition to the above, an Eligible Employee may elect to have the payment of an amount of up to 100% of the cash portion of any bonus or other special payment otherwise payable by an Employer with respect to such Eligible Employee designated by the Chairman and President of the Corporation (or with respect to amounts otherwise payable to the Chairman and President of the Corporation, designated by the Chairman of the Compensation Committee) deferred for payment in the manner and at the time specified in Article IV with the deferral election to be made at the time and in the manner prescribed by the Chairman and President of the Corporation (or with respect to amounts otherwise payable to the Chairman and President of the Corporation, the Chairman of the Compensation Committee); provided, however, that any such election must be made in writing by the Eligible Employee prior to the time at which the Eligible Employee otherwise is entitled to receive payment of the amount from the Employer and shall be irrevocable. SECOND: The second sentence of Section 3.3 of the Plan is hereby amended effective as of January 1, 1996 by restatement in its entirety to read as follows: Any amount for a Plan Year that is deferred for a Participant pursuant to Section 3.1 and/or Section 3.2 shall be credited by the Employer to such Participant's Deferral Account as of the date such amount would otherwise have been paid to such Participant by such Employer. THIRD: Article IV of the Plan is hereby amended effective as of January 1, 1996 to add a new Section 4.10 to the end thereof to read as follows: Section 4.10 Accelerated Distribution of Reclassified Amounts. In the event that the Internal Revenue Service formally assesses a deficiency against a Participant on the grounds that a deferral election made by such Participant with respect to salary, bonus, special payment or other amount pursuant to this Plan is not effective for federal income tax purposes resulting in recognition by Participant for federal income tax purposes of an amount credited to Participant's Deferral Account hereunder (the "Reclassified Amount") earlier than the time payment otherwise would be made to the Participant pursuant to this Plan, then the Administrative Committee shall direct the Employer maintaining such Participant's Deferral Account to pay to such Participant and deduct from such Deferral Account the Reclassified Amount. No payment made to a Participant pursuant to this Section 4.10 shall be subject to forfeiture as provided in Section 4.6 hereof. IN WITNESS WHEREOF, this Amendment has been executed this 23rd day of September, 1996. ENSERCH CORPORATION By: /s/ D. W. Biegler -------------------------- Title: Chairman and President AMENDMENT NO. 4 TO THE ENSERCH CORPORATION DEFERRED COMPENSATION PLAN Pursuant to the provisions of Section 5.1 thereof, the ENSERCH Corporation Deferred Compensation Plan (the "Plan") is hereby amended in the following respects only: FIRST: Effective as of January 1, 1996, Section 1.1(1) of the Plan is hereby amended by adding a new sentence to the end thereof to read as follows: Any provision of this Plan to the contrary notwithstanding, effective on and after the date of a Change of Control, the term "Eligible Employee" shall be limited to those individuals who satisfy the requirements set forth above and who were Participants in this Plan as of the date immediately prior to the date of such Change of Control. SECOND: Effective as of January 1, 1996, Article II of the Plan is hereby amended by adding a new Section 2.2 to the end thereof to read as follows: Section 2.2 Independent Committee. Any provision of this Plan to the contrary notwithstanding, on and after the date of a Change of Control, the Independent Committee appointed by the Board pursuant to the provisions of the ENSERCH Corporation Deferred Compensation Trust shall be responsible for the administration of this Plan and shall have all of the powers, duties, responsibilities and obligations of the Administrative Committee as provided hereunder. THIRD: Effective as of April 1, 1996, Section 3.7(a) of the Plan is hereby amended by restatement in its entirety to read as follows: (a) Matching Contributions. For each payroll period, each Employer shall make a matching contribution to the Plan for each Participant who is an Eligible Employee during such pay period in an amount which will equal: (1) with respect to a Participant who has completed less than five years of Contribution Service as of the end of that pay period, 50% of the amounts deferred by such Participant pursuant to Section 3.1 for that pay period to the extent that such amounts deferred do not exceed 2% of such Participant's Compensation for such pay period; (2) with respect to a Participant who has completed at least five but less than fifteen years of Contribution Service as of the end of that pay period, 50% of the amounts deferred by such Participant pursuant to Section 3.1 for that pay period to the extent that such amounts deferred do not exceed 3% of such Participant's Compensation for such pay period; (3) with respect to a Participant who has completed at least fifteen but less than twenty-five years of Contribution Service as of the end of that pay period, 50% of the amounts deferred by such Participant pursuant to Section 3.1 for that pay period to the extent that such amounts deferred do not exceed 4% of such Participant's Compensation for such pay period; and (4) with respect to a Participant who has completed at least twenty-five years of Contribution Service as of the end of that pay period, 60% of the amounts deferred by such Participant pursuant to Section 3.1 for that pay period to the extent that such amounts deferred do not exceed 5% of such Participant's Compensation for such pay period. Employer matching contributions made under this Plan for a Participant shall be credited each month to such Participant's Deferral Account under the Plan. Any provision of this Plan to the contrary notwithstanding, effective as of January 1, 1997, no matching contribution shall be made pursuant to this Section 3.7(a) for a Participant during a Plan Year unless such Participant elects to have his or her Employer contribute to the ENSERCH Corporation Employee Stock Purchase and Savings Plan on his or her behalf during such Plan Year the maximum Pre-Tax Employee Contribution that may be elected by the Participant pursuant to such plan. FOURTH: Effective as of January 1, 1996, Article III of the Plan is hereby amended by adding a new Section 3.8 to the end thereof to read as follows: Section 3.8 Plan Freeze. Any provision of this Plan to the contrary notwithstanding, effective as of the second anniversary following the date of a Change of Control, no additional amounts of salary or bonus deferrals or Employer contributions shall be credited to Deferral Accounts; provided, however, that Deferral Accounts shall continue to be adjusted for earnings, losses and expenses in accordance with the provisions of Section 3.4 of this Plan and shall be subject to all of the remaining provisions of this Plan. FIFTH: Effective as of January 1, 1996, Section 4.3 of the Plan is hereby amended by restatement in its entirety to read as follows: Section 4.3 Early Termination. Upon a Participant's termination of employment with an Employer or Affiliated Company prior to the date which is ten years prior to such Participant's Retirement Age for any reason other than death, Disability or transfer to employment with another Employer or Affiliated Company, the amount payable from such Participant's Deferral Account, as determined in accordance with Section 4.2, shall be paid by the Employer to such Participant in a single lump sum as soon as practicable following such termination of employment; provided, however, that effective with respect to terminations of employment occurring on or after November 15, 1997, the amount payable from such Participant's Deferral Account, as determined in accordance with Section 4.2, shall be paid by the Employer to such Participant (or, in the event of his or her subsequent death, to the beneficiary or beneficiaries designated by such Participant pursuant to Plan Section 4.7) in one of the following forms as elected by the Participant during the Participant's initial Election Period (or with respect to Participants participating in the Plan as of October 1, 1996, as elected by the Participant on or before November 15, 1996): (a) a single lump sum to be paid as soon as practicable following the Participant's termination of employment or the Participant's Retirement Age; or (b) if the amount payable from a Deferral Account is $50,000 or more as of the date of the Participant's termination of employment, annual installments over the period certain selected by the Participant not to exceed 15 years commencing in payment as soon as practicable following the Participant's termination of employment or the Participant's Retirement Age, as elected by the Participant, with each annual installment equal to the Deferral Account balance multiplied by a fraction the numerator of which is one and the denominator of which is the number of payments remaining; provided, however, that if a Participant who is entitled to a delayed lump sum or installment payments hereunder encounters an unforeseeable emergency (as determined in accordance with Section 4.8 hereof), the Administrative Committee, in its absolute discretion, may direct the Employer to accelerate such portion of the delayed lump sum or installment payments as the Administrative Committee shall determine to be necessary to alleviate the severe financial hardship of the Participant caused by such unforeseeable emergency. Any provision of this Plan to the contrary notwithstanding, a Participant shall not incur a termination of employment under this Plan merely as a result of (i) his or her transfer of employment from the Company to Enserch Exploration, Inc. or from Enserch Exploration, Inc. to the Company or (ii) Enserch Exploration, Inc. no longer being an Affiliated Company. SIXTH: Effective as of January 1, 1996, Section 4.9 of the Plan is hereby amended by restatement in its entirety to read as follows: Section 4.9 Chance of Distribution Form. Each Participant may elect at any time after a Participant's initial Election Period, but no more often than once during each calendar year, to change the distribution forms elected with respect to all amounts credited to such Participant's Deferral Account; provided, however, that such election shall not be effective unless made at least twelve months preceding the date of the Participant's termination of employment. SEVENTH: Effective as of January 1, 1996, Section 5.2 of the Plan is hereby amended by restatement in its entirety to read as follows: Section 5.2 Change of Control. The preceding provisions of this Article to the contrary notwithstanding, no action taken on or after a Change of Control to amend or terminate this Plan shall be effective unless written consent thereto is obtained from a majority of the Participants. EIGHTH: Effective as of the date of the distribution of all shares of stock of Enserch Exploration, Inc. owned by ENSERCH Corporation to the shareholders of ENSERCH Corporation, Enserch Exploration, Inc. and its subsidiaries shall no longer be participating Employers under this Plan. IN WITNESS WHEREOF, this Amendment has been executed this day of 6th day of November, 1996. ENSERCH CORPORATION By: /s/ D. W. Biegler --------------------------- Title: Chairman and President AMENDMENT NO. 5 TO THE ENSERCH CORPORATION DEFERRED COMPENSATION PLAN Pursuant to the provisions of Section 5.1 thereof, the ENSERCH Corporation Deferred Compensation Plan (the "Plan") is hereby amended in the following respects only: FIRST: Effective as of January 1, 1996, Section 4.3 of the Plan is hereby amended by restatement in its entirety to read as follows: Section 4.3 Early Termination. Upon a Participant's termination of employment with an Employer or Affiliated Company prior to the date which is ten years prior to such Participant's Retirement Age for any reason other than death, Disability or transfer to employment with another Employer or Affiliated Company, the amount payable from such Participant's Deferral Account, as determined in accordance with Section 4.2, shall be paid by the Employer to such Participant in a single lump sum as soon as practicable following such termination of employment; provided, however, that effective with respect to terminations of employment occurring on or after November 15, 1997 (or, with respect to distribution forms elected prior to a Change of Control, terminations of employment occurring on or after May 15, 1997), the amount payable from such Participant's Deferral Account, as determined in accordance with Section 4.2, shall be paid by the Employer to such Participant (or, in the event of his or her subsequent death, to the beneficiary or beneficiaries designated by such Participant pursuant to Plan Section 4.7) in one of the following forms as elected by the Participant during the Participant's initial Election Period (or with respect to Participants participating in the Plan as of October 1, 1996, as elected by the Participant on or before November 15, 1996): (a) a single lump sum to be paid as soon as practicable following the Participant's termination of employment or the Participant's Retirement Age; or (b) if the amount payable from a Deferral Account is $50,000 or more as of the date of the Participant's termination of employment, annual installments over the period certain selected by the Participant not to exceed 15 years commencing in payment as soon as practicable following the Participant's termination of employment or the Participant's Retirement Age, as elected by the Participant, with each annual installment equal to the Deferral Account balance multiplied by a fraction the numerator of which is one and the denominator of which is the number of payments remaining; provided, however, that if a Participant who is entitled to a delayed lump sum or installment payments hereunder encounters an unforeseeable emergency (as determined in accordance with Section 4.8 hereof), the Administrative Committee, in its absolute discretion, may direct the Employer to accelerate such portion of the delayed lump sum or installment payments as the Administrative Committee shall determine to be necessary to alleviate the severe financial hardship of the Participant caused by such unforeseeable emergency. Any provision of this Plan to the contrary notwithstanding, a Participant shall not incur a termination of employment under this Plan merely as a result of (i) his or her transfer of employment from the Company to Enserch Exploration, Inc. or from Enserch Exploration, Inc. to the Company or (ii) Enserch Exploration, Inc. no longer being an Affiliated Company. SECOND: Effective as of January 1, 1996, Section 4.9 of the Plan is hereby amended by restatement in its entirety to read as follows: Section 4.9 Change of Distribution Form. Each Participant may elect at any time after a Participant's initial Election Period, but no more often than once during each calendar year, to change the distribution forms elected with respect to all amounts credited to such Participant's Deferral Account; provided, however, that such election shall not be effective unless made at least twelve months preceding the date of the Participant's termination of employment; provided, further, that in the event of a Change of Control, any election made prior to the Change of Control shall be effective if made at least six months preceding the date of the Participant's termination of employment. IN WITNESS WHEREOF, this Amendment has been executed this 18th day of February, 1997. ENSERCH CORPORATION By: /s/ D. W. Biegler --------------------------- Title: Chairman and President EX-10.17 6 DEFERRED COMPENSATION TRUST EXHIBIT 10.17 ENSERCH CORPORATION DEFERRED COMPENSATION TRUST --------------------------- This Trust Agreement made this 30th day of September, 1994, by and between ENSERCH Corporation, a Texas corporation (the "Company") and Texas Commerce Bank National Association, a national banking association ( the "Trustee"); WHEREAS, the Company and certain Affiliated Companies have adopted nonqualified deferred compensation plans known as the ENSERCH Corporation Deferred Compensation Plan (the "Executive Plan") and the ENSERCH Corporation Deferred Compensation Plan for Directors (the "Directors' Plan") (collectively hereinafter referred to as the "Plan" or "Plans"); and WHEREAS, the Company has incurred or expects to incur liability under the terms of such Plans with respect to the individuals participating in such Plans; and WHEREAS, the Company wishes to establish a trust (hereinafter called the "Trust") and to contribute to the Trust assets that shall be held therein, subject to the claims of the Company's creditors in the event of the Company's Insolvency, as herein defined, until paid to Plan Participants and their beneficiaries in such manner and at such times as specified in the Plans; and WHEREAS, it is the intention of the parties that this Trust shall constitute an unfunded arrangement and shall not affect the status of the Plans as unfunded plans maintained for the purpose of providing deferred compensation for a select group of management or highly compensated employees for purposes of Title I of the Employee Retirement Income Security Act of 1974; and WHEREAS, it is the intention of the Company to make contributions to the Trust to provide itself with a source of funds to assist it in the meeting of its liabilities under the Plans; NOW, THEREFORE, the parties do hereby establish the Trust and agree that the Trust shall be comprised, held and disposed of as follows: Section 1. Establishment Of Trust. ---------------------- (a) The Company hereby deposits with the Trustee in trust $1,000.00, which shall become the principal of the Trust to be held, administered and disposed of by the Trustee as provided in this Trust Agreement. (b) The Trust hereby established shall be irrevocable. (c) The Trust is intended to be a grantor trust, of which the Company is the grantor, within the meaning of subpart E, part I, subchapter J, chapter 1, subtitle A of the Internal Revenue Code of 1986, as amended, and shall be construed accordingly. (d) The principal of the Trust, and any earnings thereon shall be held separate and apart from other funds of the Company and shall be used exclusively for the uses and purposes of Plan Participants and general creditors as herein set forth. Plan Participants and their beneficiaries shall have no preferred claim on, or any beneficial ownership interest in, any assets of the Trust. Any rights created under the Plans and this Trust Agreement shall be mere unsecured contractual rights of Plan Participants and their beneficiaries against the Company. Any assets held by the Trust will be subject to the claims of the Company's general creditors under federal and state law in the event of Insolvency, as defined in Section 4(a) herein. (e) The Company, in its sole discretion, may at any time, or from time to time, make additional deposits of cash or other property in trust with the Trustee to augment the principal to be held, administered and disposed of by the Trustee as provided in this Trust Agreement; provided, however, that the Company shall contribute to the Trust each calendar year an amount of cash or property at least equal in value to the total amount of deferrals credited to the Deferral Accounts of Participants pursuant to the Executive Plan and the Accounts of Participants pursuant to the Directors' Plan during such calendar year. (f) Any provision of this Trust Agreement to the contrary notwithstanding, upon a Change of Control, as defined in the Plans, the Company shall (i) as soon as possible, but in no event more than 30 days following the date of such Change of Control, make an irrevocable contribution to the Trust in an amount, as determined by an Independent Committee, as defined below, which when added to the total value of the assets of the Trust at such time equals the total amount credited to all Deferral Accounts under the Executive Plan and all Accounts under the Directors' Plan as of the date on which the Change of Control occurred, and (ii) during the two-year period following the date of the Change of Control, make monthly contributions to the Trust in amounts sufficient, as determined by the Independent Committee, to maintain the total value of the Trust assets at an amount equal to the total amount credited to all Deferral Accounts under the Executive Plan and all Accounts under the Directors' Plan. Section 2. Payments to Plan Participants and their Beneficiaries. ----------------------------------------------------- (a) The Administrative Committee shall deliver to the Trustee a schedule (the "Payment Schedule") that indicates the amounts payable with respect to each Plan Participant (and his or her beneficiaries), that provides a formula or other instructions acceptable to the Trustee for determining the amounts so payable, the form in which such amount is to be paid (as provided for or available under the Plan), and the time of commencement for payment of such amounts, if known. An updated Payment Schedule shall be provided by the Administrative Committee to the Trustee periodically, but no less frequently than once each calendar year. Except as otherwise provided herein, the Trustee shall make payments to the Plan Participants and their beneficiaries in accordance with such Payment Schedule. The Trustee shall make provision for the reporting and withholding of any federal, state or local taxes that may be required to be withheld with respect to the payment of benefits pursuant to the terms of the Plans and shall pay amounts withheld to the appropriate taxing authorities or determine that such amounts have been reported, withheld and paid by an Employer under the Executive Plan or by the Company under the Directors' Plan. (b) The entitlement of a Plan Participant or his or her beneficiaries to benefits under the