EXHIBIT 10.5
ENERGY MARKETING AGREEMENT
THIS AGREEMENT, made and entered into this 27th day of May, 1997, by and
between Enserch Energy Services, Inc. ("Enserch"), and Tengasco ("Tengasco").
WHEREAS; Enserch is an energy marketer with considerable experience in the
marketing of natural gas and other energy products to industrial and commercial
end-users; and
WHEREAS; Enserch wishes to increase its retail and wholesale market share a
joint effort with Tengasco; and
WHEREAS; Enserch has developed proprietary services and pricing programs
for its existing and potential customers and wishes to maintain same as
confidential between itself and its customers, and
WHEREAS; Tengasco is an energy producer and marketer and has many well-
established long-term relationships with potential customers for natural gas and
other energy products in the State of Tennessee, and
WHEREAS, Tengasco is interested in aligning itself with Enserch in order to
develop customer leads and/or referrals to help promote Enserch's and Tengasco's
natural gas marketing efforts, under a mutually beneficial arrangement,
NOW, THEREFORE, for good and valuable consideration, the parties hereby
agree as follows:
1. Definitions
The term "Best Efforts" means the use of reasonable effort and due
diligence, but does not require the expenditure of unreasonable amount of money
or time.
The term "Market Area" shall mean the State of Tennessee.
The term "Products" shall mean natural gas, electricity, fuel oil and other
energy commodities that may be sold from time to time by either Enserch or
Tengasco.
The term "Referred Customer(s)" shall mean those retail and wholesale Sales
Customers referred to Enserch by Tengasco wishing to enter into an agreement to
purchase Products from Enserch.
The term "Sales Contact" shall mean (a) any contract for the sale of
Products in the Market Area between Enserch and a Sales Customer, or between
Tengasco and a Sales Customer, and (b) any contract for the sale of Products by
either party outside the Market Area if, and only if, the parties hereto
unanimously agree in writing to designate such contract as a Sales Contract for
purposes of this agreement.
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The term "Sales Customer" shall mean (a) a customer under a Sales Contract
who is an industrial and/or commercial end-user of Products and purchases
Products for its own use and does not re-sell same ("retail customer"), and (b)
a customer under a Sales Contract purchasing Products for the purposes of resale
("wholesale customer").
2. Term
This agreement shall be effective on the date first hereinabove written and
shall continue in force and effect for a primary term ending May 31, 2002. This
Agreement shall continue in effect thereafter for successive periods of one (1)
year each unless terminated by either party at the end of the primary term or at
the end of any one (1) year period thereafter by giving at least sixty (60) days
prior written notice to the other party.
3. Scope
During the term of this Agreement, either party may enter into Sales
Contracts in the Market Area without the participation of the other party.
Further, Tengasco may refer potential Sales Customers to Enserch, and Enserch
shall use its best efforts to market natural gas owned and/or controlled by
Enserch to Referred Customer(s) within the Market Area. Neither party shall have
the authority to bind the other to any agreement, and shall have no liability
associated with any Sales Contract executed by the other party.
4. Referral Services of New Accounts by Tengasco.
If and when Tengasco finds a Sales Customer that it desires to refer to
Enserch, Tengasco shall notify Enserch by telephone and follow-up fax
transmittal ("Notice of Potential Referred Customer" - form of notice attached
hereto as Exhibit "A"). The Notice of Potential Referred Customer shall specify
(1) The name, address, phone and fax numbers of the Sales Customer, (2) the name
and title of the customer contact, (3) the LDC(s) serving the customer, (4) the
volumes of Products required by the Sales Customer on a monthly basis, (5) the
term and pricing methodology sought by the Sales Customer, and (6) any other
material terms, and conditions for the sale (including without limitation
whether Products will required on a firm or interruptible basis). Enserch shall,
immediately upon notification of a potential Referred Customer by Tengasco,
inform Tengasco of any bona fide pre-existing relationship present between
Enserch and the potential Referred Customer pursuant to paragraph 8, below.
Absent the existence of such a bona fide pre-existing relationship,
Tengasco shall (1) notify potential Referred Customer of Enserch's and
Tengasco's relationship and of Enserch's interest in contracting with customer
for its Products needs and (2) schedule an introductory meeting between Referred
Customer, Tengasco and Enserch.
