FORM 11-K
(Mark One)
[X] ANNUAL REPORT PURSUANT TO SECTION 15 (d) OF THE SECURITIES EXCHANGE
ACT OF 1934
For the fiscal year ended December 31, 1998
OR
[_] TRANSITION REPORT PURSUANT TO SECTION 15 (d) OF THE SECURITIES EXCHANGE
ACT OF 1934
For the transition period from to
Commission file number 1-12905
EEX CORPORATION EMPLOYEE STOCK PURCHASE AND SAVINGS PLAN
(Full Title of Plan)
EEX CORPORATION
(Name of Issuer of Securities Held Pursuant to the Plan)
2500 CityWest Blvd., Suite 1400, Houston, Texas 77042
(Address of Plan and Principal Executive Office of Issuer)
EEX CORPORATION EMPLOYEE STOCK PURCHASE AND SAVINGS PLAN
REQUIRED INFORMATION
Page No.
Independent Auditors' Report.............................................................................. 1
Financial Statements:
Statements of Net Assets Available for Benefits........................................................ 2
Statement of Changes in Net Assets Available for Benefits.............................................. 3-4
Notes to Financial Statements.......................................................................... 5-8
Supplemental Schedules:
Line 27a - Schedule of Assets Held for Investment Purposes
at December 31, 1998................................................................................ 10
Line 27d - Schedule of Reportable Transactions for the year
ended December 31, 1998............................................................................. 11
Line 27f - Schedule of Non-exempt Transactions......................................................... 12
Exhibit 23 - Consent of Independent Auditors.............................................................. 14
INDEPENDENT AUDITORS' REPORT
EEX Corporation Employee Stock Purchase and Savings Plan Committee:
We have audited the accompanying statements of net assets available for benefits
of the EEX Corporation Employee Stock Purchase and Savings Plan as of December
31, 1998 and 1997, and the related statement of changes in net assets available
for benefits for the year ended December 31, 1998. These financial statements
are the responsibility of the Plan's management. Our responsibility is to
express an opinion on these financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the net assets available for benefits of the Plan at
December 31, 1998 and 1997, and the changes in net assets available for benefits
for the year ended December 31, 1998, in conformity with generally accepted
accounting principles.
Our audits were performed for the purpose of forming an opinion on the financial
statements taken as a whole. The accompanying supplemental schedules of assets
held for investment purposes as of December 31, 1998, reportable transactions
for the year ended December 31, 1998, and the schedule of non-exempt
transactions for the year ended December 31, 1998, are presented for purposes of
additional analysis and are not a required part of the financial statements but
are supplementary information required by the Department of Labor's Rules and
Regulations for Reporting and Disclosure under the Employee Retirement Income
Security Act of 1974. These supplemental schedules are the responsibility of
the Plan's management. The fund information in the statement of changes in net
assets available for benefits is presented for purposes of additional analysis
rather than to present the changes in net assets available for benefits of each
fund. The supplemental schedules and fund information have been subjected to the
auditing procedures applied in our audits of the financial statements and, in
our opinion, are fairly stated in all material respects in relation to the
financial statements taken as a whole.
ERNST & YOUNG LLP
May 14, 1999
Houston, Texas
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EEX CORPORATION EMPLOYEE STOCK
PURCHASE AND SAVINGS PLAN
STATEMENTS OF NET ASSETS AVAILABLE FOR BENEFITS
December 31
------------------------
1998 1997
----------- -----------
ASSETS
Investments
EEX Corporation ("EEX") Common Stock $ 615,061 $ 1,951,845
Texas Utilities Company ("TXU") Common Stock 1,052,056 1,073,231
Fidelity Mutual Funds:
Equity Funds:
Magellan 3,580,745 2,888,428
Puritan 2,955,351 3,227,233
Equity Income 909,725 852,610
Spartan U.S. Equity Index 1,111,148 974,368
U.S. Bond Index 505,431 536,603
Retirement Government Money Market Portfolio 581,524 818,833
Participant Loans 118,611 236,897
----------- -----------
Total Investments 11,429,652 12,560,048
Employee Contributions Receivable 81,257 113,676
Employer Contributions Receivable 16,414 29,331
Loan Payments Withheld 3,689 6,537
Accrued Investment Income 7,363 7,178
----------- -----------
Total Assets 11,538,375 12,716,770
LIABILITIES
Accrued Expense 406 266
----------- -----------
NET ASSETS AVAILABLE FOR BENEFITS $11,537,969 $12,716,504
=========== ===========
See accompanying notes to financial statements.