Plan shall be determined by the Administrative Committee or such other party as may be designated under the Plan, and any claim for such benefits shall be considered and reviewed under the procedures set out in the Plan. (c) Employers participating in the Executive Plan or the Company with respect to the Directors' Plan may make payments of benefits directly to Plan Participants or their beneficiaries as they become due under the terms of the Plan in lieu of payment from the Trust. The Administrative Committee shall notify the Trustee of an Employer's or the Company's decision to make payments of benefits directly prior to the time amounts are payable to Participants or their beneficiaries. In addition, if the Trust assets are not sufficient to make payments of benefits in accordance with the terms of the Plans, the Company shall make the balance of each such payment as it falls due. The Trustee shall notify the Company immediately when Trust assets are not sufficient to satisfy all payments due. (d) Any provision of this Section 2 to the contrary notwithstanding, upon and after a Change of Control, the Trustee shall make payments to Plan Participants or their beneficiaries in accordance with the direction of the Independent Committee rather than the Administrative Committee, regardless of whether the Trustee has received a Payment Schedule or any other form of direction from the Administrative Committee to make such payments. Section 3. Appointment of Independent Committee. Any provision of this Trust Agreement to the contrary notwithstanding, upon a Change of Control, an Independent Committee consisting of at least three members shall be appointed by the Compensation Committee of the Board of Directors of the Company subject to the approval of a majority of the Participants of the Plans on the date of such Change of Control. The Independent Committee shall: (a) determine the amount of the irrevocable contributions to be made by the Company pursuant to Section 1(f) hereof; (b) determine in accordance with the Plans the amounts payable with respect to each Plan Participant (and his or her beneficiaries), the form in which such amounts are to be paid, and the time of commencement for payment of such amounts pursuant to Section 2(a) hereof; (c) determine the entitlement of Plan Participants and beneficiaries to benefits under the terms of the Plans pursuant to Section 2(b) hereof; (d) direct the Trustee to make payments to Plan Participants and their beneficiaries pursuant to Section 2 hereof; and (e) select a successor Trustee for the Trust if a Trustee resigns or is removed on or within two years following the date of a Change of Control pursuant to Section 12. Section 4. Trustee Responsibility Regarding Payments to Trust Beneficiary -------------------------------------------------------------- when the Company Is Insolvent. - ----------------------------- (a) The Trustee shall cease payment of benefits to Plan Participants and their beneficiaries if the Company is Insolvent. The Company shall be considered "Insolvent" for purposes of this Trust Agreement if (i) the Company is unable to pay its debts as they become due, or (ii) the Company is subject to a pending proceeding as a debtor under the United States Bankruptcy Code. (b) At all times during the continuance of this Trust, as provided in Section 1(d) hereof, the principal and income of the Trust shall be subject to claims of general creditors of the Company under federal and state law as set forth below. (1) The Board of Directors and the Chief Executive Officer of the Company shall have the duty to inform the Trustee in writing of the Company's Insolvency. If a person claiming to be a creditor of the Company alleges in writing to the Trustee that the Company has become Insolvent, the Trustee shall determine whether the Company is Insolvent and, pending such determination, the Trustee shall discontinue payment of benefits to Plan Participants or their beneficiaries. (2) Unless the Trustee has actual knowledge of the Company's Insolvency, or has received notice from the Company or a person claiming to be a creditor alleging that the Company is Insolvent, the Trustee shall have no duty to inquire whether the Company is Insolvent. The Trustee may in all events rely on such evidence concerning the Company's solvency as may be furnished to the Trustee and that provides the Trustee with a reasonable basis for making a determination concerning the Company's solvency. (3) If at any time the Trustee has determined that the Company is Insolvent, the Trustee shall discontinue payments to Plan Participants or their beneficiaries and shall hold the assets of the Trust for the benefit of the Company's general creditors. Nothing in this Trust Agreement shall in any way diminish any rights of Plan Participants or their beneficiaries to pursue their rights as general creditors of the Company with respect to benefits due under the Plan or otherwise. (4) The Trustee shall resume the payment of benefits to Plan Participants or their beneficiaries in accordance with Section 2 of this Trust Agreement only after the Trustee has determined that the Company is not Insolvent (or is no longer Insolvent). (c) Provided that there are sufficient assets, if the Trustee discontinues the payment of benefits from the Trust pursuant to Section 4(b) hereof and subsequently resumes such payments, the first payment following such discontinuance shall include the aggregate amount of all payments due to Plan Participants or their beneficiaries under the terms of the Plans for the period of such discontinuance, less the aggregate amount of any payments made to Plan Participants or their beneficiaries by the Employers participating in the Executive Plan or by the Company with respect to the Directors' Plan in lieu of the payments provided for hereunder during any such period of discontinuance. Section 5. Payments to the Company. ----------------------- (a) Except as provided in Sections 4 and 5(b) hereof, the Company shall have no right or power to direct the Trustee to return to the Company or to divert to others any of the Trust assets before payment of all benefits have been made to Plan Participants and their beneficiaries pursuant to the terms of the Plans. (b) To the extent that the Administrative Committee determines that the value of the assets in the Trust based upon information provided to the Administrative Committee by the Trustee, at any time, exceeds 110% of the amounts credited to Participants' Deferral Accounts under the Executive Plan and Accounts under the Directors' Plan as of the most recent Adjustment Date plus any deferrals made since such date, the Trustee shall pay such excess to the Company upon receipt of written request therefor from the Company; provided, however, that no such payment of excess assets to the Company shall be made on or within two years following the date of a Change of Control. Section 6. Investment Authority. -------------------- (a) The Trustee shall have full power and authority to invest and reinvest the Trust assets, or any part thereof, in such stocks (common or preferred), bonds, mortgages, notes, interest-bearing deposits (including such deposits with any corporate trustee acting hereunder), options and contracts for the future or immediate receipt or delivery of property of any kind, or other securities, producing or nonproducing oil and gas royalties and payments and other producing and nonproducing interests in minerals, or in commodities, life insurance policies, annuity contracts or other property of any kind or nature whatsoever, whether real, personal or mixed, as the Trustee, in the Trustee's absolute discretion and judgment, deems appropriate for the Trust, and to hold cash uninvested at any time and from time to time in such amounts and to such extent as the Trustee, in the Trustee's absolute discretion and judgment, deems appropriate for the Trust. The Trustee shall have full power and authority to manage, handle, invest, reinvest, sell for cash or credit, or for part cash or part credit, exchange, hold, dispose of, lease for any period of time (whether or not longer than the life of the Trust), improve, repair, maintain, work, develop, use, operate, mortgage, or pledge, all or any part of the assets and property from time to time constituting any part of the trust funds held in trust under the Trust; borrow or loan money or securities; write options and sell securities or other property short or for future delivery; engage in hedging procedures; buy and sell futures contracts; execute obligations, negotiable and nonnegotiable; vote shares of stock in person and by proxy, with or without power of substitution; register investments in the name of a nominee; sell, convey, lease and/or otherwise deal with any producing or nonproducing oil, gas and mineral leases or mineral rights, payments and royalties; pay all reasonable expenses; execute and deliver any deeds, conveyances, leases, contracts, or written instruments of any character appropriate to any of the powers or duties of the Trustee, and shall, in general, have as broad power respecting the management, operation and handling of the Trust assets and property as if the Trustee were the owner of such assets and property in the Trustee's own right. The preceding provisions of this paragraph to the contrary notwithstanding, the Company shall have the right and power at any time and from time to time to give the Trustee broad guidelines within which it shall invest the assets of the Trust; provided, however, that upon a Change of Control and continuing for two years thereafter, the Independent Committee, rather than the Company, shall have the sole authority to exercise such right. (b) All rights associated with assets of the Trust shall be exercised by the Trustee or the person designated by the Trustee, and shall in no event be exercisable by or rest with Plan Participants. (c) The Company shall have the right, at any time, and from time to time in its sole discretion, to substitute assets of equal fair market value for any asset held by the Trust; provided, however, that effective upon a Change in Control and for a period of two years thereafter, any assets transferred to the Trust in substitution for assets held by the Trust must consist of cash or marketable securities and the fair market value of the respective assets shall be determined by the Trustee. This right is exercisable by the Company in a nonfiduciary capacity without the approval or consent of any person in a fiduciary capacity. Section 7. Disposition of Income. During the term of this Trust, all --------------------- income received by the Trust, net of expenses and taxes, shall be accumulated and reinvested. Section 8. Accounting by Trustee. The Trustee shall keep accurate and --------------------- detailed records of all investments, receipts, disbursements, and all other transactions required to be made, including such specific records as shall be agreed upon in writing between the Company and the Trustee. Within 30 days following the close of each calendar year and within 30 days after the removal or resignation of the Trustee, the Trustee shall deliver to the Company a written account of its administration of the Trust during such year or during the period from the close of the last preceding year to the date of such removal or resignation, setting forth all investments, receipts, disbursements and other transactions effected by it, including a description of all securities and investments purchased and sold with the cost or net proceeds of such purchases or sales (accrued interest paid or receivable being shown separately), and showing all cash, securities and other property held in the Trust at the end of such year or as of the date of such removal or resignation, as the case may be. Section 9. Responsibility of the Trustee. ----------------------------- (a) The Trustee shall act with the care, skill, prudence and diligence under the circumstances then prevailing that a prudent person acting in like capacity and familiar with such matters would use in the conduct of an enterprise of a like character and with like aims; provided, however, that the Trustee shall incur no liability to any person for any action taken pursuant to a direction, request or approval given by the Company which is contemplated by, and in conformity with, the terms of the Plan or this Trust and is given in writing by the Company. In the event of a dispute between the Company and a party, the Trustee may apply to a court of competent jurisdiction to resolve the dispute. (b) If the Trustee undertakes or defends any litigation arising in connection with this Trust, the Company agrees to indemnify the Trustee against the Trustee's costs, expenses and liabilities (including, without limitation, attorneys' fees and expenses) relating thereto and to be primarily liable for such payments. If the Company does not pay such costs, expenses and liabilities in a reasonably timely manner, the Trustee may obtain payment from the Trust. (c) The Trustee may consult with legal counsel (who may also be counsel for the Company generally) with respect to any of its duties or obligations hereunder. (d) The Trustee may hire agents, accountants, actuaries, investment advisors, financial consultants or other professionals to assist it in performing any of its duties or obligations hereunder. (e) The Trustee shall have, without exclusion, all powers conferred on trustees by applicable law, unless expressly provided otherwise herein; provided, however, that except as provided in Sections 5(b) and 6(c) hereof, if an insurance policy is held as an asset of the Trust, the Trustee shall have no power to name a beneficiary of the policy other than the Trust, to assign the policy (as distinct from conversion of the policy to a different form) other than to a successor Trustee, or to loan to any person the proceeds of any borrowing against such policy. (f) Notwithstanding any powers granted to the Trustee pursuant to this Trust Agreement or applicable law, the Trustee shall not have any power that could give this Trust the objective of carrying on a business and dividing the gains therefrom, within the meaning of section 301.7701-2 of the Procedure and Administrative Regulations promulgated pursuant to the Internal Revenue Code. Section 10. Compensation and Expenses of the Trustee. The Trustee shall be ---------------------------------------- paid such reasonable compensation commensurate with the services and responsibilities involved hereunder as shall from time to time be agreed upon by the Trustee and the Company. The Company shall pay all administrative and the Trustee's fees and expenses, but, if not so paid, the fees and expenses shall be paid from the Trust. Section 11. Resignation and Removal of the Trustee. -------------------------------------- (a) The Trustee may resign at any time by written notice to the Company, which shall be effective 30 days after receipt of such notice unless the Company and the Trustee agree otherwise. (b) The Trustee may be removed by the Company on 30 days notice or upon shorter notice accepted by the Trustee; provided, however, that the Trustee may not be removed by the Company on or within two years following a Change of Control except with the written consent of a majority of the Participants entitled to payment of benefits pursuant to the terms of the Plans on the date of such Change of Control. (c) Upon resignation or removal of the Trustee and appointment of a successor Trustee, all assets shall subsequently be transferred to the successor Trustee. The transfer shall be completed within 30 days after receipt of notice of resignation, removal or transfer, unless the Company extends the time limit. (d) If the Trustee resigns or is removed, a successor shall be appointed, in accordance with Section 12 hereof, by the effective date of resignation or removal under paragraph(s) (a) or (b) of this section. If no such appointment has been made, the Trustee may apply to a court of competent jurisdiction for appointment of a successor or for instructions. All expenses of the Trustee in connection with the proceeding shall be allowed as administrative expenses of the Trust. Section 12. Appointment of Successor. ------------------------ (a) If the Trustee resigns or is removed in accordance with Section 11(a) or (b) hereof, the Company may appoint any third party, such as a bank trust department or other party that may be granted corporate trustee powers under state law, as a successor to replace the Trustee upon resignation or removal; provided, however, that if the Trustee resigns or is removed on or within two years following the date of a Change of Control, the Independent Committee shall select a successor Trustee in accordance with this Section 12. The appointment shall be effective when accepted in writing by the new Trustee, who shall have all of the rights and powers of the former Trustee, including ownership rights in the Trust assets. The former Trustee shall execute any instrument necessary or reasonably requested by the Company or the successor Trustee to evidence the transfer. (b) The successor Trustee need not examine the records and acts of any prior Trustee and may retain or dispose of existing Trust assets, subject to Sections 8 and 9 hereof. The successor Trustee shall not be responsible for and the Company shall indemnify and defend the successor Trustee from any claim or liability resulting from any action or inaction of any prior Trustee or from any other past event, or any condition existing at the time it becomes successor Trustee. Section 13. Amendment or Termination. ------------------------ (a) This Trust Agreement may be amended by a written instrument executed by the Trustee and a representative of the Company so authorized by the Compensation Committee of the Board of Directors of the Company. Notwithstanding the foregoing, no such amendment shall conflict with the terms of the Plans or shall make the Trust revocable. (b) The Trust shall not terminate until the date on which Plan Participants and their beneficiaries are no longer entitled to benefits pursuant to the terms of the Plans. Upon termination of the Trust any assets remaining in the Trust shall be returned to the Company. (c) Upon written approval of at least two-thirds of the Participants and beneficiaries entitled to payment of benefits pursuant to the terms of the Plans, the Company may terminate this Trust prior to the time all benefit payments under the Plans have been made. All assets in the Trust at termination shall be returned to the Company. (d) This Trust Agreement may not be amended by the Company on or within two years following the date of a Change of Control, without the written consent of a majority of the Participants entitled to payment of benefits pursuant to the terms of the Plans on the date of such Change of Control. Section 14. Miscellaneous. ------------- (a) Any provision of this Trust Agreement prohibited by law shall be ineffective to the extent of any such prohibition, without invalidating the remaining provisions hereof. (b) Benefits payable to Plan Participants and their beneficiaries under this Trust Agreement may not be anticipated, assigned (either at law or in equity), alienated, pledged, encumbered or subjected to attachment, garnishment, levy, execution or other legal or equitable process. (c) This Trust Agreement shall be governed and construed in accordance with the internal laws (and not the principles relating to conflicts of laws) of the State of Texas, except where superseded by federal law. (d) Unless the context clearly indicates otherwise, when used in this Trust Agreement: (i) "Administrative Committee" shall mean the "Administrative Committee" appointed pursuant to each of the Plans. (ii) "Participant" shall mean each "Participant" as that term is defined in the Executive Plan and each Director who has an amount credited to his or her Account under the Directors' Plan or who has elected to have all or any portion of his or her Annual Fee deferred under the terms of that Plan. (e) Except where otherwise defined, capitalized terms used herein shall have the meaning given to them in the Plans. (f) In the event that a dispute arises between a Plan Participant or beneficiary and the Participant's Employer, the Company or the Trustee with respect to the payment of amounts from the Trust and the Participant or beneficiary is successful in pursuing a benefit to which he or she is entitled under the terms of the Plans and this Trust against the Participant's Employer, the Company, the Trustee or any other party in the course of litigation or otherwise and incurs attorneys' fees, expenses and costs in connection therewith, the Company shall reimburse the Plan Participant or beneficiary for the full amount of any such attorneys' fees, expenses and costs. IN WITNESS WHEREOF, this Agreement has been executed this 30th day of September, 1994, to be effective as of October 1, 1994. ENSERCH CORPORATION By /s/ D. W. Biegler Title: Chairman, President and Chief Executive Officer TEXAS COMMERCE BANK NATIONAL ASSOCIATION By /s/ Karen Epps Title: THE STATE OF TEXAS ) ) COUNTY OF DALLAS ) BEFORE ME, the undersigned authority, a notary public in and for said County and State, on this day personally appeared D. W. Biegler, known to me to be the person whose name is subscribed to the foregoing instrument and acknowledged to me that the same was the act of the said ENSERCH CORPORATION, a Texas corporation, and that he/she executed the same as the act of such corporation for the purposes and consideration therein expressed, and in the capacity therein stated. GIVEN UNDER MY HAND AND SEAL OF OFFICE, this 23rd day of September, 1994. /s/ Cherry H. Sossamon Notary Public, State of Texas My Commission expires: October 31, 1996 THE STATE OF TEXAS ) ) COUNTY OF DALLAS ) BEFORE ME, the undersigned authority, a notary public in and for said County and State, on this day personally appeared Karen Epps, known to me to be the person whose name is subscribed to the foregoing instrument and acknowledged