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UNITED STATESSECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-K
(MARK ONE)
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES
EXCHANGE ACT OF 1934 (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
COMMISSION FILE NUMBER 1-3183
ENSERCH CORPORATION
TEXAS 75-0399066
(I.R.S. EMPLOYERIDENTIFICATION NO.)
(STATE OR OTHER JURISDICTIONOF
INCORPORATION OR ORGANIZATION)
ENSERCH CENTER300 SOUTH ST. PAUL
STREETDALLAS, TEXAS
75201-5598
(ADDRESS OF PRINCIPAL EXECUTIVE (ZIP CODE)
OFFICE)
REGISTRANT'S TELEPHONE NUMBER, INCLUDING AREA CODE--(214) 651-8700
SECURITIES REGISTERED PURSUANT TO SECTION 12(B) OF THE ACT:
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NAME OF EACH EXCHANGE
TITLE OF EACH CLASS ON WHICH REGISTERED
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Common Stock ($.01 par value).......................... New York Stock Exchange
Chicago Stock Exchange
London Stock Exchange
Preferred Stock (no par value):
Depositary Preferred Shares, Series E (each
representing 1/10 share of the Adjustable Rate
Cumulative Preferred Stock, Series E)............... New York Stock Exchange
Depositary Preferred Shares, Series F (each
representing 1/40 share of the Adjustable Rate
Cumulative Preferred Stock, Series F) (liquidation
preference $1,000 per share)........................ New York Stock Exchange
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SECURITIES REGISTERED PURSUANT TO SECTION 12(G) 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 non-affiliates of the
Registrant as of March 26, 1997: $1,471,371,035.
Shares of the Registrant's Common Stock outstanding as of March 26, 1997:
70,484 840 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. [_]
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FORM 10-K
ANNUAL REPORT
FOR THE FISCAL YEAR ENDED DECEMBER 31, 1996
TABLE OF CONTENTS
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PART I
ITEM 1. Business....................................................... 1
Recent Developments............................................ 1
ENSERCH/Texas Utilities Company Merger......................... 1
Business Segments.............................................. 2
Natural Gas and Oil Exploration and Production................. 2
General........................................................ 2
Recent Developments............................................ 2
Management Changes............................................. 2
Core Areas..................................................... 2
Offshore Activities--The Cooper Project........................ 2
Offshore Activities--The Allegheny Project..................... 3
Rocky Mountain Properties...................................... 3
International Operations....................................... 3
Sales Information.............................................. 3
Major Customers................................................ 3
Competition.................................................... 4
Government Regulation.......................................... 4
Environmental Matters.......................................... 4
Other Laws and Regulations..................................... 5
Natural Gas Pipeline, Processing & Marketing................... 5
Pipeline....................................................... 5
Gas Processing................................................. 6
Gas Marketing.................................................. 6
Competition.................................................... 6
Regulation..................................................... 7
Natural Gas Distribution....................................... 7
Competition.................................................... 8
Source and Availability of Raw Materials....................... 8
Regulation..................................................... 9
Power.......................................................... 10
Clean Air Act.................................................. 11
Patents and Licenses........................................... 11
Employees...................................................... 11
ITEM 2. Properties..................................................... 12
ITEM 3. Legal Proceedings.............................................. 14
ITEM 4. Submission of Matters to a Vote of Security Holders............ 14
PART II
ITEM 5. Market for Registrant's Common Equity and Related Stockholder
Matters....................................................... 15
ITEM 6. Selected Financial Data........................................ 15
ITEM 7. Management's Discussion and Analysis of Financial Condition and
Results of Operations......................................... 15
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ITEM 8. Financial Statements and Supplementary Data................... 15
ITEM 9. Changes in and Disagreements with Accountants on Accounting
and Financial Disclosure..................................... 15
PART III
ITEM 10. Directors and Executive Officers of the Registrant............ 16
Directors..................................................... 16
Executive Officers............................................ 17
ITEM 11. Executive Compensation........................................ 18
Summary Compensation Table.................................... 18
Option Grants Table........................................... 19
Aggregated Option Exercise Table.............................. 20
Long-Term Incentive Plan Awards Table......................... 20
Pension Plan Table............................................ 21
Compensation of Directors..................................... 21
Employment Contracts, Termination of Employment and Change-in-
Control Arrangements......................................... 22
Board Compensation Committee Report on Executive
Compensation................................................. 23
Performance Graph............................................. 25
Compensation Committee Interlocks and Insider Participation... 26
ITEM 12. Security Ownership of Certain Beneficial Owners and
Management................................................... 26
Security Ownership of Certain Beneficial Owners............... 26
Stock Ownership of Management and Board of Directors.......... 27
ITEM 13. Certain Relationships and Related Transactions................ 27
Section 16(a) Beneficial Ownership Reporting Compliance....... 27
PART IV
ITEM 14. Exhibits, Financial Statement Schedules and Reports on Form 8-
K............................................................ 28
APPENDIX A Financial Information........................................ A-1
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ITEM 1. BUSINESS
ENSERCH Corporation ("ENSERCH" or the "Corporation") is an integrated
company focused on natural gas. It is the successor to a company organized in
1909 for the purpose of providing natural-gas service to North Texas. The
Corporation's operations include the following:
--Natural Gas and Oil Exploration and Production--Exploring for,
developing, producing and marketing natural gas and oil. (Enserch
Exploration, Inc. [83.3% owned] and related operations.)
--Natural Gas Pipeline, Processing & Marketing--Owning and operating
interconnected natural-gas transmission lines, underground storage
reservoirs, compressor stations and related properties, all within Texas;
gathering and processing natural gas to remove impurities and extract
liquid hydrocarbons for sale; and the wholesale and retail marketing of
natural gas in several areas of the U.S. (Lone Star Pipeline Company, a
division of the Corporation, Enserch Processing, Inc., Enserch Energy
Services, Inc. and related operations.)
--Natural Gas Distribution--Owning and operating some 550 local gas utility
distribution systems in Texas. (Lone Star Gas Company, a division of the
Corporation, and related operations.)
--Power and Other--Developing, financing and operating electric-power
generating plants and cogeneration facilities, operating thermal-energy
plants for large building complexes, such as universities and medical
centers, and developing gas distribution systems in Mexico and South
America. (Enserch Development Corporation, Lone Star Energy Company,
Enserch International Services, Inc. and related operations.)
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 Enserch Exploration, Inc. ("EEX") and Lone Star Energy Plant
Operations, Inc. ("LSEPO"). Shares of ENSERCH common stock will be
automatically converted into shares of the new holding company common stock on
a basis of approximately 0.2 shares of the new company for 1.0 shares of the
Corporation's common stock in a tax-free transaction.
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
Corporation's Proxy Statement dated September 23, 1996, as filed with the SEC,
which is incorporated herein by reference.
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BUSINESS SEGMENTS
Financial information required hereunder is set forth under "Summary of
Business Segments" included in Appendix A to this report.
NATURAL GAS AND OIL EXPLORATION AND PRODUCTION
GENERAL
EEX 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
Management Changes. On January 13, 1997, EEX named Thomas M Hamilton
Chairman and President, Chief Executive Officer of EEX, David R. Henderson as
Executive Vice President, Worldwide 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 EEX. 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 EEX.
Core Areas. Mr. Hamilton has initiated a review of EEX's business with a
focus on enhancing performance from EEX'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 of the Gulf of
Mexico. EEX 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 EEX'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 EEX. 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.
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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 MMBbls gross proved reserves.
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 an acquisition 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 be 40
MMBbls of oil and condensate.
SALES INFORMATION
Sales data are set forth under "Natural Gas and Oil Exploration and
Production 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
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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--Natural Gas and Oil Exploration and
Production--Hedging Results" and Note 7 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 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. These laws and regulations are frequently
amended, reinterpreted or expanded, and 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
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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.
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.
NATURAL GAS PIPELINE, PROCESSING & MARKETING
The Corporation's pipeline, processing & marketing business is comprised of
the partially rate-regulated business of Lone Star Pipeline Company ("LSP"),
the non-regulated gathering and gas processing operations of Enserch
Processing, Inc. ("EPI") and the non-regulated gas marketing operations of
EES. Operating data for this segment are set forth under "Natural Gas
Pipeline, Processing & Marketing Operating Data" included in Appendix A to
this report.
Pipeline. LSP owns and operates interconnected natural-gas transmission
lines, underground gas storage reservoirs, compressor stations and related
properties, all within Texas. Through these facilities, it transports natural
gas to the distribution systems of LSG. Rates for these services are regulated
by the RRC. LSP also transports natural gas for affiliates other than LSG and
third-party shippers. LSP's transmission system is connected to the major gas
hubs at Waha in West Texas, Katy in South Texas and Carthage in East Texas.
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For the year ended December 31, 1996, 21% of total LSP's volumes were
transported to LSG for ultimate sale to residential and commercial customers,
34% represented volumes transported for ultimate destination to competitive
on-system industrial and power-generation markets and 45% represented volumes
transported for destination to off-system markets.
Revenues from transporting gas for LSG are influenced by seasonal
temperature variations. Most of LSG's residential and commercial gas customers
use gas for heating, and their needs are directly affected by the mildness or
severity of the heating season. Deliveries to electric-generation customers
are affected by the mildness or severity of both cooling and heating seasons.
The Corporation holds a 50% interest in a partnership, Gulf Coast Natural
Gas Company, which operates a transmission system in the Texas Gulf Coast area
that transports and sells natural gas primarily to industrial and non-
affiliated pipeline customers.
Gas Processing. The Corporation's operations for the gathering and
processing of natural gas for the recovery of natural gas liquids ("NGL") are
conducted by EPI.
EPI uses cryogenic and mechanical refrigeration processes at its NGL
extraction facilities. The mixed NGL stream, containing the heavier
hydrocarbons ethane, propane, butane and natural gasoline, is pumped via
pipeline to Mt. Belvieu, Texas. The remaining natural gas, primarily methane,
leaves the NGL plants in gas transmission lines for transportation to end-use
customers. See "Properties."
About 85% of NGL product sales are under term contracts of one to three
years, with prices established monthly. NGL prices are influenced by a number
of factors, including supply, demand, inventory levels, the product
composition of each barrel and the price of crude oil. Profitability is highly
dependent on the relationship of NGL product prices to the cost of natural gas
lost in the extraction process, which is commonly termed "shrinkage."
To reduce the impact of shrinkage, EPI strives to replace "keep-whole" gas
processing contracts with "net-proceeds" contracts. Keep-whole contracts are
relatively more profitable during periods of high NGL prices and low gas costs
because they provide the processor with ownership of the entire gas stream.
However, as NGL prices decline relative to gas costs, these contracts become
relatively less profitable because the processor must absorb all the shrinkage
costs. Under net-proceeds contracts, the producer provides shrinkage volumes,
while the processor contributes plant facilities and operational costs.
Revenues from NGL sales are apportioned between the parties, and the processor
is no longer impacted by natural-gas feedstock costs.
Gas Marketing. EES is a marketer of energy services, primarily to the U.S.
retail markets, in the Northeast, Midwest and West Coast. EES's marketing
activities typically consist of (i) contracting to purchase specific volumes
of gas from producers, pipelines and other suppliers at various points of
receipt to be supplied to end users over a specific period of time, (ii)
aggregating gas supplies and arranging for the transportation of these gas
supplies, (iii) negotiating to sell specific volumes of gas over a specified
period of time to end users and (iv) providing related risk-management
services to the customer.
The marketing activities of EES involve price commitments into the future
and, therefore, give rise to market risk, which represents the potential loss
that can be caused by a change in the market value of a particular commitment.
To manage these market risks, EES enters into a variety of transactions,
including forward contracts principally involving physical delivery of natural
gas and derivative financial instruments, including swaps, options, futures
and other contractual arrangements. See "Financial Review--Natural Gas
Pipeline, Processing & Marketing" and Note 7 of the Notes to Consolidated
Financial Statements included in Appendix A for additional information on
these activities.
Competition. LSP is the sole transporter of natural gas to LSG's
distribution systems. LSP competes with other pipelines in Texas to transport
natural gas to off-system markets. This business is highly competitive and
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greatly influenced by the demand to move natural gas across Texas to supply
Northeast and upper Midwest U.S. markets. See "Natural Gas Distribution--
Competition."
NGL processing is highly competitive and includes competition among
producers, third-party owners and processors for cost-sharing and interest-
sharing arrangements.
EES pursues markets connected to pipelines other than LSP's. As natural-gas
markets continue to evolve following the implementation of the 1992 Order 636
of the Federal Energy Regulatory Commission ("FERC"), additional opportunities
are created in the broader, more active trading markets and in serving non-
regulated customers. This highly competitive market demands that a wide array
of services be offered, including term contracts with interruptible and firm
deliveries, risk management, aggregation of supply, nominations, scheduling of
deliveries and storage.
Regulation. LSP is wholly intrastate in character and performs
transportation services in the state of Texas subject to regulation by the
RRC. LSP owns no certificated interstate transmission facilities subject to
the jurisdiction of FERC under the Natural Gas Act, has no sales for resale
under the rate jurisdiction of FERC and does not perform any transportation
service that is subject to FERC jurisdiction under the Natural Gas Act.
LSP has been an open access transporter under Section 311 of the Natural Gas
Policy Act of 1978 ("NGPA") on its intrastate transmission facilities since
July 1988. Such transportation is performed pursuant to Section 311(a)(2) of
the NGPA and is subject to an exemption from the jurisdiction of the FERC
under the Natural Gas Act, pursuant to Section 601 of the NGPA.
The RRC regulates LSP's transportation charge to LSG for the transportation
of gas to LSG's distribution systems for sale to residential and commercial
customers. LSP's transportation services to other customers are provided under
standard or competitively negotiated contracts.
In October 1996, LSP filed a request with the RRC to increase the rate it
charges LSG to store and transport gas ultimately destined for residential and
commercial customers in the 550 Texas cities and towns served by LSG. LSG also
requested that the RRC separately set rates for costs to aggregate gas supply
for these cities. Rates currently in effect were set by the RRC in 1982. If
approved, the rate adjustment would increase annual revenues by approximately
$24.2 million. The purpose of the rate request is to allow for the recovery of
a substantial increase in the cost of doing business since 1982 and to cover
significant capital investments of approximately $420 million made during the
past 14 years to maintain and improve the reliability and safety of the
pipeline system and help reduce natural-gas supply costs. A number of cities
served by LSG have joined together in opposing the rate increase. The RRC is
expected to make a final ruling on the matter in mid-May.
NATURAL GAS DISTRIBUTION
LSG owns and operates natural-gas distribution systems and related
properties. Through these facilities, it purchases, distributes and sells
natural gas to over 1.3 million residential, commercial, industrial and
electric-generation customers in approximately 550 cities and towns, including
the 11-county Dallas/Fort Worth Metroplex. LSG also transports natural gas
within its distribution system as market opportunities require. Operating data
for this segment are set forth under "Natural Gas Distribution Operating Data"
included in Appendix A to this report.
For the year ended December 31, 1996, sales to residential and commercial
customers accounted for 91% of LSG's total gas sales revenues and 88% of
natural-gas volumes sold. Sales to industrial and electric-generation
customers accounted for the remainder.
LSG's gas sales revenues are influenced by seasonal temperature variations.
The majority of LSG's residential and commercial gas customers use gas for
heating, and their needs are directly affected by the mildness or severity of
the heating season, although some 65% of LSG's residential and commercial
volumes
7
<PAGE>
are subject to weather normalization adjustments. Sales to electric-generation
customers are affected by the mildness or severity of both cooling and heating
seasons.
Competition. Customer sensitivity to energy prices and the availability of
competitively priced gas in the non-regulated markets continue to provide
intense competition in the electric-generation and industrial-user markets.
Natural gas faces varying degrees of competition from electricity, coal,
natural gas liquids, oil and other refined products throughout LSG's service
territory. Pipeline systems of other companies, both intrastate and
interstate, extend into or through the areas in which LSG's markets are
located, creating competition from other sellers of natural gas. Competitive
pressure from other pipelines and alternative fuels has caused a decline in
sales by LSG to industrial and electric-generation customers. Sales by the
Corporation's non-regulated companies, along with transportation services
provided by LSP, have served to offset much of the effects of this decline. As
developments in the energy industry point to a continuation of these
competitive pressures, LSG maintains its focus on customer service and the
creation of new services for its customers in order to remain its customers'
supplier of choice.
Source and Availability of Raw Materials. LSG's gas supply consists of
contracts for the purchase of dedicated specific reserves, contracts with
other pipeline companies in the form of service agreements that are not
related to specific reserves or fields, and gas in storage. The total gas
supply as of January 1, 1997, was 571 billion cubic feet ("Bcf"), which is
approximately 4 times LSG's purchases during 1996. Of this total, 148 Bcf are
dedicated reserves and 36 Bcf are working gas in storage. Management has
calculated that 387 Bcf, including 109 Bcf under one agreement, are committed
to LSG under service agreements. The January 1, 1997, total gas supply
estimate is 183 Bcf lower than the January 1, 1996, estimate. The difference
resulted from 147 Bcf purchased from existing gas supply, a net downward
revision of 70 Bcf with respect to estimates for existing sources and service
agreements, partially offset by new supply additions of 34 Bcf. The net
downward revision of existing sources and service agreements is comprised of
55 Bcf downward adjustment of service and peaking agreement availability, 10
Bcf downward adjustment of proved developed and unconnected reserves and 9 Bcf
from downward revisions and terminations of dedicated special reserves,
partially offset by 4 Bcf of additional gas in storage as compared to
inventory levels at January 1, 1996. New supply additions of 34 Bcf consisted
of 4 Bcf of new dedicated reserves under old contracts and 30 Bcf of
availability added under new peaking contracts.
In 1996, about 88% of LSG's gas requirement was purchased from some 264
independent producers and non-affiliated pipeline companies, one of which
supplied approximately 16% of total requirements. The remaining 12% of LSG's
requirement was supplied by affiliates.
LSG estimates its peak-day availability from long-term contracts and
withdrawals from underground storage to be 1.7 Bcf. Short-term peaking
contracts raise this level to meet anticipated sales needs.
During 1996, the average daily demand of LSG's residential and commercial
customers was .3 Bcf. The estimated peak-day demand of such customers (based
upon an arithmetic-mean outside temperature of 15 degrees F.) was 1.9 Bcf.
LSG's greatest daily demand in 1996 was on February 3 when the arithmetic-mean
temperature was 21 degrees F. and deliveries to all customers reached 2.1 Bcf,
including estimated deliveries to residential and commercial customers of 1.9
Bcf.
To meet peak-day gas demands during winter months, LSG utilizes the service
of seven affiliated gas storage fields, all of which are located in Texas.
These fields have a working gas capacity of 47 Bcf and a day-one storage
withdrawal capacity of 1.3 Bcf per day.
LSG has historically maintained a contractual right to curtail, which is
designed to achieve the highest load factor possible in the use of the
pipeline system while assuring continuous and uninterrupted service to the
residential and commercial customers. Under the program, industrial customers
select their own rates and relative priorities of service. Interruptible
service contracts include the right to curtail gas deliveries up to 100%
according to a strict priority plan. The last sales curtailment occurred in
1990 and lasted for only 30 hours.
8
<PAGE>
Estimates of gas supplies and reserves are not necessarily indicative of
LSG's ability to meet current or anticipated market demands or immediate
delivery requirements because of factors such as the physical limitations of
gathering and transmission systems, the duration and severity of cold weather,
the availability of gas reserves from its suppliers, the ability to purchase
additional supplies on a short-term basis and actions by federal and state
regulatory authorities. LSG's curtailment rights provide flexibility to meet
the human-needs requirements of its customers on a firm basis. Priority
allocations and price limitations imposed by federal and state regulatory
agencies, as well as other factors beyond the control of LSG, may affect its
ability to meet the demands of its customers.
The LSG supply program is designed to contract for new supplies of gas (and
to recontract targeted expiring sources) connected to LSP's pipeline system.
In addition to being heavily concentrated in the established gas-producing
areas of central, northern and eastern Texas, LSP's intrastate pipeline system
also extends into or near the major producing areas of the Texas Gulf Coast
and the Delaware and Val Verde Basins of West Texas. Nine basins located in
Texas are estimated to contain a substantial portion of the nation's remaining
onshore natural-gas reserves. LSP's pipeline system provides access to all of
these basins. LSP is well situated to receive large volumes into its system at
the major "hubs," such as Katy and Waha, as well as at the major third-party
owned storage facilities where suppliers maintain instantaneous high delivery
capabilities.
LSG buys gas under long-term, intrastate contracts in order to assure
reliable supply to its customers. Many of these contracts require minimum
purchases of gas. In the past, LSG had been unable to take delivery of all
minimum gas volumes tendered by suppliers under these contracts. Based on
estimated gas demand, which assumes normal weather conditions, requisite gas
purchases are expected to substantially satisfy purchase obligations for the
year 1997 and thereafter. See Note 8 of the Notes to Consolidated Financial
Statements included in Appendix A to this report.
Regulation. LSG is wholly intrastate in character and performs its
distribution utility operations in the state of Texas subject to regulation by
the RRC and municipalities in Texas. The RRC regulates the charge for the
transportation of gas by LSP to LSG's distribution systems for sale to LSG's
residential and commercial consumers. The RRC has original jurisdiction over
rates charged to customers for gas delivered outside incorporated cities and
towns (environs rates). Rates within incorporated cities and towns in Texas
are subject to the original jurisdiction of the local city council with
appellate review by the RRC. LSG's city gate rate for the cost of gas
ultimately delivered to residential and commercial customers is established by
the RRC and provides for full recovery of the actual cost of gas delivered,
including out-of-period costs such as gas-purchase contract settlement costs.
LSG employs a continuing program of rate review for all classes of customers
in its regulatory jurisdictions. Rate relief amounting to about $6.3 million
in annualized revenue increases, exclusive of changes in gas cost, was
achieved in Texas in 1996. Weather normalization adjustment clauses have been
approved by 270 of the 550 cities served by LSG, representing over 65% of
LSG's residential and commercial sales volumes. These clauses allow rates to
be adjusted to reflect the impact of warmer or colder-than-normal weather
during the winter months, minimizing the impact of variations in weather on
LSG's earnings.
LSG's sales to industrial customers are provided under rates reflected in
standard rate schedules and contracts. Transportation services to industrial
and electric-generation customers are provided under competitively negotiated
contracts. Industrial customers also have standard rate schedules for
transportation services. Regulatory authorities in Texas have jurisdiction to
revise, review and regulate rates to industrial and electric-generation
customers but, historically, have not actively exercised this jurisdiction
because of the existing competitive market. Sales contracts with these
customers permit automatic adjustment on a monthly basis for the full amount
of increases or decreases in the cost of gas.
On August 20, 1996, the RRC ordered a general inquiry into the rates and
services of LSG. The scope of the inquiry has not been defined, and an
evidentiary hearing has not been held. However, at the recently concluded rate
hearing requested by LSG and LSP, RRC examiners indicated that LSG's
historical natural gas
9
<PAGE>
acquisition practices and costs will be reviewed. The Corporation believes any
retroactive rate action as a result of the review to be inappropriate and
unlawful.
ENSERCH operates in the liquefied and compressed natural-gas vehicular fuel
markets through the Alternative Fuel Division of Lone Star Energy Company
("LSEC"). This includes two affiliates, FleetStar of Texas, L.C. (a fueling
affiliate) and TRANSTAR Technologies, L.C. (a vehicle conversion affiliate),
which are both 50% owned by LSEC, as well as FinaStar, which is a partnership
between FleetStar and Fina Oil and Chemical and is 25% owned by LSEC. These
entities had 17 public and 10 private natural-gas fueling stations in
commercial operation at December 31, 1996, and sold 2.5 million equivalent
gallons during the year. TRANSTAR provides turnkey natural-gas vehicle
conversions and other related services and performed over 500 natural-gas
conversions during 1996. LSEC also owns and operates one liquefied natural-gas
(LNG) fueling station at the American Airlines DFW Airport maintenance
facility.
In South America, LSG is providing its distribution expertise to develop a
new infrastructure in support of gas systems being constructed to service
Santiago, Chile, and surrounding communities. Additionally, newly passed
legislation in Mexico has opened the door to partial ownership of gas pipeline
transmission systems by foreign companies. Based upon its geographic proximity
to the existing U.S.-based, natural-gas reserves, the Corporation's affiliates
are examining the economic potential to be gained by participating in the
developing natural-gas infrastructure in Mexico.
POWER
Enserch Development Corporation ("EDC") develops business opportunities
primarily in the areas of independent power, including cogeneration. EDC
evaluates the risks and rewards of these potential ventures; selects for
development those ventures with the highest potential of success; implements
and controls development of each venture; and brings together all the
resources required to develop, finance, construct, operate and manage the
selected ventures. EDC's efforts are currently focused on international
projects, with decreased emphasis on projects in the United States.
EDC has completed the development of three cogeneration plants, including a
255-MW plant in Sweetwater, Texas, that began operation in 1989, a 62-MW
natural gas-fired cogeneration facility in Buffalo, New York, that was
completed in 1992 and a 160-MW plant in Bellingham, Washington, that began
commercial operation in 1993. The electricity produced at the Sweetwater plant
is purchased by Texas Utilities Electric Company, and thermal energy is sold
to United Gypsum Company under a long-term agreement. A subsidiary of EDC is
the managing general partner of the plant, EEX and EES provide gas to the
plant, and LSP transports the gas. The Buffalo plant supplies electricity to
Niagara Mohawk Company and thermal energy to Outokumpu American Brass, Inc.
The electricity produced at the Bellingham plant is sold under a long-term
power sales agreement with Puget Sound Power & Light, and thermal energy in
the form of steam and hot water is sold to Georgia-Pacific Corporation. LSEPO,
a wholly owned subsidiary of LSEC, operates and maintains all three plants and
has fixed-cost operating and maintenance agreements for providing labor and
certain routine consumables at each plant, with each of the agreements
containing escalation provisions. The agreements for the Buffalo and
Bellingham plants also contain bonus or penalty provisions based upon plant
availability.
At the end of 1996, EDC, through its wholly owned subsidiary Enserch
International Ltd. ("EIL"), had two international projects in the construction
and drilling phase. Construction of a 36-MW coal-fired cogeneration facility
in the Zhejiang Province of the People's Republic of China, in which EDC has a
70% interest, began in the fourth quarter of 1995. Phase I of the plant is
expected to be completed in mid-1997 and the remainder in 1998. Electricity
will be sold to the Shaoxing Administration of Power Utilization, and steam
will be sold to several industrial users in the area. The second project, in
which EIL will have a 15% interest, is a 300 to 400-MW geothermal power plant
in Java, Indonesia. Drilling for geothermal resource will continue throughout
1997, and construction of the power-generation facility is scheduled to begin
in 1997. Electricity from the plant will be sold to the Indonesian electric
utility, PT PLN (PERSERO).
10
<PAGE>
In addition to operating and maintaining cogeneration plants developed by
EDC, through its subsidiary LSEPO, LSEC owns and operates two central thermal
energy plants providing heating and cooling to various institutional customers
in Texas under agreements which expire in 1997. LSEC is actively pursuing new
contracts to operate the plants after the existing agreements expire. The
expiration of the existing agreements will not have a significant impact on
the Corporation.
CLEAN AIR ACT
The impact of the 1990 amendments to the Clean Air Act ("CAA") on the
Corporation, its divisions, subsidiaries and affiliates, cannot be fully
ascertained until all the regulations that implement the provisions of the Act
have been promulgated. It is expected that a number of facilities or emission
sources will require a federally enforceable operating permit, and certain
emission sources may also be required to reduce emissions or to install
monitoring equipment under proposed rules and regulations. Management
currently believes, however, that if the rules and regulations implementing
the CAA are adopted as proposed, the cost of obtaining permits, operating
costs that will be incurred under the operating permit, new permit fee
structures, capital expenditures associated with equipment modifications to
reduce emissions, or any expenditures on monitoring equipment, in the
aggregate, will not have a material adverse effect on the Corporation's
results of operations.
The CAA has created new marketing opportunities for the sale of natural gas
that may have a positive effect on the Corporation's results of operations.
Natural gas has long been recognized as a clean and efficient fuel. Title II
(Mobile Sources) requires lower emissions from light-duty vehicles and urban
buses that should make alternative fuels such as natural gas more attractive
and competitive. In addition, Clean Fuel Fleet programs under the CAA will
require a certain percentage of fleet vehicles to utilize clean-burning
alternative fuels such as natural gas in the near future. Further, because
chloroflurocarbon compounds ("CFC's"), commonly used as refrigerants in large
air-conditioning systems must be phased out of production by the year 2000,
interest has increased in the use of natural gas-powered absorption cooling
systems that do not use CFC's. In those areas that do not meet the CAA's
National Ambient Air Quality Standards for ozone, natural gas may play an
important role in reducing ozone formation and may be substituted for other
fuels. Since Title IV (Acid Rain) requires major reductions in sulphur dioxide
emissions, principally from coal-fired electric power plants, natural gas is
expected to be considered as a cost-effective alternative for achieving
reduced sulphur dioxide emissions.
PATENTS AND LICENSES
The Corporation, its divisions and subsidiary companies have no material
patents, licenses, franchises (excluding gas-distribution franchises) or
concessions.
EMPLOYEES
At December 31, 1996, the Corporation, its divisions and subsidiaries, had
approximately 4,010 employees.
11
<PAGE>
ITEM 2. PROPERTIES
EEX's domestic activities were focused in four regions in 1996: the Gulf of
Mexico; East Texas; Mid-Continent and other; and the Gulf Coast Region of
Texas, Louisiana, Mississippi and Alabama. The following table sets forth
estimated net proved reserves of EEX by region, as estimated by D&M, at
January 1, 1997:
<TABLE>
<CAPTION>
OIL
NATURAL AND GAS
GAS LIQUIDS TOTAL
REGION (BCF) (MMBBLS) BCFE
------ ------- -------- -------
<S> <C> <C> <C>
Gulf of Mexico......................................... 126.5 28.0 294.7
East Texas............................................. 845.1 7.5 890.1
Mid-Continent and Other................................ 102.8 13.7 184.9
Gulf Coast............................................. 141.2 4.0 165.2
------- ---- -------
Total Domestic....................................... 1,215.6 53.2 1,534.9
International.......................................... .6 6.0 36.6
------- ---- -------
Total................................................ 1,216.2 59.2 1,571.5
======= ==== =======
</TABLE>
See Note 12 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 12 of
the Notes to Consolidated Financial Statements included in Appendix A to this
report.
Developed and undeveloped lease acreage as of December 31, 1996, are set
forth below:
<TABLE>
<CAPTION>
DEVELOPED ACRES UNDEVELOPED ACRES
--------------- -------------------
GROSS NET(1) GROSS NET(1)
------- ------- --------- ---------
<S> <C> <C> <C> <C>
Domestic
Offshore.................................. 189,310 60,609 853,105 426,462
Onshore................................... 471,368 289,968 1,056,035 654,701
------- ------- --------- ---------
Total................................... 660,678 350,577 1,909,140 1,081,163
International............................... -- -- 2,489,567 618,637
------- ------- --------- ---------
Total................................... 660,678 350,577 4,398,707 1,699,800
======= ======= ========= =========
</TABLE>
- --------
(1) Represents the proportionate interest of EEX in the gross acres under
lease.
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.
12
<PAGE>
EEX plans further drilling on undeveloped acreage but at this time cannot
specify the extent of the drilling or predict how successful it will be in
establishing commercial reserves sufficient to justify retention of the
acreage. The primary terms under which the undeveloped acreage can be retained
by the payment of delay rentals without the establishment of gas and oil
reserves expire as follows:
<TABLE>
<CAPTION>
UNDEVELOPED ACRES EXPIRING
-----------------------------------
DOMESTIC INTERNATIONAL
----------------- -----------------
GROSS NET GROSS NET
--------- ------- --------- -------
<S> <C> <C> <C> <C>
1997........................................ 551,741 312,456 730,242 182,560
1998........................................ 353,191 200,015 182,560 45,640
1999 and later.............................. 1,004,208 568,692 1,576,765 390,437
</TABLE>
Drilling rights with regard to a portion of the undeveloped acreage may be
allowed to expire before the expiration of primary terms specified in this
schedule by non-payment of delay rentals.
At December 31, 1996, EEX owned interests in 1,670 gas wells (1,121.1 net)
and 1,801 oil wells (422 net) in the United States and 5 oil wells (1 net) in
Indonesia. Of these, 226 gas wells (166.4 net) and 43 oil wells (34.9 net)
were dual completions in single boreholes.
Drilling activity during the three years ended December 31, 1996, including
the activities of properties acquired in 1995 for all periods shown, is set
forth below:
<TABLE>
<CAPTION>
1996 1995 1994
---------- ---------- ----------
GROSS NET GROSS NET GROSS NET
----- ---- ----- ---- ----- ----
<S> <C> <C> <C> <C> <C> <C>
Exploratory Wells:
Productive................................... 42 30.0 38 24.6 21 13.8
Dry.......................................... 32 20.7 47 26.8 56 30.5
--- ---- --- ---- --- ----
Total...................................... 74 50.7 85 51.4 77 44.3
=== ==== === ==== === ====
Development Wells:
Productive................................... 82 54.3 41 26.4 90 63.0
Dry.......................................... 5 4.0 6 3.5 15 7.5
--- ---- --- ---- --- ----
Total...................................... 87 58.3 47 29.9 105 70.5
=== ==== === ==== === ====
</TABLE>
- --------
Note: Productive wells are either producing wells or wells capable of
commercial production, although currently shut-in. The term "gross"
refers to the wells in which a working interest is owned, and the term
"net" refers to gross wells multiplied by the percentage of EEX's working
interest owned therein.
At December 31, 1996, EEX was participating in 71 wells (34 net), which were
either being drilled or in some stage of completion.
The number of wells drilled is not a significant measure or indicator of the
relative success or value of a drilling program because the significance of
the reserves and economic potential may vary widely for each project. It is
also important to recognize that reported completions may not necessarily
correspond to capital expenditures, since SEC guidelines do not allow a well
to be reported as complete until it is ready for production. In the case of
offshore wells, this may be several years following initial drilling because
of the timing of construction of platforms, pipelines and other necessary
facilities.
Additional information relating to the gas and oil activities of EEX is set
forth in Note 12 of the Notes to Consolidated Financial Statements included in
Appendix A to this report.
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.
13
<PAGE>
LSP. At December 31, 1996, LSP operated approximately 8,000 miles of
transmission and gathering lines and operated 22 compressor stations having a
total rated horsepower of approximately 72,000. LSP also owns seven active
gas-storage fields, all located on its system in Texas, and three major gas-
treatment plants to remove undesirable components from the gas stream.
EPI. At December 31, 1996, EPI had interests in 17 processing plants, 13 of
which were wholly owned, and operated approximately 1,714 miles of gathering
lines.
LSG. At December 31, 1996, LSG operated approximately 23,500 miles of
distribution mains. See "Business--Natural Gas Distribution--Source and
Availability of Raw Materials" for information concerning gas supply of LSG.
LSEC. LSEC owns two central plants providing heating and cooling to
institutional customers in Dallas and El Paso. During 1997, ownership of these
plants will transfer to the institution which they serve.
The Corporation owns a five-building office complex in Dallas, containing
approximately 453,000 square feet of space that the Corporation, LSG, LSP and
certain subsidiaries fully occupy. In addition, the Corporation leases a 21-
story, 400,000 square-foot building in Houston under a two-year lease that is
automatically extended each year unless terminated. This building is sub-
leased, primarily to non-affiliated parties.
See "Financial Review--Liquidity and Financial Resources" included in
Appendix A to this report for a discussion of the Corporation's 1997 capital
spending budget by business segment.
ITEM 3. LEGAL PROCEEDINGS
The Corporation is a party to lawsuits arising in the ordinary course of its
business. The Corporation 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 8 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.
14
<PAGE>
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 Income," "Statements of Consolidated Cash Flows,"
"Consolidated Balance Sheets," "Statements of Consolidated Common
Shareholders' Equity," "Notes to Consolidated Financial Statements," "Summary
of Business Segments" and "Quarterly Results" included in Appendix A to this
report.
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
None.
15
<PAGE>
PART III
ITEMS 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
DIRECTORS
The following biographical information sets forth the name, age, principal
occupation or employment during the past five years, Board committee
membership, certain other directorships held by each director, and the period
during which he or she has served as a director of the Corporation.
D. W. Biegler
Chairman and President, Chief Executive Officer, ENSERCH Corporation
Mr. Biegler, age 50, is Chairman and President, Chief Executive Officer of
the Corporation. Prior to his election to his present position in 1993, he
served LSG as President from 1985 and as Chairman from 1989 and was elected
President and Chief Operating Officer of the Corporation in 1991. Mr. Biegler
is a Director of Enserch Exploration, Inc., Texas Commerce Bank National
Association, and Trinity Industries, Inc. He has been a Director of the
Corporation since 1991.
B. A. Bridgewater, Jr.
Chairman, President and Chief Executive Officer, Brown Group, Inc.
Mr. Bridgewater, 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 Corporation since 1987 and serves as Chairman of the Policy
Committee and is a member of the Audit Committee. He is a Director of Enserch
Exploration, Inc., NationsBank Corporation, FMC Corporation, and McDonnell
Douglas Corporation.
Odie C. Donald
President, BellSouth Mobility, Inc.
Mr. Donald, age 47, is President, BellSouth Mobility, Inc., a cellular
telecommunications company. Mr. Donald has served in his present position
since 1992. He previously served BellSouth as Vice President, Marketing and
various other positions. He has been a Director of the Corporation since 1995
and is a member of the Compensation Committee and the Directors' Nominating
Committee.
Marvin J. Girouard
President and Chief Operating Officer, Pier 1 Imports, Inc.
Mr. Girouard, age 57, is President and Chief Operating Officer, and
Director, of Pier 1 Imports, Inc. Mr. Girouard has been a Director of the
Corporation since 1992 and is Chairman of the Compensation Committee and a
member of the Directors' Nominating Committee.
J. M. Haggar, Jr.
Retired Chairman of the Board, Haggar Apparel Company
Mr. Haggar, age 72, is retired Chairman of the Board, Haggar Apparel
Company, a manufacturer of apparel for men. Mr. Haggar has been a Director of
the Corporation since 1988 and is Chairman of the Directors' Nominating
Committee and a member of the Policy Committee. He is a Director of Brinker
International, Inc.
Thomas W. Luce, III
Partner, Hughes & Luce
Mr. Luce, age 56, is a partner of Hughes & Luce, a law firm he co-founded in
1973. From October 1991 to July of 1992, he served as Chairman and Chief
Executive Officer of First Southwest Company, a diversified investment banking
services firm. Mr. Luce has been appointed by Governors of Texas to four major
state positions. He is a Director of Dell Computer Corporation. He has been a
Director of the Corporation since 1995 and is a member of the Compensation
Committee and the Policy Committee.
16
<PAGE>
W. C. McCord
Retired Chairman and Chief Executive Officer, ENSERCH Corporation
Mr. McCord, age 68, is retired Chairman and Chief Executive Officer of the
Corporation. Mr. McCord has been a Director of the Corporation since 1970 and
is a member of the Audit Committee and the Policy Committee. He is a Director
of Enserch Exploration, Inc., Lone Star Technologies, Inc. and Pool Energy
Services Co.
Diana S. Natalicio
President, University of Texas at El Paso
Dr. Natalicio, age 57, is President, University of Texas at El Paso. Dr.
Natalicio has been a Director of the Corporation since 1993 and is Chairman of
the Audit Committee and a member of the Director's Nominating Committee. She
is a Director of Sandia Corporation.
EXECUTIVE OFFICERS
<TABLE>
<CAPTION>
NAME AGE TITLE
---- --- -----
<S> <C> <C>
D. W. Biegler...................... 50 Chairman and President, Chief Executive
Officer
G. R. Bryan........................ 52 Senior Vice President, Power and
Business Development
M. T. Hunter....................... 47 President and Chief Operating Officer of
Lone Star Pipeline Company
D. R. Long......................... 49 Senior Vice President, Administration
M. E. Rescoe....................... 44 Senior Vice President, Finance, and
Chief Financial Officer
W. T. Satterwhite.................. 63 Senior Vice President and General
Counsel
R. B. Williams..................... 64 President and Chief Operating Officer of
Lone Star Gas Company
</TABLE>
Mr. Biegler has been Chairman and President, Chief Executive Officer since
May 1993 and a Director of the Corporation since September 1991; President and
Chief Operating Officer of the Corporation from September 1991 to May 1993. He
also served LSG as President from July 1985 and as Chairman from January 1989.
Mr. Bryan has been President and Chief Operating Officer of EES since May
1995; Chairman, President and Chief Operating Officer of EDC since February
1994. He also served LSG as Senior Vice President, Transmission, from February
1987 to February 1993.
Mr. Hunter has been President and Chief Operating Officer of LSP since June
1995. Previously he served as President and Chief Operating Officer of
Mississippi River Transmission Corporation, a subsidiary of Noram Energy Corp.
Mr. Long has been Senior Vice President, Administration, since May 1995. He
previously served LSG as Vice President, Human Resources and Services, from
January 1995 to May 1995, and as Vice President, Human Resources and Facility
Development, from June 1990 to January 1995.
Mr. Rescoe has been Senior Vice President, Finance, and Chief Financial
Officer since September 1995. Previously he served as Senior Managing Director
of Bear, Stearns & Co. from 1992 to July 1995 and was a Senior Vice President,
Finance, of Kidder, Peabody & Co. from 1983 to 1992.
Mr. Satterwhite has been Senior Vice President and General Counsel, Chief
Legal Officer of the Corporation since May 1972.
Mr. Williams has been President and Chief Operating Officer of LSG since May
1995. He served as Vice President, Administration, of the Corporation from May
1989 to May 1995.
17
<PAGE>
There are no family relationships between any of the above officers. All
officers of the Corporation, its divisions and subsidiaries, are elected
annually by their respective Board of Directors. Officers may be removed by
their respective Board of Directors whenever, in the judgment of the Board,
the best interest of the Corporation, its divisions or subsidiaries, as the
case may be, will be served thereby.
ITEM 11. EXECUTIVE COMPENSATION
SUMMARY COMPENSATION TABLE
The table below sets forth annual compensation, long-term compensation, and
all other compensation paid by the Corporation and its subsidiaries for
services rendered during the periods shown for each individual serving as the
chief executive officer and each of the other four most highly compensated
executive officers in 1996 (the "named executive officers").
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
LONG-TERM COMPENSATION
------------------------------------
AWARDS PAYOUTS
-------------------------- ---------
OTHER ALL
ANNUAL RESTRICTED SECURITIES LONG-TERM OTHER
ANNUAL COMPENSATION COMPEN- STOCK UNDERLYING INCENTIVE COMPEN-
NAME AND ----------------------- SATION AWARDS OPTIONS PAYOUTS SATION
PRINCIPAL POSITION YEAR SALARY($) BONUS($) ($)(2) ($) (#) ($)(5) ($)(6)
------------------ ---- --------- -------- ------- ---------- ---------- --------- -------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
D. W. Biegler........... 1996 600,000 330,000 3,600 556,800(3)(4) 50,000 1,009,208 768,525
Chairman and President, 1995 593,750 245,822 8,400 (4) 25,000 0 27,525
Chief Executive Officer 1994 550,000 317,625 4,050 (4) 0 0 28,394
G. R. Bryan............. 1996 300,000 150,000 1,510 185,600(3)(4) 24,000 374,112 13,833
President, Power Group 1995 254,167 0 4,040 (4) 10,000 0 1,500
1994 242,417 11,815 1,530 (4) 0 0 3,000
M. T. Hunter............ 1996 310,000 150,000 1,000 185,600(3)(4) 24,000 185,600 7,408
President and Chief 1995 175,000 90,035 1,500 (4) 15,000 0 450
Operating
Officer, Lone Star 1994 0 0 0 0 0 0 0
Pipeline Company(1)
M. E. Rescoe............ 1996 280,000 112,000 950 185,600(3)(4) 24,000 167,040 2,937
Senior Vice President, 1995 128,333 0 450 (4) 11,000 0 0
Finance,
Chief Financial 1994 0 0 0 0 0 0 0
Officer(1)
W. T. Satterwhite....... 1996 282,000 112,800 735 92,800(3)(4) 15,000 225,970 245,320
Senior Vice President, 1995 270,667 87,080 1,940 (4) 5,000 0 24,642
General Counsel 1994 265,000 116,600 855 (4) 0 0 25,542
</TABLE>
- --------
(1) M. T. Hunter joined the Corporation as an executive officer on June 1,
1995. Mr. Rescoe joined the Corporation on July 17, 1995, and became an
executive officer on September 1, 1995.
(2) Includes non-preferential dividends paid on non-vested restricted stock.
(3) Value of restricted stock awarded in 1996 under the ENSERCH Corporation
1991 Stock Incentive Plan ("1991 Plan") on which restrictions were lifted
under change-in-control provisions in the Corporation's 1991 Plan.
Approval by the Corporation's Board of Directors of the ENSERCH/TUC Merger
constituted such a change in control. Values are based on the market value
of the stock on the date the restrictions were lifted.
(4) The restricted stock awards to named executive officers under the 1991
Plan are subject to performance-based criteria. Restricted stock awards in
1996 to the named executive officers 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.