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5. Marketing of Natural Gas to Referred Customers
Following acceptance by Enserch of a referral by Tengasco of a potential
Sales Customer, and prior to said introductory meeting, Enserch and Tengasco
shall meet, at a time and location agreeable to the parties, to perform the
following tasks:
o plan a sales strategy for the Referred Customer,
o establish parameters or limits on the terms of any Sales Contract and
o ascertain and agree on a recommended supply; services and pricing
program for any new Referred Customer.
Enserch shall be empowered to enter into its own separate Sales Contract
with the Referred Customer. Enserch will provide Tengasco with periodic progress
reports with respect to the negotiation of any Sales Contract with a Referred
Customer. If required, Enserch will negotiate directly with the Referred
Customer's Local Distribution Company, its agents and/or representatives, on
behalf of the Referred Customer with regard to the natural gas sales contract.
Enserch reserves the right, at its sole discretion, to accept or reject any
potential Referred Customer, and is accordingly not obligated to sell any
minimum quantity of gas under this Agreement. In addition, should the financial
responsibility of any Referred Customer under a Sales Contract with Enserch
become impaired or unsatisfactory to Enserch, in Enserch's reasonable judgment,
Enserch shall have the right, in its sole discretion, to suspend deliveries
and/or terminate any Sales Contract following written notice to the Sales
Customer and Tengasco. Enserch shall provide as much notice as practicable to
the Sales Customer and Tengasco in order that the Sales Customer and Tengasco
may acquire a substitute supply arrangement.
6. Compensation and Administration
6.1 Revenue Distribution. The party hereto which is named as a seller under
a Sales Contract shall pay to the other party hereto an amount equal to fifty
percent (50%) of the Transfer Price Margin, as hereinafter defined, resulting
from sales of Products under all Sales Contracts entered into by such selling
party, or fifty percent (50%) of the Adjusted Gross Profits, as hereinafter
defined, resulting from the sale of Products under Sales Contracts for which a
Transfer Price Margin is not determined in the ordinary course of business. No
payments shall be due from one party to the other hereunder with respect to the
sale of any Products for which payment has not been received by the seller
thereof
6.2 Definitions.
6.2.1 "Transfer Price Margin" shall be determined by Enserch, and shall
mean, for any Sales Contract, the positive difference between (a) the sales
price of the applicable Product established pursuant to the Sales Contract,
deducting my direct costs (e.g. taxes,
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hedging costs and transportation) relating to making the sale which are not
included in the offer price hereinafter described, and (b) the offer price
for such Product determined by Enserch's risk management group through
established procedures. Documentation reflecting the Transfer Price Margin
shall be furnished to Tengasco not later than five (5) business days after
the effective date of a transaction, or in the case of Sales Contracts
entered into by Tengasco, not later then five (5) business days after the
date Tengasco furnishes a detailed report of such Sales Contract to
Enserch.
6.2.2. "Adjusted Gross Profits" shall mean the amount or amounts determined
by subtracting (a) the purchase price, if any, of the Products designated
to any sale which is subject to the terms hereof, plus all additional
direct costs (but not indirect costs, such as overhead) of marketing such
Products, including, without limitation, transportation costs associated
with movement of such Products to the delivery points and all taxes which
the seller is required to bear in relation to such sale (except income
taxes), from (b) the sales price the seller actually receives for such
Products.
6.3 Net Present Value Payments. Either party may request for any executed Sales
Contract of the other party that it be paid the net present value ("NPV") of its
payments hereunder in lieu of the payments set forth above. Such request must
be made in writing. Upon receipt of such request, the parties hereto shall
attempt in good faith to agree within thirty (30) days thereafter upon the
volumes, prices, discount rate and other variable factors affecting the NPV. In
the event the parties reach such agreement, the NPV shall be paid to the party
entitled to payment within thirty (30) days thereafter. In the event the parties
fail to agree upon all the terms and conditions necessary to calculate the NPV
within thirty (30) days after receipt of the notice as set forth above, then the
payments due under the contract shall be made periodically as set forth above.
In the event there is a payment made for any Sales Contract on the basis of the
NPV, and thereafter there is a material adverse change in the volumes or price
of gas sold under such Sales Contract, the NPV shall be adjusted to reflect the
new price or volumes, as applicable, and the party that received the NPV payment
shall promptly refund to the other party the difference between the amount
received and the recalculated NPV, without interest.
6.4 Reports. Following execution of a Sales Contract, Enserch or Tengasco, as
applicable, will provide the other with detailed contract information and
account activity reports with respect to such Sales Contract. The costs of
negotiating, entering into and administering and performing under any and all
Sales Contracts shall be borne solely by the party selling Products thereunder,
and neither party shall be responsible for any losses on a sale that the other
party may incur.