to me that the same was the act of the said TEXAS COMMERCE BANK NATIONAL ASSOCIATION, a national banking association, and that he/she executed the same as the act of such banking association for the purposes and consideration therein expressed, and in the capacity therein stated. GIVEN UNDER MY HAND AND SEAL OF OFFICE, this 7th day of October, 1994. /s/ Barbara Betik Notary Public, State of Texas My Commission expires: January 30, 1997 AMENDMENT NO. 1 TO THE ENSERCH CORPORATION DEFERRED COMPENSATION TRUST Pursuant to the provisions of Section 13(a) thereof, the ENSERCH Corporation Deferred Compensation Trust (the "Trust") is hereby amended in the following respects only: FIRST: Section l(f) of the Trust is hereby amended by restatement in its entirety to read as follows: (f) Any provision of this Trust Agreement to the contrary notwithstanding, upon a Change of Control, as defined in the Plans, the Company shall (i) as soon as possible, but in no event more than 30 days following the date of such Change of Control, make an irrevocable contribution to the Trust in an amount, as determined by an Independent Committee, as defined below, which when added to the total value of the assets of the Trust at such time equals the total amount credited to all Deferral Accounts under the Executive Plan and all Accounts under the Directors' Plan as of the date on which the Change of Control occurred, and (ii) on and after the date of the Change of Control, make monthly contributions to the Trust in amounts sufficient, as determined by the Independent Committee, to maintain the total value of the Trust assets at an amount equal to the total amount credited to all Deferral Accounts under the Executive Plan and all Accounts under the Directors' Plan. Any provision of this Trust Agreement to the contrary notwithstanding, on and after the date of a Change of Control, the assets of this Trust, including any additional contributions made by the Company in accordance with this Section l(f) for the period following such Change of Control and any earnings on the assets of the Trust, shall be held exclusively for the benefit of those Participants in the Plans (or their beneficiaries) as of the date immediately prior to the date of such Change of Control, subject to the claims of general creditors of the Company under federal and state law as set forth below. SECOND: Section 3 of the Trust is hereby amended by restatement in its entirety to read as follows: Section 3. Appointment of Independent Committee. (a) Any provision of this Trust Agreement to the contrary notwithstanding, upon a Change of Control, an Independent Committee consisting of at least three members shall be appointed by the Board subject to the written approval of a majority of the Participants in the Plans on the date of such Change of Control. The Independent Committee shall: (i) determine the amount of the irrevocable contributions to be made by the Company pursuant to Section l(f) hereof; (ii) determine in accordance with the Plans the amounts payable with respect to each Plan Participant (and his or her beneficiaries), the form in which such amounts are to be paid, and the time of commencement for payment of such amounts pursuant to Section 2(a) hereof; (iii) determine the entitlement of Plan Participants and beneficiaries to benefits under the terms of the Plans pursuant to Section 2(b) hereof; (iv) direct the Trustee to make payments to Plan Participants and their beneficiaries pursuant to Section 2 hereof; and (v) select a successor Trustee for the Trust if a Trustee resigns or is removed on or after the date of a Change of Control pursuant to Section 12. (b) Each member of the Independent Committee so appointed shall serve in such office until his or her death, resignation or removal. The Board may remove any member of the Independent Committee by giving written notice thereof to all Plan Participants and all members of the Independent Committee; provided, however, that no member of the Independent Committee may be removed by the Board on or after a Change of Control except with the written consent of a majority of the Plan Participants. Vacancies on the Independent Committee shall be filled from time to time by the Board subject to the written approval of a majority of the Participants in the Plans on the date such vacancy is filled. (c) The Independent Committee shall act by a majority of its members at the time in office and such action may be taken either by a vote at a meeting or in writing without a meeting. The Independent Committee may by such majority action authorize any one or more of its members to execute any document or documents on behalf of the Independent Committee, in which event the Independent Committee shall notify the Trustee in writing of such action and the name or names of its member or members so authorized to act. Every interpretation, choice, determination or other exercise by the Independent Committee of any power or discretion given either expressly or by implication to it shall be conclusive and binding upon all parties having or claiming to have an interest under the Trust or otherwise directly or indirectly affected by such action, without restriction, however, on the right of the Independent Committee to reconsider and redetermine such action. (d) Any provision of this Trust Agreement to the contrary notwithstanding, in the event that (i) the Board shall not appoint an Independent Committee within 30 days following a Change of Control or a majority of the Participants in the Plans do not approve in writing at least three members selected by the Board to serve on an Independent Committee within such 30-day period or (ii) the Board does not fill a vacancy on the Independent Committee within 30 days of the date such office becomes vacant or a majority of the Participants in the Plans do not approve in writing the Board's selection to fill a vacancy on the Independent Committee within such 30-day period, then the Participants in the Plans shall elect, by majority vote, up to three individuals to the extent necessary to ensure that the Independent Committee consists of three members. THIRD: Section 5(b) of the Trust is hereby amended by restatement in its entirety to read as follows: (b) To the extent that the Administrative Committee determines that the value of the assets in the Trust based upon information provided to the Administrative Committee by the Trustee, at any time, exceeds 110% of the amounts credited to Participants' Deferral Accounts under the Executive Plan and Accounts under the Directors' Plan as of the most recent Adjustment Date plus any deferrals made since such date, the Trustee shall pay such excess to the Company upon receipt of written request therefor from the Company; provided, however, that no such payment of excess assets to the Company shall be made on or after the date of a Change of Control without the written approval of the Plan Participants. FOURTH: Section 6(a) of the Trust is hereby amended by restating the last sentence thereof in its entirety to read as follows: The preceding provisions of this paragraph to the contrary notwithstanding, the Company shall have the right and power at any time and from time to time to give the Trustee broad guidelines within which it shall invest the assets of the Trust; provided, however, that on and after the date of a Change of Control, the Independent Committee, rather than the Company, shall have the sole authority to exercise such right. FIFTH: Section 6(c) of the Trust is hereby amended by restating the first sentence thereof in its entirety to read as follows: The Company shall have the right, at any time, and from time to time in its sole discretion, to substitute assets of equal fair market value for any asset held by the Trust; provided, however, that on and after the date of a Change of Control, any assets transferred to the Trust in substitution for assets held by the Trust must consist of cash or marketable securities acceptable to the Independent Committee and the fair market value of the respective assets shall be determined by the Trustee. SIXTH: Section 10 of the Trust is hereby amended by restating the last sentence thereof in its entirety to read as follows: The Company shall pay all administrative and the Trustee's fees and expenses, but, if not so paid, such fees and expenses shall be paid from the Trust; provided, however, that in the event any such fees and expenses are paid from the Trust, the Trustee shall notify the Company in writing that such payment has been made and the Company shall reimburse the Trust for such payment within 15 days from the date of such notice. SEVENTH: Section ll(b) of the Trust is hereby amended by restatement in its entirety to read as follows: (b) The Trustee may be removed by the Company on 30 days notice or upon shorter notice accepted by the Trustee; provided, however, that the Trustee may not be removed by the Company on or after a Change of Control except with the written consent of a majority of the Plan Participants. EIGHTH: Section 12(a) of the Trust is hereby amended by restating the first sentence thereof in its entirety to read as follows: If the Trustee resigns or is removed in accordance with Section ll(a) or (b) hereof, the Company may appoint any third party, such as a bank trust department or other party that may be granted corporate trustee powers under state law, as a successor to replace the Trustee upon resignation or removal; provided, however, that if the Trustee resigns or is removed on or after the date of a Change of Control, the Independent Committee shall select a successor Trustee in accordance with this Section 12. NINTH: Section 13(d) of the Trust is hereby amended by restatement in its entirety to read as follows: (d) Any provision of this Trust Agreement to the contrary notwithstanding, this Trust Agreement may not be amended on or after the date of a Change of Control, without the written consent of a majority of the Plan Participants. IN WITNESS WHEREOF, this Amendment has been executed this 22nd day of November, 1996, to be effective as of January 1, 1996. ENSERCH CORPORATION By: /s/ D. W. Biegler ----------------------------------------- Title: Chairman and President TEXAS COMMERCE BANK NATIONAL ASSOCIATION By: /s/ James T. Allen ----------------------------------------- Title: Senior Vice President and Trust Officer THE STATE OF TEXAS ) ) COUNTY OF DALLAS ) BEFORE ME, the undersigned authority, a notary public in and for said County and State, on this day personally appeared D. W. Biegler, known to me to be the person whose name is subscribed to the foregoing instrument and acknowledged to me that the same was the act of the said ENSERCH CORPORATION, a Texas corporation, and that he/she executed the same as the act of such corporation for the purposes and consideration therein expressed, and in the capacity therein stated. GIVEN UNDER MY HAND AND SEAL OF OFFICE, this 6th day of November, 1996. /s/ Anita K. Brian --------------------------- Notary Public, State of Texas By Commission expires: January 23, 1997 THE STATE OF TEXAS ) ) COUNTY OF DALLAS ) BEFORE ME, the undersigned authority, a notary public in and for said County and State, on this day personally appeared James T. Allen, known to me to be the person whose name is subscribed to the foregoing instrument and acknowledged to me that the same was the act of the said TEXAS COMMERCE BANK NATIONAL ASSOCIATION, a national banking association, and that he/she executed the same as the act of such banking association for the purposes and consideration therein expressed, and in the capacity therein stated. GIVEN UNDER MY HAND AND SEAL OF OFFICE, this 22nd day of November, 1996. /s/ Bette Sue Farmer --------------------------- Notary Public, State of Texas By Commission expires: November 17, 1998 EX-10.18 7 RETIREMENT INCOME RESTORATION PLAN EXHIBIT 10.18 RETIREMENT INCOME RESTORATION PLAN OF ENSERCH CORPORATION AND PARTICIPATING SUBSIDIARY COMPANIES ENSERCH Corporation, a Texas corporation having its principal executive office in Dallas, Texas, and its subsidiary, Ebasco Services Incorporated, hereinafter referred to collectively as the "Companies," hereby adopt the Retirement Income Restoration Plan of ENSERCH Corporation and Participating Subsidiary Companies, hereinafter referred to as the "Plan," effective January 1, 1984, as follows: Article I --------- Definitions ----------- Unless qualified by the context or otherwise defined herein, the terms used herein shall have the meanings assigned to them as applicable under the provisions of the Retirement and Death Benefit Program of 1969 of ENSERCH Corporation and Participating Subsidiary Companies and the Ebasco Services Incorporated Pension Plan for Salaried Employees, as now in effect and as may be amended hereafter from time to time, hereinafter referred to collectively as the "Basic Plans" and individually as the "Basic P]an." "Limitations" shall mean the reductions imposed on the benefits provided under the Basic Plans in order to comply with Sections 415 and 401(a)(17) of the Internal Revenue Code of 1986. A "Participating Employee" is an employee who is entitled to benefits under this Plan as a result of Limitations. The terms "Change in Control," "Cause," and "Good Reason" shall have the meanings assigned to them under the provisions of the change in control agreements dated December 13, 1988, between Messrs. R. G. Fowler, W. T. Satterwhite, et. al., and the Corporation. "Service" shall have the meaning assigned to the terms Benefit Service or Credited Service in and by the Basic Plans. Article II ---------- Purpose ------- The purposes of this Plan are (a) to restore benefits to those employees and their designated beneficiaries who are entitled to receive benefits under the Basic Plans to the extent that those benefits are, or will be, reduced by Limitations, and (b) if a Participating Employee's employment is terminated by the Corporation without Cause or by the Participating Employee for Good Reason within three years of a Change in Control of the Corporation, to provide increased retirement benefits as set forth in Section 4.1. Article III ----------- Administration -------------- This Plan shall be administered by the Compensation Committee of the Board of Directors of ENSERCH Corporation, hereinafter referred to as the "Committee." Subject to the provisions of Article VI hereof, the Committee shall administer this Plan in a manner consistent with the administration of the 1969 Plan, as from time to time amended and in effect, except that this Plan shall be administered as a plan that is not intended to meet the requirements of Section 401(a) of the Internal Revenue Code of 1954. The Committee shall have full power and authority to interpret, construe, and administer this P]an, and the Committee's interpretations and constructions hereof, and its actions hereunder, including all determinations of the amounts and the recipients of payments to be made hereunder, shall be binding and conclusive with respect to all persons for all purposes. No member of the Committee shall be liable to any person for any action taken or omitted in connection with the interpretation and administration of this Plan unless attributable to his own willful misconduct or lack of good faith. Article IV ---------- Benefits -------- Section 4.1 Amount of Benefits. Subject to the provisions of Section ------------------ 4.3 hereof any employee or beneficiary who is entitled to receive a benefit under a Basic Plan shall be entitled to receive a benefit hereunder equal to the excess, if any, of: (i) the amount of such employee's or beneficiary's benefit under the Basic Plan, determined without regard to the Limitations, plus the additional benefit that would be payable under the Basic Plan if an increase in his Service pursuant to Section 4.2 below is applicable, less (ii) the amount of the benefit actually payable to the employee or beneficiary under the Basic Plan and the amount of reduction of Plan payments described in the agreement or agreements between the Corporation and the employee relating to any individual annuity contracts purchased on behalf of the employee by the Corporation. Section 4.2 Additional Service. In the event a Participating ------------------ Employee's employment is terminated within three (3) years after a Change in Control of the Corporation by the Corporation without Cause or by the Participating Employee for Good Reason, his years of Service for purposes of Section 4.1 shall mean his actual years of Service plus (a) in the case of the Chief Executive Officer of the Corporation and Participating Employees reporting directly to him, 3 additional years of Service; and (b) in the case of Participating Employees other than the Chief Executive Officer and Participating Employees reporting directly to him, 2 additional years of Service; provided further that (i) in no case shall any Participating Employee as a result of this Change in Control provision be deemed to have more years of Service than he would have had if his employment had terminated on the first of the month coinciding with or Next following his sixty-fifth (65) birthday, and (ii) the foregoing clauses (a) and (b) shall have no effect on the computation of a Participating Employee's Average Monthly Earnings or are for purposes of determining any amounts payable to him under the Basic Plan. Section 4. 3 Payment of Benefits. Payment of benefits to an employee ------------------- or beneficiary under this Plan shall be coincident with the payment of benefits made to the employee or beneficiary under the Basic Plan. Section 4.4 Employee's Rights to Benefits. An employee's rights under ----------------------------- this Plan, including his rights to vested benefits, shall be the same as his rights under the Basic Plan, except that no payments due under this Plan shall be paid from any fund maintained under the Basic Plan. In no event shall an individual who is not entitled to benefits under the Basic Plan be entitled to a benefit under this Plan. Benefits under this Plan shall be paid sole]y from the general assets of the Companies, and no employee or beneficiary shall have any title to or beneficial interest in any assets of the Companies as a result of this Plan. Article V --------- Amendment and Termination ------------------------- While the Companies intend to maintain this Plan in conjunction with the Basic Plans for as long as necessary, the Board of Directors of ENSERCH Corporation reserves the right to amend or terminate this Plan if, in its sole judgment, amendment or termination is appropriate. However, if the Board should amend or discontinue this Plan, the Companies shall be liable for all benefits accrued under this Plan as of the date of such action (determined on the basis of the assumption that on such date each employee's employment terminated). Article XI ---------- Rights of Employees ------------------- The Companies may, but are not required to, set aside funds for their convenience in order to facilitate the payment of any benefits that may be due hereunder. However, in the event that the Companies set aside funds, no employee or beneficiary shall have any right, title or interest in such funds while held by the Companies. Any employee or beneficiary who is entitled to receive a benefit under this Plan shall have the rights solely of a general and unsecured creditor. Article VII ----------- Miscellaneous ------------- Section 7.1 Assignment. The interest of an employee or beneficiary may ---------- not be sold, transferred, assigned, or encumbered in any manner, either voluntarily or involuntarily, and any attempt so to anticipate, alienate sell, transfer, assign, pledge, encumber, or charge the same shall be null and void; neither shall the benefits hereunder be liable for or subject to the debts, contracts, liabilities, engagements, or torts of any person to whom such benefits or funds are payable, nor shall they be subject to garnishment, attachment, or other legal or equitable process nor shall they be an asset in bankruptcy, except that no amount shall be payable hereunder until and unless any and all amounts representing debts or other obligations owed to any Company by the individual to whom such amount would otherwise be payable shall have been fully paid and satisfied. Section 7.2 No Employment Rights. Nothing contained herein shall be -------------------- construed as conferring upon any employee the right to continue in the employ of the Companies in any capacity. Section 7.3 Binding on Companies, Employees and Their Successors. The ---------------------------------------------------- Plan shall be binding upon and inure to the benefit of the Companies, their successors and assigns and the employee and his heirs, executors, administrators, and legal representatives. The provisions of the Plan shall be applicable with respect to each Company separately, and amounts payable hereunder shall be paid by the Company that employed the individual employee in respect of whom benefits are due hereunder. Section 7.4 Arbitration. Any controversy arising out of, or relating ----------- to, the Plan or any modification thereof, including any claim for benefits, shall be settled by arbitration in Dallas, Texas (or, if applicable law requires some other forum, then such other forum) in accordance with the rules then obtaining of the American Arbitration Association. The District Court of Dallas County, Texas or, as the case may be, the United States District Court for the Northern District of Texas shall have jurisdiction for all purposes in connection with arbitration. Any process or notice of motion or other application to either of said courts, and any paper in connection with arbitration, may be served by certified mail, return receipt requested, or by personal service or in such other manner as may be permissible under the rules of the applicable court or arbitration tribunal, provided a reasonable time for appearance is allowed. Arbitration proceedings must be instituted within one year after the claimed breach occurred, and the failure to institute