(5) Payouts of restricted stock awarded in years prior to 1996 on which
restrictions were lifted under change-in-control provisions in the 1991
Plan, as follows: Mr. Biegler--42,000 shares; Mr. Bryan--20,200 shares;
Mr. Hunter--10,000 shares; Mr. Rescoe--9,000 shares; and Mr. Satterwhite--
9,700 shares. Restrictions were also lifted on shares of EEX restricted
stock granted to Mr. Biegler (25,000 shares) and Mr. Satterwhite (5,000
shares) under the EEX stock incentive plan ("1996 Plan") change-in-control
provision.
18
<PAGE>
Approval by the EEX Board of Directors of the EEX/LSEPO merger constituted
such a change in control. Payout values are based on the market value of
the stock on the date the restrictions were lifted.
(6) For 1996, includes company matching contributions to the Employee Stock
Purchase and Savings Plan and Deferred Compensation Plan, respectively, as
follows: D. W. Biegler--$900, $18,000; G. R. Bryan--$900, $9,000; M. T.
Hunter--$675, $2,800; M. E. Rescoe--$0, $0; and W. T. Satterwhite--$900,
$8,460. For 1996, also includes interest paid on delayed bonus payments as
follows: D. W. Biegler--$8,652; G. R. Bryan--$3,933; M. T. Hunter--$3,933;
M. E. Rescoe--$2,937; and W. T. Satterwhite--$2,958. Also includes all
accruals in 1996 resulting from change-in-control provisions of (a)
deferred compensation under a Special Supplemental Compensation Plan for
D. W. Biegler of $740,973 and (b) under an expired employment contract for
W. T. Satterwhite of $233,002.
OPTION GRANTS TABLE
The table below shows, for each of the named executive officers, certain
information with respect to options granted in 1996 under the 1991 Plan.
OPTION GRANTS IN LAST FISCAL YEAR
<TABLE>
<CAPTION>
NUMBER OF
SECURITIES
UNDERLYING PERCENTAGE OF TOTAL
OPTIONS OPTIONS GRANTED EXERCISE PRICE GRANT DATE
GRANTED(1) TO EMPLOYEES PER SHARE EXPIRATION PRESENT
NAME (#) IN FISCAL YEAR ($/SH)(2) DATE(1) VALUE(3)
---- ---------- ------------------- -------------- ---------- ----------
<S> <C> <C> <C> <C> <C>
D. W. Biegler........... 50,000 15.3% $15.125 2/16/06 $332,465
G. R. Bryan............. 24,000 7.4 15.125 2/16/06 159,583
M. T. Hunter............ 24,000 7.4 15.125 2/16/06 159,583
M. E. Rescoe............ 24,000 7.4 15.125 2/16/06 159,583
W. T. Satterwhite....... 15,000 4.6 15.125 2/16/06 99,739
</TABLE>
- --------
(1) Options are exercisable in stages of 25% on the first through the fourth
anniversaries of the grant. Options become fully vested in the event of a
"change in control" as defined in the 1991 Plan. Approval by the Board of
Directors of the Corporation of the ENSERCH/TUC Merger constituted a
"change in control" as defined in the 1991 Plan. As a result, the options
became fully vested upon such approval.
(2) Fair market value on the date of grant.
(3) Represents the hypothetical present value of the option determined using
Black-Scholes Options Valuation Method based upon the terms of the option
grant and the Corporation'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% based on the ten-year
Treasury bond rate on the date of the Grant, Stock Price Volatility of 29%
based on the historical return volatility using weekly stock prices over
the prior three years, Dividend Yield of 1.3289% based on the annual
dividend rate of twenty cents per share, and Date of Exercise on the
expiration date of February 16, 2006.
19
<PAGE>
AGGREGATED OPTION EXERCISE TABLE
The table below shows, for each of the named executive officers, the
information specified with respect to exercised, exercisable and unexercisable
options under all existing stock option plans.
AGGREGATED OPTION EXERCISES IN LAST FISCAL YEAR AND FISCAL YEAR-END OPTION
VALUES
<TABLE>
<CAPTION>
NUMBER OF SECURITIES VALUE OF UNEXERCISED
UNDERLYING UNEXERCISED IN-THE-MONEY
OPTIONS AT OPTIONS AT
SHARES DECEMBER 31, 1996 DECEMBER 31, 1996
ACQUIRED ON VALUE (#) ($)
EXERCISE REALIZED ------------------------- -------------------------
NAME (#) ($) EXERCISABLE UNEXERCISABLE EXERCISABLE UNEXERCISABLE
---- ----------- -------- ----------- ------------- ----------- -------------
<S> <C> <C> <C> <C> <C> <C>
D. W. Biegler........... 33,950 167,544 246,948 0 1,639,783 0
G. R. Bryan............. 5,900 32,450 68,675 0 493,209 0
M. T. Hunter............ 39,000 252,938 0 0 0 0
R. E. Rescoe............ 11,000 62,562 24,000 0 189,000 0
W. T. Satterwhite....... 37,400 191,675 63,000 0 379,063 0
</TABLE>
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 1991 Plan.
LONG-TERM INCENTIVE PLANS--AWARDS IN LAST FISCAL YEAR
<TABLE>
<CAPTION>
ESTIMATED FUTURE PAYOUTS UNDER
NON-STOCK PRICE BASED PLANS (1)
PERFORMANCE PERIOD ---------------------------------
NUMBER OF UNTIL MATURATION THRESHOLD(2) TARGET(2) MAXIMUM(2)
SHARES OR PAYOUT(3)(4) (#) (#) (#)
--------- ------------------ ------------ --------- ----------
<S> <C> <C> <C> <C> <C>
D. W. Biegler........... 30,000 01/01/96-12/31/98 1,500 30,000 30,000
G. R. Bryan............. 10,000 01/01/96-12/31/98 500 10,000 10,000
M. T. Hunter............ 10,000 01/01/96-12/31/98 500 10,000 10,000
M. E. Rescoe............ 10,000 01/01/96-12/31/98 500 10,000 10,000
W. T. Satterwhite....... 5,000 01/01/96-12/31/98 250 5,000 5,000
</TABLE>
- --------
(1) Performance-based restricted shares have been awarded and will be earned
at the end of a three-year performance period based upon the three year
total shareholder return of the Corporation compared to the weighted
average of the total shareholder return of the peer group of companies
used in the performance graph in the 1995 Proxy Statement. Regular cash
dividends are 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
Corporation's total shareholder return is at or above 110% of the weighted
average of the peer group. For each percentage point that the
Corporation'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%.
(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 Corporation's Board of Directors of the ENSERCH/TUC Merger
constituted a "change in control" as defined in the 1991 Plan. As a
result, the forfeiture provisions with respect to these shares lapsed upon
such approval.
20
<PAGE>
PENSION PLAN TABLE
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 Retirement and Death Benefit Program of ENSERCH Corporation and
Participating Subsidiary Companies (the "Program"), the Income Restoration
Plan, and any annuities previously purchased in satisfaction of the
Corporation's pension obligations.
PENSION PLAN TABLE
<TABLE>
<CAPTION>
YEARS OF SERVICE
--------------------------------------------------------------
REMUNERATION(1) 15 20 25 30 35 40 45
- --------------- -------- -------- -------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C> <C> <C>
$275,000 $ 69,085 $ 92,114 $115,142 $138,170 $161,199 $168,074 $174,949
350,000 88,773 118,364 147,955 177,545 207,136 215,886 224,636
425,000 108,460 144,614 180,767 216,920 253,074 263,699 274,324
500,000 128,148 170,864 213,580 256,295 299,011 311,511 324,011
575,000 147,835 197,114 246,392 295,670 344,949 359,324 373,699
650,000 167,523 223,364 279,205 335,045 390,886 407,136 423,386
725,000 187,210 249,614 312,017 374,420 436,824 454,949 473,074
800,000 206,898 275,864 344,830 413,795 482,761 502,761 522,761
875,000 226,585 302,114 377,642 453,170 528,699 550,574 572,449
950,000 246,273 328,364 410,455 492,545 574,636 598,386 622,136
</TABLE>
- --------
(1) Highest average covered compensation over any consecutive five-year
period.
Covered compensation under the Program includes base wages and annual
performance-based bonuses. The credited years of service under the Program, as
of February 29, 1996, for Messrs. Biegler, Bryan, Hunter, Rescoe and
Satterwhite 28.6, 26.6, 1.7, 1.6, and 30.5 years, respectively, and the
highest average covered compensation during any consecutive five-year period
for each of them is $774,780, $346,204, $317,962, $372,615, and $346,881,
respectively. 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 $20,000 plus $1,200
for each board or committee meeting attended with a maximum of $1,800 if more
than one meeting is held on the same day. In addition, a $2,400 per annum fee
is paid for services on a Board Committee, with an additional $1,200 per annum
paid to the Chairman of a Board Committee. Directors who are also officers of
the Corporation do not receive fees. Directors may elect, pursuant to a
Deferred Compensation Plan for Directors, to defer all or part of their
compensation each year. Deferred amounts, including any gain based upon the
experience of investments selected by the Director as provided in the Plan,
will be distributed upon retirement from the Board (or death) in a lump sum or
in equal annual installments over a ten-year period. A participant may elect a
lump-sum payment of both principal and interest at any time reduced by a
forfeiture amount as provided in the Plan.
Each non-employee director with one or more full years of service on May 9,
1994, will be provided with deferred compensation following retirement from
the Board (or upon his or her death while serving as a member of the Board)
payable in installments totaling $25,000 annually for a period of years equal
to years of service on the Board prior to May 9, 1994, not to exceed ten. A
Directors' Deferred Compensation Trust has been established, and an amount
sufficient to pay all amounts payable under the deferred compensation
arrangement is placed in the trust from time to time. Upon the replacement of
a director or the elimination of his position following a specified change in
control, a director may elect to receive in a lump sum the principal amount
discounted at 4% per annum over the number of years payments would have
otherwise been made. For service following May 9, 1994, each non-employee
director with less than ten full years of service on May 9, 1994, will receive
restricted stock following the completion of each full year of service for a
maximum of ten years (reduced
21
<PAGE>
by the number of full years of service on May 9, 1994). Any year in which a
previous award of restricted stock is forfeited is not counted in computing
such maximum number of years. The number of shares of restricted stock awarded
is determined by dividing $25,000 by the average of the closing price of the
Common Stock for the last twenty trading days in April (the "Award Value").
The restricted period applicable to restricted stock awarded to non-employee
directors is ten years during which time the restrictions will be lifted if
the director dies, the market value of the Common Stock increases to 1.5 times
the Award Value, or if the average closing price for the twenty trading days
immediately preceding the tenth anniversary of the award date is equal to or
greater than the Award Value. If the restrictions have not been lifted by the
end of such ten-year period, the stock will be forfeited.
Mr. McCord represents the Corporation's interest in a foreign company in
which the Corporation once had an investment and has continuing obligations
for which he is paid a fee by the Corporation of $5,000 for each board meeting
of the foreign company attended. During 1996, such Board met once.
EMPLOYMENT CONTRACTS, TERMINATION OF EMPLOYMENT AND CHANGE-IN-CONTROL
ARRANGEMENTS
Each named executive officer has executed a change-in-control agreement with
the Corporation that sets forth certain benefits in the event their employment
is terminated subsequent to a change in control of the Corporation (as defined
in the Agreements). The Agreements are for continuous three-year terms until
terminated by the Corporation upon specified notice and continue for three
years following a change in control of the Corporation. The Agreements provide
that if the officer is terminated or if the officer elects to terminate
employment under certain circumstances within three years following a change
in control of the Corporation, 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 exercise taxes. The approval of the
ENSERCH/TUC Merger on November 15, 1996, was a change in control under these
agreements.
Messrs. Biegler, Satterwhite and Rescoe have agreed with the Corporation to
the modification of their respective change-in-control agreements pursuant to
which, upon the satisfaction of all conditions prerequisite to the ENSERCH/TUC
Merger, and prior to the effective time of the ENSERCH/TUC Merger, ENSERCH
will pay each of these individuals a lump-sum cash payment in the amount of
$2,790,000 in the case of Mr. Biegler, $789,600 in the case of Mr. Satterwhite
and $784,000 in the case of Mr. Rescoe in lieu of (i) their respective rights
to receive such payment in the event the change-in-control agreement payment
provisions are subsequently activated and (ii) their respective rights to
receive any of the other benefits under the change-in-control agreements in
the event of a voluntary termination by them during the period from the
thirteenth through eighteenth month following a change in control. The
Corporation has also agreed to pay Mr. Biegler a bonus in the amount of
$900,000 prior to the effective time of the ENSERCH/TUC Merger conditioned
upon his continued employment with the Corporation to the effective time of
the ENSERCH/TUC Merger. The payments made to Messrs. Biegler, Satterwhite and
Rescoe and the modification of their change-in-control agreements will be
treated as payments under their existing change-in-control agreements
entitling them to any tax gross-up payments as therein provided. The
Corporation's Executive Deferred Compensation Plan has been amended so that
Messrs. Biegler, Satterwhite and Rescoe may defer all of the payments made
under the modification to their change-in-control agreements under such Plan.
Except for the foregoing modifications, the terms of the change-in-control
agreements of these employees will remain in effect following the ENSERCH/TUC
Merger.
Effective upon the closing of the ENSERCH/TUC Merger, the Corporation has
entered into retention bonus arrangements with G. R. Bryan and M. T. Hunter.
Under each of these arrangements, ENSERCH will pay the executive officer a
cash bonus equal to 50% of his current annual salary upon his attainment of
six months of continuous employment following the ENSERCH/TUC Merger and an
additional cash bonus equal to 100% of his current annual salary upon his
attainment of eighteen months of continuous employment following the
ENSERCH/TUC Merger. The bonus payments will not become payable in the event
that, on or prior to the
22
<PAGE>
particular bonus payment date, the employee (i) terminates employment, (ii)
dies or becomes disable or (iii) is terminated for cause. For purposes of the
retention bonus arrangements, termination for cause means (i) an act or acts
of dishonesty or material violation of an employment policy by, or at the
direction of, the employee, (ii) willful failure or refusal of the employee to
perform services as properly required by TUC or the Corporation; (iii) any
action or failure to act on the part of the employee which is intended to
result in injury to the assets, business or prospects of TUC or the
Corporation or (iv) the employee's conviction of a felony.
BOARD COMPENSATION COMMITTEE REPORT ON EXECUTIVE COMPENSATION
COMPENSATION COMMITTEE REPORT
The Board of Directors delegates responsibility for executive compensation
to the Compensation Committee, except compensation matters relating to the
Chairman and President, Chief Executive Officer are decided by the full Board,
after recommendation by the Committee. No member of the Committee is a former
officer or employee of the Corporation or any of its subsidiaries and no
member of the Committee participates in the compensation described in the
following report. The Committee retains its own consultant to advise on
matters related to executive compensation. The Corporation has used a
consultant since 1981 to assist in such matters. The following is the
Committee's report on executive compensation for 1996.
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 observed in the Corporation'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 Board's
decision in April of 1996 to merge with TUC, change-in-control provisions of
various plans, and the issues that developed while posturing the Corporation
for the transition into TUC.
Salary levels for the 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, in its salary
decisions, is guided by these comparative data, and by the annual rate of
salary movement in industries in which the Corporation competes for
executives. The Corporation compares its annual cash payments (salary and
performance incentive) for named executive officers to recognized annual
surveys both in its industry and in industry generally. The Corporation also
uses comparisons with such surveys for guidance in hiring executives. General
industry practice is observed, as it has been for over a decade, from
Management Compensation Service's (MCS) annual survey of executive
compensation (385 companies participated in 1996). Gas and petroleum industry
practice is observed from surveys conducted by the American Gas Association
and by a major national consulting firm. Together they constitute a
statistically valid data base for this purpose, and the Committee is guided by
it. Many of the companies in the MCS survey are in the S&P 500; the industry
specific surveys used include many of those companies found in the performance
graph's gas industry peer group. The sole use of the smaller number of
companies in that peer group would produce pay data comparisons that are not
statistically meaningful or useful for the purpose of salary comparisons, nor
does the group of companies in that peer group include necessarily all of the
companies that are the most direct competitors for executive talent.
During 1996, the aggregate salaries of the named executive officers summed
to an amount equal to 2.38% below the sum of the size-adjusted median survey
salaries for their positions. Four of the named executive
23
<PAGE>
officers received salary increases during 1996, which, on an annualized basis,
amounted to 1.14% of the named executive officers' aggregate salaries.
It is the practice of the Corporation, 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 levels in the Corporation. 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 size of both annual and long-term incentive awards.
The named executive officers participate in the Corporation's Performance
Incentive Plan. The level of this opportunity is designed to be consistent
with industry practice. Their target awards in 1996 ranged from 40% to 55% of
salary. Change-in-control provisions of the plan caused payment of bonuses
during the year to each named executive officer equivalent to 100% of goal
achievement.
The Corporation in 1996 offered additional incentive for stock price growth
and total shareholder return through the award of performance-based restricted
stock and stock options under the 1991 Stock Incentive Plan, in which all
named executive officers participated. Performance-based restricted stock and
stock option awards to them in 1996 and options held by them at year end are
described in the Tables. The awards of performance-based restricted stock are
subject to forfeiture in whole or in part unless specific performance goals
which have been determined by the Compensation Committee are achieved. Awards
in 1996 were 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 Corporation's industry. In
doing so, the Committee considered the number of options already owned by each
named executive, if any, and the objective that each such person 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. For Messrs.
Biegler, Satterwhite and Rescoe, it took into account the size of awards of
performance-based restricted stock and stock options awarded to them by EEX,
an 83%-owned subsidiary. Change-in-control provisions of the 1991 Stock
Incentive Plan caused restrictions on the performance-based restricted stock
to be lifted and full vesting of stock option awards as shown in the Tables.
The Corporation encourages career employment, and it is endorsed by our
Committee. Its retirement benefits are an essential part of that policy. They
are described, for the named executive officers, in the Retirement Benefit
Table and its footnotes. The Committee periodically reviews executive
retirement benefits to ensure that they continue to meet the Corporation's
needs and are consistent with good corporate practice.
No formal policy has been adopted by the Corporation 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 1991 Stock Option Plan as approved by shareholders
in 1994. The Committee does not anticipate that current compensation levels
will result in loss of any tax deductibility.
A decision by the Board to terminate the Special Supplemental Compensation
Plan resulted in an accelerated accrual for the account of D. W. Biegler as
described in a note to the Summary Compensation Table. Change-in-control
provisions of a trust relating to an expired employment contract for W. T.
Satterwhite resulted in an accrual during the year as described in a note to
the Summary Compensation Table.
Compensation Committee
Marvin G. Girouard, Chairman
Odie C. Donald
Thomas W. Luce, III
24
<PAGE>
PERFORMANCE GRAPH
Set forth below is a line graph comparing for the last five fiscal years the
yearly percentage change in the cumulative total shareholder return on the
Corporation's Common Stock against the cumulative total return of the S&P 500
Composite Stock Index and peer-group index. The graph assumes that the value
of the investment in the Corporation's Common Stock and each index was $100 at
December 31, 1991, and that all dividends are reinvested. The returns of each
component company have been weighted according to their respective stock
market capitalization at the beginning of each period for which a return is
indicated.
COMPARISON OF FIVE-YEAR CUMULATIVE TOTAL RETURN
[CHART]
<TABLE>
<CAPTION>
1991 1992 1993 1994 1995 1996
---- ---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C> <C>
December 31,
ENSERCH......................................... 100 110 128 105 131 188
S&P 500......................................... 100 108 118 120 165 203
Peer Index(1)................................... 100 105 120 104 141 182
</TABLE>
- --------
(1) The Peer Group consists of Chesapeake Utilities, Columbia Gas System,
Consolidated Natural Gas, Eastern Enterprises, Energen Corporation,
ENSERCH Corporation, Equitable Resources, K N Energy Inc., National Fuel &
Gas, National Gas & Oil, Noram, Inc., ONEOK Inc., Pennsylvania
Enterprises, Questar Corporation, South Jersey Industries, Southwest Gas
Corporation, Southwestern Energy, UGI Corporation, Valley Resources,
Washington Energy, and Wicor Inc. In 1995, the American Gas Association
("AGA") Diversified/Integrated company index provided total return data
for the above companies. Since the AGA no longer publishes that index,
data are now calculated by the Corporation.
25
<PAGE>
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION
At various times during 1996, the following individuals served as a member
of the Corporation's Compensation Committee: Mr. Frederick S. Addy, Mr. Odie
C. Donald, Mr. Marvin J. Girouard and Mr. Thomas W. Luce, III. None of these
persons was or has been an officer or employee of the Corporation or any of
its subsidiaries, except that Mr. Addy served as interim Chairman and
President of EEX, following his resignation from the Corporation's Board of
Directors.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS
The Corporation is aware of the following beneficial owner, as of December
31, 1996, of more than 5% of its Common Stock.
<TABLE>
<CAPTION>
NAME AND ADDRESS NUMBER OF SHARES PERCENT
BENEFICIAL OWNER BENEFICIALLY OWNED OF CLASS
---------------- ------------------ --------
<S> <C> <C>
Wellington Management Company....................... 5,008,450(1) 7.19%
75 State Street
Boston, MA 02109
Prudential Insurance Company of America............. 3,664,300(2) 5.49%
751 Broad Street
Newark, NJ 07102-3777
</TABLE>
- --------
(1) These common shares were reported as being owned primarily by The
Vanguard/Windsor Fund, Inc. of the Vanguard Group of Investment Companies
whom Wellington Management Company serves as investment adviser.
Wellington Management Company reported the beneficial ownership of 177,500
shares with shared voting power and 5,008,450 shares with shared
dispositive power. The shares beneficially owned by The Vanguard/Windsor
Fund, Inc. include 4,669,000 shares with sole voting power and shared
dispositive power.
(2) Includes 248,393 shares with sole voting and dispositive power, 3,576,700
shares with shared voting power and 3,664,300 shares with shared
dispositive power.
26
<PAGE>
STOCK OWNERSHIP OF MANAGEMENT AND BOARD OF DIRECTORS
Each director, the named executive officers, and all directors and executive
officers as a group, reported beneficial ownership as of February 28, 1997, of
Common Stock of the Corporation and EEX as follows:
<TABLE>
<CAPTION>
ENSERCH EEX
------------------------- ---------------------
NUMBER OF NUMBER OF
SHARES SHARES
BENEFICIALLY PERCENT BENEFICIALLY PERCENT
NAME OWNED(1) OF CLASS OWNED(2) OF CLASS
---- ------------ -------- ------------ --------
<S> <C> <C> <C> <C>
D. W. Biegler................. 307,923(3) * 46,000(4) *
B. A. Bridgewater, Jr......... 5,944 * 1,000 *
Odie C. Donald................ 1,809 * 0 *
Marvin J. Girouard............ 4,144 * 0 *
J. M. Haggar, Jr.............. 5,432 * 0 *
Thomas W. Luce, III........... 1,500 * 0 *
W. C. McCord.................. 66,301 * 2,000 *
Diana S. Natalicio............ 3,444 * 0 *
G. R. Bryan................... 99,879(3)(5) * 0 *
M. T. Hunter.................. 53 * 0 *
W. T. Satterwhite............. 105,159(3) * 9,500(4) *
M. E. Rescoe.................. 28,512(3) * 20,008(4) *
All Directors and Executive
Officers as a Group.......... 740,643 1.1 83,378 *
</TABLE>
- --------
* Less than 1%
(1) The number of shares owned includes shares held in the Corporation's
Employee Stock Purchase and Savings Plan.
(2) The number of shares owned includes shares held in the Corporation's
Employee Stock Purchase and Savings Plan and restricted shares awarded
under the EEX Revised and Amended 1996 Stock Incentive Plan, where
applicable.
(3) The totals include shares subject to stock options exercisable within 60
days of the Record Date: D. W. Biegler 246,948 shares; W. C. McCord 65,000
shares; G. R. Bryan 68,675 shares; W. T. Satterwhite 63,000 shares;M. E.
Rescoe 24,000 shares; and all directors and executive officers as a group
541,123 shares.
(4) The totals include shares subject to stock options exercisable within 60
days of the Record Date: D. W. Biegler 35,000 shares; W. T. Satterwhite
7,500 shares; M. E. Rescoe 14,000 shares; and all directors and executive
officers as a group 56,500 shares.
(5) Of the shares listed, 64 are shares deemed beneficially owned by Mr. Bryan
because of sole or shared voting or investment power.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
SECTION 16(A) BENEFICIAL OWNERSHIP REPORTING COMPLIANCE
Section 16(a) of the Securities Exchange Act of 1934 requires the officers
and directors of the Corporation, and persons who own more than 10% of a
registered class of the equity securities of the Corporation, 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 Corporation
believes that during 1996, its officers, directors and greater than 10%
shareholders complied with all applicable filing requirements, except for the
following: one report covering one transaction was filed approximately 30 days
late by Mr. D. R. Long, an executive officer of the Corporation, following the
exercise of options; one report covering five transactions and one report
covering three transactions were filed 85 days and 35 days late, respectively,
by Mr. W. C. McCord, a Director of the Corporation, following the exercise of
options.
27
<PAGE>
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K
(A)-1 FINANCIAL STATEMENTS
The following items appear in the Financial Information section included in
Appendix A to this report:
<TABLE>
<CAPTION>
ITEM PAGE
---- ----
<S> <C>
Selected Financial Data................................................. A-2
Financial Review........................................................ A-4
Natural Gas and Oil Exploration and Production Operating Data.......... A-11
Natural Gas Pipeline, Processing & Marketing Operating Data............ A-12
Natural Gas Distribution Operating Data................................ A-13
Independent Auditors' Report............................................ A-14
Management Report on Responsibility for Financial Reporting............. A-15
Financial Statements:
Statements of Consolidated Income...................................... A-16
Statements of Consolidated Cash Flows.................................. A-17
Consolidated Balance Sheets............................................ A-18
Statements of Consolidated Common Shareholders' Equity................. A-19
Notes to Consolidated Financial Statements.............................. A-20
Summary of Business Segments............................................ A-39
Quarterly Results....................................................... A-40
Common Stock Market Prices and Dividend Information..................... A-41
</TABLE>
(A)-2 FINANCIAL STATEMENT SCHEDULES
The consolidated financial statement schedules are omitted because of the
absence of the conditions under which they are required or because the
required information is included in the consolidated financial statements or
notes thereto.
(A)-3 EXHIBITS. The following exhibits are filed herewith unless otherwise
indicated:
<TABLE>
<C> <S>
2.1* Amended and Restated Agreement and Plan of Merger dated as of April
13, 1996, to the Corporation's Proxy Statement dated September 23,
1996.
2.2* Stock Option Agreement dated as of April 13, 1996, attached as Annex
II to the Corporation's Proxy Statement dated September 23, 1996.
2.3* Form of Agreement and Plan of Distribution included as Exhibit A to
the Plan of Merger attached as Annex I to the Corporation's Proxy
Statement dated September 23, 1996.
3.1 Restated Articles of Incorporation of the Corporation currently in
effect.
3.2* Bylaws of the Corporation, filed as Exhibit 3.2 to the Corporation's
Form 10-K for the year ended December 31, 1994.
4.1* Shareholder Rights Plan, filed as an Exhibit to the Corporation's Form
8-A dated March 26, 1996.
Executive Compensation Plan and Arrangements (Exhibits 10.1 though 10.11):
10.1* ENSERCH Corporation Deferred Compensation Plan for Directors, filed as
Exhibit 10.2 to the Corporation's Form 10-K for the year ended
December 31, 1994.
10.2* Director's Deferred Compensation Trust Agreement, as amended, and
currently in effect, filed as Exhibit 10.3 to the Corporation's Form
10-K for the year ended December 31, 1991.
10.3* Forms of trust agreements relating to compensation and supplemental
retirement income arrangements executed by certain executive officers
of the Corporation, filed as Exhibit 10.5 to the Corporation's Form
10-K for the year ended December 31, 1991.
</TABLE>
28
<PAGE>
<TABLE>
<C> <S>
10.4* ENSERCH Corporation 1981 Stock Option Plan, as amended, and currently
in effect, as filed as Exhibit 10.6 to the Corporation's Form 10-K
for the year ended December 31, 1991.
10.5 Form of Change of Control Agreement executed by certain executive
officers of the Corporation.
10.6 ENSERCH Corporation, Lone Star Gas Company, Lone Star Pipeline
Company, Lone Star Pipeline Company--Processing Division, and Power
Group Performance Incentive Plans--Calendar Year 1997.
10.7* ENSERCH Corporation 1991 Stock Incentive Plan, filed as Exhibit 10.12
to the Corporation's Form 10-K for the Year Ended December 31, 1990.
10.8 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, 1996.
10.9 ENSERCH Corporation Deferred Compensation Trust dated September 30,
1994, and Amendment No. 1 thereto effective January 1, 1996.
10.10 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.
10.11 ENSERCH Corporation Retirement Income Restoration Trust dated
September 30, 1994, and Amendment No. 1 thereto effective January 1,
1996.
10.12* Form of Tax Allocation Agreement included as Exhibit B to the Plan of
Merger attached as Annex I to the Corporation's Proxy Statement dated
September 23, 1996.
10.13* Form of Tax Assurance Agreement included as Exhibit C to the Plan of
Merger attached as Annex I to the Corporation's Proxy Statement dated
September 23, 1996.
21 Subsidiaries of the Corporation.
23.1 Deloitte & Touche LLP consent to incorporation by reference in
Registration Statements No. 2-59259, No. 2-77572, No. 33-15623, No.
33-40589, No. 33-47911, No. 33-52525, No. 33-61635 and No. 333-12391.
23.2 DeGolyer and MacNaughton consent letter including consent to
incorporation by reference in Registration Statements No. 2-59259,
No. 2-77572, No. 33-15623, No. 33-40589, No. 33-47911, No. 33-52525,
No. 33-61635 and No. 333-12391.
24 Powers of Attorney.
27 Financial Data Schedule.
99* Proxy Statement of the Corporation dated September 23, 1996, as filed
with the SEC.
</TABLE>
- --------
* Incorporated herein by reference and made a part hereof.
Long-term debt is described in Note 3 of the Notes to Consolidated Financial
Statements included in Appendix A to this report. The Corporation 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.
(B) REPORTS ON FORM 8-K
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).
29
<PAGE>
SIGNATURES
PURSUANT TO THE REQUIREMENTS OF SECTION 13 OR 15(D) OF THE SECURITIES
EXCHANGE ACT OF 1934, THE REGISTRANT HAS DULY CAUSED THIS REPORT TO BE SIGNED
ON ITS BEHALF BY THE UNDERSIGNED, THEREUNTO DULY AUTHORIZED.
ENSERCH Corporation
By: /s/ D. W. Biegler
-----------------------------------
D. W. BIEGLER,
CHAIRMAN AND PRESIDENT,
CHIEF EXECUTIVE OFFICER
March 27, 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 AND TITLE DATE
D. W. Biegler, Chairman and
President, Chief Executive Officer
and Director; B. A. Bridgewater,
Jr., Director; Odie C. Donald,
Director; Marvin J. Girouard,
Director; Joseph M. Haggar, Jr.,
Director; Thomas W. Luce, III,
Director; W. C. McCord, Director;
Diana S. Natalicio, Director; M. E.
Rescoe, Senior Vice President, March 27, 1997
Finance and Chief Financial Officer;
J. W. Pinkerton, Vice President and
Controller, Chief Accounting Officer
By: /s/ D. W. Biegler
-----------------------------------
D. W. BIEGLERINDIVIDUALLY AND
ASATTORNEY-IN-FACT
30
<PAGE>
ENSERCH CORPORATION AND SUBSIDIARY COMPANIES
INDEX TO FINANCIAL INFORMATION
DECEMBER 31, 1996
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Selected Financial Data.................................................... A-2
Financial Review........................................................... A-4
Natural Gas and Oil Exploration and Production Operating Data............ A-11
Natural Gas Pipeline, Processing & Marketing Operating Data.............. A-12
Natural Gas Distribution Operating Data.................................. A-13
Independent Auditors' Report............................................... A-14
Management Report on Responsibility for Financial Reporting................ A-15
Financial Statements:
Statements of Consolidated Income........................................ A-16
Statements of Consolidated Cash Flows.................................... A-17
Consolidated Balance Sheets.............................................. A-18
Statements of Consolidated Common Shareholders' Equity................... A-19
Notes to Consolidated Financial Statements................................. A-20
Summary of Business Segments............................................... A-39
Quarterly Results.......................................................... A-40
Common Stock Market Prices and Dividend Information........................ A-41
</TABLE>
A-1
<PAGE>
ENSERCH CORPORATION AND SUBSIDIARY COMPANIES
SELECTED FINANCIAL DATA
<TABLE>
<CAPTION>
AS OF OR FOR YEAR ENDED DECEMBER 31
----------------------------------------------------------------------
1996 1995 1994 1993 1992 1991
-------- -------- -------- -------- -------- --------
(IN MILLIONS EXCEPT RATIO AND PER SHARE AMOUNTS)
<S> <C> <C> <C> <C> <C> <C>
INCOME STATEMENT DATA
Revenues (a)
Natural gas and oil
exploration and
production............. $ 331.2 $ 220.9 $ 179.3 $ 189.8 $ 171.5 $ 183.6
Natural gas pipeline,
processing &
marketing.............. 1,126.5 996.4 1,235.6 908.0 639.5 590.4
Natural gas
distribution........... 895.2 893.8 881.3 973.9 923.4 913.2
Power and other......... 37.8 39.8 45.5 48.6 45.7 37.3
Less intercompany
revenues............... (248.1) (219.7) (246.2) (241.4) (152.4) (159.8)
-------- -------- -------- -------- -------- --------
Total revenues.......... 2,142.6 1,931.2 2,095.5 1,878.9 1,627.7 1,564.7
Operating Income
(Loss) (a)
Natural gas and oil
exploration and
production............. 32.2 (12.0) 25.4 (b) (37.3)(c) (6.2)(b) 10.9
Natural gas pipeline,
processing &
marketing.............. 63.4 60.1 27.2 73.4 67.7 78.7
Natural gas
distribution........... 68.2 54.6 38.3 34.2 (d) 48.4 54.1
Power and other......... (8.2) 3.5 5.8 9.8 13.4 6.1
General and other....... (9.3) (8.5) (8.1) (11.9) (16.8) (15.4)
-------- -------- -------- -------- -------- --------
Total operating income.. 146.3 (e) 97.7 88.6 68.2 106.5 134.4
Other Income (Expense)--
Net (f)................. (11.2) (1.0) (6.0) .1 (12.6) 14.6
Interest and Other
Financing Costs......... (94.9) (83.3) (69.3) (77.7) (94.5) (92.9)
Income (Taxes) Benefit... (15.7) (.9) 68.7 (g) (6.6)(g) 2.2 (17.8)
Minority Interest........ (1.8) .6 (.5) -- .2 (.5)
-------- -------- -------- -------- -------- --------
Income (Loss) from
Continuing Operations... 22.7 13.1 81.5 (16.0) 1.8 37.8
Income (Loss) from
Discontinued
Operations.............. (1.6) 20.6 75.4 (13.8) (18.6)
Extraordinary Loss on
Extinguishment of Debt.. (2.1) -- -- -- (15.3) --
-------- -------- -------- -------- -------- --------
Net Income (Loss)........ 19.0 13.1 102.1 59.4 (27.3) 19.2
Earnings (Loss)
Applicable to Common
Stock................... 7.7 1.4 90.5 46.7 (40.3) 4.9
Per Share of Common Stock
Income (loss) from
continuing operations
after provision for
preferred dividends.... .16 .02 1.03 (.42) (.16) .35
Discontinued
operations............. (.02) -- .30 1.11 (.21) (.28)
Extraordinary loss...... (.03) -- -- -- (.23) --
-------- -------- -------- -------- -------- --------
Earnings (loss)
applicable to common
stock.................. .11 .02 1.33 .69 (.60) .07
Average Common and
Dilutive Common
Equivalent Shares
Outstanding............. 69.4 68.3 68.0 67.8 66.9 66.3
- --------------------------------------------------------------------------------
COMMON STOCK DATA
Cash Dividends Declared
and Paid................ $ .20 $ .20 $ .20 $ .20 $ .80 $ .80
Market Price
High.................... 23 3/4 18 5/8 19 1/8 22 5/8 16 1/2 21 3/8
Low..................... 14 1/8 12 5/8 12 1/8 14 1/8 10 3/8 12 3/4
Common Shareholders'
Equity per Share........ 10.58 10.50 10.65 9.54 9.00 10.32
Shares Outstanding at
Year-end................ 70.3 68.5 68.2 67.9 67.2 66.5
- --------------------------------------------------------------------------------
BALANCE SHEET DATA
Property, Plant and
Equipment--Net.......... $2,943.4 $2,726.8 $2,253.5 $2,119.1 $2,065.9 $2,152.2
Total Assets............. 3,744.6 3,381.1 2,888.5 2,806.0 3,158.9 3,169.8
Net Working Capital
(Deficiency)............ (115.5) (185.5) (157.1) (191.8) 2.5 (42.5)
Current Ratio............ .85 .74 .77 .74 1.00 .95
Unused Revolving or Line
of Credit Agreements.... $ 490.0 $ 600.0 $ 600.0 $ 635.0 $ 485.0 $ 650.0
- --------------------------------------------------------------------------------
CAPITAL STRUCTURE
Senior Long-term Debt.... $ 958.5 $ 885.2 $ 726.3 $ 640.0 $ 865.3 $ 757.6
Convertible Subordinated
Debentures.............. 90.8 90.8 90.8 90.8 90.8 205.7
Mandatorily Redeemable
Preferred Securities of
Subsidiary of EEX....... 150.0 150.0 -- -- -- --
Minority Interest in
Subsidiaries............ 159.4 156.4 12.1 8.8 5.1 5.5
Preferred Stock.......... 175.0 175.0 175.0 175.0 175.0 175.0
Common Shareholders'
Equity.................. 743.4 719.2 726.2 647.6 605.4 686.5
-------- -------- -------- -------- -------- --------
Total Capitalization.... 2,277.1 2,176.6 1,730.4 1,562.2 1,741.6 1,830.3
Senior Long-term and
Convertible Debt Ratio
(Percent)............... 46.1 44.8 47.2 46.8 54.9 52.6
</TABLE>
See Notes on page A-3.
A-2
<PAGE>
NOTES TO SELECTED FINANCIAL DATA
(a) Revenues and operating income (loss) by segments have been restated to
reflect the realignment of certain businesses between segments to conform
to the 1996 presentation.
(b) 1994 includes a $7.6 million pretax ($4.9 million after-tax, $.07 per
share) gain from the sale of an inactive offshore pipeline and facilities.
1992 includes a $16.5 million pretax ($10.9 million after-tax, $.16 per
share) write-down of the inactive offshore pipeline and facilities.
(c) Includes a $41.4 million pretax ($26.9 million after-tax, $.40 per share)
charge as a result of an adverse judgment in litigation and a $13.3
million pretax ($8.6 million after-tax, $.13 per share) write-down of non-
U.S. gas and oil properties.
(d) Includes a $12.0 million pretax ($7.8 million after-tax, $.12 per share)
charge principally for severance expenses associated with re-engineering
distribution operations.
(e) Includes a $5.8 million pretax ($3.8 million after-tax, $.05 per share)
charge for merger related expenses.
(f) 1996 includes $6.8 million pretax ($6.7 million after-tax, $.10 per share)
of expenses related to the pending merger with Texas Utilities Company and
income of $2.2 million pretax ($1.4 million after-tax, $.02 per share)
from the early termination of an interest-rate swap; 1992 includes a $15.5
million pretax ($10.2 million after-tax, $.15 per share) provision for
litigation; 1991 includes a $15.1 million pretax ($10.0 million after-tax,
$.15 per share) gain from the sale of Oklahoma utility properties and non-
U. S. gas and oil assets.
(g) 1994 includes a $70.0 million ($1.03 per share) reduction of deferred
income taxes associated with the reorganization of partnerships to form
Enserch Exploration, Inc. 1993 includes a $10.8 million ($.16 per share)
charge from the 1% increase in the statutory federal income-tax rate on
corporations.
A-3
<PAGE>
ENSERCH CORPORATION
FINANCIAL REVIEW
MERGER WITH TUC
On April 15, 1996, ENSERCH Corporation announced that it had entered into a
merger agreement with Texas Utilities Company (TUC). Prior to the merger,
ENSERCH's approximate 83% interest in Enserch Exploration, Inc. (EEX),
represented by approximately 105 million shares of EEX common stock, will be
distributed to ENSERCH shareholders. Lone Star Gas Company and Lone Star
Pipeline Company, the local distribution and pipeline companies of ENSERCH,
and other businesses will become a part of TUC. Based on ENSERCH shares
outstanding at December 31, 1996 and its financial statements as of that date,
TUC will acquire these operations through the issuance of approximately $560
million of TUC common stock and the assumption of ENSERCH debt and preferred
stock of approximately $1.25 billion.
Within a $4.00 (approximately 10%) price range variation above or below the
April 12, 1996 closing price of TUC common stock ($39.625 per share), each
holder of ENSERCH common stock will receive sufficient shares of TUC common
stock to provide $8.00 of value. Based on the December 31, 1996 closing price
of TUC common stock of $40.75, each ENSERCH share would be converted into
approximately .2 shares of TUC common stock. Above or below the 10% threshold,
the value received will move up or down pro rata with the price of TUC common
stock. Also, based on the ENSERCH shares outstanding at December 31, 1996 and
estimated EEX shares to be owned by ENSERCH, each holder of ENSERCH common
stock would receive approximately 1.5 shares of EEX common stock. The final
determination of TUC and EEX shares received by ENSERCH shareholders will be
based on the value of the TUC shares for a specified period prior to closing
and the actual number of ENSERCH and EEX shares outstanding on the closing
date.
The transaction was approved at special meetings of the shareholders of
ENSERCH, EEX and TUC held separately 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 transaction, and the Antitrust
Division of the U.S. Department of Justice (DOJ) has notified ENSERCH and TUC
that its investigation of the transaction has been closed without the DOJ
taking any action or requiring TUC or ENSERCH to take any action. ENSERCH has
also received a favorable tax ruling from the Internal Revenue Service to the
effect that neither ENSERCH nor its shareholders will recognize taxable gain
on the distribution of EEX shares to ENSERCH common shareholders.
RESULTS OF OPERATIONS
Earnings applicable to common stock for the year 1996 were $7.7 million
($.11 per share), compared with $1.4 million ($.02 per share) for 1995 and $90
million ($1.33 per share) for 1994. The 1996 results were affected by several
unusual items which totaled $12.7 million, or $.18 per share. Excluding these,
there was a year-to-year improvement in earnings of $19 million, or $.27 per
share. The unusual items include $9.0 million after-tax ($10.4 million pretax)
affecting income from continuing operations for expenses associated with the
pending distribution of EEX shares to ENSERCH shareholders and merger of
ENSERCH with TUC, net of a $1.4 million after-tax ($2.2 million pretax) gain
on early termination of an interest-rate swap; a $2.1 million after-tax
extraordinary charge from an early extinguishment of debt to facilitate the
merger; and a $1.6 million loss from discontinued operations.
CONTINUING OPERATIONS, INCLUDING EXPLORATION AND PRODUCTION OPERATIONS
Income from continuing operations (including exploration and production
operations), after provision for preferred dividends, was $11.4 million ($.16
per share) in 1996, $1.4 million ($.02 per share) in 1995 and $70 million
($1.03 per share) in 1994. The 1996 results included several unusual items
that reduced income from continuing operations by $9.0 million ($.13 per
share), while 1994 benefited from nonrecurring items that together totaled $75
million ($1.10 per share). Excluding these unusual items from 1996 and 1994
results, income
A-4
<PAGE>
from continuing operations for 1996 was $20.4 million ($.29 per share),
compared with $1.4 million ($.02 per share) in 1995 and a loss of $5.1 million
($.07 per share) in 1994. The 1994 nonrecurring items included a $70 million
reduction of deferred income taxes associated with the reorganization of
partnerships to form EEX and a $4.9 million after-tax ($7.6 million pretax)
gain by EEX from the sale of assets.
Operating income for 1996 was $146 million versus $98 million in 1995 and
$89 million in 1994. Operating income for 1996 was reduced $5.8 million by
merger related expenses, and operating income for 1994 benefited from the $7.6
million gain from the sale of assets. Excluding these unusual items, operating
income was $152 million, $98 million and $81 million for 1996, 1995 and 1994,
respectively. Variations in revenues and operating income for each business
segment are discussed below.
NATURAL GAS AND OIL EXPLORATION AND PRODUCTION
Reserves
EEX's natural-gas reserves at January 1, 1997 were 1.22 trillion cubic feet
(Tcf), compared with 1.36 Tcf the year earlier, as estimated by DeGolyer and
MacNaughton, independent petroleum consultants. Additions to and purchases of
natural-gas reserves in 1996 replaced gas produced from retained properties
after adjusting for the sale of 124 billion cubic feet (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 of 59
million barrels (MMBbls) at January 1, 1997 were 8.6 MMBbls below the year-
earlier level, after adjusting for the sale of 3.7 MMBbls. The decrease
resulted principally from downward revisions of 8.2 MMBbls at EEX's deep-water
projects in the Gulf of Mexico, primarily due to the performance of two
producing wells at the Cooper project in the Garden Banks area and the
thinning of some previously mapped reservoirs as a result of additional
drilling at the Allegheny project in the Green Canyon Block 254 area.