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EEX CORPORATION EMPLOYEE STOCK PURCHASE AND SAVINGS PLAN
STATEMENT OF CHANGES IN NET ASSETS AVAILABLE FOR BENEFITS
YEAR ENDED DECEMBER 31, 1998
WITH FUND INFORMATION
Fidelity Mutual Funds (Participant Directed)
---------------------------------------------------------------------------
Retirement
Government
Spartan U.S. Money
Equity U.S. Equity Bond Market
Magellan Puritan Income Index Index Portfolio
---------- ---------- --------- ----------- --------- ----------
Additions:
Interest and dividend income $ 167,890 $ 302,331 $ 51,695 $ 21,937 $ 36,091 $ 46,043
Net appreciation (depreciation)
in fair value of investments 758,950 157,227 52,873 230,315 10,996 -
Contributions:
Employee 278,832 232,812 191,851 179,369 47,666 53,231
Employer - - - - - -
Rollovers from participants'
previous plans 14,470 12,798 6,200 9,928 - -
---------- ---------- --------- ---------- --------- ---------
1,220,142 705,168 302,619 441,549 94,753 99,274
Interfund transfers (43,885) (65,670) (64,572) 112,247 (5,002) 247,766
Deductions:
Distributions to plan participants (483,177) (910,650) (180,692) (416,788) (120,785) (584,113)
Administrative expenses (763) (730) (240) (228) (138) (236)
---------- ---------- --------- ---------- --------- ---------
Net increase (decrease) 692,317 (271,882) 57,115 136,780 (31,172) (237,309)
Net assets available for benefits:
Beginning of year 2,888,428 3,227,233 852,610 974,368 536,603 818,833
---------- ---------- --------- ---------- --------- ---------
End of year $3,580,745 $2,955,351 $ 909,725 $1,111,148 $ 505,431 $ 581,524
========== ========== ========= ========== ========= =========
See accompanying notes to financial statements.
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EEX CORPORATION EMPLOYEE STOCK PURCHASE AND SAVINGS PLAN
STATEMENT OF CHANGES IN NET ASSETS AVAILABLE FOR BENEFITS
YEAR ENDED DECEMBER 31, 1998
WITH FUND INFORMATION
Non-Participant
Directed Participant Directed
--------------- -------------------------
EEX EEX TXU
Common Common Common Participant
Stock Stock Stock Loans Other Total
----------- ----------- ----------- ----------- ----------- -----------
Additions:
Interest and dividend income $ - $ 2 $ 54,174 $ 11,849 $ 185 $ 692,197
Net appreciation (depreciation)
in fair value of investments (242,528) (1,340,552) 107,680 - (265,039)
Contributions:
Employee - 239,526 - - (35,267) 1,188,020
Employer 280,553 - - - (12,917) 267,636
Rollovers from participants'
previous plans - 14,489 - - - 57,885
----------- ----------- ----------- ----------- ----------- -----------
38,025 (1,086,535) 161,854 11,849 (47,999) 1,940,699
Interfund transfers 25 (75,092) (35,521) (70,296) - -
Deductions:
Distributions to plan participants (32,668) (179,761) (147,140) (59,839) - (3,115,613)
Administrative expenses - (778) (368) - (140) (3,621)
----------- ----------- ----------- ----------- ----------- -----------
Net increase (decrease) 5,382 (1,342,166) (21,175) (118,286) (48,139) (1,178,535)
Net assets available for benefits:
Beginning of year 121,949 1,829,896 1,073,231 236,897 156,456 12,716,504
----------- ----------- ----------- ----------- ----------- -----------
End of year $ 127,331 $ 487,730 $ 1,052,056 $ 118,611 $ 108,317 $11,537,969
=========== =========== =========== =========== =========== ===========
See accompanying notes to financial statements.
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EEX CORPORATION EMPLOYEE STOCK PURCHASE AND SAVINGS PLAN
NOTES TO FINANCIAL STATEMENTS
1. OVERVIEW
Enserch Exploration, Inc. ("Old EEI"), a Texas corporation, was
participating employer under the ENSERCH Corporation ("ENSERCH") Employee
Stock Purchase and Savings Plan. In 1996, ENSERCH entered into a merger
agreement with Texas Utilities Company ("TXU") under which ENSERCH agreed
to exit the oil and gas business and divest all of its interests in Old
EEI. This divestiture was accomplished in two steps. First, Old EEI was
merged into Lone Star Energy Plant Operations ("LSEPO"), a Texas
corporation, with LSEPO being the surviving company ("Merger"). In the
Merger, LSEPO changed its name to Enserch Exploration, Inc. ("EEI ").