arbitration proceedings within such period shall constitute an absolute bar to the institution of any proceedings, and a waiver of all claims, with respect to such breach. Section 7.5 Withholding Tax. There shall be deducted from all --------------- amounts paid under this Plan any taxes required to be withheld by any Federal, state, local or other government. The employee and/or his beneficiary (including his estate) shall bear all taxes on amounts paid under this Plan to the extent that no taxes are withheld, irrespective of whether withholding is required. Section 7.6 Law Applicable. The Plan shall be construed in accordance -------------- with and governed by the laws of the State of Texas. Restated and adopted this 28th day of December, 1990. ENSERCH Corporation By /s/ W. C. McCord W. C. McCord Chairman and President AMENDMENT TO THE RETIREMENT INCOME RESTORATION PLAN OF ENSERCH CORPORATION AND PARTICIPATING SUBSIDIARY COMPANIES -------------------------------------- Pursuant to the provisions of Article V thereof, the Retirement Income Restoration Plan of ENSERCH Corporation and Participating Subsidiary Companies (the "Plan") is hereby amended in the following respect only: The definition of "Limitations" in the Plan is hereby amended effective as of October 1, 1994 by restatement in its entirety to read as follows: "Limitations" shall mean the reductions imposed on the benefits provided under the Basic Plans in order to comply with Sections 415 and 401(a)(17) of the Internal Revenue Code of 1986, and the reduction in "compensation" considered for purposes of determining benefits under the Basic Plans on account of salary and bonuses deferred by an employee pursuant to the ENSERCH Corporation Deferred Compensation Plan. IN WITNESS WHEREOF, this Amendment has been executed this 30th day of September, 1994. ENSERCH CORPORATION By /s/ D. W. Biegler Title: Chairman, President and Chief Executive Officer AMENDMENT NO. 1--A AMENDMENT TO THE RETIREMENT INCOME RESTORATION PLAN OF ENSERCH CORPORATION AND PARTICIPATING SUBSIDIARY COMPANIES Pursuant to the provisions of Article V thereof, the Retirement Income Restoration Plan of ENSERCH Corporation and Participating Subsidiary Companies (the "Plan") is hereby amended in the following respects only: Each of the definitions of "Change in Control," "Cause," and "Good Reason" is hereby amended as of February 13, 1996 by restatement each in its entirety to read as follows: "Change in Control" or "Change in Control of the Corporation" shall mean a change in control of a nature that would be required to be reported in response to Item l(a) of the Current Report on Form 8-K, as in effect on February 13, 1996, pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934, as amended ("Exchange Act") or would have been required to be so reported but for the fact that such event had been "previously reported" as that term is defined in Rule 12b-2 of Regulation 12B of the Exchange Act; provided that, without limitation such a Change in Control shall be deemed to have occurred if (a) any Person is or becomes the beneficial owner (as defined in Rule 13d-3 under the Exchange Act), directly or indirectly, of securities of the Corporation representing 20% or more of the combined voting power of the Corporation's then outstanding securities ordinarily (apart from rights accruing under special circumstances) having the right to vote at Sections of directors ("Voting Securities"), or (b) individuals who constitute the Board on February 13, 1996 (the "Incumbent Board") cease for any reason to constitute at least two-thirds thereof, provided that any person becoming a director subsequent to February 13, 1996 whose election, or nomination for election by the Corporation's shareholders, was approved by a vote of at least three-quarters of the directors comprising the Incumbent Board (either by a specific vote or by approval of the proxy statement of the Corporation in which such person is named as a nominee for director, without objection to such nomination) shall be, for purposes of this clause (b), considered as though such person were a member of the Incumbent Board, or (c) a recapitalization of the Corporation occurs which results in either a decrease by 33% or more in the aggregate percentage ownership of Voting Securities held by Independent Shareholders (on a primary basis or on a fully diluted basis after giving effect to the exercise of stock options and warrants) or an increase in the aggregate percentage ownership of Voting Securities hod by non-Independent Shareholders (on a primary basis or on a fully diluted basis after giving effect to the exercise of stock options and warrants) to greater than 50%, or (d) the shareholders of the Corporation have approved an agreement to merge or consolidate with or into another corporation or an agreement to sell or otherwise dispose of all or substantially all of the Corporation's assets (including a plan of liquidation). For purposes of this definition, the term "Person" shall mean and include any individual, corporation, partnership, group, association or other "person," as such term is used in Section 14(d) of the Exchange Act, other than the Corporation, a subsidiary of the Corporation or any employee benefit plan(s) sponsored or maintained by the Corporation or any subsidiary thereof, and the term "Independent Shareholder" shall mean any shareholder of the Corporation except any employee(s) or director(s) of the Corporation or any employee benefit plan(s) sponsored or maintained by the Corporation or any subsidiary thereof. "Cause" or "termination of employment by the Corporation for Cause" shall mean termination upon (A) the willful and continued failure by a Participating Employee substantially to perform his or her duties with the Corporation (other than any such failure resulting from his or ha incapacity due to physical or mental illness), after a demand for substantial performance is delivered to him or her by the Chairman or President of Corporation which specifically identifies the manner in which such executive believes that he or she has not substantially performed his or her duties, and a reasonable period of opportunity for such substantial performance is provided, or (B) the willful engaging by the Participating Employee in illegal misconduct materially and demonstrably injurious to the Corporation. For purposes of this paragraph, no act, or failure to act, on the part of a Participating Employee shall be considered "willful" unless done, or omitted to be done, by the Participating Employee not in good faith and without reasonable belief that his or her action or omission was in the best interest of the Corporation. Any act, or failure to act, based upon authority given pursuant to a resolution duly adopted by the Board or based upon the advice of counsel for the Corporation shall be conclusively presumed to be done, or omitted to be done, by the Participating Employee in good faith and in the best interest of the Corporation. Notwithstanding the foregoing, the Participating Employee shall not be deemed to have been terminated for Cause unless and until there shall have been delivered to him or her a copy of a resolution duly adopted by the affirmative vote of not less than three-quarters of the entire membership of the Board at a meeting of the Board called and held for that purpose (after reasonable notice to the Participating Employee and an opportunity for the Participating Employee, together with his or her counsel, to be heard before the Board), finding that in the good faith opinion of the Board the Participating Employee was guilty of conduct set forth above in clauses (A) or (B) in this paragraph and specifying the particulars thereof in detail. "Good Reason" for a Participating Employee to terminate his or her employment shall mean: (A) an adverse change in status or position(s) of a Participating Employee as an executive of the Corporation as in effect immediately prior to a Change in Control, including, without limitation, any adverse change in the status or position of such Participating Employee as a result of a material diminution in his or her duties or responsibilities (other than, if applicable, any such change directly attributable to the fact that less than 50% of the Corporation's voting securities are publicly owned or the fact that his or her position becomes a position with a subsidiary or division), or a material change in his or her business location or the assignment to the Participating Employee of any duties or responsibilities which are inconsistent with such status or position(s), or a substantial increase in his or her business travel or any removal of the Participating Employee from or any failure to reappoint or reelect the Participating Employee to such position(s) (except in connection with the termination of his or her employment for Cause, Disability or Retirement or as a result of his or her death or by the Participating Employee other than for Good Reason); (B) a reduction by the Corporation in base salary of a Participating Employee as in effect immediately prior to the Change in Control or in the number of vacation days to which the Participating Employee is then entitled under the Corporation's normal vacation policy as in effect immediately prior to the Change in Control; (C) the taking of any action by the Corporation (including the elimination of a plan without providing substitutes therefor or the reduction of awards thereunder) that would diminish or the failure by the Corporation to take any action which would maintain the aggregate projected value of the awards of a Participating Employee under the Corporation's bonus, stock option or management incentive unit plans in which the Participating Employee was participating at the time of a Change in Control of the Corporation; (D) the taking of any action by the Corporation that would diminish or the failure by the Corporation to take any action which would maintain the aggregate value of the benefits provided a Participating Employee under the Corporation's medical, health, dental, accident, disability, life insurance, stock purchase or retirement plans in which the Participating Employee was participating at the time of a Change in Control of the Corporation; (E) the taking of any action by the Corporation that would diminish or the failure of the Corporation to take any action that would maintain indemnification or insurance for officers' liability; or (F) a failure by the Corporation to obtain from any Successor (as defined in a Participating Employee's Change in Control Agreement) the assent to such Change in Control Agreement contemplated by Section 7 thereof; or (G) any purported termination by the Corporation of the employment of a Participating Employee that is not effected pursuant to a Notice of Termination satisfying the requirements of paragraph (iv) (and, if applicable, paragraph (ii)) of Section 3 of such Participating Employee's Change in Control Agreement . IN WITNESS WHEREOF, this Amendment has been executed as of 13th day of February, 1996. ENSERCH Corporation By: /s/ D. W. Biegler ---------------------- Title: D. W. Biegler Chairman, President and Chief Executive Officer AMENDMENT NO. 2 TO THE RETIREMENT INCOME RESTORATION PLAN OF ENSERCH CORPORATION AND PARTICIPATING SUBSIDIARY COMPANIES Pursuant to the provisions of Article V thereof, the Retirement Income Restoration Plan of ENSERCH Corporation and Participating Subsidiary Companies (the "Plan") is hereby amended in the following respects only: FIRST: Article V of the Plan is hereby amended by restatement in its entirety to read as follows: Article V Amendment and Termination While the Companies intend to maintain this Plan in conjunction with the Basic Plans for as long as necessary, the Board of Directors of ENSERCH Corporation reserves the right to amend or terminate this Plan if, in its sole judgment, amendment or termination is appropriate; provided, however, that if the Board should amend or terminate this Plan, the Companies shall be liable for all benefits accrued under this Plan as of the date of such action determined on the basis of the assumption that on such date each employee's employment terminated; and provided further, that (i) no amendment may be made to Section 4.2 of this Plan within three years after a Change in Control of the Corporation without the consent of all of the Participating Employees and (ii) in the event of a termination of this Plan within three years after a Change in Control of the Corporation each Participating Employee's benefit hereunder shall be calculated as if such Participating Employee's employment was terminated under circumstances qualifying him for the additional years of Service provided in Section 4.2 . SECOND: Article VII of the Plan is hereby amended by adding the following new Section 7.7 to the end thereof: Section 7.7 Reimbursement of Expenses. In the event that a dispute arises with respect to the payment of benefits hereunder and the Participating Employee (or his beneficiary) is successful in pursuing a benefit to which he is entitled under the terms of the Plan in the course of litigation or otherwise and incurs attorneys' fees, expenses and costs in connection therewith, the Companies shall provide reimbursement to the Participating Employee (or his beneficiary) for the full amount of any such attorneys' fees, expenses and costs. THIRD: The Plan is hereby amended by spinning off to a new plan to be known as the Retirement Income Restoration Plan of Enserch Exploration, Inc. and Participating Subsidiary Companies, the benefits attributable to employees and former employees of Enserch Exploration, Inc. effective as of the date of the distribution of all shares of stock of Enserch Exploration, Inc. Owned by ENSERCH Corporation to the shareholders of ENSERCH Corporation. IN WITNESS WHEREOF, this Amendment has been executed this 6th day of December, 1996 to be effective as of January 1, 1996. ENSERCH CORPORATION By: /s/ D. W. Biegler ---------------------- Title: Chairman and President EX-10.19 8 RETIREMENT INCOME RESTORATION TRUST EXHIBIT 10.19 ENSERCH CORPORATION RETIREMENT INCOME RESTORATION TRUST ----------------------------------- This Trust Agreement made this 30th day of September, 1994, by and between ENSERCH Corporation, a Texas corporation (the "Company"), Enserch Exploration, Inc., a Delaware corporation, New Enserch Exploration, Inc., a Texas corporation, Enserch Development Corporation, a Texas corporation, Lone Star Energy Company, a Texas corporation, and Enserch Gas Company, a Texas Corporation, and Texas Commerce Bank National Association, a national banking association (the "Trustee"); WHEREAS, the Company and the participating subsidiaries enumerated on the attached Appendix A (the Company and such participating subsidiaries are hereinafter referred to as the "Employers") have adopted or may adopt a nonqualified deferred compensation plan known as the Retirement Income Restoration Plan of ENSERCH Corporation and Participating Subsidiary Companies (the "Plan"); and WHEREAS, the Employers have incurred or expect to incur liability under the terms of such Plan with respect to their respective eligible employees participating in such Plan and their beneficiaries; and WHEREAS, the Employers wish to establish a trust (hereinafter called "Trust"), pursuant to which each Employer will contribute assets that shall be held therein in a Separate Account, as herein defined, subject to the claims of such Employer's creditors in the event of the Employer's Insolvency, as herein defined, until paid to Plan Participants and their beneficiaries in such manner and at such times as specified in the Plan; and WHEREAS, it is the intention of the parties that this Trust shall constitute an unfunded arrangement and shall not affect the status of the Plan as an unfunded plan maintained for the purpose of providing deferred compensation for a select group of management or highly compensated employees for purposes of Title I of the Employee Retirement Income Security Act of 1974; and WHEREAS, it is the intention of the Employers to make contributions to the Trust to provide a source of funds to assist them in the meeting of their liabilities under the Plan; NOW, THEREFORE, the parties do hereby establish the Trust and agree that the Trust shall be comprised, held and disposed of as follows: Section 1. Establishment Of Trust. ---------------------- (a) The Employers hereby deposit with the Trustee in trust $1,000.00, which shall become the principal of the Trust to be held, administered and disposed of by the Trustee as provided in this Trust Agreement. (b) The Trust hereby established shall be irrevocable. (c) The Trust is intended to be a grantor trust, of which each Employer is the grantor with respect to its Separate Account, within the meaning of subpart E, part I, subchapter J, chapter 1, subtitle A of the Internal Revenue Code of 1986, as amended, and shall be construed accordingly. (d) The principal of the Trust, and any earnings thereon shall be held separate and apart from other funds of the Employers and shall be used exclusively for the uses and purposes of Plan Participants and general creditors as herein set forth. Plan Participants and their beneficiaries shall have no preferred claim on, or any beneficial ownership interest in, any assets of the Trust. Any rights created under the Plan and this Trust Agreement shall be mere unsecured contractual rights of Plan Participants and their beneficiaries against the Employers. Any assets held in an Employer's Separate Account under the Trust will be subject to the claims of such Employer's general creditors under federal and state law in the event of Insolvency, as defined in Section 4(a) herein. (e) The Employers, in their sole discretion, may at any time, or from time to time, make additional deposits of cash or other property in trust with the Trustee to augment the principal to be held, administered and disposed of by the Trustee as provided in this Trust Agreement. Neither the Trustee nor any Plan Participant or beneficiary shall have any right to compel such additional deposits. (f) Any provision of this Trust Agreement to the contrary notwithstanding, upon a Change of Control of the Company, as defined in the Plan, each Employer shall (i) as soon as possible, but in no event more than 30 days following the date of such Change of Control, make an irrevocable contribution to the Trust in an amount, as determined by an Independent Committee, as defined below, which when added to the total value of the assets of the Employer's Separate Account under the Trust at such time equals the total present value of all benefits accrued under the Plan with respect to such Employer's respective Plan Participants and beneficiaries as of the date on which the Change of Control occurred, and (ii) during the two-year period following the date of the Change of Control, make monthly contributions to the Trust in amounts sufficient, as determined by the Independent Committee, to maintain the total value of the assets in the Employer's Separate Account under the Trust at an amount equal to the total present value of all benefits accrued under the Plan with respect to such Employer's respective Plan Participants and beneficiaries. (g) Any provision of this Trust Agreement to the contrary notwithstanding, in the event that a Participant transfers employment between Employers participating in this Trust, (i) the Employer from which the Participant is transferred shall as soon as possible, but in no event more than 30 days following the date of such transfer, make an irrevocable contribution to the Trust in an amount, as determined by the Company, which equals the total present value of the benefits accrued under the Plan with respect to such transferring Participant as of the date on which the transfer occurred or, if less, an amount equal to the total present value of all benefits accrued under the Plan with respect to such Employer's respective Plan Participants and beneficiaries, and (ii) immediately following the Employer's contribution described in (i), the Trustee shall transfer assets from the transferring Employer's Separate Account to the Separate Account of the Employer to which the Participant is being transferred in an amount equal to the total present value of the benefits accrued under the Plan with respect to such transferring Participant as of the date on which the transfer occurred. Section 2. Payments to Plan Participants and their Beneficiaries. ----------------------------------------------------- (a) The Company shall deliver to the Trustee a schedule (the "Payment Schedule") that indicates the amounts payable with respect to each Plan Participant (and his or her beneficiaries) and the Separate Account of the Employer from which such amounts are payable, that provides a formula or other instructions acceptable to the Trustee for determining the amounts so payable, the form in which such amount is to be paid (as provided for or available under the Plan), and the time of commencement for payment of such amounts. An updated Payment Schedule shall be provided by the Company to the Trustee periodically, but no less frequently than once each calendar year. Except as otherwise provided herein, the Trustee shall make payments to the Plan Participants and their beneficiaries in accordance with such Payment Schedule. The Trustee shall make provision for the reporting and withholding of any federal, state or local taxes that may be required to be withheld with respect to the payment of benefits pursuant to the terms of the Plan and shall pay amounts withheld to the appropriate taxing authorities or determine that such amounts have been reported, withheld and paid by the Employer. (b) The entitlement of a Plan Participant or his or her beneficiaries to benefits under the Plan shall be determined by the Company or such other party as may be designated under the Plan, and any claim for such benefits shall be considered and reviewed under the procedures set out in the Plan. (c) The Employers may make payments of benefits directly