Each party shall be responsible for administering any and all Sales
Contracts it enters into, including without limitation, daily balancing,
billing, and general customer service.
7. Xxxxxxxx and Payments
By the fifteenth (15th) day of the calendar month following each calendar
quarter in which natural gas was delivered under Sales Contracts, i.e., on or
before the 15th day of April,
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July, October and January, the selling party shall provide the other hereunder
with a written statement showing the total quantities of gas sold, the Transfer
Price Margin associated with such sales and the amount due and owing the other
party with respect to such sales.
Each shall pay to the other the stated total amount due by check, by the
twenty-fifth (25th) day of the calendar month in which the statement was
rendered, provided that if the twenty-fifth (25th) day is not a business day,
payment will be due on the next business day following that date.
Notwithstanding the above, for any billing period when money is owed by each
party to the other hereunder, the party owing the greater amount of money shall
be entitled, at its election, to effect payment by offsetting the amount due to
it by the other party against amounts due to the other party, and paying the
difference to the other party.
Compensation will be paid to by the parties on each Sales Contract so long
as this Agreement is in force and effect and so long thereafter as said Sales
Customer has remained under a Sales Contract with Enserch or Tengasco on a
continuous and uninterrupted basis from inception of such Sales Contract.
Both parties shall have the right at any reasonable time, but no more often
than once in any twelve(12) month period, after giving reasonable notice, to
examine the books and records of the other party to the extent necessary to
verify the accuracy of any statement, charge or payment made. If any such
examination reveals, or if either party discovers, any error or inaccuracy in
its own or the other party's statements, payments, calculations or
determinations, then adjustments and corrections shall be made as promptly as
practicable thereafter, provided however, that no adjustment or correction shall
be made on or with respect to any error or inaccuracy which is discovered more
than one (1) year after such statement, charge, computation or payment was made.
8. Exclusive Agreement
The parties hereto acknowledge that this is an exclusive services agreement
and that neither party may engage in similar arrangements with other parties
within the Market Area. Notwithstanding anything herein to the contrary, any
contracts entered into by either party prior to the date hereof for the sale of
Products in the Market Area shall not be subject to the provisions hereof, and
no compensation shall be due by either party to the other hereunder with respect
thereto. Further, in the event Enserch has an established Products sales
relationship with a customer with whom Tengasco does not have an existing Sales
Contract, and who has offices outside the Market Area, and that customer has
facilities within the Market Area, then Enserch may sell Products directly to
such customer's offices in the Market Area, and Tengasco shall not be entitled
to any compensation with respect to such contract.
9. Notices
All notices sent under the Agreement must be sent by fax, with follow-up
written copy by mail. Notices should be sent to the follow designees below:
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For Enserch: Enserch Energy Services, Inc.
0000 Xxxxxx, Xxxxx 0000
Xxxxxxx, Xxxxx 00000
Attention: ________________________
Ph.: (000) 000-0000
Fax: (000) 000-0000
For Tengasco:
Ph.:
Fax:
10. Change in Control
In the event of a Change in Control of Tengasco, as defined in Exhibit "B",
attached hereto and made a part hereof, or in the event of a sale of all or
substantially all of Tengasco's assets, Tengasco shall, at the election of
Enserch, either (a) cause the acquiring or continuing entity of Tengasco to
assume all the obligations of this contract or (b) purchase Enserch's rights
under this contract for an amount equal to four (4) times the NPV of all Sales
Contracts entered into by Tengasco and Enserch hereunder. In the event Enserch
elects to have Tengasco purchase Enserch's rights under this contract, this
contract shall terminate, and each party hereto shall retain its rights to any
Sales Contracts under which it is a seller. Further, in the event of a sale of
all or substantially all of Tengasco's assets to an unrelated third party,
Tengasco shall notify Enserch of any bona fide offer to purchase such assets and
Enserch shall have the right of first refusal, to be exercised within thirty
(30) days after receipt of Tengasco's notice, to purchase such assets under the
same terms and conditions as are contained in such offer.
For purposes of this Section 10 only, in the event the parties are unable
to agree upon the NPV, the matter shall be settled by a major independent public
accounting firm selected by mutual agreement of the parties. In the event the
parties cannot agree upon the selection of a major independent public accounting
firm, such firm shall be selected by Enserch from a list of four major
independent accounting firms which have not represented either Enserch, Tengasco
or their affiliates within the five year period preceding such selection. The
decision of such accounting firm shall be final and binding, and the costs
incurred in connection with retaining such accounting firm shall be shared
equally by Tengasco and Enserch.