Operating Results
Operating income of the natural gas and oil exploration and production
business segment is strongly influenced by fluctuations in product prices and
volumes as shown in the table of Operating Data. Operating income for 1996 was
$32 million, compared with a loss of $12 million for 1995 and income of $25
million in 1994, which benefited from the previously noted $7.6 million gain
from the sale of assets.
The significant improvement in operating results from 1995 to 1996 primarily
resulted from higher commodity prices and a full year of production from the
properties acquired in 1995 and from the Cooper project which began producing
in late September 1995, partially offset by increases in related operating
costs. Revenues for 1996 of $331 million were $110 million higher than in
1995, reflecting a $64 million increase in natural-gas revenues and a $46
million 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, and sales volumes of 101 Bcf were 11% greater than in 1995. The higher
oil revenues reflect a 15% improvement in the average sales price and a 52%
increase in sales volumes. Operating expenses for 1996 were $66 million higher
than in 1995, with about $35 million of the increase attributable to costs
associated with the acquired properties and some $25 million of the increase
related to direct costs of the Cooper project. The $6 million net increase in
all other expenses reflects higher general and administrative (G&A) costs and
increased exploration expenses, principally international. G&A costs for 1996
include expenses associated with the pending distribution and merger and costs
related to changes in EEX management.
Excluding the impact of the acquired properties, which contributed income of
$6.9 million to 1995 operating results, and the $7.6 million gain from the
sale of assets in 1994, there was a decrease in operating results from 1994 to
1995 of $37 million. Revenues declined $29 million and operating expenses,
primarily related to the Cooper project, increased $8 million. Natural-gas
revenues for 1995, excluding acquired properties, decreased $37 million (25%),
caused by a 15% decline in the average sales price ($23 million) and a 12%
decrease in sales volumes ($14 million). The lower volumes in 1995 primarily
resulted from less capital spending to replace gas production due to low gas
prices and the normal decline in production. Oil revenues for 1995, excluding
acquired
A-5
<PAGE>
properties, increased $8 million from 1994, reflecting 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 and increased production from
exploration and development activities in North Texas.
Full-Cost Accounting Method
The total amortization rate per Mcf of natural-gas equivalent was $1.11 in
1996, compared with $1.04 in 1995 and $1.08 in 1994. The rate for 1996 was
unfavorably impacted by the downward reserve revisions in two offshore deep-
water projects. The 1995 rate benefited from reserve additions on the
Allegheny project and the properties acquired that year and the credit to
capitalized costs as a result of EEX's common stock sale in September 1995.
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. The margin between the cost center ceiling and the
unamortized capitalized costs of U.S. gas and oil properties was over $500
million at December 31, 1996 based on average December 1996 prices of $3.37
per Mcf of natural gas and $23.33 per barrel of oil. Product prices generally
have the greatest impact on the cost center ceiling. Gas and oil prices are
subject to seasonal and other fluctuations and 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 gas and oil properties almost
certainly will be above the SEC-prescribed cost center ceiling. Based on
circumstances existing through mid-March 1997 and assuming no pricing
improvement or mitigating changes, the projected first-quarter write-down of
capitalized costs would result in a non-cash, after-tax charge to the earnings
of EEX ranging from $225 to $250 million. After minority interest, the impact
on ENSERCH earnings of a non-cash, after-tax write-down of this magnitude
would range from $190 to $210 million, or approximately $3.00 per share of
common stock. A write-down will not affect the ENSERCH merger with TUC or the
ENSERCH businesses to be merged.
Hedging Results
EEX manages a portion of the risk associated with fluctuations in the price
of natural gas and oil through the use of hedging techniques such as gas and
oil swaps, collars and futures agreements. As a result of such hedge
transactions to fix the net prices to be received, losses or gains occur and
either offset or add to actual prices received to achieve the new fixed
prices. In total, gas and oil price hedging activities reduced 1996 revenues
by $20 million but 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 thousand barrels 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 NYMEX 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.
NATURAL GAS PIPELINE, PROCESSING & MARKETING
Operating income from the natural gas pipeline, processing & marketing
segment was $63 million in 1996, $60 million in 1995 and $27 million in 1994.
The table of Operating Data provides revenue and other statistical data for
the segment.
Pipeline
Lone Star Pipeline Company had 1996 operating income of $47 million versus
$49 million in 1995 and $25 million in 1994. The lower results in 1996 were
primarily attributable to higher operating and maintenance expenses, while the
favorable comparison from 1994 to 1995 principally came from a $25 million
reduction in the cost of gas lost in transmission and significant out-of-
period adjustments made in 1994. Pipeline revenues for 1996 were $153 million,
compared with $143 million in 1995 and $141 million in 1994. Pipeline volumes
totaled 652 Bcf in 1996, up significantly from the 561 Bcf in 1995 and 542 Bcf
in 1994. Revenues from transporting gas for ultimate delivery to residential
and commercial customers are affected by seasonal temperature variations.
A-6
<PAGE>
There was a near normal level of heating weather in 1996 versus below normal
levels in both 1995 and 1994. Below normal heating weather resulted in reduced
operating income for pipeline operations by an estimated $5 million in 1995
and some $4 million in 1994.
In the first quarter of 1997, the Corporation announced that it would
voluntarily credit customers for a transportation fee it discovered that was
legally charged according to the rate structure but was unintentionally
charged residential and commercial customers during the period 1991 through
1995. The amount of such refund is expected to be approximately $11 million.
In October 1996, Lone Star Pipeline Company filed a request with the RRC to
increase the rate it charges Lone Star Gas Company to store and transport gas
ultimately destined for residential and commercial customers in the 550 Texas
cities and towns served by Lone Star Gas Company. Lone Star Gas Company also
requested that the RRC separately set rates for costs to aggregate gas supply
for these cities. Rates currently in effect were set by the RRC in 1982. If
approved, the rate adjustment would increase annual revenues by approximately
$24.2 million. The purpose of the rate request is to allow for the recovery of
a substantial increase in the cost of doing business since 1982 and to cover
significant capital investments of approximately $420 million made during the
past 14 years to maintain and improve the reliability and safety of the
pipeline system and help reduce natural-gas supply costs. A number of cities
served by Lone Star Gas Company have joined together in opposing the rate
increase. The RRC is expected to make a final ruling on the matter in mid-May.
Gas Processing
Operating income for natural gas gathering and processing operations of
Enserch Processing, Inc. was $23 million in 1996, compared with $4.7 million
in 1995 and $1.2 million in 1994. Fluctuations in natural gas liquids (NGL)
demand caused by overall economic conditions, price volatility for NGL
products and natural-gas feedstock costs are the major factors that influence
financial results in the NGL processing business. Overall margin on plant
sales for 1996 was approximately 70% higher than in both 1995 and 1994, with
the average NGL sales price per barrel of $15.93 up 37% from the 1995 average
price, which was virtually unchanged from 1994. NGL sales volumes for 1996 of
6.1 MMBbls were slightly ahead of both 1995 and 1994.
Gas Marketing
Gas marketing operations, which are conducted through Enserch Energy
Services, Inc. (EES), had an operating loss of $6.4 million in 1996, compared
with income of $6.1 million in 1995 and $.9 million in 1994. In June 1995,
ENSERCH completed business combinations with two retail marketing companies,
which expanded its energy services capabilities. The loss in 1996 was
attributable to both a sharp decline in gas margin, which was precipitated by
unusual markets in the first quarter of the year, and higher operating
expenses from integrating operations and developing information systems. The
higher income for 1995 compared with 1994 was primarily due to an improvement
in gas margin versus the year earlier, partially offset by an increase in
operating expenses. Revenues for 1996 were 10% higher than in 1995, with a 46%
increase in gas prices more than offsetting a 25% decline in sales volumes.
Revenues for 1995 were 25% lower than in 1994 due to both lower sales volumes
and gas prices. The decline in sales volumes for both 1996 and 1995 was
primarily due to the decision to de-emphasize some wholesale marketing and
focus on end use customers. As part of its natural gas marketing activities,
EES enters into forward contracts involving physical delivery of natural gas
and derivative financial instruments, including swaps, options, futures and
other contractual arrangements to offset price risks of gas supply. These
activities involve price commitments into the future and, therefore, give rise
to market risk. EES applies hedge accounting to its business activities. At
December 31, 1996, natural gas marketing operations had net commitments to
sell approximately 21 Bcf of natural gas through the year 2001 with offsetting
net financial positions to purchase approximately 22 Bcf. At December 31,
1996, there was a net unrealized and unrecognized gain of $.7 million on these
contracts.
NATURAL GAS DISTRIBUTION
The table of Operating Data reflects the effects of variable weather
patterns on natural gas distribution operations conducted by Lone Star Gas
Company. Operating income for 1996 was $68 million, compared with $55 million
in 1995 and $38 million in 1994. Overall margin on gas sales for 1996 was up
8% from 1995, reflecting distribution rate improvements and near normal levels
of heating weather in 1996 versus below normal levels in both 1995 and 1994.
Mild winter weather caused reductions in operating income for this segment of
an
A-7
<PAGE>
estimated $5.5 million in 1995 and $3 million in 1994. The operating income
improvement from 1994 to 1995 reflects lower operating expenses resulting from
cost reduction measures initiated in prior years. Sales volumes to the
residential and commercial customer category in 1996 were 8% higher than in
1995, which was virtually the same as in 1994.
Distribution rate increases granted in 1996 will, on a normal weather basis,
increase annual revenues by approximately $6.3 million. Over 65% of Lone
Star's volumes sold to residential and commercial customers are now covered by
a weather normalization clause.
POWER AND OTHER
ENSERCH's power activities had a 1996 operating loss of $8.2 million,
compared with income of $3.5 million in 1995 and $5.8 million in 1994. The
segment's earnings from operating thermal and power projects were offset by
expenses of development activities and losses totaling $7.0 million, including
an accrual of $3.3 million to cover anticipated future losses, associated with
contracts entered into in prior years to transport gas to a cogeneration
project. No development projects were closed in the three years ended December
31, 1996. At year-end 1996, a 70%-owned 36-megawatt (MW) coal-fired
cogeneration facility was under construction in the People's Republic of
China. Phase I of the plant is expected to be completed in mid-1997; the
remainder in 1998. Also, the drilling phase of a geothermal project to be 15%-
owned was underway in Indonesia. Construction of the 300 to 400-MW power-
generation facility is scheduled to begin in 1997.
OTHER EXPENSES
Other expense in 1996 includes $6.8 million of professional fees and other
expenses associated with the pending distribution of shares of EEX and merger
of ENSERCH with TUC and a $2.2 million gain on the early termination of an
interest-rate swap in conjunction with EEX's refinancing of its obligations in
preparation for the distribution. The year 1994 included $2.7 million of costs
associated with the reorganization of partnerships to form EEX and a $1.4
million loss on the early redemption of sinking fund debentures. Other amounts
consist principally of gains on disposals of assets and interest income, less
losses from unconsolidated affiliates and discounts on sales of receivables.
Interest and other financing costs for 1996 were $95 million, compared with
$83 million in 1995 and $69 million in 1994. The increases in both 1996 and
1995 were primarily due to debt associated with the financing of the
acquisition in June 1995 by EEX.
DISCONTINUED OPERATIONS
A $1.6 million after-tax ($.02 per share) loss provision was recorded in the
fourth quarter of 1996 in recognition that certain claims and accounts
receivable were recently settled at amounts less than previously estimated and
that the period to wind up the discontinued engineering and construction
businesses will be longer than previously expected with attendant increases in
costs and expenses. The 1994 income from discontinued operations of $21
million ($.30 per share) arose from the sale of Enserch Environmental
Corporation, partially offset by a $10 million after-tax loss provision for
windup of other discontinued businesses. At December 31, 1996, discontinued
businesses had assets of $46 million, consisting principally of retained
claims and accounts receivable, and current and other liabilities and reserves
of $18 million. The Corporation has filed suit against certain parties to
recover amounts outstanding. Management expects that substantially all
disputes will be resolved by year-end 1997 and that adequate provision for
uncollectible claims and accounts receivable, income-tax matters and expenses
for windup of discontinued operations has been made.
The merger of ENSERCH with TUC will be preceded by the distribution of EEX
shares to ENSERCH common shareholders. To facilitate the distribution, Lone
Star Energy Plant Operations, Inc. (LSEPO), an indirect wholly owned
subsidiary of ENSERCH, will merge with EEX; LSEPO will be the surviving
corporation of that merger, and its name will be changed to Enserch
Exploration, Inc. The merger enables the distribution to be tax-free to
ENSERCH and its shareholders. LSEPO, under long-term contracts, operates and
maintains three cogeneration facilities.
A-8
<PAGE>
Following the distribution, the historical financial statements of ENSERCH
will be restated to reflect the exploration and production segment and LSEPO
as discontinued operations. ENSERCH's restated results of operations will be
as follows:
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31
---------------------------
1996 1995 1994
------- -------- --------
(IN THOUSANDS)
<S> <C> <C> <C>
Income (Loss) from Continuing Operations.......... $ 9,751 $ 21,362 $ (5,661)
Income (Loss) from Discontinued Operations:
Engineering and Construction.................... (1,560) -- 20,642
Exploration and Production*..................... 12,947 (8,309) 87,113
Extraordinary Loss on Extinguishment of Debt...... (2,096) -- --
------- -------- --------
Net Income........................................ 19,042 13,053 102,094
Provision for Dividends on Preferred Stock........ 11,339 11,690 11,619
------- -------- --------
Earnings Applicable to Common Stock............... $ 7,703 $ 1,363 $ 90,475
======= ======== ========
Per Share of Common Stock:
Income (loss) from continuing operations after
provision for preferred dividends.............. $ (.02) $ .14 $ (.25)
Discontinued operations......................... .16 (.12) 1.58
Extraordinary loss.............................. (.03) -- --
------- -------- --------
Earnings applicable to common stock............. $ .11 $ .02 $ 1.33
======= ======== ========
- --------
* The following reconciles net income (loss) of EEX and LSEPO to income (loss)
from the discontinued exploration and production business segment:
Net income (loss) of EEX.......................... $10,774 $(12,502) $ 7,477
Net income of LSEPO............................... 933 1,370 813
Differences in amounts reported by EEX and LSEPO
and amounts reported for the discontinued
business by ENSERCH in its consolidated financial
statements (after-tax):
Amortization of costs capitalized by ENSERCH not
incurred by EEX................................ (1,550) (4,544) (4,112)
Litigation judgment against ENSERCH............. -- -- (485)
Effects of property sub-lease transactions...... 2,248 2,279 --
Reduction of deferred income taxes associated
with the reorganization of partnerships to form
EEX............................................ -- -- 70,000
Interest on debt assumed by ENSERCH Corporation
in connection with the reorganization of
partnerships to form EEX in 1994............... -- -- 13,597
Activities not conducted through EEX and other.. 2,334 4,173 (84)
Eliminate minority interest..................... (1,792) 915 (93)
------- -------- --------
Income (loss) from discontinued exploration and
production business segment...................... $12,947 $ (8,309) $ 87,113
======= ======== ========
</TABLE>
EXTRAORDINARY LOSS
The extraordinary loss in 1996 of $2.1 million ($.03 per share) represents a
premium incurred in connection with the prepayment of ENSERCH's 9.06% Notes to
facilitate the merger with TUC. The early redemption of the Notes will reduce
future interest expense.
A-9
<PAGE>
LIQUIDITY AND FINANCIAL RESOURCES
Net cash flows from operating activities of continuing operations (including
exploration and production operations) for 1996 totaled $266 million, up from
$239 million in 1995 and $91 million in 1994. Income before depreciation and
amortization and deferred income taxes for 1996 was $62 million higher than in
1995; however, recoveries of producer settlements, which are now substantially
complete, were $43 million less than in 1995, and changes in other assets and
liabilities resulted in a year-to-year reduction in cash flows of $7 million.
Changes in current operating assets and liabilities provided $20 million in
1996 versus $5 million in 1995. The 1994 cash flows reflect a $62 million
payment relating to an adverse final judgment.
Investing activities in 1996 required cash flows of $250 million versus $605
million in 1995, which included $342 million for business acquisitions, and
$236 million in 1994. Additions to property, plant and equipment were $40
million greater than in 1995; however, sales and retirements from property,
plant and equipment for 1996 provided $86 million more than in the year
earlier. Sales and retirements in 1996 include net proceeds of $111 million
received by EEX from sales of properties. Cash required for investments in
unconsolidated affiliates for 1996 totaled $60 million, including $34 million
for gas distribution and transmission projects in Chile and Mexico and $25
million for a geothermal power project in Indonesia.
In July 1996, ENSERCH borrowed $100 million under its bank lines of credit
and reduced outstanding commercial paper by the same amount. In September
1996, ENSERCH borrowed $60 million under its bank lines to prepay the
remaining $58.9 million principal balance of its 9.06% Notes, plus the $3.2
million prepayment premium.
Discontinued engineering and construction operations required cash of $7.3
million in 1996, $28 million in 1995 and $.9 million in 1994. The 1995
requirement was principally for the repurchase of previously sold receivables.
The 1994 amount includes net proceeds of $98 million from the 1994 sale of
Enserch Environmental, less working capital requirements of $32 million for
that business in 1994 prior to the sale and less cash required for retained
obligations relating to the 1993 sale of Ebasco.
Total capitalization at December 31, 1996 was $2.3 billion, up slightly from
the $2.2 billion at year-end 1995. Common shareholders' equity plus minority
interest in subsidiaries increased $27 million over 1995, but decreased as a
percentage of total capitalization from 40.2% at December 31, 1995 to 39.6% at
year-end 1996. At December 31, 1996, $569 million of common shareholders'
equity was free of restrictions as to the payment of dividends and redemption
of capital stock.
ENSERCH has future credit availability in the form of a three-year revolving
credit agreement totaling $650 million, $490 million of which was unused at
December 31, 1996. In addition, EEX has a $350 million five-year revolving
credit agreement, $235 million of which was unused at December 31, 1996, and
other affiliates have four-year revolving credit agreements aggregating $30
million, $5 million of which was unused at year-end 1996.
Planned property, plant and equipment additions for 1997 will range from
$175 to $200 million for natural gas and oil exploration and production, $41
million for natural gas pipeline, processing & marketing, $71 million for
natural gas distribution and $1 million for other requirements. The planned
expenditures are expected to be funded from internal cash flow and external
financings as required.
Inflation during recent years has had little effect on capital asset costs
and results of operations.
FOURTH-QUARTER RESULTS
Earnings applicable to common stock for the fourth quarter of 1996 were
$10.5 million ($.15 per share), compared with $7.8 million ($.11 per share)
for the fourth quarter of 1995. Earnings for the 1996 fourth quarter included
the $1.6 million after-tax ($.02 per share) loss provision for discontinued
operations, expenses of $6.3 million after-tax ($.09 per share) relating to
the pending distribution and merger and the $1.4 million after-tax ($.02 per
share) gain on the early termination of the interest-rate swap. Excluding
these items, fourth quarter 1996 earnings applicable to common stock improved
$9.2 million ($.13 per share) from the year-earlier period, and operating
income was $28 million higher, with improvements in all three major business
segments.
A-10
<PAGE>
NATURAL GAS AND OIL EXPLORATION AND PRODUCTION OPERATING DATA (A)
<TABLE>
<CAPTION>
FOR YEAR ENDED DECEMBER 31
------------------------------------------------------------
1996 1995 1994 1993 1992 1991
-------- -------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C> <C>
Operating Income (Loss)
(in millions).......... $ 32.2 $ (12.0) $ 25.4 $ (37.3) $ (6.2) $ 10.9
Revenues (in millions).. $ 331.2 $ 220.9 $ 179.3 $ 189.8 $ 171.5 $ 183.6
Sales Volumes
Natural gas (Bcf)...... 100.5 90.2 67.1 70.0 65.2 70.1
Oil and condensate
(MMBbls).............. 5.1 3.4 2.0 2.1 2.3 2.8
Average Sales Price
Natural gas (per Mcf).. $ 2.20 $ 1.74 $ 2.15 $ 2.09 $ 1.82 $ 1.76
Oil and condensate (per
Bbl).................. 19.47 16.86 15.38 17.24 19.20 20.31
Net Wells
Drilled................ 109 81 74 79 19 67
Productive............. 84 51 44 64 8 52
Proved Reserves (at
December 31)
Natural gas (Bcf)...... 1,216.2 1,362.8 1,041.7 1,086.5 1,101.4 1,168.1
Oil and condensate
(MMBbls).............. 59.2 71.5 50.6 39.3 39.2 40.0
Total Bcfe (b)........ 1,571.5(c) 1,791.8 1,345.3 1,322.3 1,336.6 1,408.1
Standardized Measure of
Discounted Future Net
Cash Flows (in
millions).............. $ 1,735 $ 1,238 $ 827 $ 831 $ 820 $ 812
Data in Equivalent
Energy Content
(per Mcfe) (b)
Production revenue..... $ 2.43 $ 1.93 $ 2.21 $ 2.21 $ 2.07 $ 2.08
Production and
operating costs (d)... .58 .44 .39 .37 .36 .40
Depreciation and
amortization.......... 1.11 1.04 1.08 1.03 1.01 .93
- --------
(a) Revenues and operating income (loss) have been restated to reflect the
realignment of certain businesses between segments to conform to the 1996
presentation.
(b) Oil and natural gas liquids are converted to Mcf equivalents (Mcfe) on the
basis of one barrel equals 6.0 Mcfe.
(c) Reserves decreased 146.2 Bcfe in 1996 as a result of the sale of
properties.
(d) Excludes production, severance and ad valorem taxes.
OPERATING INCOME RECONCILIATION FROM EEX TO ENSERCH SEGMENT
Operating income (loss)
of EEX................. $ 36.8 $ (6.2) $ 32.0 $ 15.2 $ (1.2) $ (34.0)
Amortization of costs
capitalized by ENSERCH
not incurred by EEX.... (2.4) (7.0) (6.3) (9.0) (6.5) (6.9)
Write-down of
capitalized cost under
the full-cost ceiling
limitation by EEX not
required by ENSERCH.... -- -- -- -- -- 52.0
Litigation judgment
against ENSERCH........ -- -- -- (41.4) -- --
Effects of intercompany
lease transactions..... (1.2) 2.5 -- -- -- --
Activities not conducted
through EEX............ (1.0) (1.3) (.3) (2.1) 1.5 (.2)
-------- -------- -------- -------- -------- --------
Operating income (loss)
of ENSERCH's
natural gas and oil
exploration and
production segment..... $ 32.2 $ (12.0) $ 25.4 $ (37.3) $ (6.2) $ 10.9
</TABLE>
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<PAGE>
NATURAL GAS PIPELINE, PROCESSING & MARKETING OPERATING DATA (A)
<TABLE>
<CAPTION>
FOR YEAR ENDED DECEMBER 31
----------------------------------------------
1996 1995 1994 1993 1992 1991
-------- ------ -------- ------ ------ ------
<S> <C> <C> <C> <C> <C> <C>
Operating Income (Loss) (in
millions)
Pipeline....................... $ 46.8 $ 49.3 $ 25.1 $ 51.7 $ 41.2 $ 45.0
Gas Processing................. 23.0 4.7 1.2 5.0 13.1 21.2
Gas Marketing.................. (6.4) 6.1 .9 16.7 13.4 12.5
-------- ------ -------- ------ ------ ------
Total......................... $ 63.4 $ 60.1 $ 27.2 $ 73.4 $ 67.7 $ 78.7
Revenues (in millions)
Pipeline (b)................... $ 152.6 $143.5 $ 141.0 $143.4 $135.9 $185.6
Gas Processing--Natural gas
liquids (c)................... 97.4 69.7 68.7 73.6 79.0 84.9
Gas Marketing.................. 825.0 750.5 997.4 666.2 406.7 297.9
Other (d)...................... 51.5 32.7 28.5 24.8 17.9 22.0
-------- ------ -------- ------ ------ ------
Total revenues................ $1,126.5 $996.4 $1,235.6 $908.0 $639.5 $590.4
Volumes
Pipeline (Bcf) (e)............. 652.3 561.1 541.6 542.8 472.9 481.2
Gas Processing (MMBbls)........ 6.1 6.0 5.9 6.0 5.9 6.1
Gas Marketing (Bcf)............ 315.3 419.2 488.4 306.7 210.9 173.3
Average Sales Price
Natural Gas Liquids (per Bbl).. $ 15.93 $11.66 $ 11.65 $12.34 $13.35 $13.92
Gas Marketing (per Mcf)........ $ 2.62 $ 1.79 $ 2.04 $ 2.17 $ 1.93 $ 1.72
</TABLE>
- --------
(a) Prior year amounts have been restated to reflect the realignment of
certain businesses between segments to conform to the 1996 presentation.
(b) Includes transportation services for affiliates and third-parties and
other miscellaneous revenues.
(c) Represents revenues from sales of plant production.
(d) Includes revenues from natural-gas products purchased for resale,
gathering fees and other miscellaneous revenues.
(e) Includes intrahub wheeling of gas, which does not utilize pipeline
capacity, of approximately 56 Bcf in 1996, 6 Bcf in 1995, 27 Bcf in 1994 and
32 Bcf in 1993.
A-12
<PAGE>
NATURAL GAS DISTRIBUTION OPERATING DATA (A)
<TABLE>
<CAPTION>
FOR YEAR ENDED DECEMBER 31
-----------------------------------------
1996 1995 1994 1993 1992 1991
------ ------ ------ ------ ------ ------
<S> <C> <C> <C> <C> <C> <C>
Operating Income (in millions)...... $ 68.2 $ 54.6 $ 38.3 $ 34.2 $ 48.4 $ 54.1
Natural Gas Sales Revenues by
Customer (in millions)
Residential & commercial........... $789.8 $766.5 $744.3 $823.8 $716.5 $702.9
Industrial (b)..................... 28.5 55.7 63.5 69.6 88.9 100.3
Electric generation................ 48.1 50.9 53.2 58.7 97.5 89.6
------ ------ ------ ------ ------ ------
Total gas sales revenues.......... 866.4 873.1 861.0 952.1 902.9 892.8
Gas transportation revenues (c)..... 13.5 11.5 11.3 11.5 9.9 10.0
Other revenues...................... 15.3 9.2 9.0 10.3 10.6 10.4
------ ------ ------ ------ ------ ------
Total revenues.................... $895.2 $893.8 $881.3 $973.9 $923.4 $913.2
Natural Gas Sales Volumes by
Customer (Bcf)
Residential & commercial........... 135.3 125.7 125.7 139.3 120.6 128.5
Industrial......................... 7.4 13.6 15.3 16.9 20.3 25.8
Electric generation................ 11.2 11.0 11.0 12.4 21.3 23.3
------ ------ ------ ------ ------ ------
Total gas sales volumes........... 153.9 150.3 152.0 168.6 162.2 177.6
Natural Gas Sales Revenues (per Mcf)
Residential & commercial........... $ 5.84 $ 6.10 $ 5.92 $ 5.91 $ 5.94 $ 5.47
Industrial......................... 3.88 4.11 4.16 4.12 4.37 3.90
Electric generation................ 4.30 4.62 4.84 4.75 4.56 3.85
Natural Gas Purchase Cost (per
Mcf)............................... $ 3.86 $ 4.12 $ 4.09 $ 4.16 $ 4.10 $ 3.67
Heating Degree Days................. 2,413 2,173 2,201 2,508 1,980 2,179
% of normal (2,407)................ 100.2 90.3 91.4 104.2 82.3 90.5
Cooling Degree Days................. 2,800 2,656 2,676 2,767 2,415 2,670
% of normal (2,603)................ 107.6 102.0 102.8 106.3 92.8 102.6
</TABLE>
- --------
(a) Revenues and operating income have been restated to reflect the
realignment of certain businesses between segments to conform to the 1996
presentation.
(b) Decrease from 1995 to 1996 is attributable to customers taking advantage
of a program, available since mid-1995, to transport gas purchased from
other suppliers. The transportation fees earned by Lone Star Gas are
sufficient to replace the margin lost on the gas sales.
(c) Represents the portion of transportation revenues attributable to the
distribution system. Related volumes are included within Natural Gas
Pipeline, Processing & Marketing statistics.
A-13
<PAGE>
INDEPENDENT AUDITORS' REPORT
To the Shareholders and Board of Directors of ENSERCH Corporation:
We have audited the accompanying consolidated balance sheets of ENSERCH
Corporation and subsidiary companies as of December 31, 1996 and 1995, and the
related statements of consolidated income, cash flows and common shareholders'
equity for each of the three years in the period ended December 31, 1996.
These financial statements are the responsibility of the Corporation's
management. Our responsibility is to express an opinion on these financial
statements based on our audits. We have previously audited the consolidated
balance sheets of ENSERCH Corporation and subsidiary companies as of December
31, 1994, 1993, 1992 and 1991 and the related statements of consolidated
income, cash flows and common shareholders' equity for the years ended
December 31, 1993, 1992, and 1991 (not presented herewith), and have expressed
unqualified opinions thereon.
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 consolidated financial statements present fairly, in
all material respects, the financial position of ENSERCH Corporation and
subsidiary companies 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. Also, in our opinion, the information set forth in the
accompanying table of selected financial data for the years 1991 through 1996
is fairly stated in all material respects in relation to the consolidated
financial statements from which such information has been derived.
Deloitte & Touche LLP
Dallas, Texas
February 10, 1997
A-14
<PAGE>
MANAGEMENT REPORT ON RESPONSIBILITY FOR FINANCIAL REPORTING
The management of ENSERCH Corporation is responsible for the preparation,
presentation 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 the
Corporation's internal auditors and Deloitte & Touche LLP, the Corporation'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. 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
discussed herein.
_________________________ _________________________ _________________________
D. W. Biegler M. E. Rescoe J. W. Pinkerton
Chairman, President and Senior Vice President, Vice President and
Chief Executive Officer Finance, Chief Financial Controller, Chief
Officer Accounting Officer
February 10, 1997
A-15
<PAGE>
ENSERCH CORPORATION AND SUBSIDIARY COMPANIES
STATEMENTS OF CONSOLIDATED INCOME
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31
-------------------------------------------
1996 1995 1994
------------- ------------- -------------
(IN THOUSANDS EXCEPT PER SHARE AMOUNTS)
<S> <C> <C> <C>
REVENUES
Natural gas and oil exploration
and production................. $ 331,204 $ 220,878 $ 179,331
Natural gas pipeline, processing
& marketing.................... 1,126,450 996,424 1,235,572
Natural gas distribution........ 895,224 893,849 881,336
Power and other................. 37,808 39,817 45,499
Less intercompany revenues...... (248,061) (219,728) (246,230)
------------- ------------- -------------
Total.......................... 2,142,625 1,931,240 2,095,508
------------- ------------- -------------
COSTS AND EXPENSES
Gas purchase.................... 1,227,916 1,170,732 1,432,301
Operating expenses.............. 469,313 405,580 366,512
Depreciation and amortization... 204,845 168,262 126,979
Gross receipts and production
taxes.......................... 56,215 51,086 50,723
Payroll, ad valorem and other
taxes.......................... 38,016 37,851 30,347
------------- ------------- -------------
Total.......................... 1,996,305 1,833,511 2,006,862
------------- ------------- -------------
OPERATING INCOME................. 146,320 97,729 88,646
Other Expense--Net............... (11,222) (1,033) (6,048)
Interest and Other Financing
Costs........................... (94,870) (83,324) (69,310)
------------- ------------- -------------
Income before Income Taxes and
Minority Interest............... 40,228 13,372 13,288
Income (Taxes) Benefit........... (15,738) (921) 68,737
Minority Interest................ (1,792) 602 (573)
------------- ------------- -------------
Income from Continuing Opera-
tions........................... 22,698 13,053 81,452
Income (Loss) from Discontinued
Operations...................... (1,560) -- 20,642
Extraordinary Loss on Extinguish-
ment of Debt.................... (2,096) -- --
------------- ------------- -------------
NET INCOME....................... 19,042 13,053 102,094
Provision for Dividends on Pre-
ferred Stock.................... 11,339 11,690 11,619
------------- ------------- -------------
Earnings Applicable to Common
Stock........................... $ 7,703 $ 1,363 $ 90,475
============= ============= =============
PER SHARE OF COMMON STOCK
Income from continuing
operations after provision
for dividends on preferred
stock......................... $ .16 $ .02 $ 1.03
Discontinued operations......... (.02) -- .30
Extraordinary loss.............. (.03) -- --
------------- ------------- -------------
Earnings applicable to common
stock.......................... $ .11 $ .02 $ 1.33
============= ============= =============
Cash dividends declared......... $ .20 $ .20 $ .20
============= ============= =============
Average Common and Dilutive
Common Equivalent Shares
Outstanding..................... 69,441 68,323 68,049
============= ============= =============
OPERATING INCOME (LOSS) OF MAJOR
BUSINESSES
(Excludes general corporate
expense)
Natural gas and oil exploration
and production................. $ 32,224 $ (12,023) $ 25,420
Natural gas pipeline, processing
& marketing
Pipeline....................... 46,822 49,288 25,082
Gas processing................. 22,979 4,737 1,204
Gas marketing.................. (6,357) 6,128 959
Natural gas distribution........ 68,157 54,634 38,334
Power and other................. (8,239) 3,478 5,761
</TABLE>
See Notes to Consolidated Financial Statements.
A-16
<PAGE>
ENSERCH CORPORATION AND SUBSIDIARY COMPANIES
STATEMENTS OF CONSOLIDATED CASH FLOWS
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31
-------------------------------
1996 1995 1994
--------- --------- ---------
(IN THOUSANDS)
<S> <C> <C> <C>
OPERATING ACTIVITIES
Income from continuing operations............ $ 22,698 $ 13,053 $ 81,452
Depreciation and amortization................ 204,845 168,262 126,979
Deferred income-tax expense (benefit)........ 10,737 (5,680) (59,151)
Recoveries of gas-purchase contract settle-
ments....................................... 7,927 51,297 49,602
Other........................................ (38) 7,283 (2,544)
Changes in current operating assets and lia-
bilities
Accounts receivable.......................... (113,250) (31,476) 13,038
Other current assets......................... (16,396) 1,787 (34,014)
Accounts payable............................. 106,424 18,503 (2,142)
Other current liabilities.................... 43,433 16,057 (20,041)
Litigation judgment payable.................. -- -- (62,498)
--------- --------- ---------
Net Cash Flows from Operating Activities.... 266,380 239,086 90,681
--------- --------- ---------
INVESTING ACTIVITIES
Purchases of businesses, net of cash ac-
quired...................................... -- (341,650) (122)
Additions to property, plant and equipment... (336,639) (297,026) (260,058)
Sales and retirements of property, plant and
equipment................................... 145,580 59,699 16,756
Investments in unconsolidated affiliates..... (59,627) (8,785) --
Other........................................ 778 (17,397) 7,005
--------- --------- ---------
Net Cash Flows used for Investing
Activities................................. (249,908) (605,159) (236,419)
--------- --------- ---------
FINANCING ACTIVITIES
Change in commercial paper and other short-
term borrowings............................. (49,000) 32,759 116,271
Borrowings by EEX............................ 136,000 530,000 --
Issuance of mandatorily redeemable preferred
securities of subsidiary.................... -- 150,000 --
Issuance of EEX common stock................. 249 207,872 --
Repayment of borrowings by EEX............... (181,000) (485,000) --
Issuance of senior long-term debt............ 160,000 150,000 300,145
Debt issuance costs.......................... (786) (944) (883)
Borrowings under revolving credit agreement.. 25,000 -- --
Retirement of senior long-term debt.......... (66,960) (162,677) (214,983)
Prepayment premium on early extinguishment of
debt........................................ (3,226) -- --
Issuance of Series F Preferred Stock......... -- -- 72,797
Retirement of Series D Preferred Stock....... -- -- (75,000)
Change in advances under lease arrangements.. (21,520) 9,883 (32,157)
Change in assignments of future gas purchase
credits..................................... -- (17,191) (21,000)
Other........................................ 23 (784) 1
Issuance of ENSERCH common stock............. 27,678 4,408 3,451
Cash dividends paid.......................... (25,144) (25,401) (25,071)
--------- --------- ---------
Net Cash Flows from Financing Activities.... 1,314 392,925 123,571
--------- --------- ---------
Net Cash Flows used for Discontinued
Operations................................... (7,274) (28,102) (942)
--------- --------- ---------
Net Increase (Decrease) in Cash and
Equivalents.................................. 10,512 (1,250) (23,109)
Cash and Equivalents at Beginning of Year..... 8,561 9,811 32,920
--------- --------- ---------
Cash and Equivalents at End of Year........... $ 19,073 $ 8,561 $ 9,811
========= ========= =========
Amounts paid (refunded)
Interest and other financing costs (net of
amount capitalized)......................... $ 94,045 $ 95,059 $ 66,926
========= ========= =========
Income taxes--net............................ $ 1,421 $ (5,659) $ 5,245
========= ========= =========
Purchases of businesses
Fair value of assets acquired................ -- $ 495,998 --
Cash paid for acquisitions................... -- 341,650 --
---------
Liabilities assumed.......................... -- $ 154,348 --
=========
</TABLE>
Information on noncash investing and financing activities is presented in Note
8.
See Notes to Consolidated Financial Statements.
A-17
<PAGE>
ENSERCH CORPORATION AND SUBSIDIARY COMPANIES
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
DECEMBER 31
------------------------
1996 1995
----------- -----------
(IN THOUSANDS)
<S> <C> <C>
ASSETS
Current Assets
Cash and equivalents................................ $ 19,073 $ 8,561
Accounts receivable................................. 382,404 296,178
Gas stored underground.............................. 119,178 107,633
Other............................................... 121,837 121,544
----------- -----------
Total current assets............................... 642,492 533,916
----------- -----------
Investments.......................................... 115,633 64,974
----------- -----------
Property, Plant and Equipment (at cost)
Natural gas and oil exploration and production
(full-cost method)................................. 2,863,883 2,583,802
Natural gas pipeline, processing & marketing........ 866,298 825,848
Natural gas distribution............................ 1,025,015 948,076
Power and other..................................... 27,312 32,702
General............................................. 22,785 23,761
----------- -----------
Total.............................................. 4,805,293 4,414,189
Less accumulated depreciation and amortization...... (1,861,914) (1,687,409)
----------- -----------
Net property, plant and equipment.................. 2,943,379 2,726,780
----------- -----------
Other Assets......................................... 43,073 55,424
----------- -----------
Total.............................................. $ 3,744,577 $ 3,381,094
=========== ===========
LIABILITIES AND SHAREHOLDERS' EQUITY
Current Liabilities
Commercial paper.................................... $ 138,000 $ 187,000
Current portion of senior long-term debt............ 1,598 14,760
Payables under leasing arrangements................. 8,714 14,671
Accounts payable.................................... 428,354 329,844
Other current liabilities........................... 163,376 130,977
Liabilities for discontinued operations............. 17,933 42,120
----------- -----------
Total current liabilities.......................... 757,975 719,372
----------- -----------
Senior Long-term Debt................................ 956,971 870,476
----------- -----------
Convertible Subordinated Debentures.................. 90,750 90,750
----------- -----------
Other Liabilities
Deferred income taxes............................... 288,299 277,076
Accrued pension costs............................... 44,070 54,959
Capital lease obligations........................... 241,735 28,454
Other............................................... 136,960 139,391
----------- -----------
Total other liabilities............................ 711,064 499,880
----------- -----------
Mandatorily Redeemable Preferred Securities of
Subsidiary of EEX................................... 150,000 150,000
----------- -----------
Minority Interest in Subsidiaries.................... 159,426 156,434
----------- -----------
Commitments and Contingent Liabilities (Note 8)
Shareholders' Equity
Adjustable rate preferred stock..................... 175,000 175,000
Common shareholders' equity......................... 743,391 719,182
----------- -----------
Shareholders' equity................................ 918,391 894,182
----------- -----------
Total.............................................. $ 3,744,577 $ 3,381,094
=========== ===========
</TABLE>
See Notes to Consolidated Financial Statements.
A-18
<PAGE>
ENSERCH CORPORATION AND SUBSIDIARY COMPANIES
STATEMENTS OF CONSOLIDATED COMMON SHAREHOLDERS' EQUITY
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31
-----------------------------
1996 1995 1994
--------- -------- --------
(IN THOUSANDS)
<S> <C> <C> <C>
Common Stock--authorized 100 million shares
Balance at beginning of year................... $ 304,897 $303,301 $301,977
Issued for stock plans (1,764; 358; and 298
shares)...................................... 7,363 1,596 1,324
Change in par value to $.01 from $4.45 per
share........................................ (311,557) -- --
--------- -------- --------
Balance at end of year (par value: $.01; $4.45;
and $4.45
outstanding shares: 70,280; 68,516; and
68,158)....................................... 703 304,897 303,301
--------- -------- --------
Paid in Capital
Balance at beginning of year................... 338,857 334,672 333,768
Excess of proceeds over par value of common
stock issued for stock plans................. 21,794 3,866 3,217
Series F preferred stock issuance costs....... -- -- (2,203)
Other......................................... 567 319 (110)
Change in par value of common stock........... 311,557 -- --
--------- -------- --------
Balance at end of year......................... 672,775 338,857 334,672
--------- -------- --------
Retained Earnings
Balance at beginning of year................... 76,941 89,054 11,913
Net income.................................... 19,042 13,053 102,094
Dividends declared............................ (25,209) (25,162) (24,952)
Other......................................... -- (4) (1)
--------- -------- --------
Balance at end of year......................... 70,774 76,941 89,054
--------- -------- --------
Foreign Currency Translation Adjustment
Balance at beginning of year................... -- -- --
Change during the year........................ (1,325) -- --
Deferred income tax effects................... 464 -- --
--------- -------- --------
Balance at end of year......................... (861) -- --
--------- -------- --------
Unamortized Restricted Stock Compensation
Balance at beginning of year................... (1,513) (840) --
Shares granted................................ (1,284) (865) (1,261)
Cancellations................................. -- 64 192
Market valuation adjustments.................. (73) (332) 89
Amortization.................................. 2,870 460 140
--------- -------- --------
Balance at end of year......................... -- (1,513) (840)
--------- -------- --------
Common Shareholders' Equity..................... $ 743,391 $719,182 $726,187
========= ======== ========
</TABLE>
See Notes to Consolidated Financial Statements.
A-19
<PAGE>
ENSERCH CORPORATION AND SUBSIDIARY COMPANIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
All dollar amounts, except per share amounts, in the notes to consolidated
financial statements are stated in thousands unless otherwise indicated.
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES AND OTHER INFORMATION
The consolidated financial statements include the accounts of ENSERCH
Corporation (ENSERCH or the Corporation) and its majority-owned subsidiaries.
Information by business segments is presented elsewhere herein and is an
integral part of these financial statements. The preparation of financial
statements requires the use of significant estimates and assumptions by
management; actual results could differ from those estimates.
The financial statements for years prior to 1996 have been restated to
reflect the realignment of certain activities for purposes of business segment
presentations.
Earnings per share applicable to common stock are based on the weighted
average number of common shares outstanding during the year, including common
equivalent shares when dilutive. Fully diluted earnings per share are not
presented since the assumed exercise of stock options and conversion of
debentures would not be dilutive.
All highly liquid investments purchased in the United States with a maturity
of three months or less at date of purchase are considered to be cash
equivalents.
Derivative Instruments--The Corporation frequently enters into swaps,
futures, options and other derivative contracts in connection with its natural
gas marketing activities conducted by Enserch Energy Services, Inc. (EES) or
to hedge the impact of market fluctuations in gas and oil prices on
anticipated future gas and oil production of Enserch Exploration, Inc. (EEX)
or other contractual commitments. The Corporation defers the impact of changes
in the market value of contracts that serve as hedges until the related
transaction is completed. The Corporation also enters into interest-rate swaps
to manage risk associated with interest rates and reduce the Corporation's
exposure to interest rate fluctuations. Interest-rate swaps are valued on a
periodic basis, with resulting differences deferred and recognized as an
adjustment to interest and other financing costs over the term of the
agreement.
Stock-Based 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. The Corporation 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," (APB25) and related Interpretations. Accordingly,
compensation cost for stock options is measured as the excess, if any, of the
quoted market price of the Corporation'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 the
Corporation's stock at the date the award becomes vested. See Note 6.
Natural Gas and Oil Exploration and Production--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 is computed on the unit-of-production method
using estimated proved gas and oil reserves quantified on the basis of their
equivalent energy
A-20
<PAGE>
content. Amortization of gas and oil properties was approximately 8.0% in
1996, 6.0% in 1995 and 5.8% in 1994. 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.
Natural Gas Pipeline--Lone Star Pipeline Company (Lone Star Pipeline or LSP)
is subject to regulatory utility accounting requirements. The rate LSP charges
to Lone Star Gas Company (Lone Star Gas or LSG) for transportation and storage
of gas ultimately consumed by residential and commercial customers is
established by the Railroad Commission of Texas (RRC). The pipeline system is
generally depreciated by the straight-line method over approximately 40 years.
Natural Gas Distribution--Lone Star Gas is also subject to regulatory
utility accounting requirements. LSG's city gate rate for the cost of gas
ultimately delivered to residential and commercial customers is established by
the RRC and provides for full recovery of the actual cost of gas delivered,
including out-of-period costs such as gas-purchase contract settlement costs.