to Plan Participants or their beneficiaries as they become due under the terms of the Plan in lieu of payment from the Trust. The Company shall notify the Trustee of an Employer's decision to make payments of benefits directly prior to the time amounts are payable to Participants or their beneficiaries. In addition, if the assets of an Employer's Separate Account under the Trust are not sufficient to make payments of benefits to its respective Plan Participants and beneficiaries in accordance with the terms of the Plan, such Employer shall make the balance of each such payment as it falls due, and the Separate Accounts of other Employers hereunder shall not be liable for the payment of such benefits. The Trustee shall notify the Company immediately when the assets in an Employer's Separate Account under the Trust are not sufficient to satisfy all payments due. (d) Any provision of this Section 2 to the contrary notwithstanding, upon and after a Change of Control of the Company, the Trustee shall make payments to Plan Participants or their beneficiaries in accordance with the direction of the Independent Committee rather than the Company, regardless of whether the Trustee has received a Payment Schedule or any other form of direction from the Company to make such payments. Section 3. Appointment of Independent Committee. Any provision of this ------------------------------------ Trust Agreement to the contrary notwithstanding, upon a Change of Control of the Company, an Independent Committee consisting of at least three members shall be appointed by the Compensation Committee of the Board of Directors of the Company (the "Compensation Committee") subject to the approval of a majority of the Participants in the Plan on the date of such Change of Control. The Independent Committee shall: (a) determine the amount of the irrevocable contributions to be made by each Employer pursuant to Section 1(f) hereof; (b) determine in accordance with the Plan the amounts payable with respect to each Plan Participant (and his or her beneficiaries), the form in which such amounts are to be paid, and the time of commencement for payment of such amounts pursuant to Section 2(a) hereof; (c) determine the entitlement of Plan Participants and beneficiaries to benefits under the terms of the Plan pursuant to Section 2(b) hereof; (d) direct the Trustee to make payments to Plan Participants and their beneficiaries pursuant to Section 2 hereof; and (e) select a successor Trustee for the Trust if a Trustee resigns or is removed on or within two years following the date of a Change of Control of the Company pursuant to Section 12. Section 4. Trustee Responsibility Regarding Payments to Trust Beneficiary -------------------------------------------------------------- when an Employer Is Insolvent. - ----------------------------- (a) The Trustee shall cease payment of benefits to Plan Participants and their beneficiaries if the Participants' Employer is Insolvent. An Employer shall be considered "Insolvent" for purposes of this Trust Agreement if (i) the Employer is unable to pay its debts as they become due, or (ii) the Employer is subject to a pending proceeding as a debtor under the United States Bankruptcy Code. (b) At all times during the continuance of this Trust, as provided in Section 1(d) hereof, the principal and income of each Employer's Separate Account under the Trust shall be subject to claims of general creditors of the Employer under federal and state law as set forth below. (1) The Board of Directors and the Chief Executive Officer of an Employer shall have the duty to inform the Trustee in writing of the Employer's Insolvency. If a person claiming to be a creditor of an Employer alleges in writing to the Trustee that the Employer has become Insolvent, the Trustee shall determine whether the Employer is Insolvent and, pending such determination, the Trustee shall discontinue payment of benefits to the Employer's respective Plan Participants or their beneficiaries. (2) Unless the Trustee has actual knowledge of an Employer's Insolvency, or has received notice from the Employer or a person claiming to be a creditor alleging that the Employer is Insolvent, the Trustee shall have no duty to inquire whether the Employer is Insolvent. The Trustee may in all events rely on such evidence concerning the Employer's solvency as may be furnished to the Trustee and that provides the Trustee with a reasonable basis for making a determination concerning the Employer's solvency. (3) If at any time the Trustee has determined that an Employer is Insolvent, the Trustee shall discontinue payments to the Employer's respective Plan Participants or their beneficiaries and shall hold the assets of the Employer's Separate Account under the Trust for the benefit of the Employer's general creditors. Nothing in this Trust Agreement shall in any way diminish any rights of Plan Participants or their beneficiaries to pursue their rights as general creditors of an Employer with respect to benefits due under the Plan or otherwise. (4) The Trustee shall resume the payment of benefits to an Employer's respective Plan Participants or their beneficiaries in accordance with Section 2 of this Trust Agreement only after the Trustee has determined that the Employer is not Insolvent (or is no longer Insolvent). (c) Provided that there are sufficient assets in an Employer's Separate Account under the Trust, if the Trustee discontinues the payment of benefits from the Trust pursuant to Section 4(b) hereof and subsequently resumes such payments, the first payment following such discontinuance shall include the aggregate amount of all payments due to Plan Participants or their beneficiaries under the terms of the Plan for the period of such discontinuance, less the aggregate amount of any payments made to Plan Participants or their beneficiaries by the Employer in lieu of the payments provided for hereunder during any such period of discontinuance. Section 5. Payments to the Employers. ------------------------- (a) Except as provided in Sections 4 and 5(b) hereof, the Employers shall have no right or power to direct the Trustee to return to the Employers or to divert to others any of the Trust assets before payment of all benefits have been made to Plan Participants and their beneficiaries pursuant to the terms of the Plan. (b) To the extent that an Employer determines that the value of the assets in its Separate Account under the Trust based upon information provided to the Employer by the Trustee, at any time, exceeds 110% of the present value of the benefits accrued under the Plan by the Employer's respective Plan Participants, the Trustee shall pay such excess to the Employer upon receipt of written request therefor from the Company; provided, however, that no such payment of excess assets to the Employer shall be made on or within two years following the date of a Change of Control of the Company. Section 6. Investment Authority. -------------------- (a) The Trustee shall establish and maintain a separate account within the Trust for each Employer (the "Separate Account"). All amounts deposited with the Trustee by an Employer shall be allocated to such Employer's Separate Account. The Trustee shall invest, reinvest and administer the assets allocated to each Employer's Separate Account under the Trust as an individual, separate fund. At the end of each calendar year and at such other times as the Company may determine, the Trustee shall determine the fair market value of the assets of each Employer's Separate Account. The Separate Account of each Employer shall be adjusted to reflect the income collected, realized and unrealized profits and losses, expenses and all other transactions affecting such Separate Account for the valuation period then ended. (b) The Trustee shall have full power and authority to invest and reinvest the assets of each Employer's Separate Account, or any part thereof, in such stocks (common or preferred), bonds, mortgages, notes, interest-bearing deposits (including such deposits with any corporate trustee acting hereunder), options and contracts for the future or immediate receipt or delivery of property of any kind, or other securities, producing or nonproducing oil and gas royalties and payments and other producing and nonproducing interests in minerals, or in commodities, life insurance policies, annuity contracts or other property of any kind or nature whatsoever, whether real, personal or mixed, as the Trustee, in the Trustee's absolute discretion and judgment, deems appropriate for the Trust, and to hold cash uninvested at any time and from time to time in such amounts and to such extent as the Trustee, in the Trustee's absolute discretion and judgment, deems appropriate for the Trust. The Trustee shall have full power and authority to manage, handle, invest, reinvest, sell for cash or credit, or for part cash or part credit, exchange, hold, dispose of, lease for any period of time (whether or not longer than the life of the Trust), improve, repair, maintain, work, develop, use, operate, mortgage, or pledge, all or any part of the assets and property from time to time constituting any part of the trust funds held in trust under the Trust; borrow or loan money or securities; write options and sell securities or other property short or for future delivery; engage in hedging procedures; buy and sell futures contracts; execute obligations, negotiable and nonnegotiable; vote shares of stock in person and by proxy, with or without power of substitution; register investments in the name of a nominee; sell, convey, lease and/or otherwise deal with any producing or nonproducing oil, gas and mineral leases or mineral rights, payments and royalties; pay all reasonable expenses; execute and deliver any deeds, conveyances, leases, contracts, or written instruments of any character appropriate to any of the powers or duties of the Trustee, and shall, in general, have as broad power respecting the management, operation and handling of the Trust assets and property as if the Trustee were the owner of such assets and property in the Trustee's own right. The preceding provisions of this paragraph to the contrary notwithstanding, the Company shall have the right and power at any time and from time to time to give the Trustee broad guidelines within which it shall invest the assets of the Trust; provided, however, that upon a Change of Control of the Company and continuing for two years thereafter, the Independent Committee, rather than the Company, shall have the sole authority to exercise such right. (c) All rights associated with assets of the Trust shall be exercised by the Trustee or the person designated by the Trustee, and shall in no event be exercisable by or rest with Plan Participants. (d) Each Employer shall have the right, at any time, and from time to time in its sole discretion, to substitute assets of equal fair market value for any asset held in its Separate Account under the Trust provided, however, that effective upon a Change of Control of the Company and for a period of two years thereafter, any assets transferred to the Trust in substitution for assets held in an Employer's Separate Account under the Trust must consist of cash or marketable securities and the fair market value of the respective assets shall be determined by the Trustee. This right is exercisable by the Employer in a nonfiduciary capacity without the approval or consent of any person in a fiduciary capacity. Section 7. Disposition of Income. During the term of this Trust, all --------------------- income received by the Trust, net of expenses and taxes, shall be accumulated and reinvested. Section 8. Accounting by Trustee. The Trustee shall keep accurate and --------------------- detailed records of all investments, receipts, disbursements, and all other transactions required to be made, including such specific records as shall be agreed upon in writing between the Company and the Trustee. Within 30 days following the close of each calendar year and within 30 days after the removal or resignation of the Trustee, the Trustee shall deliver to the Company a written account of its administration of the Trust and to each Employer a written account of its administration of the Employer's Separate Account during such year or during the period from the close of the last preceding year to the date of such removal or resignation, setting forth all investments, receipts, disbursements and other transactions effected by it, including a description of all securities and investments purchased and sold with the cost or net proceeds of such purchases or sales (accrued interest paid or receivable being shown separately), and showing all cash, securities and other property held in the Trust at the end of such year or as of the date of such removal or resignation, as the case may be. Section 9. Responsibility of the Trustee. ----------------------------- (a) The Trustee shall act with the care, skill, prudence and diligence under the circumstances then prevailing that a prudent person acting in like capacity and familiar with such matters would use in the conduct of an enterprise of a like character and with like aims; provided, however, that the Trustee shall incur no liability to any person for any action taken pursuant to a direction, request or approval given by an Employer which is contemplated by, and in conformity with, the terms of the Plan or this Trust and is given in writing by the Employer. In the event of a dispute between an Employer and a party, the Trustee may apply to a court of competent jurisdiction to resolve the dispute. (b) If the Trustee undertakes or defends any litigation arising in connection with this Trust, the Employers agree to indemnify the Trustee against the Trustee's costs, expenses and liabilities (including, without limitation, attorneys' fees and expenses) relating thereto and to be primarily liable for such payments. If the Employers do not pay such costs, expenses and liabilities in a reasonably timely manner, the Trustee may obtain payment from the Trust. (c) The Trustee may consult with legal counsel (who may also be counsel for the Employers generally) with respect to any of its duties or obligations hereunder. (d) The Trustee may hire agents, accountants, actuaries, investment advisors, financial consultants or other professionals to assist it in performing any of its duties or obligations hereunder. (e) The Trustee shall have, without exclusion, all powers conferred on trustees by applicable law, unless expressly provided otherwise herein; provided, however, that except as provided in Sections 5(b) and 6(d) hereof, if an insurance policy is held as an asset of the Trust, the Trustee shall have no power to name a beneficiary of the policy other than the Trust, to assign the policy (as distinct from conversion of the policy to a different form) other than to a successor Trustee, or to loan to any person the proceeds of any borrowing against such policy. (f) Notwithstanding any powers granted to the Trustee pursuant to this Trust Agreement or applicable law, the Trustee shall not have any power that could give this Trust the objective of carrying on a business and dividing the gains therefrom, within the meaning of section 301.7701-2 of the Procedure and Administrative Regulations promulgated pursuant to the Internal Revenue Code. Section 10. Compensation and Expenses of the Trustee. The Trustee shall ---------------------------------------- be paid such reasonable compensation commensurate with the services and responsibilities involved hereunder as shall from time to time be agreed upon by the Trustee and the Company. The Employers shall pay all administrative and the Trustee's fees and expenses, but, if not so paid, the fees and expenses shall be paid from the Trust. Section 11. Resignation and Removal of the Trustee. -------------------------------------- (a) The Trustee may resign at any time by written notice to the Company, which shall be effective 30 days after receipt of such notice unless the Company and the Trustee agree otherwise. (b) The Trustee may be removed by the Company on 30 days notice or upon shorter notice accepted by the Trustee; provided, however, that the Trustee may not be removed by the Company on or within two years following a Change of Control of the Company except with the written consent of a majority of the Participants entitled to payment of benefits pursuant to the terms of the Plan on the date of such Change of Control. (c) Upon resignation or removal of the Trustee and appointment of a successor Trustee, all assets shall subsequently be transferred to the successor Trustee. The transfer shall be completed within 30 days after receipt of notice of resignation, removal or transfer, unless the Company extends the time limit. (d) If the Trustee resigns or is removed, a successor shall be appointed, in accordance with Section 12 hereof, by the effective date of resignation or removal under paragraph(s) (a) or (b) of this section. If no such appointment has been made, the Trustee may apply to a court of competent jurisdiction for appointment of a successor or for instructions. All expenses of the Trustee in connection with the proceeding shall be allowed as administrative expenses of the Trust. Section 12. Appointment of Successor. ------------------------ (a) If the Trustee resigns or is removed in accordance with Section 11(a) or (b) hereof, the Company may appoint any third party, such as a bank trust department or other party that may be granted corporate trustee powers under state law, as a successor to replace the Trustee upon resignation or removal; provided, however, that if the Trustee resigns or is removed on or within two years following the date of a Change of Control of the Company, the Independent Committee shall select a successor Trustee in accordance with this Section 12. The appointment shall be effective when accepted in writing by the new Trustee, who shall have all of the rights and powers of the former Trustee, including ownership rights in the Trust assets. The former Trustee shall execute any instrument necessary or reasonably requested by the Company or the successor Trustee to evidence the transfer. (b) The successor Trustee need not examine the records and acts of any prior Trustee and may retain or dispose of existing Trust assets, subject to Sections 8 and 9 hereof. The successor Trustee shall not be responsible for and the Employers shall indemnify and defend the successor Trustee from any claim or liability resulting from any action or inaction of any prior Trustee or from any other past event, or any condition existing at the time it becomes successor Trustee. Section 13. Amendment or Termination. ------------------------ (a) This Trust Agreement may be amended by a written instrument executed by the Trustee and the Company. Notwithstanding the foregoing, no such amendment shall conflict with the terms of the Plan or shall make the Trust revocable. (b) The Trust shall not terminate until the date on which Plan Participants and their beneficiaries are no longer entitled to benefits pursuant to the terms of the Plan. Upon termination of the Trust any assets remaining in an Employer's Separate Account under the Trust shall be returned to such Employer. (c) Upon written approval of at least two-thirds of the Participants and beneficiaries entitled to payment of benefits pursuant to the terms of the Plan, the Company may terminate this Trust prior to the time all benefit payments under the Plan have been made. All assets in an Employer's Separate Account under the Trust at termination shall be returned to such Employer. (d) The Company may terminate this Trust with respect to the Separate Account of any Employer with the written approval of at least two-thirds of the Employer's respective Plan Participants and beneficiaries who are entitled to payment of benefits pursuant to the terms of the Plan. All assets in an Employer's Separate Account under the Trust on the date of such termination shall be returned to such Employer. (e) This Trust Agreement may not be amended by the Company on or within two years following the date of a Change of Control of the Company, without the written consent of a majority of the Participants entitled to payment of benefits pursuant to the terms of the Plan on the date of such Change of Control. Section 14. Miscellaneous. ------------- (a) Any provision of this Trust Agreement prohibited by law shall be ineffective to the extent of any such prohibition, without invalidating the remaining provisions hereof. (b) Benefits payable to Plan Participants and their beneficiaries under this Trust Agreement may not be anticipated, assigned (either at law or in equity), alienated, pledged, encumbered or subjected to attachment, garnishment, levy, execution or other legal or equitable process. (c) This Trust Agreement shall be governed and construed in accordance with the internal laws (and not the principles relating to conflicts of laws) of the State of Texas, except where superseded by federal law. (d) Except where otherwise defined, capitalized terms used herein shall have the meaning given to them in the Plan. (e) In the event that a dispute arises between a Plan Participant or beneficiary and the Participant's Employer, the Company or the Trustee with respect to the payment of amounts from the Trust and the Participant or beneficiary is successful in pursuing a benefit to which he or she is entitled under the terms of the Plan and this Trust against the Participant's Employer, the Company, the Trustee or any other party in the course of litigation or otherwise and incurs attorneys' fees, expenses and costs in connection therewith, the Participant's Employer shall reimburse the Plan Participant or beneficiary for the full amount of any such attorneys' fees, expenses and costs. (f) Upon the written consent of the Company delivered to the Trustee, any other affiliate of the Company which adopts the Plan may become a party to this Trust by delivering to the Trustee a certified copy of a resolution of its board of directors or other