Second, ENSERCH distributed its entire 83% ownership interest in EEI pro
rata (1.4995056 shares of EEI common stock per share of ENSERCH) to its
shareholders in a tax-free distribution ("Distribution"). Simultaneously,
each share of ENSERCH stock was exchanged for .255 shares of TXU common
stock. The Merger and the Distribution were each effective and EEI ceased
to be a part of the controlled group of companies that included ENSERCH on
August 5, 1997. As a result, EEI established the Enserch Exploration, Inc.
Employee Stock Purchase and Savings Plan ("Plan") as a spin-off from said
prior plan effective on the date of the Merger. The assets and liabilities
of said prior plan attributable to existing EEI employees were transferred
to the Plan as of September 1, 1997.
At a special shareholder's meeting held on December 19, 1997, EEI changed
its name to EEX Corporation.
2. PLAN DESCRIPTION
The Plan is a combination profit sharing and employee stock ownership plan
under Sections 401 (a), 401 (k), 401 (m) and 4975 (e) (7) of the Internal
Revenue Code ("Code"). The Plan is subject to the applicable provisions of
the Employee Retirement Income Security Act of 1974 ("ERISA").
The following description is provided for general information only.
Participants should refer to the Plan document for more complete
information.
General - The Plan is a defined contribution combination employee stock
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ownership and profit sharing plan established by EEX Corporation and its
participating subsidiary companies ("EEX" or "the Corporation") to
encourage and assist employees in establishing an individual savings and
investment program. All full time employees of EEX and its participating
subsidiaries are eligible to participate in the Plan. Participation is
voluntary.
A committee appointed by the EEX Board of Directors is responsible for the
general administration, management and operation of the Plan ("plan
committee"). Chase Bank of Texas, ("the Trustee"), a federally chartered
bank, has served as trustee since September 1, 1997 and manages the assets
of the Plan.
5
Participants' Contributions - Under the Plan, a participant may invest pre-
---------------------------
tax and/or after-tax dollars through payroll deductions each pay period in
increments of one percent up to a maximum of 16 percent of regular monthly
salary or wages ("base pay"). The Omnibus Budget Reconciliation Act of 1993
placed an annual limitation of $160,000 for 1998 on the base pay which can
be used in computing benefits for participants under the Plan. The maximum
contribution for certain highly compensated participants is subject to
further reduction pursuant to limitations under the Internal Revenue Code.
Eligible employees can rollover to the Plan any distributions received from
other qualified retirement plans. Individual Retirement Account ("IRA")
distributions are not eligible for rollover into the Plan.
Each participant is entitled to direct the allocation of his or her
contributions among the common stock of EEX or six mutual fund investment
options: the Fidelity Puritan Fund, the Fidelity Magellan Fund, the
Fidelity Equity Income Fund and the Fidelity Spartan U.S. Equity Index
Fund, all of which invest in equity securities; the Fidelity U.S. Bond
Index Fund, which invests in fixed income bond securities; and the Fidelity
Retirement Government Money Market Portfolio, which invests in short-term
U.S. government securities. A participant can change investment elections
for future contributions and can transfer (or exchange) any existing mutual
fund balances among the offered investment elections at any time, in
accordance with the Plan guidelines.
Employer's Matching Contributions ("company matching") - The maximum
---------------------------------
participant contribution eligible for company matching ranges from 3% to 6%
of the participant's eligible compensation, depending on length of service.
Company matching contributions as a percentage of participant contributions
are at a rate of 50% or 60% depending on length of service. Employees are
100% vested in the matching contributions. All company matching
contributions are invested in EEX common stock and are non-participant
directed.
Investment of Funds - All assets of the Plan are held by the Trustee for
-------------------
the exclusive benefit of participants and their beneficiaries. Separate
account records for each participant are maintained by the Trustee. The
Trustee provides a summary of financial performance by investment fund
directly to Plan participants. Individual investments greater than five per
cent of net assets available for benefits at December 31, 1998 are
separately identified in the financial statements.