11. Miscellaneous
11.1 This document, including the Attachments constitutes the entire
Agreement between the parties with respect to the subject matter thereof.
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11.2 A waiver by either party of any one or more defaults by the other in
the performance of any provisions of this Agreement shall not operate as a
waiver of any future default or defaults, whether a like or of a different
character.
11.3 No modification, amendment, or change herein shall be enforceable
unless reduced to writing and executed by both parties.
11.4 The rights and obligations under this Agreement shall inure to and be
binding upon the permitted successors and assigns of the parties hereto. No
assignment of this Agreement or any of the rights or obligations hereunder shall
be made by either party unless the other party has consented in writing thereto,
which consent shall not be unreasonably withheld.
11.5 Tengasco is not authorized to act as agent for Enserch and shall not
represent to any person or entity that it is an agent for Enserch. Enserch is
not authorized to act as agent for Tengasco and shall not represent to any
person or entity that it is an agent for Tengasco.
11.6 The terms of this Agreement and any Sales Contract entered into
pursuant hereto, including, but not limited to pricing, contract quantity,
customer name and location, and all other material terms thereof shall be kept
confidential by the parties hereto, except to the extant that any information
must be disclosed to a third party for the purpose of effectuating
transportation of gas subject to the terms of this Agreement or to meet New York
Mercantile Exchange requirements or regulatory filing requirements where
necessary. Further, it is recognized that in connection with performance under
this agreement, Enserch may disclose to Tengasco certain other information or
material which it considers confidential or proprietary (the "Confidential
Information"), which Enserch shall identify as such at the time of the
disclosure. Tengasco shall treat Confidential Information confidentially and
shall not disclose the same to any person or entity except those employees and
professional advisors who have a need to know in connection with Tengasco's
performance under this Agreement. Tengasco shall not use Confidential
Information for any purpose other than the furtherance of the interest of the
parties hereto under this Agreement. Tengasco shall cause any employee,
professional advisor or any other individual receiving Confidential Information
to be bound by the terms of this confidentiality provision, and Tengasco shall
be liable for any breach of these provisions by any such party.
11.7 This Agreement shall be construed and interpreted in accordance with
the laws of the State of Texas, and any litigation of such construction or
interpretation issues may only be filed and maintained in federal or state court
in Texas.
Tengasco Corp. Enserch Energy Services, Inc.
AGREED and ACCEPTED AGREED and ACCEPTED
this 27 day of May, 1997 this 23 day of May 1997
By: /s/ [ILLEGIBLE] By: /s/ [ILLEGIBLE]
Its: C.F.O. Its: Senior Vice President
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Exhibit "A" To Energy Marketing Agreement dated ___________, 1997
between Tengasco and Enserch Energy Services Inc.
NOTICE OF
POTENTIAL REFERRED CUSTOMER
Name of Customer: _________________________________________________________
Address: _________________________________________________________
Phone/fax: Ph.: ( ) _______________ Fax: ( ) _______________
Type of Company: _________________________________________________________
Name of LDC: _________________________________________________________
Name of LDC Rep: _________________________________________________________
Phone of LDC Rep: _________________________________________________________
Estimated load (therms,
MMBtu, etc.) Summer/mo _____ Winter/mo. _______ Annual _____
Desired Pricing: _________________________________________________________
Comments: _________________________________________________________
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Exhibit "B" To Energy Marketing Agreement dated ______________, 1997, between
Tengasco and Enserch Energy Services Inc.