governing authority adopting this Trust. For purposes of this Trust, any such affiliate which adopts this Trust with the written consent of the Company shall be an Employer hereunder. IN WITNESS WHEREOF, this Agreement has been executed this 30th day of September, 1994, to be effective as of October 1, 1994. ENSERCH CORPORATION By /s/ D. W. Biegler Title: Chairman, President and Chief Executive Officer ENSERCH EXPLORATION, INC. By /s/ D. W. Biegler Title: Chairman and Chief Executive Officer NEW ENSERCH EXPLORATION, INC. By /s/ D. W. Biegler Title: Chairman and Chief Executive Officer ENSERCH DEVELOPMENT CORPORATION By /s/ G. R. Bryan Title: Chairman LONE STAR ENERGY COMPANY By /s/ D. W. Biegler Title: Chairman and Chief Executive Officer ENSERCH GAS COMPANY By /s/ D. W. Biegler Title: Chairman and Chief Executive Officer TEXAS COMMERCE BANK NATIONAL ASSOCIATION By /s/ Karen Epps Title: THE STATE OF TEXAS ) ) COUNTY OF DALLAS ) BEFORE ME, the undersigned authority, a notary public in and for said County and State, on this day personally appeared D. W. Biegler, known to me to be the person whose name is subscribed to the foregoing instrument and acknowledged to me that the same was the act of the said ENSERCH CORPORATION, a Texas corporation, and that he/she executed the same as the act of such corporation for the purposes and consideration therein expressed, and in the capacity therein stated. GIVEN UNDER MY HAND AND SEAL OF OFFICE, this 23rd day of September, 1994. /s/ Cherry H. Sossamon Notary Public, State of Texas My Commission expires: October 31, 1996 THE STATE OF TEXAS ) ) COUNTY OF DALLAS ) BEFORE ME, the undersigned authority, a notary public in and for said County and State, on this day personally appeared D. W. Biegler, known to me to be the person whose name is subscribed to the foregoing instrument and acknowledged to me that the same was the act of the said ENSERCH EXPLORATION, INC., a Delaware corporation, and that he/she executed the same as the act of such corporation for the purposes and consideration therein expressed, and in the capacity therein stated. GIVEN UNDER MY HAND AND SEAL OF OFFICE, this 23rd day of September, 1994. /s/ Cherry H. Sossamon Notary Public, State of Texas My Commission expires: October 31, 1996 THE STATE OF TEXAS ) ) COUNTY OF DALLAS ) BEFORE ME, the undersigned authority, a notary public in and for said County and State, on this day personally appeared D. W. Biegler, known to me to be the person whose name is subscribed to the foregoing instrument and acknowledged to me that the same was the act of the said NEW ENSERCH EXPLORATION, INC., a Texas corporation, and that he/she executed the same as the act of such corporation for the purposes and consideration therein expressed, and in the capacity therein stated. GIVEN UNDER MY HAND AND SEAL OF OFFICE, this 23rd day of September, 1994. /s/ Cherry H. Sossamon Notary Public, State of Texas My Commission expires: October 31, 1996 THE STATE OF TEXAS ) ) COUNTY OF DALLAS ) BEFORE ME, the undersigned authority, a notary public in and for said County and State, on this day personally appeared G. R. Bryan, known to me to be the person whose name is subscribed to the foregoing instrument and acknowledged to me that the same was the act of the said ENSERCH DEVELOPMENT CORPORATION, a Texas corporation, and that he/she executed the same as the act of such corporation for the purposes and consideration therein expressed, and in the capacity therein stated. GIVEN UNDER MY HAND AND SEAL OF OFFICE, this 23rd day of September, 1994. /s/ Glynnda S. Rice Notary Public, State of Texas My Commission expires: February 28, 1997 THE STATE OF TEXAS ) ) COUNTY OF DALLAS ) BEFORE ME, the undersigned authority, a notary public in and for said County and State, on this day personally appeared D. W. Biegler, known to me to be the person whose name is subscribed to the foregoing instrument and acknowledged to me that the same was the act of the said LONE STAR ENERGY COMPANY, a Texas corporation, and that he/she executed the same as the act of such corporation for the purposes and consideration therein expressed, and in the capacity therein stated. GIVEN UNDER MY HAND AND SEAL OF OFFICE, this 23rd day of September, 1994. /s/ Cherry H. Sossamon Notary Public, State of Texas My Commission expires: October 31, 1996 THE STATE OF TEXAS ) ) COUNTY OF DALLAS ) BEFORE ME, the undersigned authority, a notary public in and for said County and State, on this day personally appeared D. W. Biegler, known to me to be the person whose name is subscribed to the foregoing instrument and acknowledged to me that the same was the act of the said ENSERCH GAS COMPANY, a Texas corporation, and that he/she executed the same as the act of such corporation for the purposes and consideration therein expressed, and in the capacity therein stated. GIVEN UNDER MY HAND AND SEAL OF OFFICE, this 23rd day of September, 1994. /s/ Cherry H. Sossamon Notary Public, State of Texas My Commission expires: October 31, 1996 THE STATE OF TEXAS ) ) COUNTY OF DALLAS ) BEFORE ME, the undersigned authority, a notary public in and for said County and State, on this day personally appeared Karen Epps, known to me to be the person whose name is subscribed to the foregoing instrument and acknowledged to me that the same was the act of the said TEXAS COMMERCE BANK NATIONAL ASSOCIATION, a national banking association, and that he/she executed the same as the act of such banking association for the purposes and consideration therein expressed, and in the capacity therein stated. GIVEN UNDER MY HAND AND SEAL OF OFFICE, this 7th day of October, 1994. /s/ Barbara Betik Notary Public, State of Texas My Commission expires: January 30, 1997 APPENDIX A TO THE ENSERCH CORPORATION RETIREMENT INCOME RESTORATION TRUST PARTICIPATING SUBSIDIARIES -------------------------- 1. Enserch Exploration, Inc., a Delaware corporation 2. New Enserch Exploration, Inc., a Texas corporation 3. Enserch Development Corporation, a Texas corporation 4. Lone Star Energy Company, a Texas corporation 5. Enserch Gas Company, a Texas Corporation AMENDMENT NO. 1 TO THE ENSERCH CORPORATION RETIREMENT INCOME RESTORATION TRUST Pursuant to the provisions of Section 13(a) thereof, the ENSERCH Corporation Retirement Income Restoration Trust (the "Trust") is hereby amended in the following respects only: FIRST: Section l(f) of the Trust is hereby amended by restatement in its entirety to read as follows: (f) Any provision of this Trust Agreement to the contrary notwithstanding, upon a Change of Control of the Company, as defined in the Plan, each Employer shall (i) as soon as possible, but in no event more than 30 days following the date of such Change of Control, make an irrevocable contribution to the Trust in an amount, as determined by an Independent Committee, as defined below, which when added to the total value of the assets of the Employer's Separate Account under the Trust at such time equals the total present value of all benefits accrued under the Plan with respect to such Employer's respective Plan Participants and beneficiaries as of the date on which the Change of Control occurred, and (ii) on and after the date of the Change of Control, make monthly contributions to the Trust in amounts sufficient, as determined by the Independent Committee, to maintain the total value of the assets in the Employer's Separate Account under the Trust at an amount equal to the total present value of all benefits accrued under the Plan with respect to such Employer's respective Plan Participants and beneficiaries. Any provision of this Trust Agreement to the contrary notwithstanding, on and after the date of a Change of Control of the Company, such portion of the assets in each Separate Account of an Employer under this Trust as of the date of the Change of Control equal in value to the total present value of such Employer's Plan Participants' accrued benefits under the Plan as of such date shall be segregated into a subaccount of such Separate Account to be used and held exclusively for the benefit of such Employer's Plan Participants (and their beneficiaries) as of the date immediately prior to the date of such Change of Control, subject to the claims of general creditors of the Employer under federal and state law as set forth below. SECOND: Section 3 of the Trust is hereby amended by restatement in its entirety to read as follows: Section 3. Appointment of Independent Committee. (a) Any provision of this Trust Agreement to the contrary notwithstanding, upon a Change of Control of the Company, an Independent Committee consisting of at least three members shall be appointed by the Board of Directors of ENSERCH Corporation (the "Board") subject to the written approval of a majority of the Plan Participants. The Independent Committee shall: (i) determine the assumptions to be used in calculating present values of benefits accrued for purposes of this Trust; (ii) determine the amount of the irrevocable contributions to be made by each Employer pursuant to Section l(f) hereof; (iii) determine in accordance with the Plan the amounts payable with respect to each Plan Participant (and his or her beneficiaries), the form in which such amounts are to be paid, and the time of commencement for payment of such amounts pursuant to Section 2(a) hereof; (iv) determine the entitlement of Plan Participants and beneficiaries to benefits under the terms of the Plan pursuant to Section 2(b) hereof; (v) direct the Trustee to make payments to Plan Participants and their beneficiaries pursuant to Section 2 hereof; and (vi) select a successor Trustee for the Trust if a Trustee resigns or is removed on or after the date of a Change of Control of the Company pursuant to Section 12. (b) Each member of the Independent Committee so appointed shall serve in such office until his or her death, resignation or removal. The Board may remove any member of the Independent Committee by giving written notice thereof to all Plan Participants and all members of the Independent Committee; provided, however, that no member of the Independent Committee may be removed by the Board on or after a Change of Control of the Company except with the written consent of a majority of the Plan Participants. Vacancies on the Independent Committee shall be filled from time to time by the Board subject to the written approval of a majority of the Plan Participants on the date such vacancy is filled. (c) The Independent Committee shall act by a majority of its members at the time in office and such action may be taken either by a vote at a meeting or in writing without a meeting. The Independent Committee may by such majority action authorize any one or more of its members to execute any document or documents on behalf of the Independent Committee, in which event the Independent Committee shall notify the Trustee in writing of such action and the name or names of its member or members so authorized to act. Every interpretation, choice, determination or other exercise by the Independent Committee of any power or discretion given either expressly or by implication to it shall be conclusive and binding upon all parties having or claiming to have an interest under the Trust or otherwise directly or indirectly affected by such action, without restriction, however, on the right of the Independent Committee to reconsider and redetermine such action. (d) Any provision of this Trust Agreement to the contrary notwithstanding, in the event that (i) the Board shall not appoint an Independent Committee within 30 days following a Change of Control of the Company or a majority of the Participants in the Plan do not approve in writing at least three members selected by the Board to serve on an Independent Committee within such 30-day period or (ii) the Board does not fill a vacancy on the Independent Committee within 30 days of the date such office becomes vacant or a majority of the Participants in the Plan do not approve in writing the Board's selection to fill a vacancy on the Independent Committee within such 30-day period, then the Participants in the Plan shall elect, by majority vote, up to three individuals to the extent necessary to ensure that the Independent Committee consists of three members. THIRD: Section 5(b) of the Trust is hereby amended by restatement in its entirety to read as follows: (b) To the extent that an Employer determines that the value of the assets in its Separate Account under the Trust based upon information provided to the Employer by the Trustee, at any time, exceeds 110` of the present value of the benefits accrued under the Plan by the Employer's respective Plan Participants, the Trustee shall pay such excess to the Employer upon receipt of written request therefor from the Company; provided, however, that no such payment of excess assets to the Employer shall be made on or after the date of a Change of Control of the Company without the written approval of the Participants in the Plan. FOURTH: Section 6(b) of the Trust is hereby amended by restating the last sentence thereof in its entirety to read as follows: The preceding provisions of this paragraph to the contrary notwithstanding, the Company shall have the right and power at any time and from time to time to give the Trustee broad guidelines within which it shall invest the assets of the Trust; provided, however, that on and after the date of a Change of Control of the Company, the Independent Committee, rather than the Company, shall have the sole authority to exercise such right. FIFTH: Section 6(d) of the Trust is hereby amended by restating the first sentence thereof in its entirety to read as follows: Each Employer shall have the right, at any time, and from time to time in its sole discretion, to substitute assets of equal fair market value for any asset held in its Separate Account under the Trust; provided, however, that on and after the date of a Change of Control of the Company, any assets transferred to the Trust in substitution for assets held in an Employer's Separate Account under the Trust must consist of cash or marketable securities acceptable to the Independent Committee and the fair market value of the respective assets shall be determined by the Trustee. SIXTH: Section 9(b) of the Trust is hereby amended by restating the last sentence thereof in its entirety to read as follows: If the Employers do not pay such costs, expenses and liabilities in a reasonably timely manner, the Trustee may obtain payment from the Trust; provided, however, that in the event any such costs, expenses and liabilities are paid from the Trust, the Trustee shall notify the Employers in writing that such payment has been made and the Employers shall reimburse the Trust for such payment within 15 days from the date of such notice. SEVENTH: Section 10 of the Trust is hereby amended by restating the last sentence thereof in its entirety to read as follows: The Employers shall pay all administrative and the Trustee's fees and expenses, but, if not so paid, such fees and expenses shall be paid from the Trust; provided, however, that in the event any such fees and expenses are paid from the Trust, the Trustee shall notify the Employers in writing that such payment has been made and the Employers shall reimburse the Trust for such payment within 15 days from the date of such notice. EIGHTH: Section ll(b) of the Trust is hereby amended by restatement in its entirety to read as follows: (b) The Trustee may be removed by the Company on 30 days notice or upon shorter notice accepted by the Trustee; provided, however, that the Trustee may not be removed by the Company on or after the date of a Change of Control of the Company except with the written consent of a majority of the Plan Participants. NINTH: Section 12(a) of the Trust is hereby amended by restating the first sentence thereof in its entirety to read as follows: If the Trustee resigns or is removed in accordance with Section ll(a) or (b) hereof, the Company may appoint any third party, such as a bank trust department or other party that may be granted corporate trustee powers under state law, as a successor to replace the Trustee upon resignation or removal; provided, however, that if the Trustee resigns or is removed on or after the date of a Change of Control of the Company, the Independent Committee shall select a successor Trustee in accordance with this Section 12. TENTH: Section 13(e) of the Trust is hereby amended by restatement in its entirety to read as follows: (e) Any provision of this Trust Agreement to the contrary notwithstanding, this Trust Agreement may not be amended on or after the date of a Change of Control of the Company without the written consent of a majority of the Plan Participants. ELEVENTH: The Trust is hereby amended by spinning off to a new trust to be known as the Enserch Exploration, Inc. Retirement Income Restoration Trust, the assets held in the Separate Accounts of Enserch Exploration, Inc. and its subsidiaries effective as of the date of the distribution of all shares of stock of Enserch Exploration, Inc. owned by ENSERCH Corporation to the shareholders of ENSERCH Corporation. IN WITNESS WHEREOF, this Amendment has been executed this day ______ of __________, 1996, to be effective as of January 1, 1996. ENSERCH CORPORATION By: /s/ D. W. Biegler ----------------------------- Title: Chairman and President TEXAS COMMERCE BANK NATIONAL ASSOCIATION By: -------------------------------------- Title: THE STATE OF TEXAS ) ) COUNTY OF DALLAS ) BEFORE ME, the undersigned authority, a notary public in and for said County and Stake, on this day personally appeared D. W. Biegler, known to me to be the person whose name is subscribed to the foregoing instrument and acknowledged to me that the same was the act of the said ENSERCH CORPORATION, a Texas corporation, and that he/she executed the same as the act of such corporation for the purposes and consideration therein expressed, and in the capacity therein stated. GIVEN UNDER MY HAND AND SEAL OF OFFICE, this 6th day of November, 1996. /s/ Anita K. Brian -------------------------------------------- Notary Public, State of Texas My Commission expires: January 23, 1997 THE STATE OF TEXAS ) ) COUNTY OF DALLAS ) BEFORE ME, the undersigned authority, a notary public in and for said County and State, on this day personally appeared _____________________________, known to me to be the person whose name is subscribed to the foregoing instrument and acknowledged to me that the same was the act of the said TEXAS COMMERCE BANK NATIONAL ASSOCIATION, a national banking association, and that he/she executed the same as the act of such banking association for the purposes and consideration therein expressed, and in the capacity therein stated. GIVEN UNDER MY HAND AND SEAL OF OFFICE, this ____ day of ___________, 1996. -------------------------------------------- Notary Public, State of Texas My Commission expires: EX-10.20 9 EMPLOYMENT AGREEMENT EXHIBIT 10.20 EMPLOYMENT AGREEMENT THIS AGREEMENT by and between ENSERCH EXPLORATION, INC. (the "Company") and ____________________ the "Executive") is entered into on this _____________________, 19______. WITNESSETH: ----------- WHEREAS, the Company desires to employ the Executive, and the Executive is willing to serve in the employ of the Company, upon the terms and conditions provided in this Agreement; WHEREAS, the Board recognizes that, as is the case with many corporations, there exists the possibility of a change of control of the Company, and that such possibility, and the uncertainty and questions which it may raise, may result in the distraction of key management personnel to the detriment of the Company and its affiliates and shareholders, and the Board has determined that appropriate steps should be taken as set forth in this Agreement to reinforce and encourage the Executive's continued attention and dedication of his assigned duties without distraction in the face of potentially disturbing circumstances arising from the possibility of a change of control; NOW, THEREFORE, in consideration of the mutual covenants contained in this Agreement, the parties agree as follows: ARTICLE I DEFINITIONS All words and phrases defined shall have the meanings described below unless in the context some other meaning is clearly intended. 1.1 "AFFILIATE" means, with respect to any entity, another entity that controls, is controlled by or is under common control with the first entity. 1.2 "AGREEMENT" means this employment agreement entered into between the Company and the Executive. 1.3 "BOARD" means the Board of Directors of the Company. 1.4 "CASH INCENTIVE COMPENSATION" means that compensation described in Section 6.2. 1.5 "CAUSE" Termination of the Executive's employment by the Company for "Cause" shall mean termination upon (A) the willful and continued failure by the Executive substantially to perform his duties with the Company (other than any such failure resulting from his incapacity due to physical or mental illness), after a demand for substantial performance is delivered to the Executive by the Board which specifically identifies the manner in which the Board believes that the Executive has not substantially performed his duties, and a reasonable period of opportunity for such substantial performance is provided, or (B) the willful engaging by the Executive in illegal misconduct materially and demonstrably injurious to the Company. For purposes of this paragraph, no act, or failure to act, on the Executive's part shall be considered "willful" unless done, or omitted to be done, by the Executive not in good faith and without reasonable belief that his action or omission was in the best interest of the Company. Any act, or failure to act, based upon authority given pursuant to a resolution duly adopted by the Board or based upon the advice of counsel for the Company shall be conclusively presumed to be done, or omitted to be done, by the Executive in good faith and in the best interest of the Company. Notwithstanding the foregoing, the Executive shall not be deemed to have been terminated for Cause unless and until there shall have been delivered to the Executive a copy of a resolution duly adopted by the affirmative vote of not less than three-quarters of the entire membership of the Board, excluding the Executive, at a meeting of the Board called and held for that purpose (after reasonable notice to the Executive and an opportunity for the Executive, together with his counsel, to be heard before the Board), finding that in the good faith opinion of the Board the Executive was guilty of conduct set forth above in clauses (A) or (B) in this paragraph and specifying the particulars thereof in detail. 