Participant Loans - Participants may borrow up to 50% of the fair value of
-----------------
their pre-tax employee contribution account or rollover account; however,
the loan cannot exceed the lesser of $50,000 or one-half of the account
from which the loan is made less the maximum outstanding loan balance in
the previous one-year period. The interest rate on the loan is equal to the
prime interest rate of the Trustee that is in effect on the date the loan
is made plus one (1) percentage point. The interest rate on loans
outstanding at the end of the year ranged from 8.25% to 9.5%. Loans are
funded by withdrawals from the individual's investment accounts as
determined by the plan committee. The maximum term of a loan cannot exceed
5 years or, if earlier, severance from service.
6
Withdrawal from the Plan - Withdrawals from the Plan are governed by
------------------------
applicable IRS regulations and provisions of ERISA. Penalties may apply in
certain instances.
A participant who terminates employment and has an account balance of more
than $3,500 can retain the funds in the Plan or withdraw them at any time.
Participants that terminate with balances of less than $3,500 are required
to receive a distribution after termination. To avoid taxation, the taxable
portion of any withdrawal made upon termination can be rolled into an IRA
or a qualified retirement plan sponsored by another employer.
The Internal Revenue Service ("IRS") has established rules governing
distributions from the Plan after the participant has attained 70 1/2 years
of age.
Termination of Plan - The Board of Directors of the Corporation has the
-------------------
right under the Plan to amend or modify the Plan at any time and may
terminate the Plan in its entirety, subject to the provisions of ERISA.
Participants are 100% vested in their accounts at all times.
Expenses - All charges and expenses incurred in the administration of the
--------
Plan and fees and expenses of the Trustee are paid by the Corporation.
Record keeping fees are deducted from participants' accounts.
3. SUMMARY OF ACCOUNTING POLICIES
Basis of Accounting - The financial statements of the Plan are prepared
-------------------
under the accrual method of accounting.
Use of Estimates - The preparation of financial statements requires the use
----------------
of significant estimates and assumptions by management; actual results
could differ from those estimates.
Investment Valuation and Income Recognition - The Plan's investments are
-------------------------------------------
stated at fair value. Investments in common stock of EEX and TXU are valued
at their quoted market value. Investments in Fidelity mutual funds are
valued at quoted net asset value of the respective funds reflecting the
closing sales price of the underlying securities. Participants do not have
beneficial ownership in specific underlying securities or other assets in
the various mutual funds, but have an interest therein represented by units
valued as of the last business day of the period. Generally, contributions
to and withdrawals from each fund are converted to units by dividing the
amounts of such transactions by the unit value as last determined, and the
participants' accounts are charged or credited with the number of units
properly attributable to each participant. Security transactions are
recorded on the trade date. Income and expenses are recognized on the
accrual basis of accounting. Participant loans are stated at cost, which
approximates fair value.
Benefits Payable - Benefits are recorded when paid.
----------------
4. TAX STATUS OF THE PLAN
The Plan has received a determination letter dated February 10, 1999
stating that the Plan meets the requirements of Section 401(a) of the Code.
EEX believes that the plan is designed and currently being operated in
compliance with the applicable requirements of the Code.
7
5. YEAR 2000 (Unaudited)
During the first quarter of 1999, EEX completed an inventory, assessment
and risk analysis of its Information Technology systems which includes the
Corporation's business and financial software applications, geological and
geophysical software applications, operating systems, hardware and the
interfaces and interdependence between these systems. A testing plan has
been developed for the Accounting and Human Resources system software. The
Accounting system software was recently upgraded to a version certified by
the vendor to be Year 2000 compliant and will be tested in accordance with
the plan.
At the end of the first quarter, adequate responses had been received from
the critical and important external agents of the Plan (third parties upon
whom the Plan relies for services in order to conduct its day to day
business).
Contingency plans for each of the areas above will be developed beginning
in the second quarter to assess the impact to the Corporation where risk
has not been adequately minimized. As of May 1999, EEX has spent
approximately $0.7 million of a budgeted $1.5 million in addressing the
Year 2000 issue.
The failure to correct a material Year 2000 problem could result in an
interruption in, or a failure of, certain normal business activities or
operations. Such failures could materially and adversely affect the
Corporation's results of operations, liquidity and financial condition. Due
to the general uncertainty inherent in the Year 2000 problem, resulting in
part from the uncertainty of the Year 2000 readiness of third-party
suppliers and customers, no assurances can be given that business
interruptions arising from the Year 2000 issue will not occur. However, the
Corporation believes that implementation of its Year 2000 readiness program
will reduce the potential for material adverse consequences to occur.