LSG's rates to residential and commercial customers are established by the
municipal governments of the cities and towns served, with the RRC having
appellate jurisdiction. Lone Star Gas records revenues on the basis of cycle
meter readings throughout the month and accrues revenues for gas delivered
from the meter reading dates to the end of the month. The distribution system
is depreciated by the straight-line method over approximately 40 years. Gas
stored underground is valued at average cost.
2. CHANGE IN ORGANIZATION, ACQUISITIONS AND DISPOSITIONS
On April 15, 1996, ENSERCH Corporation 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 a
tax-free transaction. On November 15, 1996, in separate meetings, the
shareholders of TUC, ENSERCH and EEX approved the mergers and the related
distribution. The companies are currently awaiting approval of the merger by
the SEC.
Prior to December 30, 1994, the operations of EEX, a corporation, were
conducted through Enserch Exploration Partners, Ltd. (EP), a partnership.
ENSERCH's 99.2% ownership of EP was held primarily through Enserch Processing
Partners Limited (EPPL). On December 30, 1994, EEX acquired all of the
partnership interests of EP Operating Limited Partnership (EPO), the operating
partnership of EP in which EP owned a 99% interest and other ENSERCH companies
owned a 1% interest. EPO was then merged into EEX and thereafter, EP was
liquidated. Following the liquidation of EP, EPPL redeemed ENSERCH's interest
in EPPL in exchange for EEX stock and EPPL's operating assets. In 1995,
ENSERCH sold its international gas and oil operations and its SACROC
operations to EEX for 1,240,000 shares of EEX common stock and $4.2 million in
cash.
On June 8, 1995, EEX acquired all the capital stock of a gas and oil
exploration and production company for cash of $340 million and assumed bank
debt of $115 million. The acquisition was accounted for as a purchase. The
assets acquired and the liabilities assumed were recorded at their fair value.
Essentially all of the valuation adjustment was assigned to gas and oil
properties. Pro forma results of operations assuming the acquisition had
occurred at the beginning of 1995 are: revenues, $1,979,564; operating income,
$97,272; net income, $2,793; and loss applicable to common stock, ($8,897)
($.13 per share).
On June 29, 1995, ENSERCH purchased the principal operating assets of a
nonregulated marketer of natural gas, for approximately $9 million in cash,
including some $8 million of cost in excess of net assets acquired. The
acquisition was accounted for as a purchase. The goodwill is being amortized
over 20 years.
A-21
<PAGE>
Operations of the acquired companies have been included in the accompanying
consolidated financial statements from their respective dates of acquisition.
Effective June 30, 1995, the Corporation exchanged 1,204,098 shares of
ENSERCH common stock for 100% of the outstanding shares of a company, which,
through its subsidiary, is a marketer of natural gas and natural-gas services.
The transaction was accounted for as a pooling-of-interests.
On September 26, 1995, EEX sold 20 million shares of its common stock to the
public for net proceeds of approximately $208 million, and ENSERCH's ownership
percentage was reduced from 99.2% to 83.4%. As a result of the stock sale,
ENSERCH's equity interest in EEX, after the reduction in ownership percentage,
increased $59 million. In accordance with the full-cost accounting method,
ENSERCH credited the $59 million to the carrying value of gas and oil
properties, with no gain recognized on the sale since the sale did not
significantly alter the relationship between capitalized costs and proved
reserves.
3. BORROWINGS AND LINES OF CREDIT
<TABLE>
<CAPTION>
1996 1995
Senior Long-term Debt at December 31: -------- --------
<S> <C> <C>
8% Notes due 1997........................................ $100,000 $100,000
7% Notes due 1999........................................ 150,000 150,000
9.06% Notes due 1996 through 1999........................ -- 65,600
Subsidiary Revolving Credit Agreement Maturing 2000...... 25,000 --
ENSERCH Revolving Credit Agreement Maturing 2001......... 160,000 --
EEX Bank Revolving Credit Agreement Maturing 2001........ 115,000 160,000
8 7/8% Notes due 2001.................................... 100,000 100,000
6 3/8% Notes due 2004.................................... 150,000 150,000
7 1/8% Notes due 2005.................................... 150,000 150,000
Other.................................................... 8,569 9,636
-------- --------
Total.................................................. 958,569 885,236
Less current maturities.................................. 1,598* 14,760
-------- --------
Noncurrent............................................. $956,971 $870,476
======== ========
</TABLE>
<TABLE>
<CAPTION>
1997 1998 1999 2000 2001
------ -------- -------- ------- --------
<S> <C> <C> <C> <C> <C>
Maturities........................ $1,598* $101,900 $152,100 $29,500 $375,000
</TABLE>
--------
* Excludes the $100 million of 8% Notes due March 1997 which are intended
to be refinanced on a long-term basis prior to maturity and have been
classified as long term on the balance sheet as of December 31, 1996.
In April 1996, certain subsidiaries of the Corporation entered into
revolving credit agreements with several banks that mature in 2000 aggregating
$30 million, $5 million of which was unused at December 31, 1996. The proceeds
were used to acquire a 10% interest in Metrogas, S.A., a Chilean company. The
interest rate is based on LIBOR and was 5.75% at December 31, 1996.
In July 1996, the Corporation borrowed $100 million under its bank lines of
credit to pay down commercial paper balances. An additional $60 million was
drawn down in September 1996 to pay off the outstanding balance of the 9.06%
Notes due through 1999, including a prepayment premium of $3.2 million ($2.1
million after-tax) which has been accounted for as an extraordinary loss on
early extinguishment of debt.
A-22
<PAGE>
In October 1996, the Corporation entered into a revolving credit agreement
with a group of banks that replaces the previous bank lines of credit. The
revolving credit agreement expires in 2001 and has a maximum limit of $650
million, $490 million of which was unused at December 31, 1996. The entire
$650 million facility is on a fee basis, does not require compensating
balances or restrict the use of cash, and supports the Corporation's
commercial paper program. The agreement provides that loans may be made under
either domestic or Eurocurrency notes at prevailing market rates. Under the
credit agreement, the rates for interest and facility fees change when the
Corporation's debt rating changes. The interest rate in effect on borrowings
outstanding at December 31, 1996 was 5.82%. The credit agreement requires
maintenance of certain financial ratios and restricts encumbrance of assets
and creation of indebtedness. At December 31, 1996, the Corporation was in
compliance with these financial ratio requirements.
EEX has a $350 million revolving credit line that matures on August 1, 2001,
$235 million of which was unused at December 31, 1996. The interest rate
ranges from 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
EEX's consolidated capitalization ratio.
The convertible subordinated debentures have an interest rate of 6 3/8%, are
due in 2002 and are convertible into common stock at $26.88 per share (equal
to 37.20 shares per $1 thousand principal amount). The debentures may be
redeemed at 101.91% of the principal amount, plus accrued interest, through
March 31, 1997 and at declining premiums thereafter.
Commercial paper totaled $138 million at December 31, 1996 and $187 million
at December 31, 1995. The weighted average interest rate in effect on
commercial paper borrowings at December 31, 1996 and 1995 was 5.95% and 6.0%,
respectively.
<TABLE>
<CAPTION>
Interest and Other 1996 1995 1994
Financing Costs: ------- ------- -------
<S> <C> <C> <C>
Interest costs in-
curred................. $91,829 $85,118 $74,260
Dividends on preferred
securities of subsidi-
ary.................... 9,560 4,123 --
Interest capitalized.... (6,519) (5,917) (4,950)
------- ------- -------
Charged to expense...... $94,870 $83,324 $69,310
======= ======= =======
</TABLE>
4. MANDATORILY REDEEMABLE PREFERRED SECURITIES OF SUBSIDIARY
On August 4, 1995, a subsidiary ("Issuer") of EEX completed the private
placement of $150 million of adjustable rate mandatorily redeemable preferred
securities for which EEX is also obligated. The dividends on the preferred
securities are based on LIBOR plus .696% and are reflected in interest and
other financing costs in the statements of consolidated income. In November
1995, EEX entered into an interest-rate swap to effectively fix the rate for
the dividend on these preferred securities at 6.37% as of December 31, 1996
(see Note 7). The mandatory redemption date for Issuer's preferred securities
is August 4, 2005 or earlier under certain conditions.
5. SHAREHOLDERS' EQUITY
At the special shareholders meeting on November 15, 1996, shareholders of
the Corporation approved a change in the par value of ENSERCH common stock
from $4.45 per share to $.01 per share to facilitate the distribution of the
Corporation's interest in EEX. The reduction in par value was recorded by the
transfer of $312 million to the paid-in-capital account.
A-23
<PAGE>
As of December 31, 1996, 5,920,940 shares of unissued common stock were
reserved for issuance under stock plans and conversion of convertible
subordinated debentures. The Corporation is authorized to issue up to
2,000,000 shares of preferred stock and 2,000,000 shares of voting preference
stock.
<TABLE>
<CAPTION>
Adjustable Rate Preferred
Stock at
December 31, 1996 and STATED VALUE PER SHARES OUTSTANDING
1995: -------------------- --------------------
PREFERRED DEPOSITARY PREFERRED DEPOSITARY
SHARE SHARE SHARES SHARES AMOUNT
--------- ---------- --------- ---------- --------
<S> <C> <C> <C> <C> <C>
Series E................. $1,000 $100 100,000 1,000,000 $100,000
Series F................. 1,000 25 75,000 3,000,000 75,000
--------
Total.................. $175,000
========
</TABLE>
The Series E stock is redeemable at the option of the Corporation at stated
value at any time, and the Series F stock is redeemable at stated value after
May 1, 1999. Holders of the preferred stock are entitled to its stated value
upon involuntary liquidation.
Dividend rates are determined quarterly, in advance, based on the
"Applicable Rate" (highest of the three-month Treasury bill rate, the Treasury
ten-year constant maturity rate and either the Treasury twenty-year or thirty-
year constant maturity rate, as defined), as set forth below:
<TABLE>
<CAPTION>
PER ANNUM RATE (DETERMINED QUARTERLY)
-------------------------------------
SERIES E SERIES F
------------------ ------------------
<S> <C> <C>
Dividend rate.......................... 1.20% below 87% of
Applicable Rate Applicable Rate
Minimum rate........................... 7.00% 4.50%
Maximum rate........................... 13.00% 10.50%
</TABLE>
<TABLE>
<CAPTION>
1996 1995 1994
Dividends Declared: ------- ------- -------
<S> <C> <C> <C>
Adjustable Rate Preferred Stock:
Series D (redeemed in 1994)($.42 per share)....... $ -- $ -- $ 625
Series E ($7.00, $7.00, $7.00 per depositary
share)........................................... 7,000 7,000 7,000
Series F ($1.45, $1.54, $1.32 per depositary
share)........................................... 4,360 4,610 3,955
Common Stock ($.20, $.20, $.20 per share).......... 13,849 13,552 13,372
------- ------- -------
Total............................................ $25,209 $25,162 $24,952
======= ======= =======
</TABLE>
Dividends--Restrictions on the payment of dividends on common stock (other
than stock dividends) or acquisitions of capital stock are contained in the
Restated Articles of Incorporation. At December 31, 1996, $569 million of
common shareholders' equity was free of such restrictions.
Shareholder Rights Plan--The outstanding shares of common stock include one
voting preference stock contingent purchase right, which is exercisable only
under specific conditions. Under those conditions, each right could be
exercised to purchase one two-hundredth share of a new series of voting
preference stock at an exercise price of $60 or will entitle its holder to
purchase, at a specified exercise price, shares of the Corporation's common
stock (or, in certain circumstances as determined by the Board of Directors,
other consideration) having a value of twice the right's exercise price. The
rights have no voting privileges, expire on May 5, 2006 and are generally
redeemable at $.01 per right until the 10th day following public announcement
that a 15% position has been acquired. The Shareholders Rights Plan has been
amended so that the proposed merger with TUC will not trigger the activation
of shareholders rights thereunder.
A-24
<PAGE>
6. STOCK COMPENSATION PLANS
The Corporation currently has three fixed option plans. Stock options have
been awarded to key employees and are outstanding under all three plans.
Options for 7,651 shares granted under a former plan have an exercise price of
$4.45, while options granted under the other plans have an exercise price of
not less than the fair market value of the common stock on its grant date.
Options become exercisable over four years and generally expire ten years
after the date of the grant. At December 31, 1996, there were 76 participants
in the stock option plans. As a result of the agreement to merge with TUC, all
stock options became fully vested and exercisable. Any ENSERCH options not
exercised prior to the consummation of the merger will be exchanged for
options for TUC common stock of an equivalent value.
<TABLE>
<CAPTION>
WEIGHTED AVERAGE
Summary of Stock Option EXERCISE PRICE NUMBER OF OPTIONS
Activity: ----------------- --------------------------------
1996 1995 1996 1995 1994
-------- -------- ---------- --------- ---------
<S> <C> <C> <C> <C> <C>
Outstanding--Beginning of
year..................... $ 17.27 $ 17.67 2,514,598 2,308,823 2,388,970
Granted.................. $ 15.13 $ 13.63 326,300 263,200 144,700
Exercised (a)............ $ 16.47 $ 12.93 (1,579,289) (27,825) (32,347)
Canceled or expired...... $ 17.87 $ 20.11 (79,301) (29,600) (192,500)
---------- --------- ---------
Outstanding--End of year.. $ 17.71 $ 17.27 1,182,308 2,514,598 2,308,823
========== ========= =========
Exercisable............... 1,182,308 1,957,637 1,838,175
========== ========= =========
</TABLE>
- --------
(a)Price ranges for options exercised in 1996 were $4.45 to $21.13; in 1995
were $12.50 to $17.00 and in 1994 were $4.45 to $12.50.
Summary of Stock Options Outstanding at December 31, 1996:
<TABLE>
<CAPTION>
WEIGHTED
NUMBER AVERAGE WEIGHTED
RANGE OF OF REMAINING AVERAGE
EXERCISE OPTIONS CONTRACTUAL EXERCISE
PRICES OUTSTANDING LIFE (YEARS) PRICE
-------------- ----------- ------------ --------
<S> <C> <C> <C>
$4.45 7,651 3 $ 4.45
$12.50-$18.25 573,800 7 15.00
$19.00-$23.875 600,857 3 20.46
--------- ------
1,182,308 $17.71
========= ======
</TABLE>
The weighted average fair value of stock options granted in 1996 and 1995
was $4.97 and $4.80, respectively. The fair value for these options granted
since December 31, 1994 was estimated at the date of grant using a Black-
Scholes option pricing model with the following weighted average assumptions
for 1996 and 1995, respectively: risk-free interest rates of 5.48% and 7.17%;
dividend yields of 1.33% and 1.48%; volatility factor of the expected market
price of the Corporation's common stock of .29; and a weighted average
expected life of the options of 6.3 years.
The current stock option plan includes provisions for issuing the
Corporation's common stock under performance-based grants. The Corporation
granted 83,500 and 59,000 shares of restricted stock under its stock option
plan in 1996 and 1995, respectively. The weighted average grant-date fair
value of these restricted shares was $15.38 and $14.66, respectively. Fair
value is equal to the market value of the Corporation's common stock on the
date of grant. Upon the Board of Directors' agreement to merge with TUC in
April 1996, (see Note 2), all restrictions were lifted on the 211,956 shares
of restricted stock outstanding. The unamortized portion of the cost of these
shares of $3.1 million was charged to compensation expense.
Pro forma information regarding net income and earnings per share is
mandated by SFAS123 and has been determined as if the Corporation had
accounted for its employee stock options under the fair value method of
A-25
<PAGE>
that Statement. Had compensation cost for the Corporation's stock option plans
been determined based on the fair value at the grant dates for awards under
those plans in accordance with the provision of SFAS123, the Corporation's net
income and earnings per share for the years ended December 31, 1996 and 1995
would have been reduced to the pro forma amounts indicated below:
<TABLE>
<CAPTION>
1996 1995
------ ------
<S> <C> <C>
Net income (after provision for dividends on preferred
stock):
As reported................................................ $7,703 $1,363
Pro forma *................................................ 5,498 1,179
Earnings per share:
As reported................................................ $ .11 $ .02
Pro forma *................................................ .08 .02
</TABLE>
--------
* Includes the Corporation's approximate 83% interest in EEX's SFAS123 pro
forma adjustments for EEX stock options of $.9 million in 1996 and $.1
million in 1995.
The effects of applying SFAS123 in this pro forma disclosure are not
indicative of future amounts. SFAS123 does not apply to awards prior to 1995.
No additional awards in future years are anticipated.
7. FINANCIAL INSTRUMENTS AND RISK MANAGEMENT
The Corporation'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--EEX has an interest-rate swap on a notional amount of
$150 million to fix the interest rate associated with the mandatorily
redeemable preferred securities of subsidiary. 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 Corporation is exposed to market risk under this swap
arrangement due to the possibility of exchanging a lower interest rate for a
higher interest rate. The counterparties are major financial institutions, and
the risk of incurring losses related to credit risk is considered by the
Corporation to be remote.
In December 1996, in connection with the refinancing of the Garden Banks
operating lease arrangement (see Note 8), a related interest-rate swap on a
notional amount of $150 million, which had been in effect since December 1995,
was terminated. The Corporation recognized a $2.2 million ($1.4 million after-
tax) gain as a result of the early termination of the agreement.
Hedging Activities--The Corporation, through EEX, 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 Corporation does
not obtain collateral to support the agreements but monitors the financial
viability of counterparties and believes its credit risk is minimal on these
transactions. In the event of nonperformance by counterparties, the
Corporation would be exposed to price risk. The Corporation 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.
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 billion cubic feet (Bcf) of natural gas and
365 thousand barrels (MBbls) of oil. The weighted average strike price and
market price per thousand cubic feet (Mcf) of natural gas was $2.47 and $2.37,
respectively, and the weighted average strike price and
A-26
<PAGE>
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 NYMEX
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.
EEX recognized in revenues a net loss of $20.3 million in 1996 and net gains
of $.1 million in 1995 and $4.3 million in 1994 on hedging activities related
to the sale of its gas and oil production.
Natural Gas Marketing Activities--The Corporation, through EES, is a
marketer of natural gas and natural-gas services. As part of these business
activities, EES enters into a variety of transactions, including forward
contracts principally involving physical delivery of natural gas and
derivative financial instruments, including swaps, options, futures and other
contractual arrangements. The derivative transactions are concentrated with
established energy companies and major financial institutions.
EES's marketing activities involve price commitments into the future and,
therefore, give rise to market risk, which represents the potential loss that
can be caused by a change in the market value of a particular commitment. Net
open portfolio positions often result from the origination of new transactions
or in response to changing market conditions. The Corporation closely monitors
and manages its exposure to market risk.
Credit risk relates to the risk of loss that the Corporation would incur as
a result of nonperformance by counterparties pursuant to the terms of their
contractual obligations. The Corporation maintains credit policies with regard
to its counterparties that management believes significantly minimize overall
credit risk. The Corporation does not obtain collateral to support the
agreements but monitors the financial viability of counterparties and believes
its credit risk is minimal on these transactions.
EES enters into contracts to purchase and sell natural gas for physical
delivery in the future. At December 31, 1996, EES had net commitments to sell
22 trillion British thermal units (Btu's) (about 21 Bcf) of natural gas
through the year 2001 with offsetting net financial positions to purchase 23
trillion Btu's (about 22 Bcf). At December 31, 1996, there was a net
unrealized and unrecognized gain of $.7 million on these contracts.
<TABLE>
<CAPTION>
Fair Value of Financial 1996 1995
Instruments at December 31: --------------------- ---------------------
CARRYING ESTIMATED CARRYING ESTIMATED
OR NOTIONAL FAIR OR NOTIONAL FAIR
AMOUNT VALUE AMOUNT VALUE
----------- --------- ----------- ---------
<S> <C> <C> <C> <C>
On-balance sheet liabilities
Senior long-term debt (a)...... $(960,119) $(959,649) $(887,079) $(908,425)
Convertible debentures (b)..... (90,750) (90,977) (90,750) (88,027)
Off-balance sheet assets
(liabilities)
Recoverable gas-purchase con-
tracts (c).................... 1,300 1,558 5,769 5,872
Receivables sold with limited
recourse (d).................. 100,000 100,000 100,000 100,000
Interest-rate swaps (e)........ -- 925 -- (2,664)
EEX gas and oil swaps (e)...... -- 2,990 -- (1,324)
EES derivatives (f)............ -- 749 -- 2,695
Financial guarantees (e)....... -- (104,044) -- (119,095)
</TABLE>
- --------
Estimated fair value: (a) variable-rate debt--approximates carrying amount,
exchange traded debt--quoted market prices, and other debt--discounted value
using rates for debt with similar characteristics; (b) quoted market prices;
(c) discounted cash flows; (d) approximates carrying or notional amount; (e)
based either on quotes or the cost to terminate or otherwise settle the
agreements; (f) based on mark-to-market valuations.
The fair value of other financial instruments, consisting primarily of cash
and equivalents, accounts receivable, investments, commercial paper and other
short-term borrowings, accounts payable, accrued interest and mandatorily
redeemable preferred securities of subsidiary, approximated carrying value.
The estimated fair
A-27
<PAGE>
value of senior long-term debt does not reflect prepayment penalties, which
would be incurred upon early extinguishment.
8. COMMITMENTS AND CONTINGENT LIABILITIES
Legal Proceedings--A lawsuit was filed on February 24, 1987 in the 112th
Judicial District of Sutton County, Texas, against subsidiaries and affiliates
of the Corporation and its utility division. The plaintiffs have claimed that
defendants failed to make certain production and minimum-purchase payments
under a gas-purchase contract. The plaintiffs initially 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 .5% of the consolidated
gross revenues of the Corporation for the years 1982-1986 (approximately $85
million), interest, costs and attorneys' fees.
On September 20, 1994, the first of 21 asbestos related lawsuits was filed
against former subsidiaries of the Corporation and numerous other unrelated
defendants in the District Court of Wyandotte County, Kansas. There are
currently 280 plaintiffs who claim to have been exposed to asbestos and
asbestos related products at their places of employment since 1935. The
plaintiffs are claiming damages of $123 million for physical and psychological
injuries under theories of negligence, strict liability and breach of
warranty. An agreement has been reached to settle the case against the
Corporation in an amount that is not material to the Corporation.
On October 30, 1995, a lawsuit was filed in the Supreme Court of Western
Australia by Woodside Petroleum Ltd. and its joint venture partners against
the Corporation, a former subsidiary of the Corporation, and others.
Plaintiffs seek damages of approximately $18 million from the Corporation
based on an indemnity arrangement and approximately $208 million from the
other defendants for alleged breaches of contract and breaches of a trade
practice act, all in connection with the construction of an offshore gas and
condensate drilling production platform. The Corporation has agreed to
indemnify the current owner of the former subsidiary pursuant to the
provisions in the prior sales agreement. The Corporation is reviewing the
relevant documents and facts in order to determine the extent, if any, of its
potential liability in the lawsuit.
On April 16, 1996, the Corporation and certain directors of the Corporation,
were named as defendants in a lawsuit, Frederick Rand vs. ENSERCH Corporation,
et al, filed by an alleged shareholder in the 193rd District Court of Dallas
County, Texas. In this action, the plaintiff seeks, among other things, to
enjoin the Corporation's newly adopted shareholders rights plan and the merger
agreement between the Corporation and TUC. The plaintiff also seeks to have
the lawsuit certified as a class action. Plaintiff has taken no action since
the original filing in the case. Defendants have filed motions to challenge
plaintiff's capacity to bring the lawsuit, to determine if his allegations are
sufficient to support a lawsuit and to suspend potential discovery activity.
Hearings on the defendants' motions and a preliminary setting for the trial,
which had been initially scheduled for early September 1996, have not been
rescheduled.
Management of the Corporation believes it has meritorious defenses to the
claims made in these and other actions brought in the ordinary course of
business. In the opinion of management, the Corporation will incur no
liability from these and all other pending claims and suits that is material
for financial reporting purposes.
Environmental Matters--The Corporation 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 Corporation.
A-28
<PAGE>
Commitments--Future minimum commitments are as follows (in millions):
<TABLE>
<CAPTION>
1997 1998 1999 2000 2001 THEREAFTER
------ ------ ----- ----- ----- ----------
<S> <C> <C> <C> <C> <C> <C>
Operating leases................... $ 12.7 $ 10.4 $ 8.0 $ 8.2 $ 7.9 $ 70.3
Capital leases (a)................. 12.2 23.3 25.1 30.9 26.0 236.7
Gas-purchase contracts............. 119.0 92.0 42.0 11.0 2.0 2.0
</TABLE>
--------
(a)Includes a total of $109.4 million representing interest.
Lease Commitments--EEX's portion of the equipment and facilities used in
developing and producing reserves in the Mississippi Canyon Block 441 and
Garden Banks Block 388 projects (37.5% and 60% working interests,
respectively) were financed under equipment leases between certain financial
institutions and subsidiaries of the Corporation.
In connection with the reorganization of EEX into corporate form in December
1994, EEX entered into three subleases with a subsidiary of ENSERCH for such
offshore facilities. Through a series of transactions in 1996, the Corporation
and EEX arranged for EEX to directly lease this equipment from financial
institutions. Under the terms of the new agreements, all of the leases require
capital lease accounting treatment.
In October 1996, EEX refinanced the capital lease obligations for the
Mississippi Canyon Block 441 facilities. EEX executed a new five-year capital
lease arrangement for $16 million with a financial institution ending in
October 2001 and repaid its sublease arrangement with an ENSERCH subsidiary,
which repaid the former capital lease obligation. EEX has the option to
purchase the facilities for fair market value at the end of the lease or for a
fixed amount at an early buy out date in July 2000. There are no renewal
options.
In December 1996, EEX entered into new lease arrangements for $229 million
with a group of financial institutions for the Garden Banks Block 388
facilities, which amount includes the balance of its sublease arrangements
with an ENSERCH subsidiary and purchase of additional equipment. EEX's new
capital lease arrangements replace the ENSERCH subsidiary's former $210
million operating lease. The new capital lease arrangements have an initial
term extending through December 2010. The leases may be renewed for up to five
years. EEX has the option to purchase the facilities for fair market value at
the end of the initial term or any renewal term, or for fixed amounts at the
end of the initial term. The leases also contain several early buy out options
at various dates at fixed prices or the greater of fixed prices or fair market
value.
In June 1996, EEX entered into a $200 million operating lease agreement to
provide financing for the construction of the facilities to be used in
developing and producing reserves in the Green Canyon Block 254 project (40%
owned). Through December 31, 1996, EEX had drawn $18 million under the
agreement, $5.5 million of which had not been expended and was reflected in
current liabilities as an advance under leasing arrangements. The initial
lease term extends through June 2003 and may be extended for up to three
successive three-year periods. EEX has the option to purchase the facilities
at the end of the initial term and at December 31, 1996 has guaranteed an
estimated residual value of approximately $15 million should the lease
terminate. Lease payments will be deferred until production commences.
Capital lease transactions resulted in noncash investing and financing
transactions of $210 million in 1996 and $34 million in 1994.
The Corporation had a number of other noncancelable long-term operating
leases at December 31, 1996, principally for office space and machinery and
equipment. Rental expenses incurred under all operating leases aggregated
$28.1 million in 1996, $13.1 million in 1995 and $8.4 million in 1994. Rental
income received for subleased office space was $4.0 million in 1996,
$3.4 million in 1995 and $3.6 million in 1994. Future minimum rental income to
be received for subleased office space is $8.5 million over the next five
years.
A-29
<PAGE>
Gas-Purchase Contracts--Lone Star Gas Company buys gas under long-term,
intrastate contracts in order to assure reliable supply to its customers. Many
of these contracts require minimum purchases of gas. LSG has made accruals for
payments that may be required for settlement of gas-purchase contract claims
asserted or that are probable of assertion. LSG continually evaluates its
position relative to asserted and unasserted claims, above-market prices or
future commitments. Management believes that LSG has not incurred losses for
which reserves should be provided at December 31, 1996. Based on estimated gas
demand, which assumes normal weather conditions, requisite gas purchases are
expected to substantially satisfy purchase obligations for the year 1997 and
thereafter.
Sales of Receivables--The Corporation has sold $100 million of receivables
under an amended limited recourse agreement that matures on September 25,
1997. Additional receivables are continually sold to replace those collected.
The agreement is expected to be extended. The uncollected balances of
receivables sold were $100 million at both year-end 1996 and 1995.
Guarantees--The Corporation and/or its subsidiaries are the guarantor on
various commitments and obligations of others aggregating some $104 million at
December 31, 1996. The Corporation is exposed to loss in the event of
nonperformance by other parties. However, the Corporation does not anticipate
nonperformance by the counterparties.
Concentrations of Credit Risk--Lone Star Gas operations have trade
receivables from a few large industrial customers in North Central Texas
arising from the sale of natural gas. A change in economic conditions may
affect the ability of customers to meet their contractual obligations. At
December 31, 1996 and 1995, the allowance for possible losses deducted from
accounts receivable was $5,319 and $5,174, respectively. The Corporation
believes that its provision for possible losses on uncollectible accounts
receivable is adequate for its credit loss exposure.
Inquiry into Lone Star Gas Company Rates--On August 20, 1996, the RRC
ordered a general inquiry into the rates and services of Lone Star Gas. The
scope of the inquiry has not been defined, and an evidentiary hearing has not
been held. However, at the recently concluded rate hearing requested by Lone
Star Gas and Lone Star Pipeline, RRC examiners indicated that LSG's historical
natural gas acquisition practices and costs will be reviewed. The Corporation
believes any retroactive rate action as a result of the review to be
inappropriate and unlawful.
A-30
<PAGE>
9. EMPLOYEE BENEFIT PLANS
Pension Plan--A defined benefit pension plan provides retirement income
benefits for substantially all employees. Accrued retirement costs are funded
to the extent such amounts are deductible for federal income-tax purposes.
Plan assets include equity and fixed-income securities and cash. Benefits are
based on years of credited service and average compensation.
Components of Net Pension Expense (in millions):
<TABLE>
<CAPTION>
1996 1995 1994
------- ------- ------
<S> <C> <C> <C>
Service cost--benefits earned during the period..... $ 5.2 $ 3.8 $ 7.5
Interest cost on projected benefit obligation....... 24.4 23.5 22.6
Actual (return) loss on assets...................... (40.4) (46.8) 3.8
Net amortization and deferral....................... 14.3 24.0 (27.4)
------- ------- ------
Net periodic pension expense........................ $ 3.5 $ 4.5 $ 6.5
======= ======= ======
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 obliga-
tion:
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 as-
sets............................................... (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
------- -------
Accrued pension cost................................ $ (51.7) $ (57.4)
======= =======
</TABLE>
ENSERCH retained the pension obligations to former engineering and
construction employees. No further benefits will accrue for the former
employees. A plan curtailment gain of $2.2 million in 1994 was recognized in
discontinued operations.
The Corporation has approved the offer of an early-retirement option to 354
employees in connection with the pending merger with TUC. Early retirement
elections cannot be made until the merger is finalized and their impact on the
actuarial evaluation, therefore, cannot be determined at this time.
Investment Plan--A voluntary contributory investment plan is available to
substantially all employees. The Corporation matches a portion of employees'
contributions. Costs under the plans were $2.1 million, $1.8 million, and $1.9
million in 1996, 1995, and 1994, respectively.
A-31
<PAGE>
Postretirement Benefits Other than Pensions--Some retirees and their
dependents receive postretirement medical benefits that vary in level based on
their years of service and retirement date. Employees hired after July 1, 1989
are not eligible for medical benefits when they retire. Obligations are not
prefunded.
Components of Net Periodic Postretirement Benefit Cost (in millions):
<TABLE>
<CAPTION>
1996 1995 1994
------ ------ ------
<S> <C> <C> <C>
Service cost--benefits earned during the period......... $ .3 $ .2 $ .4
Interest cost on projected benefit obligation........... 5.5 6.0 5.5
Net amortization and deferral........................... 4.0 3.6 4.3
------ ------ ------
Net periodic postretirement benefit cost................ $ 9.8 $ 9.8 $ 10.2
====== ====== ======
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 obligations:
Retirees and dependents................................ $(66.0) $(68.3)
Fully eligible active plan participants................ (.5) (.3)
Other active plan participants......................... (6.7) (6.9)
------ ------
Accumulated postretirement benefit obligation........... (73.2) (75.5)
Unrecognized obligation at transition................... 53.0 58.1
Unrecognized net actuarial loss......................... 10.7 10.0
------ ------
Accrued postretirement benefit cost..................... $ (9.5) $ (7.4)
====== ======
</TABLE>
The assumed health care cost trend rate is 6.5% for 1996, declining
gradually to 4.5% after 1999, and remaining at that level thereafter. If the
health care cost trend rate were increased by 1%, the accumulated
postretirement benefit obligation as of December 31, 1996 and the net periodic
postretirement benefit cost for 1996 would be increased by $4.2 million and
$.3 million, respectively.
A-32
<PAGE>
10. INCOME TAXES
Provision (Benefit) for Income Taxes on Continuing Operations:
<TABLE>
<CAPTION>
1996 1995 1994
------- ------- --------
<S> <C> <C> <C>
Current
Federal............................................. $ 4,746 $ 6,230 $(10,196)
State............................................... 176 321 560
Foreign............................................. 79 50 50
------- ------- --------
Total.............................................. 5,001 6,601 (9,586)
------- ------- --------
Deferred
Federal............................................. 10,708 (5,680) (59,151)
Foreign............................................. 29 -- --
------- ------- --------
Total.............................................. 10,737 (5,680) (59,151)
------- ------- --------
Total............................................. $15,738 $ 921 $(68,737)
======= ======= ========
</TABLE>
Reconciliation of Income Taxes Computed at the Federal Statutory Rate to
Provision for Income Taxes (Benefit) of Continuing Operations:
<TABLE>
<CAPTION>
1996 1995 1994
------- ------- --------
<S> <C> <C> <C>
Income (loss) from continuing operations before
income taxes and after minority interest:
Domestic......................................... $47,717 $18,143 $ 15,993
Foreign.......................................... (9,281) (4,169) (3,278)
------- ------- --------
Total........................................... $38,436 $13,974 $ 12,715
======= ======= ========
Income taxes computed at the federal statutory
rate of 35%...................................... $13,453 $ 4,891 $ 4,450
State and foreign taxes........................... 185 242 397
Increase in (reduction of) prior year tax liabili-
ties............................................. 723 (3,590) (3,734)
Nondeductible distribution and merger related
costs............................................ 2,275 -- --
Nondeductible meals and entertainment............. 429 427 360
Change in tax status.............................. -- -- (70,000)
Amortization of property basis difference from EEX
stock sale....................................... (1,550) (454) --
Percentage depletion.............................. (338) (324) (22)
Tax benefit of dividends to ESOP.................. -- -- (256)
Other--net........................................ 561 (271) 68
------- ------- --------
Provision for Income Taxes (Benefit).............. $15,738 $ 921 $(68,737)
======= ======= ========
</TABLE>
At the completion of the conversion of EP and EPPL to corporate form in
1994, the tax basis of certain properties of ENSERCH and subsidiary companies
receiving EEX stock in the conversion exceeded the financial basis of such
properties. Also, the financial basis of ENSERCH and subsidiary companies in
EEX exceeds their tax basis in the EEX stock. ENSERCH expects to ultimately
recover the excess financial basis tax free. As a result of the conversion and
related change in tax status, deferred income taxes applicable to the
difference between the financial and tax basis of ENSERCH and subsidiary
companies' investment in the partnerships were reduced by $70 million in 1994.
A-33
<PAGE>
Deferred income taxes provided by the liability method for significant
temporary differences based on tax laws and statutory rates in effect at the
December 31, 1996 and 1995 balance sheet dates are as follows:
<TABLE>
<CAPTION>
1996 1995
-------------------------------- --------------------------------
TOTAL CURRENT NONCURRENT TOTAL CURRENT NONCURRENT
-------- -------- ---------- -------- -------- ----------
<S> <C> <C> <C> <C> <C> <C>
Deferred Tax Assets:
Net operating-loss and
other
tax-credit
carryforwards.......... $159,739 $ -- $159,739 $103,915 $ -- $103,915
Retirement and other
employee benefit
obligations............ 23,883 3,225 20,658 27,811 3,078 24,733
Accruals and
allowances............. 25,201 11,893 13,308 27,755 15,452 12,303
Losses of controlled
foreign corporations... 14,016 -- 14,016 9,848 -- 9,848
All other............... 19,891 8,053 11,838 14,212 4,356 9,856
-------- -------- -------- -------- -------- --------
Total................. 242,730 23,171 219,559 183,541 22,886 160,655
-------- -------- -------- -------- -------- --------
Deferred Tax
Liabilities:
Exploration and
intangible development
costs.................. 183,013 -- 183,013 201,865 -- 201,865
Property-related
differences............ 264,103 -- 264,103 173,997 -- 173,997
Deferred gas-purchase
contract settlements... -- -- -- 1,553 1,553 --
All other............... 62,132 1,390 60,742 61,877 8 61,869
-------- -------- -------- -------- -------- --------
Total................. 509,248 1,390 507,858 439,292 1,561 437,731
-------- -------- -------- -------- -------- --------
Net Deferred Tax
Liability (Asset)...... $266,518 $(21,781)(a) $288,299 $255,751 $(21,325)(a) $277,076
======== ======== ======== ======== ======== ========
</TABLE>
- --------
(a)Included in other current assets in the balance sheet.
At December 31, 1996, domestic net operating-loss carryforwards total $387
million, which begin to expire in 2003, and tax-credit carryforwards total $24
million, which begin to expire in 1999. The tax benefits of these carryforwards
of $160 million, as shown above, are available to reduce future income-tax
payments.
<TABLE>
<CAPTION>
1996 1995 1994
Cash Payments (Refunds) of Income Taxes: ------- -------- --------
<S> <C> <C> <C>
Federal:
Current year, including alternative minimum tax..... $ 6,430 $ 8,363 $ 10,650
Prior years......................................... (5,330) (10,413) (12,148)
------- -------- --------
Total.............................................. 1,100 (2,050) (1,498)
State................................................ 132 (3,609) 6,743
Foreign.............................................. 189 -- --
------- -------- --------
Total.............................................. $ 1,421 $ (5,659) $ 5,245
======= ======== ========
</TABLE>
A-34
<PAGE>
11. DISCONTINUED OPERATIONS
In October 1994, the Corporation sold Enserch Environmental Corporation,
which conducted the former environmental businesses of Ebasco Services
Incorporated (Ebasco), for $98 million. The principal operating assets of
Ebasco were sold in December 1993. Discontinued operations are summarized as
follows:
<TABLE>
<CAPTION>
1996 1995 1994
Operating Information: -------- -------- ---------
<S> <C> <C> <C>
Revenues....................................... $ -- $ -- $ 72,081
Cost and expenses.............................. -- -- 68,246
-------- -------- ---------
Operating income............................... -- -- 3,835
Interest expense............................... -- -- (1,241)
Income taxes................................... -- -- (1,225)
-------- -------- ---------
Income from operations......................... -- -- 1,369
Gain on sale, net of income-tax provision of
$15,750....................................... -- -- 29,250
Provision for additional costs and expenses for
the wind-up of discontinued businesses, net of
income-tax provision of $2,160 in 1996 and tax
benefit of $7,523 in 1994..................... (1,560) -- (9,977)
-------- -------- ---------
Total........................................ $ (1,560) $ -- $ 20,642
======== ======== =========
Cash Flow Information:
Net cash flows from (used for)
Operating activities.......................... $ (7,274) $(28,102) $(107,487)
Proceeds from sales of assets................. -- -- 97,749
Investing activities.......................... -- -- 8,796
-------- -------- ---------
Net cash flows from (used for) discontinued
operations.................................. $ (7,274) $(28,102) $ (942)
======== ======== =========
</TABLE>
Loss provisions of $1.6 million after-tax and $10.0 million after-tax were
recorded in 1996 and 1994, respectively, in recognition that certain claims
and accounts receivable were settled at amounts less than previously estimated
and costs and expenses incurred for the windup of discontinued businesses
would be greater than previously estimated.
At December 31, 1996, discontinued businesses had assets of $46 million,
consisting principally of retained claims and accounts receivable of the
Ebasco and Enserch Environmental business units, and current and other
liabilities and reserves of $18 million. The Corporation has filed suit
against certain parties to recover amounts outstanding. Management expects
that substantially all disputes will be resolved by year-end 1997 and that
adequate provision for uncollectible claims and accounts receivable, income-
tax matters and expenses for windup of discontinued operations has been made.
A-35
<PAGE>
12. SUPPLEMENTARY GAS AND OIL INFORMATION
Gas and Oil Producing Activities--The following tables set forth information
relating to gas and oil producing activities. Reserve data for natural gas
liquids attributable to leasehold interests owned by the Corporation are
included in oil and condensate.
<TABLE>
<CAPTION>
1996 1995
Capitalized Costs (in millions): -------- --------
<S> <C> <C>
Proved gas and oil properties................................ $2,614.7 $2,362.1
Unproved gas and oil properties.............................. 234.0 199.3
-------- --------
Total...................................................... $2,848.7 $2,561.4
======== ========
Accumulated depreciation and amortization.................... $1,067.3 $ 933.4
======== ========
</TABLE>
<TABLE>
<CAPTION>
1996 1995 1994
Costs Incurred (in millions): ------------ ------------ ------------
NON- NON- NON-
U.S. U.S. U.S. U.S. U.S. U.S.
------ ----- ------ ----- ------ -----
<S> <C> <C> <C> <C> <C> <C>
Property acquisition costs:
Proved................................. $ 3.2 $ -- $356.3 $ -- $ 1.6 $ --
Unproved............................... 23.4 -- 133.3 -- 20.6 --
Exploration costs....................... 84.6 2.8 68.7 9.0 58.7 3.3
Development costs....................... 100.4 .6 77.6 -- 56.8 --
------ ----- ------ ----- ------ -----
Total................................. $211.6 $ 3.4 $635.9 $ 9.0 $137.7 $ 3.3
====== ===== ====== ===== ====== =====
Amortization (Per MMBtu) (a)............ $ 1.08 -- $ 1.01 -- $ 1.04 --
</TABLE>
- --------
(a) Amortization expense per unit of production converted to a common unit of
measure, millions of British thermal units (MMBtu); on a per thousand
cubic feet of gas equivalent (Mcfe) basis, the amounts are: $1.09, $1.03
and $1.06.
Costs Excluded from the Amortizable Base as of December 31, 1996 (in
millions):
<TABLE>
<CAPTION>
TOTAL AT
PRIOR DECEMBER 31,
YEAR INCURRED 1996 1995 1994 YEARS 1996
- ------------- ----- ------ ------ ----- ------------
<S> <C> <C> <C> <C> <C>
Property acquisition costs............... $19.2 $ 56.5 $ 15.7 $ 1.2 $ 92.6
Exploration costs........................ 21.8 14.3 10.5 2.7 49.3
Interest capitalized..................... 5.5 3.6 1.8 1.5 12.4
Development costs........................ 7.7 28.5 33.2 10.3 79.7
----- ------ ------ ----- ------
Total.................................. $54.2 $102.9 $ 61.2 $15.7 $234.0
===== ====== ====== ===== ======
</TABLE>
Approximately 51% of the 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.
A-36
<PAGE>
The following information is required and defined by the Financial Accounting
Standards Board. The disclosure does not represent the results of operations
based on historical financial statements. In addition to requiring different
determinations of revenues and costs, the disclosure excludes interest expense
and corporate overhead.
<TABLE>
<CAPTION>
1996 1995 1994
Results of Operations (in millions): ------------ ------------ ------------
NON- NON- NON-
U.S. U.S. U.S. U.S. U.S. U.S.
------ ----- ------ ----- ------ -----
<S> <C> <C> <C> <C> <C> <C>
Revenues:
Affiliated.......................... $ 86.0 $ -- $ 86.7 $ -- $110.0 $ --
Nonaffiliated....................... 262.6 -- 131.9 -- 63.5 --
Less:
Production costs (a)................ 98.0 -- 67.2 -- 44.0 --
Exploration costs (b)............... 10.2 2.3 9.6 2.3 8.4 1.0
Depreciation and amortization (c)... 147.5 -- 116.4 .9 85.6 --
Income-tax effects.................. 32.2 (.8) 8.6 (1.1) 12.4 (.3)
------ ----- ------ ----- ------ -----
Net producing activities............ $ 60.7 $(1.5) $ 16.8 $(2.1) $ 23.1 $ (.7)
====== ===== ====== ===== ====== =====
</TABLE>
- --------
(a) Includes severance, ad valorem and production taxes.
(b) Includes internal costs that cannot be directly identified with
acquisition, exploration or development activities.
(c) Amount for 1995 includes a write-down of non-U.S. exploratory projects of
$.9 million. Amount for 1994 excludes a $7.6 million gain from the sale of
an inactive offshore pipeline and facilities, which were not related to gas
and oil producing activities.
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 become available.