1.6 "COMPENSATION COMMITTEE" means the Compensation Committee of the Board. 1.7 "CONFLICT OF INTEREST" means a condition where the loyalty of the Executive is divided between that owed to the Company and another interest such as an investment or other relationship that would reasonably promote the Executive to take or refrain from taking an action that might not be in the best interest of the Company. 1.8 "DISABILITY" means the Executive's incapacity resulting from injury or illness, whether mental or physical, which prevents the Executive from performing his normal duties under this Agreement. The presence or absence of the condition is to be determined by an independent physician selected by mutual agreement of the Company and the Executive. 1.9 "EFFECTIVE DATE" means the date of this Agreement. 1.10 "EXECUTIVE" means _____________________. 1.11 "GOOD REASON" for the Executive to terminate his employment shall mean: (a) an adverse change in the Executive's status or position(s) as Chairman and President, Chief Executive Officer of the Company including, without limitation, any adverse change in the Executive's status or position as a result of a material diminution in his duties or responsibilities, or a material change in the Executive's business location or the assignment to the Executive of any duties or responsibilities which are inconsistent with such status or position(s), or any removal of the Executive from or any failure to reappoint or reelect the Executive to such position(s) (except in connection with the termination of his employment for Cause, Disability or Retirement or as a result of the Executive's death or by the Executive other than for Good Reason); provided however, a decision by the Board to separate the office of Chairman and President shall not be considered an adverse change as set forth in this Section 1.11(a) as long as the Executive remains as the Chief Executive Officer of the Company with duties and responsibilities customarily associated with that office; (b) a reduction by the Company in the Executive's Minimum Annual Salary or in the number of vacation days to which the Executive is entitled hereunder; (c) the taking of any action by the Company (including the elimination of a plan without providing substitutes therefor or the reduction of the Executive's awards thereunder) that would diminish or the failure by the Company to take any action which would maintain the aggregate projected value of the Executive's awards under the Company's bonus or stock option or management incentive unit plans in which the Executive participates; (d) the taking of any action by the Company that would diminish or the failure by the Company to take any action which would maintain the aggregate value of the benefits provided the Executive under the Company's medical, health, dental, accident, disability, life insurance, stock purchase or retirement plans in which the Executive participates or as otherwise provided in this Agreement; (e) the taking of any action by the Company that would diminish or the failure of the Company to take any action that would maintain indemnification or insurance for officers' liability; or (f) a failure by the Company to obtain from any Successor (as hereinafter defined) the assent to this Agreement contemplated by Section 16.2 hereof. 1.12 "LONG TERM INCENTIVE AWARDS" means those awards described in Section 6.6 1.13 "MINIMUM ANNUAL SALARY" means that compensation described in Section 6.1. 1.14 "NON-QUALIFIED STOCK OPTIONS" means any options to acquire stock of the Company granted to the Executive which do not qualify as incentive stock options under the Internal Revenue Code of 1986, as amended, including any successor statute. 1.15 "RESTRICTED STOCK BONUSES" means the grants of shares of performance based restricted common stock of the Company pursuant to the Stock Incentive Plan. 1.16 "RETIREMENT" means the termination of the Executive's employment with the Company and all of its Affiliates as a result of his reaching a retirement age (not less than 65 years of age) established by the Board for his retirement in accordance with the Company's general policy for retirement of executives, provided that for purposes of the change of control provisions referred to in Section 10.7 below, the retirement age shall be as specified in the change of control agreement. 1.17 "STOCK INCENTIVE PLAN" means the Enserch Exploration, Inc. 1996 Revised and Amended Stock Incentive Plan. 1.18 "STOCK OPTIONS" means the Non-Qualified Stock Options, if any, now or hereafter granted to the Executive. ARTICLE II EMPLOYMENT The Company hereby employs the Executive and the Executive hereby accepts employment with the Company upon the terms and conditions set forth in this Agreement. ARTICLE III TERM OF AGREEMENT This Agreement becomes effective as of the Effective Date. The initial term of this Agreement is for a period from the Effective Date until the third anniversary of the Effective Date, provided, however, that upon the third anniversary date of this Agreement and on each anniversary date thereafter the terms of this Agreement shall be automatically extended for an additional period of one (1) year on a continuing basis unless either party shall give written notice of the intention not to so extend at least six (6) months prior to such anniversary date. Any termination of the Executive's employment with the Company shall be subject to the provisions of Article X hereof. ARTICLE IV DUTIES The Executive is hereby employed, and during the term of this Agreement shall be employed, as Chairman and President, Chief Executive Officer of the Company reporting to the Board. The Executive agrees to perform all of the duties normally incident to those offices for as long as he shall hold those offices and to perform all other duties and responsibilities as may be prescribed by the Board from time to time and which are commensurate with his executive capacity as Chairman and President, Chief Executive Officer of the Company. ARTICLE V EXTENT OF SERVICE The Executive is employed on a full time basis. Therefore, during the period of his employment, except for illness, reasonable vacation periods and reasonable leaves of absence, the Executive shall devote all of his business time, attention, skill and efforts to the faithful performance of his duties under this Agreement. However, the Executive may devote a small but reasonable amount of time to pursue and monitor personal investments and charitable or community services and, with the approval of the Board, from time to time, the Executive may serve or continue to serve on the boards of directors of and hold any other offices or position in companies or organizations that in the Board's reasonable judgment will not present any Conflict of Interest with the Company or any of its Affiliates or materially affect the performance of the Executive's duties under this Agreement. ARTICLE VI COMPENSATION For services rendered by the Executive under this Agreement the Company agrees to pay and provide to the Executive compensation and benefits commensurate with his position and experience level within the oil and gas industry, which compensation and benefits (i) initially shall be as set forth in this Article VI and (ii) shall not at any time during the term of this Agreement be less than as set forth in this Article VI. 6.1 MINIMUM ANNUAL SALARY. During each calendar year the Company shall pay the Executive base compensation in equal semi-monthly installments based upon the minimum annual salary for the Executive of $500,000, subject to annual review by the Board and which may be increased but not decreased by the Board on the basis of such review. The term "Minimum Annual Salary" as used in this Agreement shall include all increases granted by the Board. 6.2 CASH INCENTIVE COMPENSATION. For each calendar year during the term of this Agreement the Executive shall be entitled to earn a bonus of between 0% and 90% of the Executive's Minimum Annual Salary for such year upon attaining goals established annually by the Compensation Committee. The goals shall be established by the Compensation Committee, after consultation with the Executive, shall be consistent with the Company's standards, and shall be established to produce a reasonable expectation in the sole judgment of the Compensation Committee that the Executive will receive a target bonus for each year equal to 60% of the Executive's Minimum Annual Salary for such year. Bonus factors and other provisions related to the bonus for calendar year 1997 (which will be consistent with the Executive's position in the Company and with other executives) will be addressed by the Compensation Committee at its meeting on February 11, 1997. The Cash Incentive Compensation earned by the Executive for any calendar year to the extent not deferred pursuant to Section 6.3, will be paid to the Executive within 90 days following the end of such calendar year. 6.3 DEFERRAL ARRANGEMENT. The Executive will be permitted to defer some or all of the Cash Incentive Compensation and up to 50% of the Minimum Annual Salary under the ENSERCH Corporation Deferred Compensation Plan (or comparable plan of the Company), the terms of which have been provided to the Executive. 6.4 STOCK OPTIONS. On or promptly after the Effective Date, the Company shall grant to the Executive an initial signing bonus award of Stock Options to acquire 1,000,000 shares of the common stock of the Company with an exercise price based on the average of the high and low prices on the date of grant and granted as follows: An option for 500,000 of the shares will be granted by the Compensation Committee pursuant to the Stock Incentive Plan and shall be conditioned upon the execution by the Executive of a stock option agreement substantially in the form as attached hereto as Exhibit A, and an option with substantially identical terms for the remaining 500,000 shares will be granted by the Board by special award and shall be conditioned upon the execution by the Executive of a stock option agreement substantially in the form as attached hereto as Exhibit B. Not later than sixty (60) days following each anniversary of the Effective Date during the term of this Agreement (provided the Executive continues to be employed by the Company), the Company shall grant to the Executive a Stock Option to acquire a number of additional shares of the common stock of the Company with the grant in 1998 to be calculated as follows: at least the number derived from dividing three (3) times the Executive's Minimum Annual Salary by the fair market value on the last trading date preceding the day that the Compensation Committee or Board takes action to grant the Option. Grants in subsequent years shall be made in an amount equal to 115% of the Executive's Minimum Annual Salary, in accordance with a valuation methodology selected by the Compensation Committee, after consultation with the Executive and which appropriately aligns the compensation that the Executive may receive through stock price growth with the value received by shareholders from the Company's performance. The exercise price per share under such option shall be the fair market value of the stock as of the date of the grant of such option. The Options granted to the Executive during the term of this Agreement beyond the initial grant shall be Non-Qualified Stock Options and shall be pursuant to, and conditioned upon the execution by the Executive of, stock option agreements with terms and conditions consistent with those between the Company's other senior executives and the Company and substantially in the form as attached hereto as Exhibit C. No Stock Options shall be granted subsequent to termination of employment. The Company shall use its best efforts to cause a registration statement on form S-8 (or comparable successor form) covering all shares subject to Stock Options granted to the Executive to remain effective until sixty (60) days after the later of exercise or termination of all Stock Options granted to the Executive. 6.5 RESTRICTED STOCK BONUSES. On or promptly after the Effective Date, the Company shall award to the Executive an initial Restricted Stock Bonus for 100,000 shares of performance-based restricted stock of the Company pursuant to its Stock Incentive Plan and conditioned upon the execution by the Executive of a Restricted Stock Agreement substantially in the form attached hereto as Exhibit D. Not later than sixty (60) days following each anniversary of the Effective Date during the term of this Agreement (provided the Executive continues to be employed by the Company), the Company shall award to the Executive a Restricted Stock Bonus for additional shares of performance-based restricted stock of the Company having a value equal to 35% of the Executive's Minimum Annual Salary (with performance requirements as determined by the Compensation Committee that may vary from the initial award but that are consistent with performance requirements for awards of performance-based restricted stock to other senior executives of the Company). Such shares shall be restricted so that no share may be transferred or alienated in any way (except through passage under will or by the laws of descent and distribution upon the Executive's death) until the shares are vested, at which time the restriction will lapse with respect to the vested shares. Such awards shall be granted pursuant to, and conditioned upon, execution by the Executive of restricted stock agreements with terms and conditions consistent with those of other senior executives of the Company and substantially in the form attached hereto as Exhibit E. No Restricted Stock Bonuses shall be granted subsequent to termination of employment. The Company shall use its best efforts to cause a registration statement on form S-8 (or comparable successor form) covering all shares of restricted stock granted to the Executive as Restricted Stock Bonuses to remain effective until sixty (60) days after the lapse of all restrictions on the shares of restricted stock granted to the Executive as Restricted Stock Bonuses. 6.6 LONG TERM INCENTIVE AWARDS. The Executive shall be entitled to participate in any other long term incentive award program as is approved in the future by the Compensation Committee. 6.7 OTHER COMPANY COMPENSATION PROGRAMS. The Executive shall be entitled to participate at an appropriate level in all other compensation programs adopted by the Company. 6.8 LOAN. Within 30 days following the date that the Executive (i) makes a Section 83(b) election with respect to any Restricted Stock Bonus received by the Executive or (ii) such Restricted Stock Bonus becomes fully vested, upon request by the Executive the Company will lend the Executive an amount equal to the estimated federal, state and local tax liability the Executive will incur in connection with making a Section 83(b) election or becoming fully vested in any Restricted Stock Bonus. The loan will be on a full recourse basis and secured in accordance with the terms of a security agreement (in a form mutually agreed upon by the Executive and Company) collateralized with Restricted Stock Bonuses, Stock Options to acquire Company stock, deferred compensation and other amounts owing but unpaid by the Company to the Executive. The loan will bear interest at the prime rate in effect at that time at the Chase Manhattan Bank or other comparable bank as approved by the Compensation Committee. ARTICLE VII FRINGE BENEFITS The Company shall provide the Executive, while the Executive is employed with the Company pursuant to this Agreement, with the following fringe benefits at a level commensurate with his position with the Company: (a) annual physical examinations; (b) reimbursement of dues and special assessments for membership in one dining club and one country club; (c) four weeks paid vacation yearly; and (d) a customary benefit and perquisite package for a senior executive in his position, provided however, that such package will include at least (i) medical and dental coverage, (ii) disability insurance covering 60% of Minimum Annual Salary, (iii) provided that the Executive is insurable, life insurance equal to four- times Minimum Annual Salary through the initial three-year term of this Agreement, reduced to three-times Minimum Annual Salary until age 60, and reduced to two-times Minimum Annual Salary thereafter, and provided that, when authorized by the Compensation Committee, the Company may self-insure such amount that may exceed limits of the Company's group life insurance policy, and (iv) an excess pension plan providing retirement benefits that the Executive would have received under the Company's qualified retirement plans taking into account the Executive's Minimum Annual Salary and Cash Incentive Compensation (regardless of whether or not the Executive elects to defer any such amounts under Section 6.3) but for the limitations on compensation and benefits under Sections 415 and 401(a)(17) of the Internal Revenue Code of 1986 relating to qualified plans. ARTICLE VIII WORKING FACILITIES The Company shall furnish the Executive with a private office and a private secretary and all other assistance and accommodations as are suitable to the character of the Executive's position with the Company and adequate for the performance of his duties under this Agreement. ARTICLE IX EXPENSES (a) The Executive is authorized to incur reasonable expenses for the promotion of the business of the Company including expenses for entertainment, travel and other similar items. The Company shall pay or reimburse the Executive for all reasonable items of expense incurred by the Executive in performing his obligations under this Agreement. The Executive must, however, in each case provide the Company adequate substantiation of the expense that has been incurred by the Executive. (b) The Executive shall be provided temporary living and commuting expenses for six months following the Effective Date. (c) In addition to the Company's employee relocation assistance program which is hereby extended to the Executive, the Company will pay to the Executive $10,000 to use at his discretion to offset costs associated with the acquisition of a new home (such as loan origination fees, points, etc.). ARTICLE X TERMINATION OF EMPLOYMENT The following provisions specify the amounts payable under this Agreement in the event of a termination of the Executive's employment for the reasons set forth. In each case the payments as stated constitute all payments and benefits to which the Executive will be entitled to under this Agreement. The benefits, if any, the Executive is entitled to under the terms of all restricted stock agreements, stock option agreements, the Company's defined benefit pension plan, and all other then vested benefits of the Executive shall be governed by the respective plans and other documents creating such benefit. The provisions in the event of a termination of the Executive's employment under this Agreement are as follows: 10.1 TERMINATION WITHOUT GOOD REASON BY THE EXECUTIVE. Upon Termination Without Good Reason by the Executive of his employment with the Company, the Company shall pay the Executive, within 30 days, a cash sum equal to that portion of his Minimum Annual Salary and any other accrued entitlements which have been earned but unpaid prior to the date of the Executive's termination. 10.2 TERMINATION WITH GOOD REASON BY THE EXECUTIVE. (a) Upon termination by the Executive of employment with the Company with Good Reason during the initial three-year term of this Agreement, the Company shall pay the Executive, within 30 days, a cash sum equal to his then Minimum Annual Salary times the number of years (including portions thereof) remaining in the initial three-year term of this Agreement, plus earned but unpaid Cash Incentive Compensation for the previous year, if any, plus the Cash Incentive Compensation that would have accrued to the Executive (calculated at the target level of 60 % of the Executive's Minimum Annual Salary immediately prior to termination) through the number of years (including portions thereof) remaining in the initial three-year term of this Agreement; provided, however, that in no event shall the Executive be paid less than his Minimum Annual Salary times one, plus the Cash Incentive Compensation that would have accrued to the Executive (calculated at the target level of 60% of the Executive's Minimum Annual Salary immediately prior to termination) for one year. (b) Upon termination by the Executive of employment with the Company with Good Reason during any annual one-year extension beyond the initial three-year term of this Agreement, the Company shall pay the Executive, within 30 days, a cash sum equal to his then Minimum Annual Salary times one, plus earned but unpaid Cash Incentive Compensation for the previous year, if any, plus the Cash Incentive Compensation that would have accrued to the Executive (calculated at the target level of 60 % of the Executive's Minimum Annual Salary immediately prior to termination) for one year. 10.3 TERMINATION WITHOUT CAUSE BY THE COMPANY. If there is a termination without Cause of the Executive's employment by the Company, the Company shall pay and provide to the Executive the same compensation and benefits described in Section 10.2 for termination with Good Reason by the Executive. 10.4 TERMINATION FOR CAUSE BY THE COMPANY. If the Executive's employment is terminated by the Company for Cause, the Company shall pay the Executive, within 30 days, a cash sum equal to that portion of his then Minimum Annual Salary and any other accrued entitlements which have been earned but unpaid prior to the date of the Executive's termination for the year of termination. 