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SUPPLEMENTAL SCHEDULES
9
EEX CORPORATION EMPLOYEE STOCK PURCHASE AND SAVINGS PLAN
LINE 27a - SCHEDULE OF ASSETS HELD FOR INVESTMENT PURPOSES
EIN: 75-2421863 PN: 002
DECEMBER 31, 1998
(dollar amounts rounded to the nearest whole dollar)
(a) (b) (c) (d) (e)
Description or Identity Description of Cost Current Value
Of Issuer Investment
- --------------------------------------------------------------------------------------------------------------
* EEX Corporation Common 87,866 shares, par value of $1,793,704 $615,061
Stock $0.01 per share
* Texas Utilities Co. Common 22,534 shares, par value of 786,363 1,052,056
Stock $1.00 per share
Fidelity Mutual Funds:
Number of
Fund Shares
-------------------------- -----------------------
Magellan 29,637.019 2,866,845 3,580,745
Puritan 147,252.120 2,853,347 2,955,351
Equity Income 16,376.671 848,224 909,725
Spartan U.S. Equity Index 25,276.355 882,525 1,111,148
U.S. Bond Index 45,864.912 488,138 505,431
Retirement Government 581,524.370 581,524 581,524
Money Market Portfolio
* Loans to Participants
Interest Rate -
Ranges from 8.25%-9.5%
(based on Prime on date of loan)
-- 118,611
----------- -----------
TOTAL $11,100,670 $11,429,652
=========== ===========
* Party-in-Interest
10
EEX CORPORATION EMPLOYEE STOCK PURCHASE AND SAVINGS PLAN
LINE 27d - SCHEDULE OF REPORTABLE TRANSACTIONS
EIN: 75-2421863 PN: 002
YEAR ENDED DECEMBER 31, 1998
(dollar amounts rounded to nearest whole dollar)
(a) (b) (c) (d) (g) (h) (i)
Identity of Description of Purchase Selling Cost of Current Value of Asset Net Gain
Party Involved Assets Price Price Asset On Transaction Date Or (Loss)
- ------------------------------------------------------------------------------------------------------------------------------------
Category (iii) - Securities transactions in excess of five percent of plan assets at the beginning of the plan year
Chase Bank of Texas, N.A. EEX Corporation Common Stock
Purchases $651,335 - $ 651,335 - -
Sales - $ 405,038 645,901 $ 405,038 $(240,863)
Fidelity Mutual Funds Magellan Fund
Purchases 667,709 - 667,709 - -
Sales - 734,342 672,230 734,342 62,112
Fidelity Mutual Funds Puritan Fund
Purchases 736,743 - 736,743 - -
Sales - 1,165,852 1,124,147 1,165,852 41,705
Fidelity Mutual Funds Spartan U.S. Equity Index Fund
Purchases 458,462 - 458,462 - -
Sales - 551,997 494,551 551,997 57,446
Fidelity Mutual Funds Retirement Government Money
Market Portfolio Fund
Purchases 689,476 - 689,476 - -
Sales - 926,785 926,785 926,785 -
There were no category (i), (ii) or (iv) reportable transactions.
Columns (e) and (f) are not applicable.
11
EEX CORPORATION EMPLOYEE STOCK PURCHASE AND SAVINGS PLAN
LINE 27f - SCHEDULE OF NONEXEMPT TRANSACTIONS
EIN: 75-2421863 PN: 002
YEAR ENDED DECEMBER 31, 1998
(dollar amounts rounded to nearest whole dollar)
Relationship to Plan, Current
Identity of Employer, or other Cost of Value of
Party Involved Party-In-Interest Description of Transaction Asset* Asset Net Gain**
- -------------- ----------------- -------------------------- ------- --------- ----------
EEX Corporation Employer Failure to timely remit salary $41,460 $44,142 $2,682
deferral contributions for the
period of December 15, 1998
* Represents the employee contributions which were not remitted timely.
** Represents interest for the use of the amount involved. The Company plans
to file Form 5330 and pay required excise taxes to the Internal Revenue
Service in connection with this transaction.
12
SIGNATURE
Pursuant to the requirements of the Securities Exchange Act of 1934, the
trustees (or other persons who administer the employee benefit plan) have duly
caused this annual report to be signed on its behalf by the undersigned hereunto
duly authorized.
EEX CORPORATION
EMPLOYEE STOCK PURCHASE AND SAVINGS PLAN
Date: June 25, 1999 By /s/ C. B. McDaniel
--------------------------
C. B. McDaniel, Member
EEX Corporation Employee
Stock Purchase and Savings
Plan Committee
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