<TABLE>
<CAPTION>
GAS (MMCF) OIL (MBBLS)(A)
U. S. Reserves: ------------------------------- -----------------------
1996 1995 1994 1996 1995 1994
--------- --------- --------- ------ ------- ------
<S> <C> <C> <C> <C> <C> <C>
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, discoveries
and additions......... 72,854 62,249 47,580 4,315 21,466 9,877
Purchase of minerals in
place................. 12,347 336,668 787 -- 11,417 14
Sales of minerals in
place................. (123,861) (14,497) (894) (3,730) (11,274) (28)
Production............. (100,544) (90,195) (67,113) (5,740) (3,870) (2,227)
--------- --------- --------- ------ ------- ------
At December 31.......... 1,215,624 1,362,763 1,041,736 53,209 66,537 46,486
========= ========= ========= ====== ======= ======
Proved Developed Re-
serves
At January 1........... 937,372 698,643 735,093 30,110 14,437 15,380
At December 31......... 859,094 937,372 698,643 27,938 30,110 14,437
</TABLE>
- --------
(a) Includes condensate and natural gas liquids attributable to leasehold
interests of 1,103 MBbls for 1996, 3,593 MBbls for 1995 and 911 MBbls for
1994.
<TABLE>
<CAPTION>
GAS(MMCF) OIL (MBBLS)
Non-U.S. Reserves: --------- -----------------
1996 1996 1995 1994
--------- ----- ----- -----
<S> <C> <C> <C> <C>
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 Developed.................................... -- -- -- --
</TABLE>
A-37
<PAGE>
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.
Because reserve estimates are imprecise and changes in the other variables
are unpredictable, the standardized measure should be interpreted as
indicative of the order of magnitude only and not as precise amounts.
<TABLE>
<CAPTION>
1996 1995 1994
Standardized Measure (in millions): --------- -------- ---------
<S> <C> <C> <C>
Future cash inflows........................... $ 5,474.3 $4,180.7 $ 3,101.1
Future production and development costs....... (1,552.9) (1,568.9) (1,218.5)
Future income-tax expense..................... (1,019.3) (539.1) (499.3)
--------- -------- ---------
Future net cash flows......................... 2,902.1 2,072.7 1,383.3
Less 10% annual discount...................... 1,167.6 834.8 556.1
--------- -------- ---------
Standardized measure of discounted future net
cash flows................................... $ 1,734.5 $1,237.9 $ 827.2
========= ======== =========
Change in Standardized Measure (in millions):
Sales and transfers of gas and oil produced,
net of production costs...................... $ (254.4) $ (151.4) $ (120.8)
Changes in prices, net of production and fu-
ture development costs....................... 1,097.0 63.1 (15.6)
Extensions, discoveries and improved recovery,
less related costs........................... 185.0 175.8 121.3
Purchases of minerals in place................ 3.2 367.6 1.6
Revisions of previous quantity estimates...... (238.7) (122.8) (87.1)
Sales of minerals in place.................... (125.2) (22.9) (1.3)
Accretion of discount......................... 141.6 103.3 102.7
Net change in income taxes.................... (349.4) 7.6 5.1
Other......................................... 37.5 (9.6) (9.3)
--------- -------- ---------
Total....................................... $ 496.6 $ 410.7 $ (3.4)
========= ======== =========
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.
13. OTHER EXPENSE--NET
<CAPTION>
1996 1995 1994
Summary of Other Income (Expense)--Net: --------- -------- ---------
<S> <C> <C> <C>
Gain on disposal of assets.................... $ 26 $ 3,057 $ 135
Gain on termination of interest-rate swap..... 2,211 -- --
Discount on sale of receivables............... (5,149) (5,607) (4,774)
Interest income............................... 2,736 2,544 1,937
Merger and distribution expenses.............. (6,791) -- --
Loss on reacquired debentures................. -- (287) (1,350)
Professional fees for restructuring........... -- -- (2,683)
Equity in losses of unconsolidated affili-
ates......................................... (3,821) (821) (377)
Other......................................... (434) 81 1,064
--------- -------- ---------
Total....................................... $ (11,222) $ (1,033) $ (6,048)
========= ======== =========
</TABLE>
A-38
<PAGE>
SUMMARY OF BUSINESS SEGMENTS
The Corporation's major business segments are natural gas and oil
exploration and production; natural gas pipeline, processing & marketing;
natural gas distribution; and power and other. Through these business
segments, the Corporation is engaged in (1) natural gas and oil exploration
and production--exploring for, developing, producing and marketing natural gas
and oil, (2) natural gas pipeline, processing & marketing--owning and
operating interconnected natural gas transmission lines, underground storage
reservoirs, compressor stations and related properties, all within Texas;
gathering and processing natural gas to remove impurities and extract liquid
hydrocarbons for sale; and the wholesale and retail marketing of natural gas
in several areas of the U.S., (3) natural gas distribution--owning and
operating some 550 local gas utility distribution systems in Texas, and (4)
power and other--developing, financing and operating electric power generating
plants and cogeneration facilities; operating thermal energy plants for large
building complexes, such as universities and medical centers; and developing
gas distribution systems in Mexico and South America.
<TABLE>
<CAPTION>
NATURAL GAS
AND OIL NATURAL GAS
EXPLORATION PIPELINE, POWER GENERAL
AND PROCESSING NATURAL GAS AND AND
PRODUCTION & MARKETING DISTRIBUTION OTHER OTHER CONSOLIDATED
----------- ----------- ------------ ------- ------- ------------
<S> <C> <C> <C> <C> <C> <C>
Revenues from
Nonaffiliates
1996................... $ 245,075 $ 965,707 $894,035 $37,808 $ $2,142,625
1995................... 133,876 864,872 892,675 39,817 1,931,240
1994................... 69,140 1,100,916 879,953 45,499 2,095,508
Intersegment Revenues
from Affiliates
(eliminated in
consolidation)
1996................... 86,129 160,743 1,189 248,061
1995................... 87,002 131,552 1,174 219,728
1994................... 110,191 134,656 1,383 246,230
Operating Income (Loss)
1996................... 32,224 63,444 68,157 (8,239) (9,266) 146,320
1995................... (12,023) 60,153 54,634 3,478 (8,513) 97,729
1994................... 25,420 27,245 38,334 5,761 (8,114) 88,646
Depreciation and
Amortization
1996................... 151,026 24,390 27,208 1,516 705 204,845
1995................... 119,976 21,158 24,906 1,563 659 168,262
1994................... 79,982 22,500 22,475 1,403 619 126,979
Identifiable Assets
1996................... 1,876,723 938,514 712,400 84,865 132,075(a) 3,744,577
1995................... 1,720,349 723,023 744,981 38,630 154,111(a) 3,381,094
1994................... 1,298,130 694,506 698,341 41,794 155,766(a) 2,888,537
Gross Additions to
Property, Plant and
Equipment
1996................... 204,363 50,949 80,380 53 894 336,639
1995................... 190,168(b) 44,617 61,286 312 643 297,026
1994................... 133,254 47,503 78,186 622 493 260,058
</TABLE>
- --------
(a)Includes $46,035 in 1996, $74,051 in 1995 and $62,622 in 1994 related to
discontinued operations.
(b)Excludes property acquired in the purchase of a gas and oil exploration and
production company.
Certain of the business segments provide services or sell products to one or
more of the other segments. Generally, such sales are made at prices
comparable with those received from nonaffiliated customers for similar
products or services. Non-U.S. operations provided less than 10% of
consolidated revenues and employed less than 10% of consolidated assets for
all periods presented. No customer provided more than 10% of consolidated
revenues.
A-39
<PAGE>
QUARTERLY RESULTS (UNAUDITED)
The results of operations by quarters are summarized below. In the opinion of
the Corporation's management, all adjustments (consisting only of normal
recurring accruals) necessary for a fair presentation have been made.
<TABLE>
<CAPTION>
QUARTER ENDED
-------------------------------------------
MARCH 31 JUNE 30 SEPTEMBER 30 DECEMBER 31
-------- -------- ------------ -----------
<S> <C> <C> <C> <C>
1996:
Revenues.......................... $678,643 $415,155 $385,515 $663,312
Operating Income.................. 70,392 15,075 4,696 56,157
Income (Loss) From Continuing
Operations....................... 29,777 (6,701) (15,281) 14,903
Loss From Discontinued
Operations....................... -- -- -- (1,560)
Extraordinary Loss on
Extinguishment of Debt........... -- -- (2,096) --
Net Income (Loss)................. 29,777 (6,701) (17,377) 13,343
Earnings (Loss) Applicable to
Common Stock..................... 27,018 (9,518) (20,263) 10,466
Per Share of Common Stock:
Income (loss) from continuing
operations...................... $ .39 $ (.14) $ (.26) $ .17
Discontinued operations.......... -- -- -- (.02)
Extraordinary loss............... -- -- (.03) --
-------- -------- -------- --------
Earnings (loss) applicable to
common stock.................... $ .39 $ (.14) $ (.29) $ .15
1995:
Revenues.......................... $612,641 $396,160 $414,547 $507,892
Operating Income (Loss)........... 67,532 (3,938) 4,114 30,021
Net Income (Loss)................. 30,816 (14,632) (13,771) 10,640
Earnings (Loss) Applicable to
Common Stock..................... 27,780 (17,613) (16,637) 7,833
Per Share of Common Stock--
Earnings (loss) applicable to
common stock..................... $ .41 $ (.26) $ (.24) $ .11
</TABLE>
A-40
<PAGE>
COMMON STOCK MARKET PRICES AND DIVIDEND INFORMATION
MARKET PRICES--ENSERCH COMMON STOCK
The Corporation's common stock is traded principally on the New York Stock
Exchange. The following table shows the high and low sales prices per share of
the common stock of the Corporation reported in the New York Stock Exchange --
Composite Transactions report for the periods shown as quoted in The Wall
Street Journal.
<TABLE>
<CAPTION>
1996 1995 1994
--------------- --------------- ---------------
HIGH LOW HIGH LOW HIGH LOW
------- ------- ------- ------- ------- -------
<S> <C> <C> <C> <C> <C> <C>
First Quarter................... $16 3/4 $14 1/8 $15 1/8 $12 5/8 $19 1/8 $12 7/8
Second Quarter.................. 22 1/8 15 7/8 18 3/8 14 5/8 15 1/4 12 5/8
Third Quarter................... 22 3/4 19 1/4 18 5/8 15 7/8 16 1/2 13 1/8
Fourth Quarter.................. 23 3/4 20 5/8 16 7/8 14 1/4 15 12 1/8
<CAPTION>
1993 1992 1991
--------------- --------------- ---------------
HIGH LOW HIGH LOW HIGH LOW
------- ------- ------- ------- ------- -------
<S> <C> <C> <C> <C> <C> <C>
First Quarter................... $19 1/8 $14 1/8 $14 3/8 $10 3/8 $20 1/2 $16 7/8
Second Quarter.................. 19 5/8 16 7/8 16 3/8 12 1/8 21 3/8 17 1/8
Third Quarter................... 22 5/8 17 1/2 16 1/8 14 18 3/4 15 5/8
Fourth Quarter.................. 21 1/4 15 1/2 16 1/2 13 3/4 17 1/2 12 3/4
</TABLE>
COMMON STOCK DATA AT YEAR-END
<TABLE>
<CAPTION>
1996 1995 1994 1993 1992 1991
------ ------ ------ ------ ------ ------
<S> <C> <C> <C> <C> <C> <C>
Shareholders of Record............... 16,973 19,247 19,614 20,406 22,832 23,979
------ ------ ------ ------ ------ ------
Shares Outstanding (000's)........... 70,280 68,516 68,158 67,860 67,238 66,506
------ ------ ------ ------ ------ ------
</TABLE>
DIVIDENDS PER SHARE OF COMMON STOCK
As of December 31, 1996, the Corporation had paid 210 consecutive quarterly
cash dividends on its common stock. At December 31, 1996, $569 million of
common shareholders' equity was free of restrictions as to the payment of
dividends and redemption of capital stock. The declaration of future dividends
will be dependent upon business conditions, earnings, cash requirements and
other relevant factors. In February 1997, a quarterly cash dividend of $.05
per share was declared, payable March 3, 1997, to shareholders of record on
February 21, 1997. Quarterly cash dividends on common stock were $.05 per
share (annual rate of $.20 per share) in 1996 through 1993 and $.20 per share
(annual rate of $.80 per share) for the two preceding years.
A-41
<PAGE>
EXHIBIT 3.1
RESTATED ARTICLES OF INCORPORATION
(WITHOUT AMENDMENT)
OF
ENSERCH CORPORATION
1. ENSERCH CORPORATION, pursuant to the provisions of Article 4.07 of
the Texas Business Corporation Act, hereby adopts Restated Articles of
Incorporation which accurately copy the Articles of Incorporation and all
Amendments thereto that are in effect to date and such Restated Articles of
Incorporation contain no change in any provision thereof.
2. The Restated Articles of Incorporation were adopted by the Board of
Directors of the Corporation on the 12th day of May, 1987.
3. The Articles of Incorporation and all Amendments and Supplements
thereto are hereby superseded by the following Restated Articles of
Incorporation which accurately copy the entire text thereof:
ARTICLE ONE
The name of the corporation is ENSERCH CORPORATION.
ARTICLE TWO
The purposes for which the corporation is organized are:
(1) To store, transport, buy and sell oil, gas, salt, brine and other
mineral solutions and liquefied minerals; also sand and clay for the
manufacture and sale of clay products; except that the corporation shall
not engage directly in the oil pipeline business within the State of Texas;
(2) To engage in all phases of the gas public utility business,
including but not limited to the purchase and sale, transportation and
distribution of natural gas, butanes, propanes and the various component
parts and constituents thereof;
(3) To explore for, produce, purchase and sell, store, process and
manufacture, transport and distribute oil, gas and all other minerals
except that the corporation shall not engage directly in the oil pipeline
business within the State of Texas;
(4) To engage in all phases of the business of developing, producing,
purchasing, storing, transporting, distributing and selling all forms of
energy, including but not limited to gas, electric and atomic energy;
(5) To engage in all phases of the chemical business, including but
not limited to the purchase and sale, production, manufacture,
transportation and distribution of all kinds of chemicals and the raw
materials from which they are derived;
(6) To manufacture, produce, purchase or otherwise acquire, sell or
dispose of, distribute, mortgage, pledge, lease, repair, install, operate,
deal in and with, whether as principal or agent,
<PAGE>
products, goods, appliances, wares, merchandise, fixtures, plants,
structures, machinery, and materials of every kind and description, and to
lend money for the carrying out of such purposes and to take and hold real
and personal property for the payment of such funds so loaned;
(7) To operate a gas, electric current and power corporation, which
shall have power to generate, make and manufacture, transport and sell gas,
electric current and power to individuals, the public and municipalities
for light, heat, power and other purposes, and to make reasonable charges
therefor; to construct, maintain and operate power plants and substations
and such machinery, apparatus, pipes, poles, wires, devices and
arrangements as may he necessary to operate said lines at and between
different points in this state; to own, hold and use such lands, rights-of-
way, easements, franchises, buildings and structures as may be necessary
for the purpose of such corporation;
(8) To own all or any part of the stock of other corporations
including but not limited to one or more corporations engaged in the oil
and gas producing business and one or more corporations engaged in the oil
pipeline business;
(9) To engage in all phases of practical and scientific research;
(10) To do all and everything necessary, suitable, and proper for the
accomplishment of any of the purposes or the attainment of any of the
objects hereinabove set forth, either alone or in association with other
corporations, firms or individuals, and to do every other act or acts,
thing or things incidental or pertinent to or growing out of or connected
with the aforesaid objects or purposes or any part or parts thereof,
provided the same be not inconsistent with the laws under which this
corporation is organized;
(11) In connection with the doing of all and everything or of anything
necessary, suitable or proper for the accomplishment of any of the purposes
or the attainment of any of the objects hereinabove set forth, to exercise
all or any and to exercise each of the powers granted to corporations by
the Texas Business Corporation Act or by any other statutes or laws of the
State of Texas.
ARTICLE THREE
The places where the business of the corporation is to be transacted
are: the City of Dallas in Dallas County, Texas, and elsewhere within or without
the State of Texas in accordance with the laws of said State; and its principal
place of business and domicile is to be in the city of Dallas, County of Dallas,
State of Texas. The post office address of the Company's initial registered
office is 300 South St. Paul Street, Dallas, Texas, and the name of the
Company's registered agent at such address is Michael G. Fortado.
ARTICLE FOUR
2
<PAGE>
The period of its duration is perpetual.
ARTICLE FIVE
The number of Directors constituting the Board of Directors is nine,
subject to being increased or decreased as the by-laws of the corporation may
provide, but in no event shall there be less than three Directors; and the names
and residences of the existing Directors of the Company who are to serve until
the next regular Annual Meeting of the Stockholders or until their successors
are elected and qualify are:
<TABLE>
<CAPTION>
<S> <C> <C>
W. C. McCord 300 South St. Paul Street Dallas,
Texas
William B. Boyd 40 West 40th Street New York,
New York
B. A. Bridgewater, Jr. 8400 Maryland Avenue St. Louis,
Missouri
T. C. Cochran, Jr. 40 Standish Boulevard Pittsburgh,
Pennsylvania
Preston M. Geren, Jr. 619 Overton Park Bank Fort Worth,
4200 South Hulen Texas
Edmond R. Haggar 6113 Lemmon Avenue Dallas,
Texas
Edward J. Ledder 6342 Canterbury Lane Mariner Sands,
Stuart, Florida
Lord Nelson 1 Stanhope Gate London, England
of Stafford
W. Ray Wallace 2525 Stemmons Expressway Dallas,
Texas
</TABLE>
ARTICLE SIX
The total number of shares of all classes of stock which the Company shall
have authority to issue is 104,000,000 of which 2,000,000 shares are of no par
value and are of a class designated Preferred Stock, 2,000,000 shares are of no
par value and of a class designated Voting Preference Stock and 100,000,000
shares of which are of the par value of $4.45 per share and are of a class
designated Common Stock. The preferences, limitations and relative rights of the
Preferred Stock, Voting Preference Stock and the Common Stock shall be as
follows:
DIVISION A
THE PREFERRED STOCK
1. The shares of Preferred Stock may be divided into and issued in series.
Each such series shall be so designated as to distinguish the
3
<PAGE>
shares thereof from the shares of all other series and classes, and all shares
of the Preferred Stock shall be identical, except as to the following relative
rights and preferences, as to which there may be variations between different
series:
a. The rate of dividend;
b. The price at and the terms and conditions on which shares may be
redeemed;
c. The amount payable upon shares in the event of involuntary
liquidation;
d. The amount payable upon shares in the event of voluntary
liquidation;
e. Sinking fund provisions for the redemption or purchase of shares;
f. The terms and conditions on which shares may be converted, if the
shares of any series are issued with the privilege of conversion;
g. Voting rights.
No change shall be made in any of the rights and preferences of any series
of Preferred Stock at the time outstanding in those respects in which the shares
thereof vary from the shares of other series of Preferred Stock at the time
outstanding without the affirmative vote at a meeting of the holders of shares
representing at least two-thirds of the votes entitled to be cast with respect
to the shares of such series of Preferred Stock outstanding on the record date
for such meeting in addition to such other vote, if any, as may be required for
such change under the applicable provisions of these articles or of the laws of
the State of Texas at the time applicable thereto.
2. To the extent that series of Preferred Stock have not been established
and variations in the relative rights and preferences as between series have not
been fixed and determined in these articles, authority is vested in the Board of
Directors of the Company, by resolution or resolutions providing for the
issuance thereof, to divide the shares of Preferred Stock into and to establish
series of Preferred Stock, to fix and determine the relative rights and
preferences of the shares of any series so established, and to issue and sell
any and all of the authorized and unissued shares of Preferred Stock as shares
of any series thereof established by action of the Board of Directors pursuant
hereto.
3. The following provisions shall apply to all shares of the Preferred
Stock irrespective of series:
a. To the extent that the resolution or resolutions creating any
series of Preferred Stock shall provide that any dividends shall be paid
thereon, the holders of Preferred Stock of each series shall be entitled to
receive on the dates and for the periods hereinafter set forth, dividends
in cash, payable when and as declared by the
4
<PAGE>
Board of Directors, at such rates as shall be determined for the respective
series, from the date upon which such shares shall have been originally
issued. Such dividends, if any, shall be cumulative so that no dividend
(other than a dividend payable in Common Stock of the Company) or other
distribution shall be paid or declared or made on, and no amounts shall be
applied to the purchase or redemption of, the Common Stock or any other
class of stock ranking junior to the Preferred Stock as to dividends or
assets unless (i) full cumulative dividends for all past dividend periods
shall have been paid or declared and set apart for payment, and full
cumulative dividends for the then current dividend period shall have been
or simultaneously therewith shall be paid or declared, on outstanding
Preferred Stock of all series entitled thereto at the rates determined for
the respective series, and (ii) after giving effect to such payment of
dividend, other distribution, purchase or redemption, the aggregate capital
of the Company applicable to all capital stock outstanding ranking junior
to the Preferred Stock as to dividends or assets plus the consolidated
earned and capital surplus of the Company and its subsidiaries shall exceed
the aggregate amount payable on involuntary dissolution, liquidation or
winding up of the Company on all shares of the Preferred Stock and all
stock ranking prior to or on a parity with the Preferred Stock as to
dividends or assets to be outstanding after such payment of dividend, other
distribution, purchase or redemption. Dividends shall not be paid or
declared and set apart for payment on the Preferred Stock of any one series
for any dividend period unless dividends have been or are contemporaneously
paid or declared and set apart for the payment on the Preferred Stock of
all series entitled thereto for all dividend periods terminating on the
same or earlier date. The term "dividend period" shall mean any of the four
calendar quarters in each year commencing respectively on the first day of
February, May, August and November. The first day of each such calendar
quarter shall be the dividend payment date for the regular quarterly
dividend payable for the preceding dividend period of such series, except
that the first dividend on shares of each series shall be payable on the
quarterly dividend payment date next succeeding the expiration of 30 days
after the date of initial issue of any shares of such series.
b. In the event of any dissolution, liquidation or winding up of the
Company, whether voluntarily or involuntarily, the holders of Preferred
Stock of each series, without any preference of the shares of any series of
Preferred Stock over the shares of any other series of Preferred Stock,
shall be entitled to receive in cash out of the assets of the Company,
whether capital, surplus, or other, before any distribution of the assets
shall be made to the holders of Common Stock or of any other class of stock
ranking junior to the Preferred Stock as to dividends or assets, the amount
determined pursuant to paragraphs "1,c" and "1,d" of this Division A to be
payable on the shares of such series in the event of voluntary or
involuntary dissolution, liquidation or winding up, as the case may be,
together in all cases with unpaid accumulated dividends, if any, to the
date fixed for such payment. If the assets shall not be sufficient to pay
in full the amounts so determined to be payable on all shares of the
Preferred Stock in the event of such voluntary or involuntary dissolution,
liquidation or winding up, as the case may be, then the
5
<PAGE>
assets available for payment shall be distributed ratably among the holders
of the Preferred Stock of all series in accordance with the amounts so
determined to be payable on the shares of each series in the event of
voluntary or involuntary dissolution, liquidation or winding up, as the
case may be, in proportion to the full preferential amounts to which they
are respectively entitled. After payment to the holders of the Preferred
Stock of the full preferential amounts hereinbefore provided for, the
holders of Preferred Stock will have no other rights or claims to any of
the remaining assets of the Company either upon distribution of such assets
or upon dissolution, liquidation or winding up. The sale of all or
substantially all the property of the Company to, or the merger or
consolidation of the Company into or with, any other corporation, or the
purchase or redemption by the Company of any shares of its Preferred Stock
or its Common Stock or any other class of its stock shall not be deemed to
be a distribution of assets or a dissolution, liquidation or winding up for
the purposes of this paragraph.
c. So long as full cumulative dividends on all outstanding shares of
Preferred Stock for all dividend periods ending on or prior to the date
fixed for redemption shall have been paid or declared and set apart for
payment and subject to any applicable requirements of Texas law, the
Company may, (i) at the option of the Board of Directors of the Company,
redeem the whole or any part of any series of Preferred Stock determined by
it to be redeemable pursuant to paragraph "1,b" of this Division A, or (ii)
redeem the whole or any part of any series of Preferred Stock to meet any
sinking fund requirement determined pursuant to paragraph "1,e" of this
Division A, in each case on the terms and conditions and at the redemption
price so determined for such series plus the amount of unpaid accumulated
dividends, if any, to the date of such redemption. All such redemptions of
Preferred Stock shall be effected in accordance with the Procedure for
Redemptions as set forth in the Texas Business Corporation Act.
d. So long as full cumulative dividends on all outstanding shares of
Preferred Stock for all dividend periods ending on or prior to the date of
purchase shall have been paid or declared and set apart for payment and
subject to any applicable requirements of Texas law, the Company may
purchase, directly or indirectly, shares of Preferred Stock of any series
to the extent of the aggregate of unrestricted capital surplus available
therefore and unrestricted reduction surplus available therefore.
e. So long as any shares of the Preferred Stock are outstanding, the
Company shall not, without the affirmative vote at a meeting of the holders
of shares representing at least two-thirds of the votes entitled to be cast
with respect to the shares of Preferred Stock outstanding on the record
date for such meeting, adopt an amendment to these Articles if such
amendment would (i) authorize or create, or increase the authorized amount
of, any class of stock which is entitled to dividends or assets in priority
to or on a parity with the Preferred Stock, (ii) increase the authorized
number of shares of Preferred Stock, or (iii) change any of the rights or
6
<PAGE>
preferences of the then outstanding Preferred Stock or any series thereof.
f. So long as any shares of the Preferred Stock shall be outstanding,
the Company shall not, without the affirmative vote at a meeting of the
holders of shares representing a majority of the votes entitled to be cast
with respect to the shares of the Preferred Stock outstanding on the record
date for such meeting, issue any additional shares, or reissue any
reacquired shares, of Preferred Stock or of any other class of stock
ranking prior to or on a parity with the outstanding shares of the
Preferred Stock as to dividends or assets for any purpose other than to
purchase or redeem an equal par or stated value on involuntary liquidation
of Preferred Stock or of stock ranking prior to or on a parity with the
Preferred Stock as to dividends or assets at the time outstanding, unless
(i) the consolidated gross income of the Company and its
subsidiaries as hereinafter in this paragraph "f" defined, for 12
consecutive calendar months within a period of 15 calendar months
immediately preceding the calendar month of such issuance is equal to
at least 1 1/2 times the aggregate of the annual interest charges on
indebtedness of the Company and its subsidiaries, as hereinafter in
this paragraph "f" defined, (excluding interest charges on
indebtedness to be retired by the application of the proceeds from the
issuance of such shares) and the annual dividend requirements on all
Preferred Stock (including dividend requirements on any class of stock
ranking prior to or on a parity with the shares to be issued as to
dividends or assets but excluding any dividend requirements on any
stock to be retired by the application of the proceeds from the
issuance of such shares), which will be outstanding immediately after
the issuance of such shares; and
(ii) the aggregate capital of the Company applicable to all
capital stock outstanding ranking junior to the Preferred Stock as to
dividends and assets, plus the consolidated earned and capital surplus
of the Company and its subsidiaries, shall be at least equal to the
aggregate amount payable upon involuntary dissolution, liquidation or
winding up of the Company on all shares of the Preferred Stock, and
all stock ranking prior to or on a parity with the Preferred Stock as
to dividends or assets, to be outstanding immediately after the
issuance of such shares of Preferred Stock or such stock ranking prior
to or on a parity therewith and the application of the proceeds
thereof.
Whenever used in the paragraph "f", the following terms shall have the
following meanings:
The term "consolidated gross income of the Company and its
subsidiaries'' shall mean the consolidated net income of the Company and
its subsidiaries, as hereinafter defined, plus the amounts deducted in the
computation of such consolidated net income for interest charges on
indebtedness of the Company and its subsidiaries and for dividends paid or
accrued on the Preferred Stock of the
7
<PAGE>
Company and on any class of stock ranking prior to or on a parity with the
Preferred Stock as to dividends or assets.
The term "consolidated net income of the Company and its subsidiaries"
shall mean the consolidated gross earnings of the Company and its
subsidiaries from all sources less all proper deductions for operating
expenses, taxes (including income, excess profits and other taxes based on
or measured by income or undistributed earnings or income), interest
charges and other appropriate items, including provision for maintenance,
depreciation and depletion, and less all dividends paid or accrued on the
Preferred Stock of the Company and all shares of stock, if any, ranking
prior thereto or on a parity therewith as to dividends or assets, which are
applicable to the period in question, and otherwise determined in
accordance with generally accepted accounting principles.
The term "indebtedness of the Company and its subsidiaries" shall mean
all obligations of the Company and its subsidiaries, whether or not
represented by bonds, debentures or notes, for the repayment of money
borrowed by the Company and its subsidiaries, all deferred obligations of
the Company and its subsidiaries for the payment of the purchase price of
property or assets purchased by the Company and its subsidiaries and all
such obligations assumed by the Company and its subsidiaries, but shall not
include any customers' deposits or employees' deposit accounts or
employees' pension or other accounts.
g. Shares of any series of Preferred Stock which have been redeemed
(whether through the operation of a sinking fund or otherwise) or purchased
by the Company (whether or not used or to be used as a credit with respect
to any sinking fund obligation), or which, if convertible or exchangeable,
have been converted or exchanged for shares of stock of any other class or
classes shall, upon the filing of any required certificate, have the status
of authorized and unissued shares of Preferred Stock and may be
reclassified and reissued as part of a new series of Preferred Stock to be
created by resolution or resolutions of the Board of Directors or as a part
of any other series of Preferred Stock, all subject to the conditions and
restrictions on issuance set forth in paragraph "f" hereof and in the
resolution or resolutions adopted by the Board of Directors providing for
the issue of any series of Preferred Stock and to any filing required by
law.
h. Upon any issue for money or other consideration of any stock of the
Company that may be authorized from time to time, or treasury stock, no
holder of Preferred Stock shall have any preemptive or other right to
subscribe for, purchase, or receive any proportionate or other share of the
stock so issued, but the Board of Directors may dispose of all or any
portion of such stock as and when it may determine, free of any such
rights, whether by offering the same to shareholders or by sale or other
disposition as said Board of Directors may deem advisable.
4. Voting Powers.
8
<PAGE>
a. Except as otherwise provided by law, the holders of Preferred Stock
shall not have any right to vote for the election of Directors or for any
other purpose except as heretofore set forth in this Division A or as may
be provided with respect to any series pursuant to paragraph "1,g" hereof
or as set forth below. For the purpose of the following provisions, the
Preferred Stock of all series shall be deemed to be a single class.
Whenever and as often as the full amount of cumulative dividends
payable on the Preferred Stock shall not have been paid, or declared and a
sum sufficient for payment thereof set apart, for six quarterly dividend
periods, the number of Directors of the Company shall be increased by two
and the holders of the Preferred Stock shall have exclusive right, voting
separately and as a single class, to vote for and elect such additional
directors and the holders of the Common Stock shall have the exclusive
rights, voting separately and as a class, to elect the remaining number of
directors of the Company. The election of additional directors by holders
of Preferred Stock shall be held at the next annual meeting of shareholders
or may be held at a special meeting of shareholders, which shall be held
upon notice as provided in the bylaws of the Company for a special meeting
of the shareholders, at the request of the holders of shares representing
not less than ten percent (10%o) of the votes entitled to be cast by the
shares of the then outstanding Preferred Stock, addressed to the Secretary
of the Company at the principal business office. Any vacancy in the Board
of Directors occurring during any period when the Preferred Stock shall
have elected representatives on the Board shall be filled by a majority
vote of the remaining directors (or the one director) representing the
class of stock theretofore represented by the director causing the vacancy.
In the event of simultaneous vacancies among directors elected by the
holders of the Preferred Stock an election, pursuant to the provisions of
this paragraph, will bc held. The right of the holders of Preferred Stock
to elect additional directors shall cease and the terms of any additional
directors elected by the holders of the Preferred Stock voting as a
separate class shall terminate forthwith whenever full cumulative dividends
on the Preferred Stock shall have been paid, or declared and a sum
sufficient for payment thereof set apart.
b. At all meetings of the shareholders held for the purpose of
electing directors during such times as the holders of Preferred Stock
shall have the exclusive right to elect any directors of the Company, the
presence in person or by proxy of the holders of a majority of the
outstanding shares of Common Stock shall be required to constitute a quorum
of such class for the election of directors, and the presence in person or
by proxy of the holders of shares representing a majority of the votes
entitled to be cast by the outstanding shares of Preferred Stock shall be
required to constitute a quorum of such class for the election of
directors; provided, however, that the absence of a quorum of the holders
of stock of either class shall not prevent the election at any such
meeting, or adjournment thereof, of directors by the other class if the
necessary quorum of the holders of stock of such class is present in person
or by proxy at such meeting; and provided, further, that in the absence
9
<PAGE>
of a quorum of the holders of stock of either class, a majority of those
holders of such stock who are present in person or by proxy shall have the
power to adjourn the election of those directors to be elected by that
class from time to time without notice, other than announcement at the
meeting, until the requisite amount of holders of stock of such class shall
be present in person or by proxy.
c. Holders of Preferred Stock shall not be entitled to receive notice
of any meeting of shareholders at which they are not entitled to vote or
consent.
DIVISION B
THE VOTING PREFERENCE STOCK
1. Voting Preference Stock shall rank junior to the Preferred Stock as to
dividends and assets. The shares of Voting Preference Stock may be divided into
and issued in series. Each such series shall be so designated as to distinguish
the shares thereof from the shares of all other series and classes, and all
shares of the Voting Preference Stock shall be identical, except as to the
following relative rights and preferences, as to which there may be variations
between different series:
a. The rate of dividend;
b. The price at and the terms and conditions on which shares may be
redeemed;
c. The amount payable upon shares in the event of involuntary
liquidation;
d. The amount payable upon shares in the event of voluntary
liquidation;
e. Sinking fund provisions for the redemption or purchase of shares;
f. The terms and conditions on which shares may be converted, if the
shares of any series are issued with the privilege of conversion;
g. Voting rights.
No change shall be made in any of the rights and preferences of any series
of Voting Preference Stock at the time outstanding in those respects in which
the shares thereof vary from the shares of other series of Voting Preference
Stock at the time outstanding without the affirmative vote at a meeting of the
holders of shares representing at least two-thirds of the votes entitled to be
cast with respect to the shares of such series of Voting Preference Stock
outstanding on the record date for such meeting in addition to such other vote,
if any, as may be required for such change under the applicable provisions of
these articles or of the laws of the State of Texas at the time applicable
thereto.
10
<PAGE>
2. To the extent that series of Voting Preference Stock have not been
established and variations in the relative rights and preferences as between
series have not been fixed and determined in these articles, authority is vested
in the Board of Directors of the Company, by resolution or resolutions providing
for the issuance thereof, to divide the shares of Voting Preference Stock into
and to establish series of Voting Preference Stock, to fix and determine the
relative rights and preferences of the shares of any series so established, and
to issue and sell any and all of the authorized and unissued shares of Voting
Preference Stock as shares of any series thereof established by action of the
Board of Directors pursuant hereto.
3. The following provisions shall apply to all shares of the Voting
Preference Stock irrespective of series:
a. To the extent that the resolution or resolutions creating any
series of Voting Preference Stock shall provide that any dividends shall be
paid thereon, and subject to the prior preference with respect to dividends
upon Preferred Stock set forth in paragraph "3,a of Division A but in
preference to the holders of any other class of shares ranking junior to
the Voting Preference Stock, the holders of Voting Preference Stock of each
series shall be entitled to receive on the dates and for the periods
hereinafter set forth, dividends in cash, payable when and as declared by
the Board of Directors, at such rates as shall be determined for the
respective series, from the date upon which such shares shall have been
originally issued. Such dividends, if any, shall be cumulative so that no
dividend (other than a dividend payable in Common Stock of the Company) or
other distribution shall be paid or declared or made on, and no amounts
shall be applied to the purchase or redemption of, the Common Stock or any
other class of stock ranking junior to the Voting Preference Stock as to
dividends or assets unless (i) full cumulative dividends for all past
dividend periods shall have been paid or declared and set apart for
payment, and full cumulative dividends for the then current dividend period
shall have been or simultaneously therewith shall be paid or declared, on
outstanding Voting Preference Stock of all series entitled thereto at the
rates determined for the respective series, and (ii) after giving effect to
such payment of dividend, other distribution, purchase or redemption, the
aggregate capital of the Company applicable to all capital stock
outstanding ranking junior to the Voting Preference Stock as to dividends
or assets plus the consolidated earned and capital surplus of the Company
and its subsidiaries shall exceed the aggregate amount payable on
involuntary dissolution, liquidation or winding up of the Company on all
shares of the Voting Preference Stock and all stock ranking prior to or on
a parity with the Voting Preference Stock as to dividends or assets to be
outstanding after such payment of dividend, other distribution, purchase or
redemption. Dividends shall not be paid or declared and set apart for
payment on the Voting Preference Stock of any one series for any dividend
period unless dividends have been or are contemporaneously paid or declared
and set apart for the payment on the Voting Preference Stock of all series
entitled thereto for all dividend periods terminating on the same or
earlier date. The term "dividend period" shall mean any of the four
calendar quarters in each year commencing respectively on the first
11
<PAGE>
day of February, May, August and November. The first day of each such
calendar quarter shall be the dividend payment date for the regular
quarterly dividend payable for the preceding dividend period of such
series, except that the first dividend on shares of each series shall be
payable on the quarterly dividend payment date next succeeding the
expiration of 30 days after the date of initial issue of any shares of such
series.
b. In the event of any dissolution, liquidation or winding up of the
Company, whether voluntarily or involuntarily, the holders of Voting
Preference Stock of each series, without any preference of the shares of
any series of Voting Preference Stock over the shares of any other series
of Voting Preference Stock, but subject to the prior preference of the
holders of Preferred Stock as set forth in paragraph "3,b" of Division A,
shall be entitled to receive in cash out of the assets of the Company,
whether capital, surplus, or other, before any distribution of the assets
shall be made to the holders of Common Stock or of any other class of stock
ranking junior to the Voting Preference Stock as to dividends or assets,
the amount determined pursuant to paragraphs "1,c" and "1,d" of this
Division B to be payable on the shares of such series in the event of
voluntary or involuntary dissolution, liquidation or winding up, as the
case may be, together in all cases with unpaid accumulated dividends, if
any, to the date fixed for such payment. If the assets available for
distribution to holders of shares of Voting Preference Stock shall not be
sufficient to pay in full the amounts so determined to be payable on all
shares of the Voting Preference Stock in the event of such voluntary or
involuntary dissolution, liquidation or winding up, as the case may be,
then the assets available for payment shall be distributed ratably among
the holders of the Voting Preference Stock of all series in accordance with
the amounts so determined to be payable on the shares of each series in the
event of voluntary or involuntary dissolution, liquidation or winding up,
as the case may be, in proportion to the full preferential amounts to which
they are respectively entitled. After payment to the holders of the Voting
Preference Stock of the full preferential amounts hereinbefore provided
for, the holders of Voting Preference Stock will have no other rights or
claims to any of the remaining assets of the Company either upon
distribution of such assets or upon dissolution, liquidation or winding up.
The sale of all or substantially all of the property of the Company to, or
the merger or consolidation of the Company into or with, any other
corporation, or the purchase or redemption by the Company of any shares of
its Preferred Stock, or its Voting Preference Stock or its Common Stock or
any other class of its stock shall not be deemed to be a distribution of
assets or a dissolution, liquidation or winding up for the purposes of this
paragraph.
c. So long as full cumulative dividends on all outstanding shares of
Voting Preference Stock for all dividend periods ending on or prior to the
date fixed for redemption shall have been paid or declared and set apart
for payment and subject to the provisions of paragraph "3,a" of Division A
and further subject to any applicable requirements of Texas law, the
Company may, (i) at the option of the Board of Directors of the Company,
redeem the whole or any part of
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any series of Voting Preference Stock determined by it to be redeemable
pursuant to paragraph "1,b" of this Division B, or (ii) redeem the whole or
any part of any series of Voting Preference Stock to meet any sinking fund
requirement determined pursuant to paragraph "1,e" of this Division B, in
each case on the terms and conditions and at the redemption price so
determined for such series plus the amount of unpaid accumulated dividends,
if any, to the date of such redemption. All such redemptions of Voting
Preference Stock shall be effected in accordance with the Procedure for
Redemptions as set forth in the Texas Business Corporation Act.
d. So long as full cumulative dividends on all outstanding shares of
Voting Preference Stock for all dividend periods ending on or prior to the
date of purchase shall have been paid or declared and set apart for payment
and subject to the provisions of paragraph "3,a" of Division A and further
subject to any applicable requirements of Texas law, the Company may
purchase, directly or indirectly, shares of Voting Preference Stock of any
series to the extent of the aggregate of unrestricted capital surplus
available therefor and unrestricted reduction surplus available therefor.
e. So long as any shares of the Voting Preference Stock are
outstanding, the Company shall not, without the affirmative vote at a
meeting of the holders of shares representing at least two-thirds of the
votes entitled to be cast with respect to the shares of Voting Preference
Stock outstanding on the record date for such meeting, adopt an amendment
to these Articles if such amendment would (i) authorize or create, or
increase the authorized amount of, any class of stock which is entitled to
dividends or assets in priority to or on a parity with the Voting
Preference Stock, (ii) increase the authorized number of shares of Voting
Preference Stock, or (iii) change any of the rights or preferences of the
then outstanding Voting Preference Stock or any series thereof.
f. Shares of any series of Voting Preference Stock which have been
redeemed (whether through the operation of a sinking fund or otherwise) or
purchased by the Company (whether or not used or to be used as a credit
with respect to any sinking fund obligation), or which, if convertible or
exchangeable, have been converted or exchanged for shares of stock of any
other class or classes shall, upon the filing of any required certificate,
have the status of authorized and unissued shares of Voting Preference
Stock and may be reclassified and reissued as part of a new series of
Voting Preference Stock to be created by resolution or resolutions of the
Board of Directors or as a part of any other series of Voting Preference
Stock, all subject to the conditions and restrictions on issuance set forth
in the resolution or resolutions adopted by the Board of Directors
providing for the issue of any series of Voting Preference Stock and to any
filing required by law.
g. Upon any issue for money or other consideration of any stock of the
Company that may be authorized from time to time, or treasury stock, no
holder of Voting Preference Stock shall have any preemptive or other right
to subscribe for, purchase, or receive any proportionate or other share of
the stock so issued, but the Board of
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Directors may dispose of all or any portion of such stock as and when it
may determine, free of any such rights, whether by offering the same to
shareholders or by sale or other disposition as said Board of Directors
may deem advisable.
DIVISION C
THE COMMON STOCK
1. Dividends. Subject to the provisions of paragraph "3,a" of Division A
and paragraph ''3,a" of Division B, and after making such provision, if any, as
may be required for any sinking fund applicable to any series of Preferred Stock
and Voting Preference Stock determined as provided in paragraph "1,e" of
Division A and paragraph ''1,e'' of Division B hereof, dividends may be paid
upon the Common Stock to the exclusion of the Preferred Stock and Voting
Preference Stock out of any assets of the Company available therefor.
2. Distribution of Assets. In the event of any dissolution, liquidation or
winding up of the Company, after there shall have been paid or set aside in cash
for the holders of Preferred Stock and Voting Preference Stock the full
preferential amounts to which they are entitled under the provisions of the
foregoing Division A and Division B, respectively, the holders of the Common
Stock shall then be entitled to receive pro rata all of the remaining assets of
the Company available for distribution to its shareholders.
3. Preemptive Rights. Upon any issue for money or other consideration of
any stock of the Company that may be authorized from time to time, or treasury
stock, no holder of Common Stock shall have any preemptive or other right to
subscribe for, purchase, or receive any proportionate or other share of the
stock so issued, but the Board of Directors may dispose of all or any portion of
such stock as and when it may determine, free of any such rights, whether by
offering the same to shareholders or by sale or other disposition as said Board
of Directors may deem advisable.
DIVISION D
PROVISIONS APPLICABLE TO THE
PREFERRED, VOTING PREFERENCE AND THE COMMON STOCK
1. Except as specifically provided in this Article Six, and as may be
required in statutory proceedings, if any, as to which the vote of the holders
of the Preferred Stock is required by the then existing laws of the State of
Texas, the holders of the Voting Preference Stock and Common Stock, voting
together as a single class, shall have the exclusive voting rights for the
election of Directors and for all other purposes; provided, however, that except
as specifically provided in Article 4.03B of the Texas Business Corporation Act
and in Paragraph "3,e" of Division B, holders of the Voting Preference Stock
shall not be entitled to vote, as a class or otherwise, upon any amendment to
the Corporation's Restated Articles of Incorporation.
2. Any Director may be removed from office by vote of the holders of shares
representing a majority of the votes entitled to be cast by the
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shares of the class or classes of stock by which his successor would be elected.
A special meeting of the holders of shares of such class or classes may be
called by a majority vote of the Board of Directors for the purpose of removing
a Director in accordance with the provisions of this paragraph. The President of
the Company shall, in any event, within ten days after delivery to the Company
at its principal office of a request to such effect signed by the holders of
shares representing at least five percent (5%) of the votes entitled to be cast
by the outstanding shares of Preferred Stock or twenty-five percent (25%) of the
votes entitled to be cast by the outstanding shares of Voting Preference Stock
and Common Stock, combined, as the case may be, call a special meeting of the
holders of the shares of such class or classes for such purpose to be held
within 40 days after the delivery of such request.