10.5 TERMINATION FOR DISABILITY. If the Executive is terminated for Disability, the Company shall pay the Executive his then Minimum Annual Salary for one year from the date of his Disability. In addition, the Executive shall be entitled to receive pay for vested but unused vacation on the date of Disability. 10.6 TERMINATION FOR DEATH. If the Executive dies while in the employ of the Company, the Company shall pay and provide to the Executive's estate the same compensation and benefits described in Section 10.5 for termination for Disability, assuming that he became disabled on the date of his death, except that the then Minimum Annual Salary shall be payable for three months instead of one year. 10.7 CHANGE OF CONTROL. The Company and the Executive shall enter into the change of control agreement substantially in the form as attached hereto as Exhibit F and the Executive shall be entitled to the benefits therein provided upon a "Change in Control" as therein defined. In the event of a Change in Control, and the Executive's employment is terminated under circumstances entitling the Executive to benefits under 10.2 or 10.3 of this Agreement and under Section 4 of the Change in Control Agreement, the Executive shall be entitled to the benefits provided herein and in the Change in Control Agreement, provided that in the event the terms of this Agreement and the Change in Control Agreement provide for the same type of benefit or payment based on the same operative event or facts then the Executive shall be entitled to the higher benefit or payment under the agreements but not duplicate benefits or payments; it being specifically agreed that if the Change in Control and the qualifying termination of employment occurs prior to the end of the initial three-year term of this Agreement, the Executive will be entitled to the greater of the payments of salary under this Agreement for the remainder of such initial three-year term or the payment of three (3) times the Executive's salary under Section 4(iii)(c) of the Change in Control Agreement. 10.8 RETIREMENT. Upon Retirement, the Company shall pay the Executive his Minimum Annual Salary which has been earned but is unpaid as of the date of Retirement. ARTICLE XI POST-TERMINATION OBLIGATIONS OF THE EXECUTIVE All payments and benefits due the Executive under this Agreement shall be subject to the Executive's compliance with the following provisions: 11.1 ASSISTANCE IN LITIGATION, ETC. During the period of his employment and for a reasonable period, not to exceed the greater of the balance of the term of this Agreement or 24 months, after the Executive's termination of employment, the Executive shall, upon reasonable notice, furnish all information and proper assistance including, without limitation, testimony, to the Company as may reasonably be required by the Company in connection with any litigation or other administrative or regulatory proceeding in which they or any of their subsidiaries or affiliates is, or may become, a party, or in connection with any filing or similar obligation of the Company imposed by any taxing, administrative or regulatory authority having jurisdiction. The Company, however, shall be obligated to pay all of the reasonable expenses (including reasonable attorney fees) incurred by the Executive in complying with these provisions. 11.2 CONFIDENTIAL INFORMATION. The Executive shall not knowingly use for his personal benefit or disclose or reveal to any unauthorized person any trade secret or other confidential information relating to the Company or its Affiliates or to any of the businesses operated by them, nor take with him, upon leaving employment with the Company, any document or other record relating to such information. The Executive confirms that such information constitutes the exclusive property of the Company. 11.3 NO SOLICITATION OF COMPANY EMPLOYEES. The Executive shall not, during the period of his employment and for a period of six months afterwards, solicit, induce or actively encourage any persons then employed by the Company or any of its Affiliates to leave the employment of such entity. Nothing in this Section shall prohibit or in any way limit the Executive's right to employ and/or discuss terms of employment with any persons who seek employment and/or initiate discussions, if that action occurs subsequent to the Executive's termination of employment and off the business premises of the Company. ARTICLE XII RELIANCE ON GENERAL CREDIT OF COMPANY All payments to the Executive under this Agreement shall be paid in cash from the general funds of the Company, and no special or separate fund shall be established and no other segregation of assets shall be made to assure payment except with respect to any deferred amounts pursuant to Section 6.3 which are placed in a trust pursuant to the ENSERCH Corporation Deferred Compensation Plan or comparable plan of the Company. The Executive shall have no right, title, or interest in any investments that the Company may make to aid the Company in meeting its obligations for these payments. ARTICLE XIII PAYMENT OF LEGAL FEES The Company shall reimburse the Executive for all reasonable legal fees and expenses incurred by the Executive in connection with the Executive's negotiation of this Agreement up to a maximum of $15,000 and all reasonable legal fees and expenses incurred by the Executive in connection with the Executive's enforcing any right or benefit provided by this Agreement. The reimbursement of such legal fees and expenses shall be made within 30 days after the Executive's request for payment accompanied by evidence of the fees and expenses incurred. ARTICLE XIV MODIFICATION AND WAIVER 14.1 AMENDMENT OF AGREEMENT. This Agreement may not be modified or amended except by an instrument in writing signed by the parties to this Agreement. 14.2 WAIVER. No term or condition of this Agreement shall be deemed to have been waived, nor shall there be any estoppel against the enforcement of any provision of this Agreement, except by written instrument of the party charged with waiver or estoppel. No written waiver shall be deemed a continuing waiver unless the continuing nature of the waiver is expressly stated therein. Each waiver shall operate only as to that specific term or condition; it will not be deemed a waiver of future conditions or as to any act other than that specifically waived. ARTICLE XV ARBITRATION Any controversy or claim arising out of or relating to this Agreement, or breach of it, shall be settled by arbitration in Dallas, Texas or such other jurisdiction as shall be mutually agreeable to the parties in accordance with the Commercial Arbitration Rules of the American Arbitration Association, and judgment upon the award rendered by the arbitrator may be entered in any court of competent jurisdiction. ARTICLE XVI GENERAL PROVISIONS 16.1 FEDERAL INCOME TAX WITHHOLDING. The Company shall withhold from any benefits payable under this Agreement all federal, state, city, or other taxes as shall be required under any law or governmental regulation or ruling. 16.2 SUCCESSORS; ENFORCEABILITY. (a) SUCCESSOR MUST ASSUME. The Company will require any successor (whether direct or indirect, by purchase, merger, consolidation, liquidation, dissolution or otherwise) to all or substantially all of the aggregate business and/or assets of the Company (including consolidated subsidiaries) to expressly assume and agree to perform this Agreement in the same manner and to the same extent that the Company would be required to perform it if no succession had taken place. (b) AGREEMENT ENFORCEABLE AFTER THE EXECUTIVE'S DEATH. This Agreement shall inure to the benefit of and be enforceable by the Executive's personal or legal representatives, executors, administrators, successors, heirs, distributees, devisees and legatees. 16.3 NONASSIGNABILITY. Except as provided in this Section 16.3, neither this Agreement or any right or interest granted in it shall be assignable by either the Company or the Executive, or their successors or representatives, without the other's prior written consent. This Section shall not preclude the Executive from designating a beneficiary to receive any benefit payable under this Agreement upon his death, or the executors, administrators, or other legal representatives of the Executive or his estate from assigning any rights under this Agreement to the person or persons entitled to them. 16.4 NO ATTACHMENT. Except as required by law, no right to receive payments under this Agreement shall be subject to anticipation, computation, alienation, sale, assignment, encumbrance, charge, pledge, or hypothecation or to execution, attachment, levy, or similar process or assignment by operation of law. Any attempt, voluntary or involuntary, to effect any such action shall be null, void and of no effect. 16.5 DELIVERY OF NOTICES. Any notice required to be given under this Agreement shall be in writing and shall be deemed to have been given and received upon the earlier of (i) receipt by the party to which the notice is sent and (ii) delivery of the notice to the address for notice for the party to which the notice is sent as set forth on the signature page hereof or as changed pursuant to the terms hereof. Any address may be changed from time to time by serving notice to the other party as required in this Section. 16.6 SEVERABILITY. If, for any reason, any provision of this Agreement is held invalid, that invalidity shall not affect any other provision of this Agreement not also held invalid, and each other provision shall to the full extent consistent with law continue in full force and effect. 16.7 HEADINGS. The headings of Articles and Sections are included solely for convenience of reference. The descriptive heading shall not control the meaning or interpretation of any of the provisions of this Agreement. 16.8 GOVERNING LAW. This Agreement has been executed and delivered in the State of Texas, and its validity, interpretation, performance, and enforcement shall be governed by the laws of that State. 16.9 COUNTERPARTS. This Agreement may be executed in one or more counterparts, each of which shall be deemed an original but all of which together shall constitute a single Agreement. ARTICLE XVII ENTIRE AGREEMENT As of the Effective Date, this Agreement shall constitute the entire agreement of the parties with respect to the matters covered hereby, and shall supersede all prior written and oral agreements pertaining to the subject matter hereof. The parties have caused this Agreement to be executed on the date first written in this Agreement. ENSERCH EXPLORATION, INC. By: ------------------------------------- Address: EXECUTIVE ------------------------------------- Address: EX-21 10 SUBSIDIARIES OF THE COMPANY EXHIBIT 21 Enserch Exploration, Inc., its subsidiaries and their subsidiaries and affiliates, respectively, on March 1, 1997, are listed below. STATE OR COUNTRY OF NAME OF COMPANY INCORPORATION ENSERHC Corporation Enserch Exploration, Inc.(1) Texas EEX Capital L.L.C. Texas MIStS Issuer L.L.C.(2) Texas Enserch Offshore, Inc. Texas Enserch Oil & Gas, Inc. Texas Enserch Preferred Capital, Inc. Delaware DALEN Resources California Company Delaware Corpus Christi Energy Company Delaware Corpus Christi Hydrocarbons Company Delaware Enserch International Oil & Gas, Inc. Texas Enserch Far East Ltd. Cayman Islands Enserch India, Inc. Texas Enserch Malaysia Ltd. Cayman Islands Enserch Middle East Ltd. Cayman Islands Enserch (U.K.) Oil & Gas Limited United Kingdom Enserch International Exploration Ltd. Cayman Islands - ----------------------- (1) 17% owned by parent corporation. (2) .999% owned by EEX Capital L.L.C. and .001% owned by Enserch Preferred Capital, Inc. EX-23.1 11 CONSENT OF DELOITTE & TOUCHE EXHIBIT 23.1 INDEPENDENT AUDITOR'S CONSENT Enserch Exploration, Inc.: We consent to the incorporation by reference in Registration Statements No. 33-57715 and No. 33-60587 of Enserch Exploration, Inc. on Form S-8 of our report dated February 10, 1997 (March 7, 1997 as to the third paragraph of Note 4), appearing in this Annual Report on Form 10-K of Enserch Exploration, Inc. for the year ended December 31, 1996. DELOITTE & TOUCHE LLP Dallas, Texas March 21, 1997 EX-23.2 12 CONSENT OF DEGOLYER & MCNAUGHTON EXHIBIT 23.2 DeGolyer and MacNaughton One Energy Square Dallas, Texas 75206 March 17, 1997 Enserch Exploration, Inc. 4849 Greenville Avenue Dallas, Texas 75206 Gentlemen: We hereby consent to the references to our firm and to our reserves estimates in the Annual Report on Form 10-K (the Annual Report) of Enserch Exploration, Inc. (the Company) for the year ended December 31, 1996. Our estimates of the oil, condensate, natural gas liquids, and natural gas reserves of certain properties owned by the Company are contained in our report entitled "Report as of January 1, 1997 on Reserves of Certain Properties owned by Enserch Exploration, Inc." References to us and to our estimates are included in the sections "Business - General - Recent Developments - Core Areas - and Offshore Activities" and "Properties" in Part I of the Annual Report and in Note 15 of the "Notes to Financial Statements" in the Annual Report. Additionally, we hereby consent to the incorporation by reference in the Company's Registration Statements nos. 33-57715 and 33-60587 on Form S-8 of such references made in the Annual Report. Very truly yours, DeGOLYER and MacNAUGHTON EX-24 13 POWERS OF ATTORNEY EXHIBIT 24 POWER OF ATTORNEY WHEREAS, Enserch Exploration, Inc. ("EEX"), a Texas corporation, intends to file with the Securities and Exchange Commission (the "Commission") under the Securities Exchange Act of 1934, as amended, an Annual Report on Form 10-K for the year ended December 31, 1996, with such amendment or amendments thereto in each case as may be necessary or appropriate, together with any and all exhibits and other documents having relation to said Form 10-K; NOW, THEREFORE, the undersigned in his capacity as a director of EEX, does hereby appoint T. M Hamilton, J. P. McCormick or M. G. Fortado, and each of them severally, his true and lawful attorney or attorneys with power to act with or without the other and with full power of substitution and resubstitution, to execute in his name, place and stead in his capacity as a director of EEX, said Form 10-K and any and all amendments thereto and all instruments necessary or incidental in connection therewith and to file the same with the Commission. Each of said attorneys shall have full power and authority to do and perform in the name and on behalf of the undersigned in any and all capacities every act whatsoever necessary or desirable to be done in the premises as fully and to all intents and purposes as the undersigned might or could do in person, the undersigned hereby ratifying and approving the acts of said attorneys and each of them. IN WITNESS WHEREOF, the undersigned has executed this instrument on this 11th day of March, 1997. /s/ F. S. Addy -------------------------------- F. S. Addy POWER OF ATTORNEY WHEREAS, Enserch Exploration, Inc. ("EEX"), a Texas corporation, intends to file with the Securities and Exchange Commission (the "Commission") under the Securities Exchange Act of 1934, as amended, an Annual Report on Form 10-K for the year ended December 31, 1996, with such amendment or amendments thereto in each case as may be necessary or appropriate, together with any and all exhibits and other documents having relation to said Form 10-K; NOW, THEREFORE, the undersigned in his capacity as a director of EEX, does hereby appoint T. M. Hamilton, J. P. McCormick or M. G. Fortado, and each of them severally, his true and lawful attorney or attorneys with power to act with or without the other and with full power of substitution and resubstitution, to execute in his name, place and stead in his capacity as a director of EEX, said Form 10-K and any and all amendments thereto and all instruments necessary or incidental in connection therewith and to file the same with the Commission. Each of said attorneys shall have full power and authority to do and perform in the name and on behalf of the undersigned in any and all capacities every act whatsoever necessary or desirable to be done in the premises as fully and to all intents and purposes as the undersigned might or could do in person, the undersigned hereby ratifying and approving the acts of said attorneys and each of them. IN WITNESS WHEREOF, the undersigned has executed this instrument on this 11th day of March, 1997. /s/ D. W. BIEGLER ----------------------------- D. W. Biegler POWER OF ATTORNEY WHEREAS, Enserch Exploration, Inc. ("EEX"), a Texas corporation, intends to file with the Securities and Exchange Commission (the "Commission") under the Securities Exchange Act of 1934, as amended, an Annual Report on Form 10-K for the year ended December 31, 1996, with such amendment or amendments thereto in each case as may be necessary or appropriate, together with any and all exhibits and other documents having relation to said Form 10-K; NOW, THEREFORE, the undersigned in his capacity as a director of EEX, does hereby appoint T. M Hamilton, J. P. McCormick or M. G. Fortado, and each of them severally, his true and lawful attorney or attorneys with power to act with or without the other and with full power of substitution and resubstitution, to execute in his name, place and stead in his capacity as a director of EEX, said Form 10-K and any and all amendments thereto and all instruments necessary or incidental in connection therewith and to file the same with the Commission. Each of said attorneys shall have full power and authority to do and perform in the name and on behalf of the undersigned in any and all capacities every act whatsoever necessary or desirable to be done in the premises as fully and to all intents and purposes as the undersigned might or could do in person, the undersigned hereby ratifying and approving the acts of said attorneys and each of them. IN WITNESS WHEREOF, the undersigned has executed this instrument on this 11th day of March, 1997. /s/ B. A. Bridgewater, Jr. ----------------------------- B. A. Bridgewater, Jr. POWER OF ATTORNEY WHEREAS, Enserch Exploration, Inc. ("EEX"), a Texas corporation, intends to file with the Securities and Exchange Commission (the "Commission") under the Securities Exchange Act of 1934, as amended, an Annual Report on Form 10-K for the year ended December 31, 1996, with such amendment or amendments thereto in each case as may be necessary or appropriate, together with any and all exhibits and other documents having relation to said Form 10-K; NOW, THEREFORE, the undersigned in his capacity as a director of EEX, does hereby appoint T. M Hamilton, J. P. McCormick or M. G. Fortado, and each of them severally, his true and lawful attorney or attorneys with power to act with or without the other and with full power of substitution and resubstitution, to execute in his name, place and stead in his capacity as a director of EEX, said Form 10-K and any and all amendments thereto and all instruments necessary or incidental in connection therewith and to file the same with the Commission. Each of said attorneys shall have full power and authority to do and perform in the name and on behalf of the undersigned in any and all capacities every act whatsoever necessary or desirable to be done in the premises as fully and to all intents and purposes as the undersigned might or could do in person, the undersigned hereby ratifying and approving the acts of said attorneys and each of them. IN WITNESS WHEREOF, the undersigned has executed this instrument on this 11th day of March, 1997. /s/ W. C. McCord ------------------------------ W. C. McCord POWER OF ATTORNEY WHEREAS, Enserch Exploration, Inc. ("EEX"), a Texas corporation, intends to file with the Securities and Exchange Commission (the "Commission") under the Securities Exchange Act of 1934, as amended, an Annual Report on Form 10-K for the year ended December 31, 1996, with such amendment or amendments thereto in each case as may be necessary or appropriate, together with any and all exhibits and other documents having relation to said Form 10-K; NOW, THEREFORE, the undersigned in his capacity as a director of EEX, does hereby appoint T. M Hamilton, J. P. McCormick or M. G. Fortado, and each of them severally, his true and lawful attorney or attorneys with power to act with or without the other and with full power of substitution and resubstitution, to execute in his name, place and stead in his capacity as a director of EEX, said Form 10-K and any and all amendments thereto and all instruments necessary or incidental in connection therewith and to file the same with the Commission. Each of said attorneys shall have full power and authority to do and perform in the name and on behalf of the undersigned in any and all capacities every act whatsoever necessary or desirable to be done in the premises as fully and to all intents and purposes as the undersigned might or could do in person, the undersigned hereby ratifying and approving the acts of said attorneys and each of them. IN WITNESS WHEREOF, the undersigned has executed this instrument on this 11th day of March, 1997. /s/ M. P. Mallardi ------------------------------ M. P. Mallardi EX-27 14 FINANCIAL DATA SCHEDULE
5 1,000 YEAR YEAR YEAR DEC-31-1996 DEC-31-1995 DEC-31-1994 DEC-31-1996 DEC-31-1995 DEC-31-1994 1,340 1,546 0 0 0 0 91,336 67,395 0 (1,351) (1,814) 0 0 0 0 110,857 83,761 0 2,828,493 2,623,138 0 (1,081,845) (952,538) 0 1,872,139 1,776,832 0 119,137 130,946 0 115,000 160,000 0 150,000 150,000 0 0 0 0 126,044 125,883 0 818,173 806,345 0 1,872,139 1,776,832 0 0 0 0 330,441 220,851 179,140 0 0 0 293,618 227,004 147,111 (2,092) (64) 314 0 0 0 22,667 14,617 20,919 16,314 (19,679) 11,467 5,540 (7,177) (334) 10,774 (12,502) 11,801 0 0 0 0 0 0 0 0 0 10,774 (12,502) 11,801 .09 (.11) .07 .09 (.11) .07
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