A Change in Control shall be deemed to have occurred upon, and shall mean:
(i) The acquisition by any individual, entity or group (within the meaning
of Section l3(d)(3) or 14(d)(2) of the Securities Exchange Act of 1934, as
amended, (the "Exchange Act")) (a "Person") of beneficial ownership (within the
meaning of Rule 13d-3 promulgated under the Exchange Act) of 40% or more of
either (1) of the then outstanding shares of Common Stock of Tengasco (also
referred to herein as the "Company") the Company (the "Outstanding Company
Common Stock") or (2) the combined voting power of the then outstanding voting
securities of the Company entitled to vote generally in the election of
directors (the "Outstanding Company Voting Securities"); provided, however, that
the following acquisitions shall not constitute a Change in Control: (w) any
acquisition directly from the Company (excluding an acquisition by virtue of the
exercise of a conversion privilege), (x) any acquisition by the Company, (y) any
acquisition by any employee benefit plan(s) (or related trust(s)) sponsored or
maintained by the Company or any corporation controlled by the Company, or (z)
any acquisition by any corporation pursuant to a reorganization, merger or
consolidation, if, immediately following the same, the conditions described in
clauses (1), (2) and (3) of subparagraph (iii) of this section are satisfied; or
(ii) Individuals who, as of the date hereof, constitute the Company's Board
of Directors (the "Incumbent Board"), cease for any reason to constitute at
least a majority of the Company's Board of Directors, provided, however, that
any individual becoming a director subsequent to the date hereof whose election,
or nomination for election by the Company's stockholders, was approved by a vote
of at least a majority of the directors constituting the Incumbent Board shall
be considered as though such individual were a member of the Incumbent Board,
but excluding for this purpose any such individual whose initial assumption of
office occurs as a result of either (1) an actual or threatened election contest
(as such terms are used in Rule 14a-11 of Regulation 14A promulgated under the
Exchange Act), or an actual or threatened solicitation of proxies or consents by
or on behalf of a Person other than the Company's Board of Directors or (2) a
plan or agreement to replace a majority of the members of the Company's Board of
Directors then comprising the Incumbent Board; or
(iii) Approval by the stockholders of the Company of a reorganization,
merger or consolidation, in each case unless, immediately following such
reorganization, merger or consolidation, (1) more than 60% of, respectively, the
then outstanding shares of common stock of the corporation resulting from such
reorganization, merger or consolidation (including, without limitation, a
corporation which as a result of such transaction owns the Company through one
or more subsidiaries) and the combined voting power of the then outstanding
voting securities of such corporation entitled to vote generally in the election
of directors is then beneficially owned, directly or indirectly, by all or
substantially all of the individuals and entities who were the beneficial
owners, respectively, to the Outstanding Company Common Stock and Outstanding
Company Voting Securities immediately prior to such reorganization, merger or
consolidation in substantially the same proportions as their ownership,
immediately prior to such
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reorganization, merger or consolidation, of the Outstanding Company Common Stock
and Outstanding Company Voting Securities, as the case may be, (2) no person
(excluding the Company, any employee benefit plan (or related trust) of the
Company or such corporation resulting from such reorganization, merger or
consolidation and any Person beneficially owning, immediately prior to such
reorganization, merger or consolidation, directly or indirectly, 40% or more of
the Outstanding Company Common Stock or Outstanding Company Voting Securities,
as the case may be) beneficially owns, directly or indirectly, 40% or more of,
respectively, the then outstanding shares of common stock of the corporation
resulting from such reorganization, merger or consolidation or the combined
voting power of the then outstanding voting securities of such corporation
entitled to vote generally in the election of directors and (3) at least a
majority of the members of the board of directors of the corporation resulting
from such reorganization, merger or consolidation were members of the Incumbent
Board at the time of the execution of the initial agreement providing for such
reorganization, merger or consolidation; or
(iv) Approval by the stockholders of the Company of (1) a complete
liquidation or dissolution of the Company or (2) the sale or other disposition
of all or substantially all of the assets of the Company, other than to a
corporation with respect to which immediately following such sale or other
disposition, (A) more than 60% of, respectively, the then outstanding shares of
common stock of such corporation and the combined voting power of the then
outstanding voting securities of such corporation entitled to vote generally in
the election of directors as then beneficially owned, directly or indirectly, by
all or substantially all of the individuals and entities who were the beneficial
owners, respectively, of the Outstanding Company Common Stock and the
Outstanding Company Voting Securities immediately prior to such sale or other
disposition in substantially the same proportion as their ownership immediately
prior to such sale or other disposition of the Outstanding Company Common Stock
and Outstanding Company Voting Securities, as the case may be, (B) no person
(excluding the Company and any employee benefit plan (or related trust) of the
Company and/or its subsidiaries or such corporation and any Person beneficially
owning, immediately prior to such sale or other disposition, directly or
indirectly, 40% or more of the Outstanding Company Common Stock or Outstanding
Company Voting Securities, as the case may be) beneficially owns, directly or
indirectly, 40% or more of, respectively, the then outstanding shares of common
stock of such corporation or the combined voting power of the then outstanding
voting securities of such corporation entitled to vote generally in the election
of directors and (C) at least a majority of the members of the board of
directors of such corporation were members of the Incumbent Board at the time of
the execution of the initial agreement or action of the Company's Board of
Directors providing for such sale or other disposition of assets.
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