3. Each holder of the Common Stock of the Company entitled to vote shall be
entitled to one vote for each share held. Each holder of shares of any series of
the Preferred Stock of the Company entitled to vote which has a stated value of
$100 on involuntary liquidation shall be entitled to one vote for each share
held. Each holder of shares of any series of the Preferred Stock of the Company
entitled to vote which has a stated value other than $100 on involuntary
liquidation shall be entitled to as many full votes or a fractional vote, as the
case may be, for each share held as determined by the ratio of the stated value
on involuntary liquidation of a share of each such series to the sum of $100.
Each holder of shares of any series of the Voting Preference Stock of the
Company entitled to vote which has a stated value of $10,000 on involuntary
liquidation shall be entitled to one vote for each share held or fractional vote
for each fractional share held, as the case may be. Each holder of shares of any
series of the Voting Preference Stock of the Company entitled to vote which has
a stated value other than $10,000 on involuntary liquidation shall be entitled
to as many full votes or a fractional vote, as the case may be, for each share
held as determined by the ratio of the stated value on involuntary liquidation
of a share of each such series to the sum of $10,000.
4. At each election of Directors every shareholder entitled to vote at such
election shall have the right to cast, in accordance with the provisions of the
Texas Business Corporation Act, the number of votes represented by the shares
owned by him for as many persons as there are Directors to be elected and for
whose election he has the right to vote; provided that cumulative voting is
expressly prohibited.
__________________
As adopted by the Board of Directors of the Corporation on September 2,
1982:
"RESOLVED, That pursuant to the authority conferred upon the Board of
Directors of this Company by Article Six of the Restated Articles of
Incorporation of this Company, the Board of Directors hereby creates a new
series of Preferred Stock of the Company which shall consist of One Million Five
Hundred Thousand (1,500,000) shares of no par value (stated value of $50 per
share), which shall be designated and known as 'Adjustable Rate Cumulative
Preferred Stock, Series D' (herein call 'Adjustable Rate Preferred Stock'), and
that in addition to the preferences, rights, voting powers and the restrictions
or qualifications of all shares of Preferred
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Stock, regardless of series, described and expressed in the Restated Articles of
Incorporation of the Company, the Board of Directors hereby declares that the
shares of the Adjustable Rate Preferred Stock shall have the terms, conditions,
rights and preferences, as follows:
1. Dividend Rate
(a) Dividend rates on the shares of Adjustable Rate Preferred Stock shall
be (i) for the period (the 'Initial Dividend Period') from the date of their
original issue to and including January 31,1983, at a rate per annum of the
stated value thereof equal to 13.5%, and (ii) for each quarterly dividend period
(hereinafter referred to as a 'Quarterly Dividend Period'; and the Initial
Dividend Period or any Quarterly Dividend Period being hereinafter individually
referred to as a 'Dividend Period' and collectively referred to as 'Dividend
Periods') thereafter, which quarterly dividend periods shall commence on
February 1, May 1, August 1 and November 1 in each year and shall end on and
include the day next preceding the first day of the next quarterly dividend
period, at a rate per annum of the Stated Value thereof equal to 0.10% below the
Applicable Rate (as hereinafter defined) in respect of such quarterly dividend
period; provided, however, that the dividend rate per annum on the shares of
Adjustable Rate Preferred Stock for any Quarterly Dividend Period shall in no
event be less than 7.50% per annum or greater than 15.50% per annum. Such
dividends shall be cumulative from the date of original issue of such shares.
The amount of dividends payable for the Initial Dividend Period or any period
shorter than a full Quarterly Dividend Period shall be computed on the basis of
30-day months and a 360-day year.
(b) The 'Applicable Rate' for any Quarterly Dividend Period shall be the
highest of the Treasury Bill Rate, the Ten Year Constant Maturity Rate and the
Twenty Year Constant Maturity Rate (each as hereinafter defined) for such
Dividend Period. In the event that the Company determines in good faith that for
any reason one or more of such rates cannot be determined for any Quarterly
Dividend Period, then the Applicable Rate for such Dividend Period shall be the
higher of whichever of such rates can be so determined. In the event that the
Company determines in good faith that none of such rates can be determined for
any Quarterly Dividend Period, then the Applicable Rate in effect for the
preceding Dividend Period shall be continued for such Dividend Period.
(i) Except as provided below in this paragraph, the 'Treasury Bill
Rate' for each Quarterly Dividend Period will be the arithmetic average of
the two most recent weekly per annum market discount rates (or the one
weekly per annum market discount rate, if only one such rate shall be
published during the relevant Calendar Period, as defined below) for three-
month U.S. Treasury bills, as published weekly by the Federal Reserve Board
during the Calendar Period immediately prior to the last ten calendar days
of January, April, July or October, as the case may be, prior to the
Quarterly Dividend Period for which the dividend rate on the Adjustable
Rate Preferred Stock is being determined. In the event that the Federal
Reserve Board does not publish such a weekly per annum market discount rate
during any such Calendar Period, then the Treasury Bill Rate for the
related Dividend Period shall be the arithmetic average of the two most
recent weekly per annum market discount rates (or the one weekly
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<PAGE>
per annum market discount rate, if only one such rate shall be published
during the relevant Calendar Period) for three-month U.S. Treasury bills,
as published weekly during such Calendar Period by any Federal Reserve Bank
or by any U.S. Government department or agency selected by the Company. In
the event that a per annum market discount rate for three-month U.S.
Treasury bills shall not be published by the Federal Reserve Board or by
any Federal Reserve Bank or by any U.S. Government department or agency
during such Calendar Period, then the Treasury Bill Rate for such Dividend
Period shall be the arithmetic average of the two most recent weekly per
annum market discount rates (or the one weekly per annum market discount
rate, if only one such rate shall be published during the relevant Calendar
Period) for all of the U.S. Treasury bills then having maturities of not
less than 80 nor more than 100 days, as published during such Calendar
Period by the Federal Reserve Board or, if the Federal Reserve Board shall
not publish such rates, by any Federal Reserve Bank or by any U.S.
Government department or agency selected by the Company. In the event that
the Company determines in good faith that for any reason no such U.S.
Treasury bill rates are published as provided above during such Calendar
Period then the Treasury Bill Rate for such Dividend Period shall be the
arithmetic average of the per annum market discount rates based upon the
closing bids during such Calendar Period for each of the issues of
marketable noninterest bearing U.S. Treasury securities with a maturity of
not less than 80 nor more than 100 days from the date of each such
quotation, as quoted daily for each business day in New York City (or less
frequently if daily quotations shall not be generally available) to the
Company by at least three recognized U.S. Government securities dealers
selected by the Company. In the event that the Company determines in good
faith that for any reason the Company cannot determine the Treasury Bill
Rate for any Quarterly Dividend Period as provided above in this paragraph,
the Treasury Bill Rate for such Dividend Period shall be the arithmetic
average of the per annum market discount rates based upon the closing bids
during the related Calendar Period for each of the issues of marketable
interest-bearing U.S. Treasury securities with a maturity of not less than
80 nor more than 100 days from the date of each such quotation, as quoted
daily for each business day in New York City (or less frequently if daily
quotations shall not be generally available) to the Company by at least
three recognized U.S. Government securities dealers selected by the
Company.
(ii) Except as provided below in this paragraph, the 'Ten Year
Constant Maturity Rate' for each Quarterly Dividend Period shall be the
arithmetic average of the two most recent weekly per annum Ten Year Average
Yields (or the one weekly per annum Ten Year Average Yield, if only one
such Yield shall be published during the relevant Calendar Period as
provided below), as published weekly by the Federal Reserve Board during
the Calendar Period immediately prior to the last ten calendar days of
January, April, July or October, as the case may be, prior to the Quarterly
Dividend Period for which the dividend rate on the Adjustable Rate
Preferred Stock is being determined. In the event that the Federal Reserve
Board does not publish such a weekly per annum Ten Year Average Yield
during such Calendar Period, then the Ten Year Constant Maturity Rate for
such
17
<PAGE>
Dividend Period shall be the arithmetic average of the two most
recent weekly per annum Ten Year Average Yields (or the one weekly per
annum Ten Year Average Yield; if only one such Yield shall be published
during such Calendar Period), as published weekly during such Calendar
Period by any Federal Reserve Bank or by any U.S. Government department or
agency selected by the Company. In the event that a per annum Ten Year
Average Yield shall not be published by the Federal Reserve Board or by any
Federal Reserve Bank or by any U.S. (Government department or agency during
such Calendar Period, then the Ten Year Constant Maturity Rate for such
Dividend Period shall be the arithmetic average of the two most recent
weekly per annum average yields to maturity (or the one weekly average
yield to maturity, if only one such yield shall be published during such
Calendar Period) for all of the actively traded marketable U.S. Treasury
fixed interest rate securities (other than Special Securities, as defined
below) then having maturities of not less than eight nor more than twelve
years, as published during such Calendar Period by the Federal Reserve
Board or, if the Federal Reserve Board shall not publish such yields, by
any Federal Reserve Bank or by any U.S. Government department or agency
selected by the Company. In the event that the Company determines in good
faith that for any reason the Company cannot determine the Ten Year
Constant Maturity Rate for any Quarterly Dividend Period as provided above
in this paragraph, then the Ten Year Constant Maturity Rate for such
Dividend Period shall be the arithmetic average of the per annum average
yields to maturity based upon the closing bids during such Calendar Period
for each of the issues of actively traded marketable U.S. Treasury fixed
interest rate securities (other than Special Securities) with a final
maturity date not less than eight nor more than twelve years from the date
of each such quotation, as quoted daily for each business day in New York
City (or less frequently if daily quotations shall not be generally
available) to the Company by at least three recognized U.S. Government
securities dealers selected by the Company.
(iii) Except as provided below in this paragraph, the 'Twenty Year
Constant Maturity Rate' for each Quarterly Dividend Period shall be the
arithmetic average of the two most recent weekly per annum Twenty Year
Average Yields (or the one weekly per annum Twenty Year Average Yield, if
only one such Yield shall be published during the relevant Calendar
Period), as published weekly by the Federal Reserve Board during the
Calendar Period immediately prior to the last ten calendar days of January,
April, July or October, as the case may be, prior to the Quarterly Dividend
Period for which the dividend rate on the Adjustable Rate Preferred Stock
is being determined. In the event that the Federal Reserve Board does not
publish such a weekly per annum Twenty Year Average Yield during such
Calendar Period, then the Twenty Year Constant Maturity Rate for such
Dividend Period shall be the arithmetic average of the two most recent
weekly per annum Twenty Year Average Yields (or the one weekly per annum
Twenty Year Average Yield, if only one such Yield shall be published during
such Calendar Period), as published weekly during such Calendar Period by
any Federal Reserve Bank or by any U.S. Government department or agency
selected by the Company. In the event that a per annum Twenty Year Average
Yield shall not be published by the Federal Reserve Board or by any Federal
Reserve Bank or by any U.S. Government department or
18
<PAGE>
agency during such Calendar Period, then the Twenty Year Constant Maturity
Rate for such Dividend Period shall be the arithmetic average of the two
most recent weekly per annum average yields to maturity (or the one weekly
average yield to maturity, if only one such yield shall be published during
such Calendar Period) for all of the actively traded marketable U.S.
Treasury fixed interest rate securities (other than Special Securities)
then having maturities of not less than eighteen nor more than twenty-two
years, as published during such Calendar Period by the Federal Reserve
Board, or, if the Federal Reserve Board shall not publish such yields, by
any Federal Reserve Bank or by any U.S. Government department or agency
selected by the Company. In the event that the Company determines in good
faith that for any reason the Company cannot determine the Twenty Year
Constant Maturity Rate for any Quarterly Dividend Period as provided above
in this paragraph, then the Twenty Year Constant Maturity Rate for such
Dividend Period shall be the arithmetic average of the per annum average
yields to maturity based upon the closing bids during such Calendar Period
for each of the issues of actively traded marketable U.S. Treasury fixed
interest rate securities (other than Special Securities) with a final
maturity date not less than eighteen nor more than twenty-two years from
the date of each such quotation, as quoted daily for each business day in
New York City (or less frequently if daily quotations shall not be
generally available) to the Company by at least three recognized U.S.
Government securities dealers selected by the Company.
(iv) The Treasury Bill Rate, the Ten Year Constant Maturity Rate and
the Twenty Year Constant Maturity Rate shall each be rounded to the nearest
five hundredths of a percentage point.
(v) The amount of dividends per share payable for each Quarterly
Dividend Period shall be computed by dividing the dividend rate for such
dividend period by four and applying such rate against the stated value per
share of the Adjustable Rate Preferred Stock.
(vi) The dividend rate with respect to each Quarterly Dividend Period
will be calculated as promptly as practicable by the Company according to
the appropriate method described herein. The mathematical accuracy of each
such calculation will be confirmed in writing by independent accountants of
recognized standing. The Company will cause each dividend rate to be
published in a newspaper of general circulation in New York City prior to
the commencement of the new Quarterly Dividend Period to which it applies
and will cause notice of such dividend rate to be enclosed with the
dividend payment checks next mailed to the holders of the Adjustable Rate
Preferred Stock.
(vii) As used herein, the term 'Calendar Period' means a period of
fourteen calendar days; the term 'Special Securities' means securities
which can, at the option of the holder, be surrendered at face value in
payment of any Federal estate tax or which provide tax benefits to the
holder and are priced to reflect such tax benefits or which were originally
issued at a deep or substantial discount; the term 'Ten Year Average Yield'
means the average yield to maturity for actively traded marketable U.S.
Treasury fixed interest rate
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securities (adjusted to constant maturities of ten years); and the term
'Twenty Year Average Yield' means the average yield to maturity for
actively traded marketable U.S. Treasury fixed interest rate securities
(adjusted to constant maturities of twenty years).
2. Involuntary Liquidation. In the event of any involuntary liquidation,
dissolution or winding up of the Company, the holders of the Adjustable Rate
Preferred Stock shall be entitled to receive Fifty Dollars ($50.00) for each
share (which amount shall be deemed to be its stated value on involuntary
liquidation) plus accrued dividends to the date of distribution, whether or not
earned or declared.
3. Voluntary Liquidation. In the event of any voluntary liquidation,
dissolution or winding up of the Company, the holders of the Adjustable Rate
Preferred Stock shall be entitled to receive $51.50 per share through October
31, 1992, and $50 per share thereafter plus an amount equal to the accrued
dividends thereon to the date of distribution, whether or not earned or
declared.
4. Optional Redemption. The Adjustable Rate Preferred Stock may not be
redeemed prior to November 1, 1987. Thereafter, the Company shall have the
option to redeem the whole or any part of the Adjustable Rate Preferred Stock at
any time on at least thirty day's notice in accordance with the provisions of
Paragraph 3, c, (i) of Division A of Article Six of the Restated Articles of
Incorporation at $51.50 per share if redeemed during the period November 1,
1987, through October 31, 1992, and $50 per share thereafter, in each case
together with any accrued dividends to the date of such redemption.
5. So long as any shares of the Adjustable Rate Preferred Stock are
outstanding, shares of the Adjustable Rate Preferred Stock which are purchased,
redeemed or otherwise acquired by the Company shall not be reissued, or
otherwise disposed of, as shares of Adjustable Rate Preferred Stock.
6. The Adjustable Rate Preferred Stock shall not have any conversion,
exchange or sinking fund rights.
7. The Adjustable Rate Preferred Stock shall have no voting rights other
than the voting rights set forth in the Restated Articles of Incorporation of
the Company or as otherwise provided by Texas law.
"RESOLVED, That the President or any Vice President together with the
Secretary or any Assistant Secretary, be and hereby they are authorized and
directed to prepare, execute and deliver to the Secretary of State of Texas for
filing all certificates or other documents as may be required under the laws of
the State of Texas in order to give effect to the foregoing resolutions."
____________________
As adopted by the Board of Directors of the Corporation on January 26,
1984:
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"RESOLVED, That pursuant to the authority conferred upon the Board of
Directors of this Company by Article Six of the Restated Articles of
Incorporation of this Company, the Board of Directors hereby creates a new
series of Preferred Stock of the Company which shall consist of One Hundred
Thousand (100,000) shares of no par value (stated value of $1,000 per share),
which shall be designated and known as 'Adjustable Rate Cumulative Preferred
Stock, Series E' (herein called 'Adjustable Rate Preferred Stock'), and that in
addition to the preferences, rights, voting powers and the restrictions or
qualifications of all shares of Preferred Stock, regardless of series, described
and expressed in the Restated Articles of Incorporation of the Company, the
Board of Directors hereby declares that the shares of the Adjustable Rate
Preferred Stock shall have the terms, conditions, rights and preferences, as
follows:
1. Dividend Rate
(a) Dividend rates on the shares of Adjustable Rate Preferred Stock shall
be (i) for the period (the 'Initial Dividend Period') from the date of their
original issue to and including April 30,1984, at a rate per annum of the stated
value thereof equal to 10.625%, and (ii) for each quarterly dividend period
(hereinafter referred to as a 'Quarterly Dividend Period'; and the Initial
Dividend Period or any Quarterly Dividend Period being hereinafter individually
referred to as a 'Dividend Period' and collectively referred to as 'Dividend
Periods') thereafter, which quarterly dividend periods shall commence on
February 1, May 1, August 1 and November 1 in each year and shall end on and
include the day next preceding the first day of the next quarterly dividend
period, at a rate per annum of the Stated Value thereof equal to 1.20% below the
Applicable Rate (as hereinafter defined) in respect of such quarterly dividend
period; provided, however, that the dividend rate per annum on the shares of
Adjustable Rate Preferred Stock for any Quarterly Dividend Period shall in no
event be less than 7% per annum or greater than 13% per annum. Such dividends
shall be cumulative from the date of original issue of such shares. The amount
of dividends payable for the Initial Dividend Period or any period shorter than
a full Quarterly Dividend Period shall be computed on the basis of 30-day months
and a 360-day year.
(b) The 'Applicable Rate' for any Quarterly Dividend Period shall be the
highest of the Treasury Bill Rate, the Ten Year Constant Maturity Rate and the
Twenty Year Constant Maturity Rate (each as hereinafter defined) for such
Dividend Period. In the event that the Company determines in good faith that for
any reason one or more of such rates cannot be determined for any Quarterly
Dividend Period, then the Applicable Rate for such Dividend Period shall be the
higher of whichever of such rates can be so determined. In the event that the
Company determines in good faith that none of such rates can be determined for
any Quarterly Dividend Period, then the Applicable Rate in effect for the
preceding Dividend Period shall be continued for such Dividend Period.
(i) Except as provided below in this paragraph, the 'Treasury Bill
Rate' for each Quarterly Dividend Period will be the arithmetic average of
the two most recent weekly per annum market discount rates (or the one
weekly per annum market discount rate, if only one such rate shall be
published during the relevant Calendar Period, as defined below) for three-
month U.S. Treasury bills, as published
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weekly by the Federal Reserve Board during the Calendar Period immediately
prior to the last ten calendar days of January, April, July or October, as
the case may be, prior to the Quarterly Dividend Period for which the
dividend rate on the Adjustable Rate Preferred Stock is being determined.
In the event that the Federal Reserve Board does not publish such a weekly
per annum market discount rate during any such Calendar Period, then the
Treasury Bill Rate for the related Dividend Period shall be the arithmetic
average of the two most recent weekly per annum market discount rates (or
the one weekly per annum market discount rate, if only one such rate shall
be published during the relevant Calendar Period) for three-month U.S.
Treasury bills, as published weekly during such Calendar Period by any
Federal Reserve Bank or by any U.S. Government department or agency
selected by the Company. In the event that a per annum market discount rate
for three-month U.S. Treasury bills shall not be published by the Federal
Reserve Board or by any Federal Reserve Bank or by any U.S. Government
department or agency during such Calendar Period, then the Treasury Bill
Rate for such Dividend Period shall be the arithmetic average of the two
most recent weekly per annum market discount rates (or the one weekly per
annum market discount rate, if only one such rate shall be published during
the relevant Calendar Period) for all of the U.S. Treasury bills then
having maturities of not less than 80 nor more than 100 days, as published
during such Calendar Period by the Federal Reserve Board or, if the Federal
Reserve Board shall not publish such rates, by any Federal Reserve Bank or
by any U.S. Government department or agency selected by the Company. In the
event that the Company determines in good faith that for any reason no such
U.S. Treasury bill rates are published as provided above during such
Calendar Period, then the Treasury Bill Rate for such Dividend Period shall
be the arithmetic average of the per annum market discount rates based upon
the closing bids during such Calendar Period for each of the issues of
marketable noninterest bearing U.S. Treasury securities with a maturity of
not less than 80 nor more than 100 days from the date of each such
quotation, as quoted daily for each business day in New York City (or less
frequently if daily quotations shall not be generally available) to the
Company by at least three recognized U.S. Government securities dealers
selected by the Company. In the event that the Company determines in good
faith that for any reason the Company cannot determine the Treasury Bill
Rate for any Quarterly Dividend Period as provided above in this paragraph,
the Treasury Bill Rate for such Dividend Period shall be the arithmetic
average of the per annum market discount rates based upon the closing bids
during the related Calendar Period for each of the issues of marketable
interest-bearing U.S. Treasury securities with a maturity of not less than
80 nor more than 100 days from the date of each such quotation, as quoted
daily for each business day in New York City (or less frequently if daily
quotations shall not be generally available) to the Company by at least
three recognized U.S. Government securities dealers selected by the
Company.
(ii) Except as provided below in this paragraph, the 'Ten Year
Constant Maturity Rate' for each Quarterly Dividend Period shall be the
arithmetic average of the two most recent weekly per annum Ten Year Average
Yields (or the one weekly per annum Ten Year Average
22
<PAGE>
Yield, if only one such Yield shall be published during the relevant
Calendar Period as provided below), as published weekly by the Federal
Reserve Board during the Calendar Period immediately prior to the last ten
calendar days of January, April, July or October, as the case may be, prior
to the Quarterly Dividend Period for which the dividend rate on the
Adjustable Rate Preferred Stock is being determined. In the event that the
Federal Reserve Board does not publish such a weekly per annum Ten Year
Average Yield during such Calendar Period, then the Ten Year Constant
Maturity Rate for such Dividend Period shall be the arithmetic average of
the two most recent weekly per annum Ten Year Average Yields (or the one
weekly per annum Ten Year Average Yield, if only one such Yield shall be
published during such Calendar Period), as published weekly during such
Calendar Period by any Federal Reserve Bank or by any U.S. Government
department or agency selected by the Company. In the event that a per annum
Ten Year Average Yield shall not be published by the Federal Reserve Board
or by any Federal Reserve Bank or by any U.S. Government department or
agency during such Calendar Period, then the Ten Year Constant Maturity
Rate for such Dividend Period shall be the arithmetic average of the two
most recent weekly per annum average yields to maturity (or the one weekly
average yield to maturity, if only one such yield shall be published during
such Calendar Period) for all of the actively traded marketable U.S.
Treasury fixed interest rate securities (other than Special Securities, as
defined below) then having maturities of not less than eight nor more than
twelve years, as published during such Calendar Period by the Federal
Reserve Board or, if the Federal Reserve Board shall not publish such
yields, by any Federal Reserve Bank or by any U.S. Government department or
agency selected by the Company. In the event that the Company determines in
good faith that for any reason the Company cannot determine the Ten Year
Constant Maturity Rate for any Quarterly Dividend Period as provided above
in this paragraph, then the Ten Year Constant Maturity Rate for such
Dividend Period shall be the arithmetic average of the per annum average
yields to maturity based upon the closing bids during such Calendar Period
for each of the issues of actively traded marketable U.S. Treasury fixed
interest rate securities (other than Special Securities) with a final
maturity date not less than eight nor more than twelve years from the date
of each such quotation, as quoted daily for each business day in New York
City (or less frequently if daily quotations shall not be generally
available) to the Company by at least three recognized U.S. Government
securities dealers selected by the Company.
(iii) Except as provided below in this paragraph, the 'Twenty Year
Constant Maturity Rate' for each Quarterly Dividend Period shall be the
arithmetic average of the two most recent weekly per annum Twenty Year
Average Yields (or the one weekly per annum Twenty Year Average Yield, if
only one such Yield shall be published during the relevant Calendar
Period), as published weekly by the Federal Reserve Board during the
Calendar Period immediately prior to the last ten calendar days of January,
April, July or October, as the case may be, prior to the Quarterly Dividend
Period for which the dividend rate on the Adjustable Rate Preferred Stock
is being determined. In the event that the Federal Reserve Board does not
publish such a weekly per annum Twenty Year Average Yield during such
Calendar Period, then the
23
<PAGE>
Twenty Year Constant Maturity Rate for such Dividend Period shall be the
arithmetic average of the two most recent weekly per annum Twenty Year
Average Yields (or the one weekly per annum Twenty Year Average Yield, if
only one such Yield shall be published during such Calendar Period), as
published weekly during such Calendar Period by any Federal Reserve Bank or
by any U.S. Government department or agency selected by the Company. In the
event that a per annum Twenty Year Average Yield shall not be published by
the Federal Reserve Board or by any Federal Reserve Bank or by any U.S.
Government department or agency during such Calendar Period, then the
Twenty Year Constant Maturity Rate for such Dividend Period shall be the
arithmetic average of the two most recent weekly per annum average yields
to maturity (or the one weekly average yield to maturity, if only one such
yield shall be published during such Calendar Period) for all of the
actively traded marketable U.S. Treasury fixed interest rate securities
(other than Special Securities) then having maturities of not less than
eighteen nor more than twenty-two years, as published during such Calendar
Period by the Federal Reserve Board, or, if the Federal Reserve Board shall
not publish such yields, by any Federal Reserve Bank or by any U.S.
Government department or agency selected by the Company. In the event that
the Company determines in good faith that for any reason the Company cannot
determine the Twenty Year Constant Maturity Rate for any Quarterly Dividend
Period as provided above in this paragraph, then the Twenty Year Constant
Maturity Rate for such Dividend Period shall be the arithmetic average of
the per annum average yields to maturity based upon the closing bids during
such Calendar Period for each of the issues of actively traded marketable
U.S. Treasury fixed interest rate securities (other than Special
Securities) with a final maturity date not less than eighteen nor more than
twenty-two years from the date of each such quotation, as quoted daily for
each business day in New York City (or less frequently if daily quotations
shall not be generally available) to the Company by at least three
recognized U.S. Government securities dealers selected by the Company.
(iv) The Treasury Bill Rate, the Ten Year Constant Maturity Rate and
the Twenty Year Constant Maturity Rate shall each be rounded to the nearest
five hundredths of a percentage point.
(v) The amount of dividends per share payable for each Quarterly
Dividend Period shall be computed by dividing the dividend rate for such
dividend period by four and applying such rate against the stated value per
share of the Adjustable Rate Preferred Stock.
(vi) The dividend rate with respect to each Quarterly Dividend Period
will be calculated as promptly as practicable by the Company according to
the appropriate method described herein. The mathematical accuracy of each
such calculation will be confirmed in writing by independent accountants of
recognized standing. The Company will cause each dividend rate to be
published in a newspaper of general circulation in New York City prior to
the commencement of the new Quarterly Dividend Period to which it applies
and will cause notice of such dividend rate to be enclosed with the
dividend payment checks next mailed to the holders of the Adjustable Rate
Preferred Stock.
24
<PAGE>
(vii) As used herein, the term 'Calendar Period' means a period of
fourteen calendar days; the term 'Special Securities' means securities
which can, at the option of the holder, be surrendered at face value in
payment of any Federal estate tax or which provide tax benefits to the
holder and are priced to reflect such tax benefits or which were originally
issued at a deep or substantial discount; the term 'Ten Year Average Yield'
means the average yield to maturity for actively traded marketable U.S.
Treasury fixed interest rate securities (adjusted to constant maturities of
ten years); and the term 'Twenty Year Average Yield' means the average
yield to maturity for actively traded marketable U.S. Treasury fixed
interest rate securities (adjusted to constant maturities of twenty years).
2. Involuntary Liquidation. In the event of any involuntary liquidation,
dissolution or winding up of the Company, the holders of the Adjustable Rate
Preferred Stock shall be entitled to receive One Thousand Dollars ($1,000.00)
for each share (which amount shall be deemed to be its stated value on
involuntary liquidation) plus accrued dividends to the date of distribution,
whether or not earned or declared.
3. Voluntary Liquidation. In the event of any voluntary liquidation,
dissolution or winding up of the Company, the holders of the Adjustable Rate
Preferred Stock shall be entitled to receive $1,030 per share through April 30,
1994, and $1,000 per share thereafter plus an amount equal to the accrued
dividends thereon to the date of distribution, whether or not earned or
declared.
4. Optional Redemption. The Adjustable Rate Preferred Stock may not be
redeemed prior to May 1, 1989. Thereafter, the Company shall have the option to
redeem the whole or any part of the Adjustable Rate Preferred Stock at any time
on at least thirty day's notice in accordance with the provisions of Paragraph
3,c, (i) of Division A of Article Six of the Restated Articles of Incorporation
at $1,030.00 per share if redeemed during the period May 1, 1989, through April
30, 1994, and $1,000.00 per share thereafter, in each case together with any
accrued dividends to the date of such redemption.
5. So long as any shares of the Adjustable Rate Preferred Stock are
outstanding, shares of the Adjustable Rate Preferred Stock which are purchased,
redeemed or otherwise acquired by the Company shall not be reissued, or
otherwise disposed of, as shares of Adjustable Rate Preferred Stock.
6. The Adjustable Rate Preferred Stock shall not have any conversion,
exchange or sinking fund rights.
7. The Adjustable Rate Preferred Stock shall have no voting rights other
than the voting rights set forth in the Restated Articles of Incorporation of
the Company or as otherwise provided by Texas law.
"RESOLVED, That the President or any Vice President together with the
Secretary or any Assistant Secretary, be and hereby they are authorized and
directed to prepare, execute and deliver to the Secretary of State of Texas for
filing all certificates or other documents as may be required under the
25
<PAGE>
laws of the State of Texas in order to give effect to the foregoing
resolutions."
____________________
As adopted by the Board of Directors of the Corporation on April 15, 1986:
"RESOLVED, That pursuant to the authority conferred upon the Board of
Directors of this Company by Article Six of the Restated Articles of
Incorporation of this Company, the Board of Directors hereby creates a new
series of Voting Preference Stock of the Company which shall consist of five
hundred thousand (500,000) shares of no par value, which shall be designated and
known as '$200 Participating Voting Preference Stock, Series C' (herein called
'Series C Voting Preference Stock'), and that in addition to the preferences,
rights, voting powers and the restrictions or qualifications of all shares of
Voting Preference Stock regardless of series, described and expressed in the
Restated Articles of Incorporation of the Company, the Board of Directors hereby
declares that the shares of the Series C Voting Preference Stock shall have the
terms, conditions, rights and preferences, as follows:
1. Dividends. The dividend rate on the shares of Series C Voting Preference
Stock for each quarterly dividend period (hereinafter referred to as a
"quarterly dividend period"), which quarterly dividend periods shall commence on
February 1, May 1, August 1 and November 1 in each year (or in the case of
original issuance, from the date of original issuance) and shall end on and
include the day next preceding the first date of the next quarterly dividend
period, shall be equal (rounded to the nearest cent) to the greater of (a) $20
or (b) subject to the provision for adjustment hereinafter set forth, 200 times
the aggregate per share amount of all cash dividends, and 200 times the
aggregate per share amount (payable in cash, based upon the fair market value at
the time the non-cash dividend or other distribution is declared as determined
in good faith by the Board of Directors) of all non-cash dividends or other
distributions other than a dividend payable in shares of Common Stock or a
subdivision of the outstanding shares of Common Stock (by reclassification or
otherwise), declared (but not withdrawn) on the Common Stock, par value $4.45
per share, of this Company (the "Common Stock") during the immediately preceding
quarterly dividend period, or, with respect to the first quarterly dividend
period, since the first issuance of any share or fraction of a share of Series C
Voting Preference Stock. In the event this Company shall at any time after April
15, 1986 (the "Rights Declaration Date") (i) declare any dividend on Common
Stock payable in shares of Common Stock, (ii) subdivide the outstanding Common
Stock, or (iii) combine the outstanding Common Stock into a smaller number of
shares, then in each such case the amount to which holders of shares of Series C
Voting Preference Stock were entitled immediately prior to such event under
clause (b) of the preceding sentence shall be adjusted by multiplying such
amount by a fraction the numerator of which is the number of shares of Common
Stock outstanding immediately after such event and the denominator of which is
the number of shares of Common Stock that were outstanding immediately prior to
such event.
26
<PAGE>
2. Liquidation. In the event of any voluntary or involuntary liquidation,
dissolution or winding up of the Company, the holders of the Series C Voting
Preference Stock shall be entitled to receive the greater of (a) $200 per share,
or (b) an amount per share, subject to the provision for adjustment hereinafter
set forth, equal to 200 times the aggregate amount to be distributed per share
to holders of Common Stock, plus in either instance accrued dividends to the
date of distribution, whether or not earned or declared.
In the event the Company shall at any time after the Rights Declaration
Date (i) declare any dividend on Common Stock payable in shares of Common Stock,
(ii) subdivide the outstanding Common Stock, or (iii) combine the outstanding
Common Stock into a smaller number of shares, then in each such case the amount
to which holders of shares of Series C Voting Preference Stock were entitled
immediately prior to such event pursuant to clause (b) of the preceding sentence
shall be adjusted by multiplying such amount by a fraction the numerator of
which is the number of shares of Common Stock outstanding immediately after such
event and the denominator of which is the number of shares of Common Stock that
were outstanding immediately prior to such event. For purposes of Paragraph 3 of
Division D of Article Six of the Restated Articles of Incorporation, the Series
C Voting Preference Stock shall be deemed to have a stated value per share of
$200 on involuntary liquidation until such time as a plan of liquidation shall
be adopted and the actual amount payable upon liquidation is determined.
3. Optional Redemption. The Company shall have the option to redeem the
whole or any part of the Series C Voting Preference Stock at any time on at
least 30 days notice in accordance with the provisions of Paragraph 3,c of
Division B of Article Six of the Restated Articles of Incorporation at a
redemption price equal to the greater of (a) $200 and (b), subject to the
provision for adjustment hereinafter set forth, 200 times the "current per share
market price" of the Common Stock on the date of mailing of the notice of
redemption, together with unpaid accumulated dividends to the date of such
redemption. In the event this Company shall at any time after the Rights
Declaration Date (i) declare any dividend on Common Stock payable in shares of
Common Stock, (ii) subdivide the outstanding Common Stock or (iii) combine the
outstanding Common Stock into a smaller number of shares, then in each such case
the amount to which holders of shares of Series C Voting Preference Stock were
otherwise entitled immediately prior to such event under the preceding sentence
shall be adjusted by multiplying such amount by a fraction the numerator of
which is the number of shares of Common Stock outstanding immediately after such
event and the denominator of which is the number of shares of Common Stock that
were outstanding immediately prior to such event. The "current per share market
price'' on any date shall be deemed to be the average of the closing price per
share of such Common Stock for the 10 consecutive "trading days" (as such term
is hereinafter defined) immediately prior to such date. The closing price for
each day shall be the last sale price, regular way, or, in case no such sale
takes place on such day, the average of the closing bid and asked prices,
regular way, in either case as reported in the principal consolidated
transaction reporting system with respect to securities listed or admitted to
trading on the New York Stock Exchange or, if the Common Stock is not listed or
admitted to trading on the New York Stock Exchange, as reported in the principal
consolidated transaction reporting system with
27
<PAGE>
respect to securities listed or admitted to trading on the principal national
securities exchange on which the Common Stock is listed or admitted to trading
or, if the Common Stock is not listed or admitted to trading on any national
securities exchange, the last quoted price or, if not so quoted the average of
the high bid and low asked prices in the over-the-counter market, as reported by
the National Association of Securities Dealers, Inc. Automated Quotations System
("NASDAQ") or such other system then in use or, if on any such date the Common
Stock is not quoted by any such organization, the average of the closing bid and
asked prices as furnished by a professional market maker making a market in the
Common Stock selected by the Board of Directors of the Company. If on such date
no such market maker is making a market in the Common Stock, the fair value of
the Common Stock on such date as determined in good faith by the Board of
Directors of the Company shall be used. The term "trading day" shall mean a day
on which the principal national securities exchange on which the Common Stock is
listed or admitted to trading is open for the transaction of business or, if the
Common Stock is not listed or admitted to trading on any national securities
exchange, a Monday, Tuesday, Wednesday, Thursday or Friday on which banking
institutions in the State of New York are not authorized or obligated by law or
executive order to close.
4. So long as any shares of the Series C Voting Preference Stock are
outstanding, shares of the Series C Voting Preference Stock which are purchased,
redeemed or otherwise acquired by the Company shall not be reissued, or
otherwise disposed of, as shares of Series C Voting Preference Stock.
5. Other than as set forth above, the Series C Voting Preference Stock
shall not have any conversion or exchange rights.
6. The Series C Voting Preference Stock shall have no voting rights other
than the voting rights set forth in the Restated Articles of Incorporation of
the Company or as otherwise provided by Texas law.
"RESOLVED, That the Chairman and President or any Vice President together
with the Secretary or any Assistant Secretary, be and hereby they are authorized
and directed to prepare, execute and deliver to the Secretary of State of Texas
for filing all certificates or other documents as may be required under the laws
of the State of Texas in order to give effect to the foregoing resolution."
ARTICLE SEVEN
The power to alter, amend or repeal the By-Laws or to adopt new By-Laws
shall be vested in the Board of Directors; provided, however, that any By-Law or
Amendment thereto as adopted by the Board of Directors may be altered, amended
or repealed by vote of the shareholders entitled to vote for the election of
Directors or a new By-Law in lieu thereof may be adopted by vote of such
shareholders. No By-Law which has been altered, amended or adopted by such a
vote of the shareholders may be altered, amended or repealed by vote of the
Directors until two years shall have expired since such action by vote of such
shareholders.
WITNESS THE EXECUTION HEREOF on this 8th day of November, 1987.
28
<PAGE>
ENSERCH Corporation
By: /s/ W. C. McCord
W. C. McCord
Chairman and President
29
<PAGE>
ARTICLES OF AMENDMENT BY THE SHAREHOLDERS
TO THE RESTATED ARTICLES OF INCORPORATION OF
ENSERCH CORPORATION
Pursuant to the provisions of Article 4.04 of the Texas Business
Corporation Act, the undersigned corporation adopts the following Articles of
Amendment to its Restated Articles of Incorporation:
ARTICLE ONE. The name of the Corporation is ENSERCH Corporation.
ARTICLE TWO. The following amendment to the Restated Articles of
Incorporation was adopted by the Shareholders of the Corporation on May 10,
1988:
The Restated Articles of Incorporation of the Corporation are amended by
adding a new ARTICLE EIGHT as follows:
ARTICLE EIGHT
No director of this Corporation shall be liable to this Corporation or
its shareholders for monetary damages for an act or omission in such
director's capacity as a director of this Corporation, except this ARTICLE
EIGHT does not eliminate or limit the liability of a director of this
Corporation for (1) a breach of the director's duty of loyalty to this
Corporation or its shareholders, (2) an act or omission not in good faith
or that involves intentional misconduct or a knowing violation of the law,
(3) a transaction from which the director received an improper benefit,
whether or not the benefit resulted from an action taken within the scope
of the director's office, (4) an act or omission for which the liability of
the director is expressly provided for by statute, or (5) an act related to
an unlawful stock repurchase or payment of a dividend.
ARTICLE THREE. The designation and number of outstanding shares of each
class entitled to vote thereon as a class were as follows:
CLASS NUMBER OF SHARES
----- ----------------
Common Stock 57,602,674
ARTICLE FOUR. The number of shares of each class voted for and against such
amendment, respectively, was:
CLASS NUMBER OF SHARES VOTED
----- ----------------------
For Against
--- -------
Common Stock 42,753,448 5,721,265
ENSERCH Corporation
Dated: May 10, 1988 By /s/ W. C. McCord
--------------------
<PAGE>
W. C. McCord
Its Chairman and
President
<PAGE>
ASSUMED NAME CERTIFICATE
FOR AN INCORPORATED BUSINESS OR PROFESSION
To The Secretary of State of the State of Texas:
WHEREAS, ENSERCH Corporation is a business corporation incorporated under
the laws of the State of Texas and Lone Star Gas Company has been designated by
such corporation as a division thereof; and
WHEREAS, the Business and Commerce Code of the State of Texas requires that
any corporation which regularly conducts business or renders professional
services in such state under an assumed name file in the office of the Secretary
of State an Assumed Name Certificate; and
WHEREAS, the name Lone Star Gas Company is an assumed name under which
ENSERCH Corporation conducts business within the State of Texas.
NOW, THEREFORE, pursuant to Section 36.11 of the Texas Assumed Business or
Professional Name Act, the undersigned hereby files this Assumed Name
Certificate and states the following:
1. The assumed name under which the business service is conducted is LONE
----
STAR GAS COMPANY.
----------------
2. The name of the incorporated business as stated in its Articles of
Incorporation is ENSERCH Corporation.
-------------------
3. The state jurisdiction under the laws of which the aforesaid
corporation, was incorporated in Texas, and the address of its
registered or similar office in that jurisdiction is 300 South St.
-------------
Paul Street, Dallas. Texas. 75201.
----------------------------------
4. The period, not to exceed ten years, during which the assumed name
will be used is ten years.
---------
5. The corporation is a business corporation.
6. The corporation is required to maintain a registered office in Texas,
the address of the registered office is 300 South St. Paul Street,
--------------------------
Dallas, Texas 75201, and the name of its Registered Agent at such
-------------------
address is Michael G. Fortado. The address of the principal office
------------------
is the same as the registered office.
7. Business services are being conducted under such assumed name in ALL
---
counties within the state.
/s/ R. B. Williams
R. B. Williams
Vice President
STATE OF TEXAS )
<PAGE>
)
COUNTY OF DALLAS )
Before me on this 24th day of January, 1989, personally appeared R. B.
Williams and acknowledged to me that he executed the foregoing certificate for
the purposes therein expressed.
/s/ Jean H. Luttrell
Jean H. Luttrell
Notary Public for the
State of Texas
<PAGE>
STATEMENT OF RESOLUTION
ESTABLISHING
ADJUSTABLE RATE CUMULATIVE PREFERRED STOCK, SERIES F
(LIQUIDATION PREFERENCE $1,000 PER SHARE)
OF ENSERCH CORPORATION
To the Secretary of State
of the State of Texas
Pursuant to the provisions of Article 2.13 of the Texas Business
Corporation Act, the undersigned corporation submits the following statement for
the purpose of establishing and designating the Adjustable Rate Cumulative
Preferred Stock, Series F (liquidation preference $1,000 per share) of its
preferred stock and fixing and determining the relative rights and preferences
thereof:
1. The name of the corporation is ENSERCH Corporation.
2. The following resolution, establishing and designating the Adjustable
Rate Cumulative Preferred Stock, Series F, and fixing and determining the
relative rights and preferences thereof, was duly adopted by the Corporate
Securities Committee of the Board of Directors of the Corporation on April 8,
1994:
"RESOLVED, That pursuant to the authority conferred upon the Corporate
Securities Committee by the Board of Directors of this Company acting
pursuant to Article Six of the Restated Articles of Incorporation of this
Company and the Company's Bylaws, a new series of Preferred Stock of the
Company is hereby created which shall consist of Seventy-Five Thousand
(75,000) shares of no par value (stated value of $1,000 per share), which
shall be designated and known as 'Adjustable Rate Cumulative Preferred
Stock, Series F (liquidation preference $1,000 per share)' (herein called
'Adjustable Rate Preferred Stock'), and that in addition to the
preferences, rights, voting powers and the restrictions or qualifications
of all shares of Preferred Stock, regardless of series, described and
expressed in the Restated Articles of Incorporation of the Company, the
Corporate Securities Committee of the Board of Directors hereby declares
that the shares of the Adjustable Rate Preferred Stock shall have the
terms, conditions, rights and preferences, as follows:
1. Dividend Rate
(a) Dividend rates on the shares of Adjustable Rate Preferred Stock
shall be (i) for the period (the 'Initial Dividend Period') from the date
of their original issue to and including July 31, 1994, at a rate per annum
of the then stated value thereof equal to 6.375%, and (ii) for each
quarterly dividend period (hereinafter referred to as a 'Quarterly Dividend
Period'; and the Initial Dividend Period or any Quarterly Dividend Period
being hereinafter individually referred to as a 'Dividend Period' and
collectively referred to as 'Dividend Periods') thereafter, which quarterly
dividend
<PAGE>
periods shall commence on February 1, May 1, August 1 and November 1 in
each year and shall end on and include the day next preceding the first day
of the next quarterly dividend period, at a rate per annum of the Stated
Value thereof equal to the Applicable Rate (as hereinafter defined) in
respect of such quarterly dividend period; provided, however, that the
dividend rate per annum on the shares of Adjustable Rate Preferred Stock
for any Quarterly Dividend Period shall in no event be less than 4.50% per
annum or greater than 10.50% per annum. Such dividends shall be cumulative
from the date of original issue of such shares. The amount of dividends
payable for the Initial Dividend Period or any period shorter than a full
Quarterly Dividend Period shall be computed on the basis of 30-day months
and a 360-day year.
(b) The 'Applicable Rate' for any Quarterly Dividend Period shall be
the highest of the Treasury Bill Rate, the Ten Year Constant Maturity Rate
and the Thirty Year Constant Maturity Rate (each as hereinafter defined)
for such Dividend Period, multiplied by 87%. In the event that the Company
determines in good faith that for any reason one or more of such rates
cannot be determined for any Quarterly Dividend Period, then the Applicable
Rate for such Dividend Period shall be the higher of whichever of such
rates can be so determined, multiplied by 87%. In the event that the
Company determines in good faith that none of such rates can be determined
for any Quarterly Dividend Period, then the Applicable Rate in effect for
the preceding Dividend Period shall be continued for such Dividend Period.
(i) Except as provided below in this paragraph, the 'Treasury Bill Rate'
for each Quarterly Dividend Period will be the arithmetic average of the
two most recent weekly per annum market discount rates (or the one weekly
per annum market discount rate, if only one such rate shall be published
during the relevant Calendar Period, as defined below) for three-month U.S.
Treasury bills, as published weekly by the Federal Reserve Board during the
Calendar Period immediately prior to the last ten calendar days of January,
April, July or October, as the case may be, prior to the Quarterly Dividend
Period for which the dividend rate on the Adjustable Rate Preferred Stock
is being determined. In the event that the Federal Reserve Board does not
publish such a weekly per annum market discount rate during any such
Calendar Period, then the Treasury Bill Rate for the related Dividend
Period shall be the arithmetic average of the two most recent weekly per
annum market discount rates (or the one weekly per annum market discount
rate, if only one such rate shall be published during the relevant Calendar
Period) for three-month U.S. Treasury bills, as published weekly during
such Calendar Period by any Federal Reserve Bank or by any U.S. Government
department or agency selected by the Company. In the event that a per annum
market discount rate for three-month U.S. Treasury bills shall not be
published by the Federal Reserve Board or by any Federal Reserve Bank or by
any U.S. Government department or agency during such Calendar
2
<PAGE>
Period, then the Treasury Bill Rate for such Dividend Period shall be the
arithmetic average of the two most recent weekly per annum market discount
rates (or the one weekly per annum market discount rate, if only one such
rate shall be published during the relevant Calendar Period) for all of the
U.S. Treasury bills then having maturities of not less than 80 nor more
than 100 days, as published during such Calendar Period by the Federal
Reserve Board or, if the Federal Reserve Board shall not publish such
rates, by any Federal Reserve Bank or by any U.S. Government department or
agency selected by the Company. In the event that the Company determines in
good faith that for any reason no such U.S. Treasury bill rates are
published as provided above during such Calendar Period, then the Treasury
Bill Rate for such Dividend Period shall be the arithmetic average of the
per annum market discount rates based upon the closing bids during such
Calendar Period for each of the issues of marketable non-interest bearing
U.S. Treasury securities with a maturity of not less than 80 nor more than
100 days from the date of each such quotation, as quoted daily for each
business day in New York City (or less frequently if daily quotations shall
not be generally available) to the Company by at least three recognized
U.S. Government securities dealers selected by the Company. In the event
that the Company determines in good faith that for any reason the Company
cannot determine the Treasury Bill Rate for any Quarterly Dividend Period
as provided above in this paragraph, the Treasury Bill Rate for such
Dividend Period shall be the arithmetic average of the per annum market
discount rates based upon the closing bids during the related Calendar
Period for each of the issues of marketable interest-bearing U.S. Treasury
securities with a maturity of not less than 80 nor more than 100 days from
the date of each such quotation, as quoted daily for each business day in
New York City (or less frequently if daily quotations shall not be
generally available) to the Company by at least three recognized U.S.
Government securities dealers selected by the Company.
(ii) Except as provided below in this paragraph, the 'Ten Year Constant
Maturity Rate' for each Quarterly Dividend Period shall be the arithmetic
average of the two most recent weekly per annum Ten Year Average Yields (or
the one weekly per annum Ten Year Average Yield, if only one such Yield
shall be published during the relevant Calendar Period as provided below),
as published weekly by the Federal Reserve Board during the Calendar Period
immediately prior to the last ten calendar days of January, April, July or
October, as the case may be, prior to the Quarterly Dividend Period for
which the dividend rate on the Adjustable Rate Preferred Stock is being
determined. In the event that the Federal Reserve Board does not publish
such a weekly per annum Ten Year Average Yield during such Calendar Period,
then the Ten Year Constant Maturity Rate for such Dividend Period shall be
the arithmetic average of the two most recent weekly per annum Ten Year
Average Yields (or the one weekly per annum Ten Year Average Yield, if only
one such Yield shall be published during such
3
<PAGE>
Calendar Period), as published weekly during such Calendar Period by any
Federal Reserve Bank or by any U.S. Government department or agency
selected by the Company. In the event that a per annum Ten Year Average
Yield shall not be published by the Federal Reserve Board or by any Federal
Reserve Bank or by any U.S. Government department or agency during such
Calendar Period, then the Ten Year Constant Maturity Rate for such Dividend
Period shall be the arithmetic average of the two most recent weekly per
annum average yields to maturity (or the one weekly average yield to
maturity, if only one such yield shall be published during such Calendar
Period) for all of the actively traded marketable U.S. Treasury fixed
interest rate securities (other than Special Securities, as defined below)
then having maturities of not less than eight nor more than twelve years,
as published during such Calendar Period by the Federal Reserve Board or,
if the Federal Reserve Board shall not publish such yields, by any Federal
Reserve Bank or by any U.S. Government department or agency selected by the
Company. In the event that the Company determines in good faith that for
any reason the Company cannot determine the Ten Year Constant Maturity Rate
for any Quarterly Dividend Period as provided above in this paragraph, then
the Ten Year Constant Maturity Rate for such Dividend Period shall be the
arithmetic average of the per annum average yields to maturity based upon
the closing bids during such Calendar Period for each of the issues of
actively traded marketable U.S. Treasury fixed interest rate securities
(other than Special Securities) with a final maturity date not less than
eight nor more than twelve years from the date of each such quotation, as
quoted daily for each business day in New York City (or less frequently if
daily quotations shall not be generally available) to the Company by at
least three recognized U.S. Government securities dealers selected by the
Company.
(iii) Except as provided below in this paragraph, the 'Thirty Year
Constant Maturity Rate' for each Quarterly Dividend Period shall be the
arithmetic average of the two most recent weekly per annum Thirty Year
Average Yields (or the one weekly per annum Thirty Year Average Yield, if
only one such Yield shall be published during the relevant Calendar
Period), as published weekly by the Federal Reserve Board during the
Calendar Period immediately prior to the last ten calendar days of January,
April, July or October, as the case may be, prior to the Quarterly Dividend
Period for which the dividend rate on the Adjustable Rate Preferred Stock
is being determined. In the event that the Federal Reserve Board does not
publish such a weekly per annum Thirty Year Average Yield during such
Calendar Period, then the Thirty Year Constant Maturity Rate for such
Dividend Period shall be the arithmetic average of the two most recent
weekly per annum Thirty Year Average Yields (or the one weekly per annum
Thirty Year Average Yield, if only one such Yield shall be published during
such Calendar Period), as published weekly during such Calendar Period by
any Federal Reserve Bank or by any U.S. Government department or agency
selected by the Company. In the event that a per annum Thirty
4
<PAGE>
Year Average Yield shall not be published by the Federal Reserve Board or
by any Federal Reserve Bank or by any U.S. Government department or agency
during such Calendar Period, then the Thirty Year Constant Maturity Rate
for such Dividend Period shall be the arithmetic average of the two most
recent weekly per annum average yields to maturity (or the one weekly
average yield to maturity, if only one such yield shall be published during
such Calendar Period) for all of the actively traded marketable U.S.
Treasury fixed interest rate securities (other than Special Securities)
then having maturities of not less than twenty-eight nor more than thirty
years, as published during such Calendar Period by the Federal Reserve
Board, or, if the Federal Reserve Board shall not publish such yields, by
any Federal Reserve Bank or by any U.S. Government department or agency
selected by the Company. In the event that per annum average yields to
maturity for all of the actively traded marketable U.S. Treasury fixed
interest rate securities (other than Special Securities) then having
maturities of not less than twenty-eight nor more than thirty years shall
not be published by the Federal Reserve Board or by any Federal Reserve
Bank or by any U.S. Government department or agency during such Calendar
Period, then the Thirty Year Constant Maturity Rate for such dividend
period shall be determined in the manner specified in the preceding
sentence based upon all of the actively traded marketable U.S. Treasury
fixed interest rate securities (other than Special Securities) then having
maturities of not less than twenty-five years or, in the absence of which,
twenty years. In the event that the Company determines in good faith that
for any reason the Company cannot determine the Thirty Year Constant
Maturity Rate for any Quarterly Dividend Period as provided above in this
paragraph, then the Thirty Year Constant Maturity Rate for such Dividend
Period shall be the arithmetic average of the per annum average yields to
maturity based upon the closing bids during such Calendar Period for each
of the issues of actively traded marketable U.S. Treasury fixed interest
rate securities (other than Special Securities) with a final maturity date
not less than twenty-eight nor more than thirty years (or, in the absence
of which, having maturities of not less than twenty-five years or, in the
further absence of which, twenty years) from the date of each such
quotation, as quoted daily for each business day in New York City (or less
frequently if daily quotations shall not be generally available) to the
Company by at least three recognized U.S. Government securities dealers
selected by the Company.
(iv) The Treasury Bill Rate, the Ten Year Constant Maturity Rate and the
Thirty Year Constant Maturity Rate shall each be rounded to the nearest one
hundredth of a percentage point.
(v) The amount of dividends per share payable for each Quarterly Dividend
Period shall be computed by dividing the dividend rate for such dividend
period by four and applying such rate against the stated value per share of
the Adjustable Rate Preferred Stock.
5
<PAGE>
(vi) The dividend rate with respect to each Quarterly Dividend Period will
be calculated as promptly as practicable by the Company according to the
appropriate method described herein. The mathematical accuracy of each such
calculation will be confirmed in writing by independent accountants of
recognized standing. After May 1, 1994, the Company will cause each
dividend rate to be published in a newspaper of general circulation in New
York City prior to the commencement of the new Quarterly Dividend Period to
which it applies and will cause notice of such dividend rate to be enclosed
with the dividend payment checks next mailed to the holders of the
Adjustable Rate Preferred Stock.
(vii) As used herein, the term 'Calendar Period' means a period of
fourteen calendar days; the term 'Special Securities' means securities
which can, at the option of the holder, be surrendered at face value in
payment of any Federal estate tax or which provide tax benefits to the
holder and are priced to reflect such tax benefits or which were
originally issued at a deep or substantial discount; the term 'Ten Year
Average Yield' means the average yield to maturity for actively traded
marketable U.S. Treasury fixed interest rate securities (adjusted to
constant maturities of ten years); and the term 'Thirty Year Average Yield'
means the average yield to maturity for actively traded marketable U.S.
Treasury fixed interest rate securities (adjusted to constant maturities of
thirty years).
2. Involuntary Liquidation. In the event of any involuntary
liquidation, dissolution or winding up of the Company, the holders of the
Adjustable Rate Preferred Stock shall be entitled to receive One Thousand
Dollars ($1,000) for each share (which amount shall be deemed to be its
stated value and liquidation preference on involuntary liquidation) plus
accrued dividends to the date of distribution.
3. Voluntary Liquidation. In the event of any voluntary liquidation,
dissolution or winding up of the Company, the holders of the Adjustable
Rate Preferred Stock shall be entitled to receive One Thousand Dollars
($1,000) for each share (which amount shall be deemed to be its stated
value and liquidation preference on voluntary liquidation) plus an amount
equal to the accrued dividends thereon to the date of distribution.
4. Optional Redemption. The Adjustable Rate Preferred Stock may not
be redeemed prior to May 1, 1999. Thereafter, the Company, at its option,
may redeem all or any part of the Adjustable Rate Preferred Stock at any
time on at least thirty days' notice in accordance with the provisions of
Paragraph 3,c,(i) of Division A of Article Six of the Restated Articles of
Incorporation at $1,000 per share together with any unpaid accumulated
dividends to the date of such redemption.
6
<PAGE>
5. So long as any shares of the Adjustable Rate Preferred Stock are
outstanding, shares of the Adjustable Rate Preferred Stock which are
purchased, redeemed or otherwise acquired by the Company shall not be
reissued, or otherwise disposed of, as shares of Adjustable Rate Preferred
Stock.
6. The Adjustable Rate Preferred Stock shall not have any conversion,
exchange or sinking fund rights.
7. The Adjustable Rate Preferred Stock shall have no voting rights
other than the voting rights set forth in the Restated Articles of
Incorporation of the Company or as otherwise provided by Texas law."
"RESOLVED, That the President or any Vice President together with the
Secretary or any Assistant Secretary, be and hereby they are authorized and
directed to prepare, execute and deliver to the Secretary of State of Texas
for filing all certificates or other documents as may be required under the
laws of the State of Texas in order to give effect to the foregoing
resolutions."
WITNESS THE EXECUTION HEREOF on this 8th day of April, 1994.
ENSERCH Corporation
By: /s/ D. W. Biegler
----------------------
D. W. Biegler
Chairman and President
7
<PAGE>
ASSUMED NAME CERTIFICATE
FOR AN INCORPORATED BUSINESS OR PROFESSION
1. The assumed name under which the business or professional service is to be
conducted or rendered is Enserch Processing Company.
2. The name of the incorporated business or profession as stated in its
Restated Articles of Incorporation is ENSERCH Corporation.
3. The state, country, or other jurisdiction under the laws of which it was
incorporated or associated in Texas, and the address of its registered or
similar office in that jurisdiction is c/o Corporate Secretary's Department,
ENSERCH Center, 300 South St. Paul Street, Suite 850 E-C, Dallas, Texas
75201.
4. The period, not to exceed ten years, during which the assumed name will be
used is January 18, 1995, to January 17, 2005.
5. The corporation is a business corporation.
6. The corporation is required to maintain a registered office in Texas. The
address of the registered office is c/o Corporate Secretary's Department,
ENSERCH Center, Suite 850 E-C, Dallas, Texas 75201, and the name of its
registered agent at such address is Michael G. Fortado. The address of the
principal office is 300 South St. Paul Street, Suite 850 E-C, Dallas, Texas
75201.
7. The county or counties where business or professional services are being or
are to be conducted or rendered under such assumed name are all counties
within the State.
/s/ Robert L. Jay
------------------------------
Assistant Corporate Secretary
Before me on this 8th day of January, 1995, personally appeared Robert L.
Jay, Assistant Corporate Secretary and acknowledged to me that he executed the
foregoing certificate of the purposes therein expressed.
/s/ Jo D. Wade
------------------------------
Notary Public - Dallas County
<PAGE>
ARTICLES OF AMENDMENT BY THE SHAREHOLDERS
TO THE RESTATED ARTICLES OF INCORPORATION OF
ENSERCH CORPORATION
Pursuant to the provisions of Article 4.04 of the Texas Business
Corporation Act, the undersigned ENSERCH Corporation (the "Corporation") adopts
the following Articles of Amendment to its Restated Articles of Incorporation.
Article One: The name of the corporation is ENSERCH Corporation.
Article Two: In the first sentence of the first paragraph of Article Six of
the Restated Articles of Incorporation of the Corporation, "$4.45" is hereby
changed to "$0.01", so that the par value per share of the Common Stock
hereafter be $0.01 instead of $4.45.
The remaining provisions of Article Six of the Restated Articles of
Incorporation of the Corporation, including without limitation Division A,
Division B. Division C and Division D thereof, shall remain unchanged and in
full force and effect. The designations, preferences, limitations and relative
and other rights of the authorized and outstanding shares of Preferred Stock and
Voting Preference Stock are not changed by this Amendment.
Article Three: The foregoing amendment (the "Amendment") to the Restated
Articles of Incorporation was adopted by the shareholders of the Corporation on
November 15, 1996. The designation and number of outstanding shares of each
class entitled to vote on the Amendment were as follows:
Number of
Class Shares
Common Stock................................... 69,527,645
The number of shares of Common Stock that voted for the Amendment was
55,905,176 and the number of shares of Common Stock that voted against the
Amendment was 269,072.
Article Four: All outstanding shares of the Corporation's Common Stock, par
value $4.45 per share ("Existing Common Stock"), are reclassified and converted,
effective as of the issuance of a certificate of amendment by the Secretary of
State of the State of Texas upon the filing of these Articles of Amendment, into
shares of the Corporation's Common Stock, par value $0.01 per share ("New Common
Stock"), on the basis of one share of New Common Stock for each outstanding
share of Existing Common Stock. Certificates representing shares of Existing
Common Stock will represent shares of New Common Stock without any further
action by the holders thereof.
Article Six: The Amendment effects a change in the stated capital of the
Corporation by reducing the par value per share of the Corporation's Common
Stock from $4.45 to $0.01. The amount of stated capital of the Corporation,
based upon the 69,527,645 shares of Existing Common Stock outstanding and
entitled to vote on the Amendment, was reduced by
<PAGE>
$308,702,744 from $309,398,020 before the Amendment to $695,276 after the
Amendment, and the $308,702,744 by which stated capital was reduced is hereby
transferred to the surplus of the Corporation.
IN WITNESS WHEREOF, the undersigned has executed these Articles of
Amendment of the Corporation this 15th day of November , 1996.
ENSERCH Corporation
By: /s/ A. E. Gallatin
---------------------
A. E. Gallatin
Its Vice President
Dated: November 15, 1996
<PAGE>
EXHIBIT 10.5
Dear
ENSERCH Corporation (the "Company") considers the establishment and
maintenance of a sound and vital management to be essential to protecting and
enhancing the best interest of the Company and its shareholders. In this
connection, the Company recognizes that, as is the case with many publicly held
corporations, the possibility of a change in control may exist and that such
possibility, and the uncertainty and questions which it may raise among
management, may result in the departure or distraction of management personnel
to the detriment of the Company and its shareholders. Accordingly, the
Company's Board of Directors (the "Board") has determined that appropriate steps
should be taken to reinforce and encourage the continued attention and
dedication of members of the Company's, its division's and subsidiaries'
management including yourself, to their assigned duties without distraction in
the face of the potentially disturbing circum stances arising from the
possibility of a change in control of the Company.
In order to induce you to remain in the employ of the Company, this
Agreement sets forth certain benefits which the Company agrees will be provided
to you in the event there is a termination of your employment with the Company
that is associated with (as described in Section 3 hereof) a "change in control
of the Company" (as defined in Section 2 hereof) under the circumstances
described below.
1. TERM. This Agreement shall have an initial term expiring on the
----
earlier of (a) the third anniversary of the date hereof, assuming there has been
no change in control of the Company, or (b) your Normal Retirement Date as
defined herein; provided, however, that upon each anniversary date of this
Agreement the term of this Agreement under clause (a) (as the same may be
extended by this proviso) shall be automatically extended annually for an
additional period of one (1) year on a continuing basis unless either party
shall give written notice of intention not to so extend at least six (6) months
prior to such anniversary date. No notice by the Company of its intention not
to extend shall be effective if, within one year prior to the original
expiration date, or if this Agreement is in a renewal period, within one year
prior to the termination date proposed by the Company, the Company has received
notice, official or unofficial, or otherwise has reason to believe that a Person
(as defined herein) has taken or is considering steps that would when completed
bring about a change in control of the Company. This Agreement shall in any
case continue in effect for three (3) years following a change in control of the
Company.
2. CHANGE IN CONTROL. For purposes of this Agreement, a "change in
-----------------
control of the Company" or a "change in control" shall mean a change in control
of a nature that
<PAGE>
would be required to be reported in response to Item l(a) of the Current Report
on 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 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 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 (b) individuals who constitute the Board on
the date hereof (the "Incumbent Board") cease for any reason to constitute at
least two-thirds 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 (b), considered as though such person were a member of
the Incumbent Board, or (c) 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%, or (d) the shareholders of the Company 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
Company's assets (including a plan of liquidation). For purposes of this
Agreement, 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 direc tor(s) of the Company
or any employee benefit plan(s) sponsored or maintained by the Company or any
subsidiary thereof.
3. TERMINATION ASSOCIATED WITH A CHANGE IN CONTROL. If and only if any of
-----------------------------------------------
the events described in Section 2 hereof constituting a change in control of the
Company shall occur, you shall be entitled to the benefits provided in Section 4
hereof upon the termination of your employment as provided in this Section 3
within six (6) months prior to such change in control, or within six (6) months
prior to the date that the Board of Directors of the Company authorizes a
merger, consolidation or other transaction or event that if consummated would
constitute a change in control and such action is consummated (collectively
herein referenced to as "termination preceding a change in control"), or within
three (3) years after such change in control, unless such termination is (a)
because of your death, or Retirement on or after your Normal Retirement Date
(that is, early retirement
-2-
<PAGE>
initiated by the Company shall be treated as a dismissal and not a voluntary
early retirement), (b) by the Company for Cause or Disability or (c) by you
other than for Good Reason (including voluntary early retirement when there is
no concurrent Good Reason). (In the case of termination preceding a change in
control, references in the definition of "Good Reason" to conditions in effect
immediately prior to a change in control shall be deemed to mean conditions in
effect immediately prior to your termination.) References to actions by and
employment with the Company shall include actions by and employment with the
divisions and subsidiaries of the Company where the context so requires.
(i) Disability; Retirement.
----------------------
(A) If, as a result of your incapacity due to physical or mental
illness, you shall have been unable for more than six (6) months to
perform your duties with the Company on a full time basis, and within
thirty (30) days after written notice of termination is given you
shall not have returned to the full time performance of your duties,
the Company may terminate your employ ment for "Disability."
(B) Termination of your employment based on "Retirement" shall
mean retirement in accordance with the terms of the Company's
Retirement and Death Benefit Program of 1969 (the "Retirement Plan")
as in effect on January 1, 1996, including early retirement, or in
accordance with any retirement arrangement established with your
consent with respect to you. "Normal Retirement Date" as used herein
shall have the meaning provided in the Retirement Plan or any
successor or substitute plan or plans of the Company put into effect
prior to a change in control of the Company.
(ii) Cause. Termination of your employment by the Company for "Cause"
shall mean termination upon (A) the willful and continued failure by you
substan tially to perform your duties with the Company (other than any such
failure resulting from your incapacity due to physical or mental illness),
after a demand for substantial performance is delivered to you by the
Chairman or President of the Company which specifically identifies the
manner in which such executive believes that you have not substantially
performed your duties, and a reasonable period of opportunity for such
substantial performance is provided, or (B) the willful engaging by you in
illegal misconduct materially and demonstrably injurious to the Company.
For purposes of this paragraph, no act, or failure to act, on your part
shall be considered "willful" unless done, or omitted to be done, by you
not in good faith and without reasonable belief that your 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 you in good
faith and in the best interest of the Company. Notwithstanding the
foregoing, you shall not be deemed to have been terminated for Cause unless
and until there shall have been delivered to you a copy of a resolution
duly adopted by the affirmative vote of not less than
-3-
<PAGE>
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 you and
an opportunity for you, together with your counsel, to be heard before the
Board), finding that in the good faith opinion of the Board you were guilty
of conduct set forth above in clauses (A) or (B) in this paragraph and
specifying the particulars thereof in detail.
(iii) Good Reason. "Good Reason" for you to terminate your employment
-----------
shall mean:
(A) an adverse change in your status or position(s) as an executive of
the Company as in effect immediately prior to the change in control,
including, without limitation, any adverse change in your status or
position as a result of a material diminution in your duties or
responsibilities (other than, if applicable, any such change directly
attributable to the fact that less than 50% of the Company's voting
securities are publicly owned or the fact that your position becomes a
position with a subsidiary or division), or a material change in your
business location or the assignment to you of any duties or
responsibilities which are inconsistent with such status or position(s), or
a substantial increase in your business travel, or any removal of you from
or any failure to reappoint or reelect you to such position(s) (except in
connection with the termination of your employment for Cause, Disability or
Retirement or as a result of your death or by you other than for Good
Reason);
(B) a reduction by the Company in your base salary as in effect
immediately prior to the change in control or in the number of vacation
days to which you are then entitled under the Company's normal vacation
policy as in effect immediately prior to the change in control;
(C) the taking of any action by the Company (including the elimination
of a plan without providing substitutes therefor or the reduction of your
awards thereunder) that would diminish or the failure by the Company to
take any action which would maintain the aggregate projected value of your
awards under the Company's bonus, stock option or management incentive unit
plans in which you were participating at the time of a change in control of
the Company;
(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 you under the Company's medical,
health, dental, accident, disability, life insurance, stock purchase or
retirement plans in which you were participating at the time of a change in
control of the Company;
(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
-4-
<PAGE>
(F) a failure by the Company to obtain from any Successor (as
hereinafter defined) the assent to this Agreement contemplated by Section 7
hereof; or
(G) any purported termination by the Company of your employment that
is not effected pursuant to a Notice of Termination satisfying the
requirements of paragraph (iv) below (and, if applicable, paragraph (ii)
above); for purposes of this Agreement, no such purported termination shall
be effective.
(iv) Notice of Termination. Any termination by the Company pursuant to
---------------------
paragraphs (i) or (ii) above or by you pursuant to paragraph (iii) above
shall be communicated by written Notice of Termination to the other party
hereto. In the event of termination preceding a change in control, written
Notice of Termination to the other party hereto shall be communicated
within thirty (30) days following a change in control in order to reflect
termination by the Company pursuant to paragraphs (i) or (ii) above or by
you pursuant to paragraph (iii) above. For purposes of this Agreement, a
"Notice of Termination" shall mean a notice specifying the termination
provision in this Agreement relied upon and setting forth in reasonable
detail the facts and circumstances claimed to provide a basis for
termination of your employment under the provision so specified.
(v) Date of Termination. "Date of Termination" shall mean (A) if your
-------------------
employment is terminated for Disability, thirty (30) days after Notice of
Termination is given (provided that you shall not have returned to the
performance of your duties on a full-time basis during such thirty (30) day
period), (B) if you terminate your employment pursuant to paragraph (iii)
above, the date specified in the Notice of Termination, (C) in the case of
a termination preceding a change in control, the date of discharge if
termination is by the Company or the date notice of intention to leave is
given by the executive in the case of termination for Good Reason, and (D)
if your employment is terminated for any other reason except death or
Retirement, the date on which Notice of Termination is given.
4. COMPENSATION UPON CHANGE IN CONTROL, TERMINATION OR DURING DISABILITY.
---------------------------------------------------------------------
(i) Compensation During Disability. During any period that you fail
------------------------------
to perform your duties hereunder as a result of incapacity due to physical
or mental illness, you shall continue to receive your full base salary at
the rate then in effect, and any time of service for vesting purposes under
any plan shall continue to accrue during such period of incapacity until
and if your employment is terminated pursuant to Section 3(i) hereof (and
for any longer period as may be provided under applicable plans).
(ii) Compensation Upon Termination for Cause. If your employment is
---------------------------------------
terminated for Cause, the Company shall pay you your full base salary and
accrued vacation pay through the Date of Termination at the rate in effect
at the time Notice
-5-
<PAGE>
of Termination is given plus any benefits or awards (including both the
cash and stock components) which pursuant to the terms of any plans have
been earned or become payable, but which have not yet been paid to you, and
shall have no further obligations to you under this Agreement.
(iii) Compensation Upon Termination Other than For Disability or Cause
----------------------------------------------------------------
or Good Reason. Subject to Section 9 hereof, if the Company terminates your
--------------
employment other than for Disability or Cause pursuant to Section 3(i) or
(ii) hereof or if you terminate your employment for Good Reason (which
termination may be effected by Retirement prior to your Normal Retirement
Date), then the Company shall pay to you (without regard to the provisions
of any benefit plan) in a lump sum on or before the tenth business day
following the Date of Termination ("Payment Date") an amount equal to the
sum of the following paragraphs (A) through (D), reduced by any of such
amounts already paid and the value of any severance amounts agreed to
between you and the Company and paid at the time of severance from the
Company in the case of a termination preceding a change in control:
(A) Your full base salary through the Date of Termination at the
rate in effect just prior to the time Notice of Termination is given,
plus any earned vacation time, plus any benefits or awards (including
both the cash and stock components) which pursuant to the terms of any
plans have been earned or become payable, but which have not yet been
paid to you; plus
(B) An amount equal to the greater of your largest target bonus
during either of the two years preceding the year in which the change
in control occurs or your target bonus for the year in which the Date
of Termination occurs, prorated for the current year; plus
(C) An amount equal to two times your "Annual Compensation", as
defined below, provided however, that such amount shall in no event
exceed the Annual Compensation you would have otherwise received had
your employment continued at such rate until your Normal Retirement
Date ("Annual Compensation" shall mean the greater of your annual base
salary on the Date of Termination or your highest annual base salary
in effect during either of the two years immediately prior to the
change in control plus an amount equal to the greater of your target
bonus for the year in which the Date of Termination occurs or your
highest target bonus during either of the two years immediately prior
to the change in control); plus
(D) If you choose to receive cash for some or all unexercised
stock options in lieu of exercising such options, which choice shall
be communi cated by you in writing to the Company, an amount equal to
the market value of the Company's common stock on the Date of
Termination or on any other date within 180 days preceding the Date of
Termination, on whichever date the value is highest, multiplied by the
number of options granted to you prior
-6-
<PAGE>
to the Date of Termination (you should seek legal advice before
choosing to receive cash for options held less than six (6) months)
under any stock option plan of the Company or other arrangement
pursuant to which options to purchase common stock of the Company have
been issued and which have not been exercised through the Payment
Date, less the aggregate value of the option price of such options.
(iv) Discharge of Company's Obligation. The payment to you of
---------------------------------
appropriate amounts under paragraph (D) shall be considered for all
purposes a discharge of all obligations pursuant to such plan except as to
options not cashed out.
(v) Base Salary; Severance Pay. For purposes of this Agreement, the
--------------------------
term "base salary" shall include any amounts deducted pursuant to Sections
125 and 401K of the Internal Revenue Code of 1986, as amended (the "Code"),
and any amounts deducted under the ENSERCH Corporation Deferred
Compensation Plan. Amounts paid pursuant to this paragraph shall be deemed
severance pay and in lieu of any further salary for periods subsequent to
the Date of Termination.
(vi) Gross-Up Provision. In the event that you become entitled to
------------------
the payments provided by Sections 4(iii) or 5 hereof (the "Agreement
Payments"), if any of the Agreement Payments will be subject to the tax
(the "Excise Tax") imposed by Section 4999 of the Code (or any similar tax
that may hereafter be imposed), the Company shall pay to you at the time
specified in Subsection (vii) below an additional amount (the "Gross-up
Payment") such that the net amount retained by you, after deduction of any
Excise Tax on the Total Payments (as hereinafter defined) and any federal,
state and local income tax and Excise Tax upon the Gross-up Payment
provided for by this subsection (vi), but before deduction for any federal,
state or local income tax on the Agreement Payments, shall be equal to the
"Total Payments," as defined below.
For purposes of determining whether any of the Agreement Payments will
be subject to the Excise Tax and the amount of such Excise Tax, (a) any
other payments or benefits received or to be received by you in connection
with a change in control of the Company or your termination of employment
(whether pursuant to the terms of this Agreement or any other plan,
arrangement or agreement with the Company, any person whose actions result
in a change of control of the Company or any person affiliated with the
Company or such person) (which, together with the Agreement Payments, shall
constitute the "Total Payments") shall be treated as "parachute payments"
within the meaning of Section 280G(b)(2) of the Code, and all "excess
parachute payments" within the meaning of Section 280G(b)(l) of the Code
shall be treated as subject to the Excise Tax, unless in the opinion of tax
counsel selected by the Company's independent auditors such other payments
or benefits (in whole or in part) do not constitute parachute payments, or
such excess parachute payments (in whole or in part) represent reasonable
compensation for services actually rendered within the meaning of Section
280G(b)(4) of the Code in excess of the base amount
-7-
<PAGE>
within the meaning of Section 280G(b)(3) of the Code or are otherwise not
subject to the Excise Tax, (b) the amount of the Total Payments which shall
be treated as subject to the Excise Tax shall be equal to the lesser of (1)
the total amount of the Total Payments or (2) the amount of excess
parachute payments within the meaning of Section 280G(b)(l) of the Code
(after applying clause (a), above), and (c) the value of any non-cash
benefits or any deferred payment or benefit shall be determined by the
Company's independent auditors in accordance with the principles of
Sections 280(G)(d)(3) and (4) of the Code.
For purposes of determining the amount of the Gross-up Payment, you
shall be deemed to pay federal income taxes at the highest marginal rate of
federal income taxation for the calendar year in which the Gross-up Payment
is to be made and the applicable state and local income taxes at the
highest marginal rate of taxation for the calendar year in which the Gross-
up Payment is to be made, net of the maximum reduction in federal income
taxes which could be obtained from deduction of such state and local taxes.
In the event that the Excise Tax is subsequently determined to be less than
the amount taken into account hereunder at the time the Gross-up Payment is
made, you shall repay to the Company at the time that the amount of such
reduction in Excise Tax is finally determined the portion of the Gross-up
Payment attributable to such reduction (plus the portion of the Gross-up
Payment attributable to the Excise Tax and federal and state and local
income tax imposed on the portion of the Gross-up Payment being repaid by
you if such repayment results in a reduction in Excise Tax and/or a federal
and state and local income tax deduction), plus interest on the amount of
such repayment at the rate provided in Section 1274(b)(2)(B) of the Code.
In the event that the Excise Tax is determined to exceed the amount taken
into account hereunder at the time the Gross-up Payment is made (including
by reason of any payment the existence or amount of which cannot be
determined at the time of the Gross-up Payment), the Company shall make an
additional gross-up payment in respect of such excess (plus any interest
payable with respect to such excess) at the time that the amount of such
excess is finally determined.
(vii) Time of Gross-Up Payment; Estimated Payments; Loan Provision.
------------------------------------------------------------
The Gross-up Payment or portion thereof provided for in Subsection (vi)
above shall be paid not later than the thirtieth day following payment of
any amounts under Sections 4(iii) or 5; provided, however, that if the
amount of such Gross-up Payment or portion thereof cannot be finally
determined on or before such day, the Company shall pay to you on such day
an estimate, as determined in good faith by the Company, of the minimum
amount of such payments and shall pay the remainder of such payments
(together with interest at the rate provided in Section 1274(b)(2)(B) of
the Code) as soon as the amount thereof can be determined, but in no event
later than the forty-fifth day after payment of any amounts under Sections
4(iii) or 5. In the event that the amount of the estimated payments exceeds
the amount subse quently determined to have been due, such excess shall
constitute a loan by the Company to you, payable on the fifth day after
demand by the Company (together with interest at the rate provided in
Section 1274(b)(2)(B) of the Code).
-8-
<PAGE>
(viii) Continuation of Certain Benefits. If the Company terminates
--------------------------------
your employment other than for Disability or Cause pursuant to Section 3(i)
or 3(ii) hereof or if you terminate your employment for Good Reason (either
of which termination may be effected by Retirement prior to your Normal
Retirement Date), the Company shall assign to you any club membership held
for your benefit and the Company shall maintain in full force and effect
for your continued benefit for a period terminating on the earliest of (A)
three years after the Date of Termination or (B) your Normal Retirement
Date, all life, health, accident and disability insurance plans and
programs in which you were a participant immediately prior to the Date of
Termination, provided that your continued participation is possible under
the terms and provisions of such plans and programs. In the event that your
participation in any such plan or program is barred, the Company shall
provide you with benefits substantially similar to those to which you would
be entitled as a participant in such plans and programs. Any required
statutory period of COBRA health benefit continuation that terminated
employees may elect shall not begin until the end of the period of coverage
provided hereby. The benefits provided under this Section, other than
assignment of any club membership, shall be reduced to the extent of
benefits received by you from another employer. At the end of the period of
coverage, you shall have the option to have assigned to you, at no cost and
with no apportionment of prepaid premiums, any assignable insurance policy
owned by the Company and relating specifically to you.
(ix) Lump Sum Payment for Additional Two Years of Service. If you
----------------------------------------------------
are not a participant in the Retirement Income Restoration Plan of ENSERCH
Corporation ("RIRP") (the RIRP has provisions comparable to this
subparagraph (ix)) when your employment with the Company is terminated
within the first three years after a change in control, by the Company
without Cause or by you for Good Reason, you shall receive from the
Company, at the time you first receive any payment under or with respect to
the Retirement Plan, an amount (calculated and paid in the form of a lump
sum) equal to the difference between (i) the "Lump Sum", as defined below,
value of any payment you receive at such time (or any monthly annuities
that you then become entitled to receive) from (a) the Retirement Plan and
(b) from the Company with respect to the portion, if any, of your
Retirement Plan pension which exceed the limitations on pension amounts to
which the Retirement Plan is subject and (ii) the Lump Sum value of
payments that would have been payable if it or they had been calculated as
if you had been deemed to have had two (2) additional "Years of Service",
as defined below. "Years of Service" shall be as defined in the Retirement
Plan and shall be applied as if you were a participant thereunder at the
time of your termination of employment, and "Lump Sum" shall mean an amount
calculated in accordance with the interest rate and other actuarial
assumptions set forth or used in connection with lump sum calculations
under the Retirement Plan.
(x) Lump Sum Payment if Not Vested under Retirement Plan. If you
----------------------------------------------------
are not vested under the Retirement Plan when your employment with the
Company is terminated within the first three years after a change in
control by the Company without Cause or by you for Good Reason, you shall
receive from the Company at
-9-
<PAGE>
the time payments are made pursuant to paragraph (iii) above, an amount
(calculated and paid in a lump sum) equal to the Lump Sum value of any
payment you would have been entitled to receive at your Normal Retirement
Date (or any annuities that you would have been entitled to receive) from
the Retirement Plan and the RIRP calculated (a) as if you were 100% vested
under such plans and (b) using actual years of service increased by two (2)
additional Years of Service.
(xi) Mitigation. You shall not be required to mitigate the amount of
----------
any payment provided for in this Section 4 by seeking other employment or
otherwise, nor (except as provided in Section 4(viii)) shall the amount of
any payment or benefit provided for in this Section 4 be reduced by any
compensation earned or benefit received by you as the result of employment
by another employer after the Date of Termination, or otherwise.
(xii) Deferred Payment Election. Upon entering into this Agreement
-------------------------
and for a period of 14 days following each anniversary of the date hereof
(the "Election Period"), you may, in writing, direct the Company that any
amounts which should become payable to you pursuant to Section 4(iii)
hereof shall be paid to you in three (3) equal annual installments, with
the first such installment payable within five (5) business days of the
Date of Termination and each successive installment paid on the anniversary
of the Date of Termination or the next following business day if such date
is not a business day (the "Deferred Payment Election"). A Deferred Payment
Election, once made, cannot be revoked except during an Election Period;
provided, however, that no Deferred Payment Election can be made or revoked
by you during an Election Period that occurs after a change in control of
the Company or at a time when, in the judgment of the Company, a change in
control may occur within sixty (60) days of such Election Period.
Notwithstanding anything in the foregoing to the contrary, a Deferred
Payment Election shall be automatically revoked should you terminate your
employment under the circumstances described in Section 7 below.
5. TERMINATION IN CONNECTION WITH THE DISPOSITION OF A COMPANY BUSINESS.
--------------------------------------------------------------------
If there occurs at any time during the Term of this Agreement a spin-off to
shareholders or a sale or other disposition to a non-affiliate of the Company
(collectively, "New Owner", which term shall include all entities controlled by
or under common control with the New Owner) of a portion of the business of the
Company ("Disposition") for which you perform substantially all of your duties
or as part of a restructuring or reorganizing of the Company you are assigned to
work with such New Owner and you become employed by the New Owner, then a change
in control, for the limited purpose of this Section 5, will be deemed to have
occurred, and
(i) if, and only if, your employment is terminated as described in
any of the paragraphs (A) through (D) below (in each case a termination
shall not be deemed to be a termination for purposes of this Section 5 if
you are offered and refuse to accept a comparable position with the Company
or an affiliate of the Company or the New Owner and for this purpose a
position is not comparable if there are changes
-10-
<PAGE>
from the position you held prior to the Disposition that would constitute
Good Reason for you to terminate your employment):
(A) You are terminated by the Company on the date of the Disposi
tion and are not employed by the New Owner; or
(B) Within six (6) months prior to the date of Disposition, your
employment with the Company is terminated other than for Cause or
Disability or you terminate your employment with the Company for Good
Reason; or
(C) You continue your employment with the Company and within
three years following the Date of the Disposition your employment with
the Company is terminated other than for Cause or Disability or you
terminate your employment for Good Reason; or
(D) You are employed by the New Owner and within three years
following the date of Disposition your employment with the New Owner
is terminated other than for Cause or Disability or you terminate your
employment with the New Owner for Good Reason. (For purposes of this
subsection, "Company" shall be deemed to mean "New Owner" in the
definition of "Good Reason" where the context so requires and
references in the definition of "Good Reason" to conditions in effect
immediately prior to a change in control shall be deemed to mean
conditions in the offer of employment to you or otherwise in effect
upon your initial employment with the New Owner.)
(ii) then, subject to Section 9 hereof, you shall be entitled to the
benefits described in either (A) or (B) below:
(A) If any of paragraphs (A) (B) or (C) of subsection (i) above
apply, then you shall be entitled to the payments and benefits
specified in Section 4.
(B) If paragraph (D) of subsection (i) above applies, then the
Company shall pay to you an amount equal to two times the higher of
your annual base salary in effect on the date of Disposition or your
highest annual base salary in effect during either of the two years
immediately prior to the date of Disposition; plus an amount equal to
two times the greater of your target bonus for the year in which the
Disposition occurred or your highest target bonus during either of the
two years immediately prior to the Disposition; provided however, that
such amount shall in no event exceed the aggregate amount of base
salary and target bonuses that you would have otherwise received had
your employment continued at such higher rate until your Normal
Retirement Date; plus the Gross-up payments and other provisions of
Sections 4(vi) and 4(vii).
-11-
<PAGE>
6. EMPLOYEE'S COMMITMENT: RIGHT TO TERMINATE.
------------------------------------------
(i) Employee's Right to Terminate. Except as otherwise provided in
-----------------------------
paragraph (ii) below, the Company or you may terminate your employment at
any time, subject to the Company's providing the benefits specified herein
in accordance with the terms hereof.
(ii) Employee's Commitment In Event of Tender or Exchange Offer. In
----------------------------------------------------------
the event a tender offer or exchange offer is made by a Person for more
than 20% of the combined voting power of the Company's Voting Securities,
including shares of Common Stock of the Company, you agree that you will
not leave the employ of the Company (other than as a result of Disability
or upon Normal Retirement) and will render the services contemplated in
this Agreement until such tender offer or exchange offer has been abandoned
or terminated or a change in control of the Company has occurred.
(iii) Employee's Duty. During the life of this Agreement, you will
---------------
faithfully perform your duties to the best of your ability and in
accordance with the directions of the Chief Executive Officer and the Board
of Directors, provided that after a change in control of the Company such
directions do not constitute Good Reason for you to terminate your
employment; and you will devote to the performance of such duties your full
working time, attention and energies.
(iv) Confidential and Proprietary Information. You will not at any
----------------------------------------
time during the life of this Agreement, or thereafter, communicate or
disclose to any unauthorized person, or use for your own account, without
the written consent of the Company, any proprietary processes, or other
confidential information of the Company or any subsidiary concerning their
business or affairs, suppliers or customers, it being understood, however,
that the obligations of this paragraph shall not apply to the extent that
the aforesaid matters (A) are disclosed in circumstances in which you are
legally required to do so or (B) become generally known to and available
for use by the public otherwise than by your wrongful act or omission.
7. SUCCESSOR'S BINDING AGREEMENT.
-----------------------------
(i) Successor's Binding Agreement. The Company will seek, by written
-----------------------------
request at least five (5) business days prior to the time a Person becomes
a Successor (as hereinafter defined), to have such Person, by agreement in
form and substance satisfactory to you, assent to the fulfillment of the
Company's obligations under this Agreement. Failure of such Person to
furnish such assent by the later of (A) three business days prior to the
time such Person becomes a Successor or (B) two business days after such
person receives a written request to so assent shall constitute Good Reason
for termination by you of your employment if a change in control of the
Company occurs or has occurred. For purposes of this Agreement, "Successor"
shall mean any Person that succeeds to, or has the practical ability to
control (either
-12-
<PAGE>
immediately or with the passage of time), the Company's business directly,
by merger or consolidation, or indirectly, by purchase of the Company's
Voting Securities or otherwise. Whether or not such assent is given by a
Successor, this Agreement shall be binding on the Successor and its
assigns.
(ii) Enforceability by Employee's Successors. This Agreement shall
inure to the benefit of and be enforceable by your personal or legal
representatives, executors, administrators, successors, heirs,
distributees, devisees and legatees. If you should die before all amounts
that would still be payable to you hereunder if you had continued to live
are paid, all such unpaid amounts, unless otherwise provided herein, shall
be paid in accordance with the terms of this Agreement to your devisee,
legatee, or other designee or, if there be no such designee, to your
estate.
8. FEES AND EXPENSES. The Company shall pay all legal fees, expenses of
-----------------
arbitration and related expenses incurred by you in connection with this
Agreement following a change in control of the Company, including, without
limitation, (a) all such fees and expenses, if any, incurred in contesting or
disputing any termination of your employment following a change in control or
incurred by you in seeking advice with respect to the matters set forth in
Section 7 hereof or (b) your seeking to obtain or enforce any right or benefit
provided by this Agreement.
9. TAXES. All payments to be made to you under this Agreement will be
-----
subject to required withholding of applicable federal, state and local taxes.
10. INTEREST. All payments due under this Agreement and unpaid shall bear
--------
interest at the rate of 10% per annum, compounded daily, beginning on the next
ensuing day after the Payment Date or such other date as they may be due.
11. NON-ALIENABILITY. Your interest under this Agreement is not subject
----------------
to anticipation, alienation, assignment or attachment and may not be transferred
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 your debts, contracts, liabilities, engagement, or
torts, nor shall they be subject to garnishment, attachment, or other legal or
equitable process nor shall they be an asset in bankruptcy, except that not
amount shall be payable hereunder until and unless any and all amounts
representing debts or other obligations owed to any company by you shall have
been fully paid and satisfied.
12. SURVIVAL. The respective obligations of, and benefits afforded to,
--------
the Company and you as provided in Sections 4, 5, 6, 7, 8, 9 and 16 of this
Agreement shall survive termination of this Agreement.
13. NOTICE. Notices and all other communications provided for herein
------
shall be in writing and shall be deemed to have been duly given when delivered
or mailed by certified or registered mail, return receipt requested, postage
prepaid addressed to the respective
-13-
<PAGE>
addresses set forth on the first page of this Agreement or to such other address
as either party may have furnished to the other in writing in accordance
herewith, except that notices of change of address shall be effective only upon
receipt. All notices to the Company shall be directed to the attention of the
Chief Executive Officer of the Company with a copy to the Secretary of the
Company.
14. MISCELLANEOUS. This Agreement does not supersede any other plan of
-------------
the Company or agreement with the Company. No provision of this Agreement may
be modified, waived or discharged except in writing specifically referring to
such provision and signed by you and such officer as may be specifically
designated by the Board of Directors of the Company. No waiver at any time by
either party hereto of the breach of any condition or provision of this
Agreement, or of compliance by the other party with the same, shall be deemed a
waiver of any other condition or provision at the same or at any other time. No
agreement or representation still in effect, oral or otherwise, express or
implied, with respect to the subject matter hereof has been made by either party
other than (i) those set forth expressly in this Agreement or (ii) those in any
stock option agreements, restricted stock agreements, or deferred compensation
agreements. The validity, interpretation, construction and performance of this
Agreement shall be governed by the laws of the State of Texas.
15. VALIDITY. The invalidity or unenforceability of any provisions of
--------
this Agreement shall not affect the validity or enforceability of any other
provision of this Agreement, which shall remain in full force and effect.
16. ARBITRATION. Any dispute or controversy arising under or in
-----------
connection with this Agreement shall be settled exclusively by arbitration in
the city nearest to your principal residence which has an office of the American
Arbitration Association by one arbitrator in accordance with the rules of the
American Arbitration Association then in effect. Judgment may be entered on the
arbitrator's award in any court having jurisdiction; provided, however, that you
shall be entitled to seek specific performance of your right to be paid until
the Date of Termination during the pendency of any dispute or controversy
arising under or in connection with this Agreement. The Company shall bear all
costs and expenses arising in connection with any arbitration proceeding
pursuant to this Section 16.
17. COUNTERPARTS. This Agreement may be executed in one or more
------------
counterparts, each of which shall be deemed to be an original but all of which
together will constitute one and the same instrument.
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<PAGE>
If this letter correctly sets forth our entire agreement on the subject
matter hereof, kindly sign and return to the Company the enclosed copy of this
letter which will then constitute our agreement on this subject.
Sincerely,
ENSERCH Corporation
By:
----------------------------
D. W. Biegler
AGREED to as of the date
first above written.
- ------------------------
-15-
<PAGE>
EXHIBIT 10.6
ENSERCH CORPORATION
PERFORMANCE INCENTIVE PLAN
CALENDAR YEAR 1997
I. PURPOSES
--------
The purposes of the ENSERCH Corporation Performance Incentive Plan (the
"Plan") are to:
A. Encourage and reward improved performances by the senior officers and
Managers.
B. Provide reward incentives for the achievement of specific performance
goals or objectives periodically established.
C. Provide an appropriate level of executive compensation commensurate
with that of similar businesses to retain key officers and managers.
D. Provide an incentive for key officers and management to perform in a
manner that benefits the Corporation's shareholders and the Company's
customers.
II. ELIGIBILITY
-----------
Key executives of the Corporation and its subsidiaries as specifically
designated shall be eligible for participation in the Plan.
The existence of this Plan does not prevent the existence of other bonus
plans within operating units or subsidiaries of the Corporation. However,
Participants in this Plan may not participate in any other cash bonus or
incentive plans or programs offered by ENSERCH or any of its subsidiaries or
affiliates unless such participation is approved by the Chairman of the
Corporation.
III. DEFINITIONS AND BONUS FACTORS
-----------------------------
Subject to the conditions and limitations described herein, bonus award
payments may be made to the Participants under the Plan as hereinafter set out.
For purposes of the Plan, the following definitions apply:
A. Participant
-----------
Each of the key management personnel designated for participation by
the Chairman of ENSERCH Corporation ("the Chairman") or by the
Compensation Committee of the Board of Directors ("the Compensation
Committee") is a Participant. Each Participant will be individually
notified of his or her participation together with the applicable
factors approved for
<PAGE>
the determination of each individual bonus opportunity.
B. Plan Year
---------
The Plan Year and the annual bonus period shall be the calendar year.
C. Base Salary
-----------
The annual Base Salary designated for the Participant is that contained
in the applicable payroll records, exclusive of any payment under any
bonus plan, deferred compensation, salary deferral plan, expense
reimbursement or fringe benefit, for the annual period covered by the
bonus award.
D. Target Bonus Factor
-------------------
A specified percentage of the Participant's Base Salary which would be
the bonus payable to a Participant upon 100% Goal Achievement. The
Target Bonus Factor applied to Base Salary is the Target Bonus.
E. Performance Goals
-----------------
Expressed, measurable goals established as the basis for bonus awards
for the annual bonus period, each having a corresponding Weighting
Factor expressed as a percentage. No more than four Performance Goals
will be used for any annual period. The Weighting Factors for all
Performance Goals for an annual period aggregate 100%.
F. Goal Achievement Factor
-----------------------
A percentage representing the level of actual achievement of each
Performance Goal, calculated at the end of each Plan Year.
G. Performance Factor
------------------
The sum of the weighted average percentages of Goal Achievement Factors
which is applied to the Target Bonus to derive the bonus.
H. Bonus Calculation
-----------------
In summary:
Target Bonus = Base Salary x Target Factor
Bonus = Target Bonus x Performance Factor
Performance Factor = Weighting//1// x Goal Achievement Factor//1//
+ Weighting//2// x Goal Achievement Factor//2//
+ Weighting//3// x Goal Achievement Factor//3//
+ Weighting//4// x Goal Achievement Factor//4//
<PAGE>
IV. GOAL ACHIEVEMENT
----------------
The Goal Achievement Factor pertaining to achievement of earnings,
shareholder return and operating income goals is as follows:
If Income Ratio or other Goal Achievement Factor will be:
ratio of achievement:
less than 0.9 0%
between 0.9 and 1.00 20% plus 8% for each .01 greater
than 0.90
above 1.00 100% plus 2.5% for each .01 greater
than 1.00, up to a maximum of 150%.
Any earnings or operating income achievement less than 0.90 ratio will
reduce goal achievement factor by 0.5% for each 0.01 less than 0.90.
Goal Achievement Factors will be prorated between the amounts nearest
percentages specified above.
Income Ratio is the ratio of the actual earnings or operating income for
the Plan Year to the applicable budgeted income. Budgeted earnings and
operating income are adjusted to take into account the effects of variations in
heating degree days, oil and gas production sales prices and severance tax, and
NGL prices, fuel and shrinkage.
V. BONUS PAYMENTS
--------------
A. Payment Schedule. Any bonus awarded pursuant to this Plan shall be
----------------
paid in cash (unless any executive participating in the ENSERCH Deferred
Compensation Plan opts by written notice in advance of the relevant plan year to
defer its receipt into the Deferred Compensation Plan) to participating
executives not later than April 1 of the year succeeding the calendar year for
which performance is measured.
B. Discretionary Bonus. Upon recommendation by the Chairman, the
-------------------
Compensation Committee, in its sole discretion, may award special bonuses to
executives or employees of the Corporation or any of its subsidiaries or
affiliates, whether or not named Participants in this Plan, on a discretionary
basis to reward meritorious performance. The Compensation Committee's decision
relative to such award shall be final and binding on all parties.
C. Retirement, Death, Disability, Termination. All bonus awards to a
------------------------------------------
Participant under this Plan during his or her active employment shall be paid or
credited under the terms of the Plan to any Participant who retires at age 60 or
above in accordance with his/her employer's approved retirement plan, or to any
Participant who becomes eligible for and receives disability benefits in
accordance with its long-term disability plan.
<PAGE>
In the event of a Participant's retirement at age 60 or above or death
during a Plan Year, to the extent practicable, and only if Participant is
employed at least one-half of the Plan Year, any bonus awarded for achievement
of Goals to which the Participant contributed shall be prorated and the
appropriate portion awarded. A decision by the Chairman as to what may be an
appropriate prorated portion shall be final and binding on all parties.
In the event of a Participant's death, any bonus awarded to such
Participant prior to the date of death but unpaid, and which would otherwise
have been received, or any awarded after the date of death, will be paid to his
beneficiary or to his estate, as applicable.
In the event a Participant's employment terminates for any reason other
than retirement, disability or death, or as described in (d) below, prior to the
time a bonus payment is paid, no bonus shall be payable for either a portion of
or for a full Plan year.
D. Merger. In the event that ENSERCH Corporation shall, pursuant to
------
action by its Board, at any time merge into, consolidate with, or sell or
otherwise transfer all or substantially all of the assets of the Corporation or
a segment to another corporation in which ENSERCH or the segment would be in a
minority position, all bonus awards which have been granted but remain unpaid
and a bonus award based on a 100% performance factor applicable to the base
salary earned during the Plan Year for the period prior to the effective date of
the merger shall be immediately paid to Participant and the Participant shall
not be required to be employed by the Corporation in order to receive the
payment.
VI. ESTABLISHMENT OF PERFORMANCE GOALS
----------------------------------
Performance Goals as established are described on Attachment A.
VII. ADMINISTRATIVE PROVISIONS
-------------------------
A. Discretion. Notwithstanding any calculation of bonus in accordance
----------
with the foregoing provisions, the Chairman 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.
B. Termination. This Plan may be terminated at any time by the
-----------
Compensation Committee. Notification of termination will be given to the then
Participants. A Plan termination will not prevent payment of bonuses where Goal
achievement has been completed in a calendar year for which a Goal had been
approved. If the Plan is terminated by the Compensation Committee during a Plan
Year in which Goals have been established under the Plan, performance will be
prorated by the Committee and bonuses paid proportionally. The Compensation
Committee's decision relative to such payment shall be final and binding on all
parties.
C. Effective Date. This Plan is effective for the calendar year
--------------
commencing January 1, 1997, unless terminated by action of the Compensation
Committee.
<PAGE>
D. No Contract. Nothing in this Performance Incentive Plan shall be
-----------
deemed by implication, conduct of the parties, or otherwise to constitute a
contract of employment or otherwise to impose any limitation on any right of the
Corporation or any of its operating units to terminate a Participant's
employment at any time.
E. Under provisions of the ENSERCH Retirement and Death Benefit Program of
1969, this bonus program qualifies as an "annual performance based incentive
plan" and is to be included in "final average pay" for purposes of pension
calculations.
VIII. CONFLICT OF INTEREST
If at any time during the period the Participant is to receive or accrue
payments hereunder, the Participant 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
could be reasonably construed as being adverse to the interest of the Company,
the Participant and his beneficiaries or heirs shall forfeit all rights to
receive payments of bonus awards provided under this Plan regardless of whether
or not such payments had been previously approved by the Company; except that
before any such termination under this section of the Participant's right to
receive payments, the Company shall notify the Participant in writing of its
opinion about the adversary situation, after which time the Participant shall
have a period of 15 days to correct the situation to the satisfaction of the
Company as to preclude benefit termination.
This provision shall apply to full-time and part-time employees of the Company
and to retired or terminated employees. For purposes of this Plan, the Company
shall determine within its sole discretion whether or not the Participant's
actions can be reasonably construed as adverse to the Company's interests.
<PAGE>
ENSERCH CORPORATION
LONE STAR GAS COMPANY
PERFORMANCE INCENTIVE PLAN
CALENDAR YEAR 1997
I. Purposes
The purposes of the Lone Star Gas Company Performance Incentive Plan (the
"Plan") are to:
A. Encourage and reward improved performances by the operating units of
the segment.
B. Provide reward incentives for the achievement of specific performance
goals or objectives that may be periodically established.
C. Provide an appropriate level of executive compensation commensurate
with that of similar businesses.
D. Provide an incentive for key management personnel to perform in a
manner that ultimately benefits the Corporation's shareholders and
the Company's customers.
II. Eligibility
Key managers of the segment as specifically designated shall be eligible
for participation in the Plan. Participation in the Plan shall occur upon
the recommendation of the President of Lone Star Gas Company and approval
of the Chairman and President of ENSERCH Corporation.
The existence of this Plan does not prevent the existence of other bonus
plans within operating units or subsidiaries of the Corporation. However,
Participants in this Plan may not participate in any other cash bonus or
incentive plans or programs offered by ENSERCH, or any of its
subsidiaries or affiliates unless such participation is approved by the
Chairman of the Corporation. The Compensation Committee of the Board of
Directors of ENSERCH Corporation may also award special bonuses on a
discretionary basis to reward meritorious performance not compensated by
this Plan.
III. Definitions and Bonus Factors
Subject to the conditions and limitations described herein, bonus award
payments may be made to the Participants under the Plan as hereinafter
set out. For purposes of the Plan, the following definitions apply:
A. Participant
-----------
Each of the key management personnel of the business segment
<PAGE>
recommended for participation by the President of Lone Star Gas
Company and approved by the Chairman and President of ENSERCH
Corporation is a Participant. Each Participant will be individually
notified of his or her participation together with the applicable
factors approved for the determination of each individual bonus
opportunity.
B. Base Salary
-----------
The annual Base Salary designated for the Participant is that
contained in the applicable payroll records and earned by the
Participant, exclusive of any payment under any bonus plan, deferred
compensation, salary deferral plan, expense reim bursement or fringe
benefit, for the annual period covered by the bonus award .
C. Target Bonus Factor
-------------------
A specified percentage of the Participant's Base Salary which would
be the bonus payable to a Participant upon 100% goal achievement. The
Target Bonus Factor applied to Base Salary is the Target Bonus.
D. Performance Goals
-----------------
Expressed, measurable goals established as the basis for bonus awards
for the annual bonus period, each having a corresponding weighting
factor expressed as a percentage. No more than five Performance Goals
will be used for any annual period. The weighting factors for all
Performance Goals for an annual period aggregate 100%.
E. Goal Achievement Factor
-----------------------
A percentage representing the level of actual achievement of each
Performance Goal, calculated at the end of each Plan year (calendar
year).
F. Performance Factor
------------------
The sum of the individual weightings multiplied by the corre sponding
Goal Achievement Factor which is applied to the Target Bonus to
derive the bonus.
G. Bonus Calculation
-----------------
In summary:
Target Bonus = Base Salary x Target Factor
Bonus = Target Bonus Factor x Performance
Factor
Performance Factor = Weighting//1// x Goal Achievement Factor//1//
+ Weighting//2// x Goal Achievement Factor//2//
+ Weighting//3// x Goal Achievement Factor//3//
+ Weighting//4// x Goal Achievement Factor//4//
<PAGE>
+ Weighting//5// x Goal Achievement Factor//5//
The minimum bonus shall be zero.
IV. Bonus Payments
A. Payment Schedule -- Any bonus awarded pursuant to this Plan shall be
paid in cash (unless any executive participating in the ENSERCH
Deferred Compensation Plan opts by written notice in advance of the
relevant plan year to defer its receipt into the Deferred
Compensation Plan) to participating executives, not later than April
1 of the year succeeding the calendar year for which performance is
measured.
B. To be eligible for receipt of each payment of the bonus, a
Participant must continue to be employed by the Company at the time
each payment is to be paid, unless that Participant's employment
terminates by reason of retirement, death or disability, or as
described in D below. Participants who terminate their employment
voluntarily or who are terminated by the Company, other than under
circumstances described below, will not be eligible to receive any
portion of any bonus award which has been granted for prior years but
unpaid as of the date of termination.
C. All bonus payments credited to a Participant under this Plan during
his or her active employment shall be paid under the terms of the
Plan to any Participant who retires at age 60 or above in accordance
with his/her employer's approved retirement plan, or to any
Participant who becomes disabled and receives disability benefits in
accordance with its long-term disability plan.
In the event of a Participant's retirement at or above age 60 or
death during a Plan year, assuming employee has worked for at least
one-half of the Plan Year, to the extent practicable, any bonus
awarded for achievement of goals to which the Participant contributed
shall be prorated and the appropriate portion paid. A decision by the
Chairman of ENSERCH Corporation as to what may be an appropriate
portion shall be final and binding on all parties.
In the event of a Participant's death, all bonus awards resulting
from a partial award for a prorated portion of the Plan Year or those
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
practicable, but no later than six months following the death of the
employee.
In the event a Participant's employment terminates for any reason
other than retirement, disability or death, or as described in D
below, prior to the time a bonus payment is paid, no bonus shall be
payable for either a portion of or for a full Plan year, or for any
unpaid bonus awards credited in
<PAGE>
prior years.
D. Merger -- In the event that ENSERCH Corporation shall, pursuant to
action by its Board, at any time merge into, consolidate with, or
sell or otherwise transfer all or substantially all of the assets of
the Corporation or a segment to another corporation in which ENSERCH
or the segment would be in a minority position, all bonus awards
which have been granted but remain unpaid and a bonus award based on
a 100% performance factor applicable to the base salary earned during
the Plan Year for the period prior to the effective date of the
merger shall be immediately paid to Participant and the Participant
shall not be required to be employed by the Corporation in order to
receive the payment.
V. Establishment of Performance Goals
Performance Goals will be established annually by the President of Lone
Star Gas Company, after receiving requisite approval, with one to five
certain expressed, specific, objective and measurable goals in such Plan
defined as the Performance Goals for which bonus will be paid if
achieved. A minimum of 50% of the weighting will be applied to the
attainment of operating income goal achievement.
VI. Operating Income Goal Achievement
The Goal Achievement Factor pertaining to achievement of operating income
goals is standardized as follows:
If Operating Income Ratio is: Operating Income Goal
Achievement Factor will be:
less than 0.90 0% minus 0.5% for each 0.01
less than 0.90
between 0.90 and 1.00 20% plus 8% for each 0.01
greater than 0.90
above 1.00 100% plus 1% for each
$1 million
greater than budgeted
operating
income, as adjusted, up to a
maximum of 150%
Achievement Factors will be prorated between the amounts nearest
percentages specified above.
The following definitions apply:
Operating Income Ratio
----------------------
The ratio of the applicable business unit's actual operating income for
the Plan year to the budgeted operating income, which budgeted operating
income is adjusted to take into account the HDD Adjustment
<PAGE>
when applicable. The accrual of expense for this Plan will be included as
expense deducted for the determination of actual operating income.
HDD Adjustment
--------------
A factor used to adjust budgeted operating income such that the
Participant will not benefit from or be penalized by weather fluctuations
when measuring the attainment of budgeted operating income for the
particular unit or for the Company.
In summary:
Operating Income
Ratio = (Actual Operating Income)/(Budgeted
Operating Income + HDD Adjustment)
-
HDD Adjustment = 32.3 (Actual HDD - Normal HDD) x Budgeted
Residential/Commercial Incremental Sales
Margin after deduction of margin from base
customer charge for Company or Unit per
MMCF, applied only to Units affected by
Residential/Commercial Sales Volumes
VII. Administrative Provisions
A. Discretion
----------
Notwithstanding any calculation of bonus in accordance with the
foregoing provisions, the Chairman 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.
B. Termination
-----------
This Plan may be terminated at any time by the Company. Notification
of termination will be given to the Participants. A Plan termination
will not prevent payment of bonuses where goal achievement has been
completed in a calendar year for which Performance Goals had been
approved. If the Plan is terminated during a Plan year in which
Performance Goals have been established under the Plan, performance
will be prorated and bonuses paid proportionally. The Company's
decision relative to such payment shall be final and binding on all
parties. Such termination will be applicable to new bonus awards and
will not affect credited but unpaid bonus amounts from prior bonus
years.
C. Effective Date
--------------
This Plan is effective with the calendar year commencing January 1,
1997 and for the ensuing calendar years until terminated.
<PAGE>
D. No Contract
-----------
Nothing in this Performance Incentive Plan shall be deemed by
implication, action or otherwise to constitute a contract of
employment or otherwise to impose any limitation on any right of the
Corporation nor any of its operating units to terminate a
Participant's employment at any time.
E. Under provisions of the ENSERCH Retirement and Death Benefit Program
of 1969, this bonus program qualifies as an "annual performance based
incentive plan" and is to be included in "final average pay" for
purposes of pension calculations.
VIII. Conflict of Interest
If at any time during the period the Participant is to receive or accrue
payments hereunder, the Participant 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 could be reasonably construed as being
adverse to the interest of the Company, the Participant and his
beneficiaries or heirs shall forfeit all rights to receive payments of
bonus awards provided under this Plan regardless of whether or not such
payments had been previously approved by the Company; except that before
any such termination under this section of the Participant's right to
receive payments, the Company shall notify the Participant in writing of
its opinion about the adversary situation, after which time the
Participant shall have a period of 15 days to correct the situation to
the satisfaction of the Company as to preclude benefit termination.
This provision shall apply to full-time and part-time employees of the
Company and to retired or terminated employees. For purposes of this
Plan, the Company shall determine within its sole discretion whether or
not the Participant's actions can be reasonably construed as adverse to
the Company's interests.
<PAGE>
ENSERCH CORPORATION
LONE STAR PIPELINE COMPANY
PERFORMANCE INCENTIVE PLAN
CALENDAR YEAR 1997
I. Purposes
The purposes of the Lone Star Pipeline Company business segment
Performance Incentive Plan (the "Plan") are to:
A. Encourage and reward improved performances by the operating units of
the segment.
B. Provide reward incentives for the achievement of specific
performance goals or objectives that may be periodically
established.
C. Provide an appropriate level of executive compensation commensurate
with that of similar businesses.
D. Provide an incentive for key management personnel to perform in a
manner that ultimately benefits the Corporation's shareholders and
the Company's customers.
II. Eligibility
Key managers of the segment as specifically designated shall be eligible
for participation in the Plan. Participation in the Plan shall occur upon
the recommendation of the President of Lone Star Pipeline Company and
approval of the Chairman and President of ENSERCH Corporation.
The existence of this Plan does not prevent the existence of other bonus
plans within operating units or subsidiaries of the Corporation. However,
Participants in this Plan may not participate in any other cash bonus or
incentive plans or programs offered by ENSERCH, or any of its
subsidiaries or affiliates unless such participation is approved by the
Chairman of the Corporation. The Compensation Committee of the Board of
Directors of ENSERCH Corporation may also award special bonuses on a
discretionary basis to reward meritorious performance not compensated by
this Plan.
III. Definitions and Bonus Factors
Subject to the conditions and limitations described herein, bonus award
payments may be made to the Participants under the Plan as hereinafter
set out. For purposes of the Plan, the following definitions apply:
A. Participant
-----------
Each of the key management personnel of the business segment
<PAGE>
recommended for participation by the President of Lone Star Pipeline
Company and approved by the Chairman and President of ENSERCH
Corporation is a Participant. Each Participant will be individually
notified of his or her participation together with the applicable
factors approved for the determination of each individual bonus
opportunity.
B. Base Salary
-----------
The annual Base Salary designated for the Participant is that
contained in the applicable payroll records and earned by the
Participant, exclusive of any payment under any bonus plan, deferred
compensation, salary deferral plan, expense reim bursement or fringe
benefit, for the annual period covered by the bonus award .
C. Target Bonus Factor
-------------------
A specified percentage of the Participant's Base Salary which would
be the bonus payable to a Participant upon 100% goal achievement. The
Target Bonus Factor applied to Base Salary is the Target Bonus.
D. Performance Goals
-----------------
Expressed, measurable goals established as the basis for bonus awards
for the annual bonus period, each having a corresponding weighting
factor expressed as a percentage. No more than five Performance Goals
will be used for any annual period. The weighting factors for all
Performance Goals for an annual period aggregate 100%.
E. Goal Achievement Factor
-----------------------
A percentage representing the level of actual achievement of each
Performance Goal, calculated at the end of each Plan year (calendar
year).
F. Performance Factor
------------------
The sum of the individual weightings multiplied by the corre sponding
Goal Achievement Factor which is applied to the Target Bonus to
derive the bonus.
G. Bonus Calculation
-----------------
In summary:
Target Bonus = Base Salary x Target Factor
Bonus = Target Bonus Factor x Performance
Factor
Performance Factor = Weighting//1// x Goal Achievement Factor//1//
+ Weighting//2// x Goal Achievement Factor//2//
+ Weighting//3// x Goal Achievement Factor//3//
+ Weighting//4// x Goal Achievement Factor//4//
<PAGE>
+ Weighting//5// x Goal Achievement Factor//5//
The minimum bonus shall be zero.
IV. Bonus Payments
A. Payment Schedule -- Any bonus awarded pursuant to this Plan shall be
paid in cash (unless any executive participating in the ENSERCH
Deferred Compensation Plan opts by written notice in advance of the
relevant plan year to defer its receipt into the Deferred
Compensation Plan) to participating executives, not later than April
1 of the year succeeding the calendar year for which performance is
measured.
B. To be eligible for receipt of each payment of the bonus, a
Participant must continue to be employed by the Company at the time
each payment is to be paid, unless that Participant's employment
terminates by reason of retirement, death or disability, or as
described in D below. Participants who terminate their employment
voluntarily or who are terminated by the Company, other than under
circumstances described below, will not be eligible to receive any
portion of any bonus award which has been granted for prior years but
unpaid as of the date of termination.
C. All bonus payments credited to a Participant under this Plan during
his or her active employment shall be paid under the terms of the
Plan to any Participant who retires at age 60 or above in accordance
with his/her employer's approved retirement plan, or to any
Participant who becomes disabled and receives disability benefits in
accordance with its long-term disability plan.
In the event of a Participant's retirement at or above age 60 or
death during a Plan year, assuming employee has worked for at least
one-half of the Plan Year, to the extent practicable, any bonus
awarded for achievement of goals to which the Participant contributed
shall be prorated and the appropriate portion paid. A decision by the
Chairman of ENSERCH Corporation as to what may be an appropriate
portion shall be final and binding on all parties.
In the event of a Participant's death, all bonus awards resulting
from a partial award for a prorated portion of the Plan Year or those
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
practicable, but no later than six months following the death of the
employee.
In the event a Participant's employment terminates for any reason
other than retirement, disability or death, or as described in D
below, prior to the time a bonus payment is paid, no bonus shall be
payable for either a portion of or for a full Plan year, or for any
unpaid bonus awards credited in
<PAGE>
prior years.
D. Merger -- In the event that ENSERCH Corporation shall, pursuant to
action by its Board, at any time merge into, consolidate with, or
sell or otherwise transfer all or substantially all of the assets of
the Corporation or a segment to another corporation in which ENSERCH
or the segment would be in a minority position, all bonus awards
which have been granted but remain unpaid and a bonus award based on
a 100% performance factor applicable to the base salary earned during
the Plan Year for the period prior to the effective date of the
merger shall be immediately paid to Participant and the Participant
shall not be required to be employed by the Corporation in order to
receive the payment.
V. Establishment of Performance Goals
Performance Goals will be established annually by the President of Lone
Star Pipeline Company, after receiving requisite approval, with one to
five certain expressed, specific, objective and measurable goals in such
Plan defined as the Performance Goals for which bonus will be paid if
achieved. A minimum of 50% of the weighting will be applied to the
attainment of operating income goal achievement.
VI. Operating Income Goal Achievement
The Goal Achievement Factor pertaining to achievement of operating income
goals is standardized as follows:
If Operating Income Ratio is: Operating Income Goal
Achievement Factor will be:
less than 0.90 0% minus 0.5% for each 0.01
less than 0.90
between 0.90 and 1.00 20% plus 8% for each 0.01
greater than 0.90
above 1.00 100% plus 1% for each
$1 million
greater than budgeted
operating
income, as adjusted, up to a
maximum of 150%
Achievement Factors will be prorated between the amounts nearest
percentages specified above.
The following definitions apply:
Operating Income Ratio
----------------------
The ratio of the applicable business unit's actual operating income for
the Plan year to the budgeted operating income, which budgeted
<PAGE>
operating income is adjusted to take into account the HDD Adjustment when
applicable. The accrual of expense for this Plan will be included as
expense deducted for the determination of actual operating income.
HDD Adjustment
--------------
A factor used to adjust budgeted operating income such that the
Participant will not benefit from or be penalized by weather fluctuations
when measuring the attainment of budgeted operating income for the
particular unit or for the Company.
In summary:
Operating Income
Ratio = (Actual Operating Income)/(Budgeted
Operating Income + HDD Adjustment)
-
HDD Adjustment = 32.3 (Actual HDD - Normal HDD) x Budgeted
Residential/Commercial Incremental Sales
Margin after deduction of margin from base
customer charge for Company or Unit per
MMCF, applied only to Units affected by
Residential/Commercial Sales Volumes
VII. Administrative Provisions
A. Discretion
----------
Notwithstanding any calculation of bonus in accordance with the
foregoing provisions, the Chairman 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.
B. Termination
-----------
This Plan may be terminated at any time by the Company. Notification
of termination will be given to the Participants. A Plan termination
will not prevent payment of bonuses where goal achievement has been
completed in a calendar year for which Performance Goals had been
approved. If the Plan is terminated during a Plan year in which
Performance Goals have been established under the Plan, performance
will be prorated and bonuses paid proportionally. The Company's
decision relative to such payment shall be final and binding on all
parties. Such termination will be applicable to new bonus awards and
will not affect credited but unpaid bonus amounts from prior bonus
years.
C. Effective Date
--------------
This Plan is effective with the calendar year commencing January 1,
1997 and for the ensuing calendar years until
<PAGE>
terminated.
D. No Contract
-----------
Nothing in this Performance Incentive Plan shall be deemed by
implication, action or otherwise to constitute a contract of
employment or otherwise to impose any limitation on any right of the
Corporation nor any of its operating units to terminate a
Participant's employment at any time.
E. Under provisions of the ENSERCH Retirement and Death Benefit Program
of 1969, this bonus program qualifies as an "annual performance based
incentive plan" and is to be included in "final average pay" for
purposes of pension calculations.
VIII. Conflict of Interest
If at any time during the period the Participant is to receive or accrue
payments hereunder, the Participant 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 could be reasonably construed as being
adverse to the interest of the Company, the Participant and his
beneficiaries or heirs shall forfeit all rights to receive payments of
bonus awards provided under this Plan regardless of whether or not such
payments had been previously approved by the Company; except that before
any such termination under this section of the Participant's right to
receive payments, the Company shall notify the Participant in writing of
its opinion about the adversary situation, after which time the
Participant shall have a period of 15 days to correct the situation to
the satisfaction of the Company as to preclude benefit termination.
This provision shall apply to full-time and part-time employees of the
Company and to retired or terminated employees. For purposes of this
Plan, the Company shall determine within its sole discretion whether or
not the Participant's actions can be reasonably construed as adverse to
the Company's interests.
<PAGE>
ENSERCH CORPORATION
LONE STAR PIPELINE COMPANY
PROCESSING DIVISION
PERFORMANCE INCENTIVE PLAN
CALENDAR YEAR 1997
I. Purposes
The purposes of the Processing Division business segment Performance
Incentive Plan (the "Plan") are to:
A. Encourage and reward improved performances by the operating units of
the segment.
B. Provide reward incentives for the achievement of specific performance
goals or objectives that may be periodically established.
C. Provide an appropriate level of executive compensation commensurate
with that of similar businesses.
D. Provide an incentive for key management personnel to perform in a
manner that ultimately benefits the Corporation's shareholders and
the Company's customers.
II. Eligibility
Key managers of the segment as specifically designated shall be eligible
for participation in the Plan. Participation in the Plan shall occur upon
the recommendation of the President of Lone Star Pipeline Company and
approval of the Chairman and President of ENSERCH Corporation.
The existence of this Plan does not prevent the existence of other bonus
plans within operating units or subsidiaries of the Corporation. However,
Participants in this Plan may not participate in any other cash bonus or
incentive plans or programs offered by ENSERCH, or any of its
subsidiaries or affiliates unless such participation is approved by the
Chairman of the Corporation. The Compensation Committee of the Board of
Directors of ENSERCH Corporation may also award special bonuses on a
discretionary basis to reward meritorious performance not compensated by
this Plan.
III. Definitions and Bonus Factors
Subject to the conditions and limitations described herein, bonus award
payments may be made to the Participants under the Plan as hereinafter
set out. For purposes of the Plan, the following definitions apply:
A. Participant
-----------
Each of the key management personnel of the business segment
<PAGE>
recommended for participation by the President of Lone Star Pipeline
Company and approved by the Chairman and President of ENSERCH
Corporation is a Participant. Each Participant will be individually
notified of his or her participation together with the applicable
factors approved for the determination of each individual bonus
opportunity.
B. Base Salary
-----------
The annual Base Salary designated for the Participant is that
contained in the applicable payroll records and earned by the
Participant, exclusive of any payment under any bonus plan, deferred
compensation, salary deferral plan, expense reim bursement or fringe
benefit, for the annual period covered by the bonus award.
C. Target Bonus Factor
-------------------
A specified percentage of the Participant's Base Salary which would
be the bonus payable to a Participant upon 100% goal achievement. The
Target Bonus Factor applied to Base Salary is the Target Bonus.
D. Performance Goals
-----------------
Expressed, measurable goals established as the basis for bonus awards
for the annual bonus period, each having a corresponding weighting
factor expressed as a percentage. No more than five Performance Goals
will be used for any annual period. The weighting factors for all
Performance Goals for an annual period aggregate 100%.
E. Goal Achievement Factor
-----------------------
A percentage representing the level of actual achievement of each
Performance Goal, calculated at the end of each Plan year (calendar
year).
F. Performance Factor
------------------
The sum of the individual weightings multiplied by the corre sponding
Goal Achievement Factor which is applied to the Target Bonus to
derive the bonus.
G. Bonus Calculation
-----------------
In summary:
Target Bonus = Base Salary x Target Factor
Bonus = Target Bonus Factor x Performance
Factor
Performance Factor = Weighting//1// x Goal Achievement Factor//1//
+ Weighting//2// x Goal Achievement Factor//2//
+ Weighting//3// x Goal Achievement Factor//3//
+ Weighting//4// x Goal Achievement Factor//4//
<PAGE>
+ Weighting//5// x Goal Achievement Factor//5//
The minimum bonus shall be zero.
IV. Bonus Payments
A. Payment Schedule -- Any bonus awarded pursuant to this Plan shall be
paid in cash (unless any executive participating in the ENSERCH
Deferred Compensation Plan opts by written notice in advance of the
relevant plan year to defer its receipt into the Deferred
Compensation Plan) to participating executives, not later than April
1 of the year succeeding the calendar year for which performance is
measured.
B. To be eligible for receipt of each payment of the bonus, a
Participant must continue to be employed by the Company at the time
each payment is to be paid, unless that Participant's employment
terminates by reason of retirement, death or disability, or as
described in D below. Participants who terminate their employment
voluntarily or who are terminated by the Company, other than under
circumstances described below, will not be eligible to receive any
portion of any bonus award which has been granted for prior years but
unpaid as of the date of termination.
C. All bonus payments credited to a Participant under this Plan during
his or her active employment shall be paid under the terms of the
Plan to any Participant who retires at age 60 or above in accordance
with his/her employer's approved retirement plan, or to any
Participant who becomes disabled and receives disability benefits in
accordance with its long-term disability plan.
In the event of a Participant's retirement at or above age 60 or
death during a Plan year, assuming employee has worked for at least
one-half of the Plan Year, to the extent practicable, any bonus
awarded for achievement of goals to which the Participant contributed
shall be prorated and the appropriate portion paid. A decision by the
Chairman of ENSERCH Corporation as to what may be an appropriate
portion shall be final and binding on all parties.
In the event of a Participant's death, all bonus awards resulting
from a partial award for a prorated portion of the Plan Year or those
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
practicable, but no later than six months following the death of the
employee.
In the event a Participant's employment terminates for any reason
other than retirement, disability or death, or as described in D
below, prior to the time a bonus payment is paid, no bonus shall be
payable for either a portion of or for a full Plan year, or for any
unpaid bonus awards credited in
<PAGE>
prior years.
D. Merger -- In the event that ENSERCH Corporation shall, pursuant to
action by its Board, at any time merge into, consolidate with, or
sell or otherwise transfer all or substantially all of the assets of
the Corporation or a segment to another corporation in which ENSERCH
or the segment would be in a minority position, all bonus awards
which have been granted but remain unpaid and a bonus award based on
a 100% performance factor applicable to the base salary earned during
the Plan Year for the period prior to the effective date of the
merger shall be immediately paid to Participant and the Participant
shall not be required to be employed by the Corporation in order to
receive the payment.
V. Establishment of Performance Goals
Performance Goals will be established annually by the President of Lone
Star Pipeline Company, after receiving requisite approval, with one to
five certain expressed, specific, objective and measurable goals in such
Plan defined as the Performance Goals for which bonus will be paid if
achieved. A minimum of 50% of the weighting will be applied to the
attainment of operating income goal achievement.
VI. Operating Income Goal Achievement
The Goal Achievement Factor pertaining to achievement of operating income
goals is standardized as follows:
If Operating Income Ratio is: Operating Income Goal
Achievement Factor will be:
less than 0.90 0% minus 0.5% for each 0.01
less than 0.90
between 0.90 and 1.00 20% plus 8% for each 0.01
greater than 0.90
above 1.00 100% plus 1% for each
$1 million
greater than budgeted
operating
income, as adjusted, up to a
maximum of 150%
Achievement Factors will be prorated between the amounts nearest
percentages specified above.
The following definitions apply:
Operating Income Ratio
----------------------
The ratio of the applicable business unit's actual operating income for
the Plan year to the budgeted operating income, which budgeted operating
income is adjusted to take into account the Price
<PAGE>
Adjustment when applicable. The accrual of expense for this Plan will be
included as expense deducted for the determination of actual operating
income.
Price Adjustment
----------------
A factor used to adjust budgeted operating income such that the
Participant will not benefit from or be penalized by price fluctuations
when measuring the attainment of budgeted operating income for the
particular unit or for the Company .
In summary:
Operating Income
Ratio = (Actual Operating Income)/(Budgeted
Operating Income + Price Adjustment)
-
For those units measured by operating income performance which is
affected by processing plant activities, the Operating Income Ratio shall
be based upon both budgeted and actual operating income before the
expense of net profit interest payments to Lone Star Pipeline Company.
For those units, the following Price Adjustment will apply.
Price Adjustment = (Actual NGL Price - Budgeted NGL Price) x
Budgeted NGL Sales Volume (+/-) (Actual Fuel
and Shrinkage Price -Budgeted Fuel and
Shrinkage Price) x Budgeted Fuel & Shrinkage
Volume Note: (+/-) Depending on Fav./Unfav.
VII. Administrative Provisions
A. Discretion
----------
Notwithstanding any calculation of bonus in accordance with the
foregoing provisions, the Chairman 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.
B. Termination
-----------
This Plan may be terminated at any time by the Company. Notification
of termination will be given to the then Participants. A Plan
termination will not prevent payment of bonuses where goal
achievement has been completed in a calendar year for which
Performance Goals had been approved. If the Plan is terminated during
a Plan year in which Performance Goals have been established under
the Plan, performance will be prorated and bonuses paid
proportionally. The Company's decision relative to such payment shall
be final and binding on all parties. Such termination will be
applicable to new bonus awards and will not affect credited but
unpaid bonus amounts from prior bonus years.
C. Effective Date
--------------
<PAGE>
This Plan is effective with the calendar year commencing January 1,
1997 and for the ensuing calendar years until terminated.
D. No Contract
-----------
Nothing in this Performance Incentive Plan shall be deemed by
implication, action or otherwise to constitute a contract of
employment or otherwise to impose any limitation on any right of the
Corporation nor any of its operating units to terminate a
Participant's employment at any time.
E. Under provisions of the ENSERCH Retirement and Death Benefit Program
of 1969, this bonus program qualifies as an "annual performance based
incentive plan" and is to be included in "final average pay" for
purposes of pension calculations.
VIII. Conflict of Interest
If at any time during the period the Participant is to receive or accrue
payments hereunder, the Participant 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 could be reasonably construed as being
adverse to the interest of the Company, the Participant and his
beneficiaries or heirs shall forfeit all rights to receive payments of
bonus awards provided under this Plan regardless of whether or not such
payments had been previously approved by the Company; except that before
any such termination under this section of the Participant's right to
receive payments, the Company shall notify the Participant in writing of
its opinion about the adversary situation, after which time the
Participant shall have a period of 15 days to correct the situation to
the satisfaction of the Company as to preclude benefit termination.
This provision shall apply to full-time and part-time employees of the
Company and to retired or terminated employees. For purposes of this
Plan, the Company shall determine within its sole discretion whether or
not the Participant's actions can be reasonably construed as adverse to
the Company's interests.
<PAGE>
ENSERCH CORPORATION
POWER GROUP
PERFORMANCE INCENTIVE PLAN
CALENDAR YEAR 1997
I. Purposes
The purposes of the Power Group's Performance Incentive Plan (the "Plan")
are to:
A. Encourage and reward improved performances by the operating units of
the segment.
B. Provide reward incentives for the achievement of specific performance
goals or objectives that may be periodically established.
C. Provide an appropriate level of executive compensation commensurate
with that of similar businesses.
D. Provide an incentive for key management personnel to perform in a
manner that ultimately benefits the Corporation's shareholders and
the Company's customers.
II. Eligibility
Key managers of the segment as specifically designated shall be eligible
for participation in the Plan. Participation in the Plan shall occur upon
the recommendation of the President of the Power Group and approval of
the Chairman and President of ENSERCH Corporation.
The existence of this Plan does not prevent the existence of other bonus
plans within operating units or subsidiaries of the Corporation. However,
Participants in this Plan may not participate in any other cash bonus or
incentive plans or programs offered by ENSERCH, or any of its
subsidiaries or affiliates unless such participation is approved by the
Chairman of the Corporation, other than the Enserch Development
Corporation's Project Development Bonus Plan. The Compensation Committee
of the Board of Directors of ENSERCH Corporation may also award special
bonuses on a discretionary basis to reward meritorious performance not
compensated by this Plan.
III. Definitions and Bonus Factors
Subject to the conditions and limitations described herein, bonus award
payments may be made to the Participants under the Plan as hereinafter
set out. For purposes of the Plan, the following definitions apply:
A. Participant
-----------
<PAGE>
Each of the key management personnel of the business segment
recommended for participation by the President of the Power Group and
approved by the Chairman and President of ENSERCH Corporation is a
Participant. Each Participant will be individually notified of his or
her participation together with the applicable factors approved for
the determination of each individual bonus opportunity.
B. Base Salary
-----------
The annual Base Salary designated for the Participant is that
contained in the applicable payroll records and earned by the
Participant, exclusive of any payment under any bonus plan, deferred
compensation, salary deferral plan, expense reim bursement or fringe
benefit, for the annual period covered by the bonus award.
C. Target Bonus Factor
-------------------
A specified percentage of the Participant's Base Salary which would
be the bonus payable to a Participant upon 100% goal achievement. The
Target Bonus Factor applied to Base Salary is the Target Bonus.
D. Performance Goals
-----------------
Expressed, measurable goals established as the basis for bonus awards
for the annual bonus period, each having a corresponding weighting
factor expressed as a percentage. No more than five Performance Goals
will be used for any annual period. The weighting factors for all
Performance Goals for an annual period aggregate 100%.
E. Goal Achievement Factor
-----------------------
A percentage representing the level of actual achievement of each
Performance Goal, calculated at the end of each Plan year (calendar
year).
F. Performance Factor
------------------
The sum of the individual weightings multiplied by the corre sponding
Goal Achievement Factor which is applied to the Target Bonus to
derive the bonus.
G. Bonus Calculation
-----------------
In summary:
Target Bonus = Base Salary x Target Factor
Bonus = Target Bonus Factor x Performance
Factor
Performance Factor = Weighting//1// x Goal Achievement Factor//1//
+ Weighting//2// x Goal Achievement Factor//2//
+ Weighting//3// x Goal Achievement Factor//3//
<PAGE>
+ Weighting//4// x Goal Achievement Factor//4//
+ Weighting//5// x Goal Achievement Factor//5//
The minimum bonus shall be zero.
H. EDC Project Development Bonus Plan Offset
-----------------------------------------
Participants may be awarded bonuses under the EDC Project Development
Bonus Plan. Any cash received under the EDC Project Development Bonus
Plan during the annual period covered by this Plan will offset any
amounts due under this Plan and constitute the equivalent of a
payment under this Plan for the annual period.
IV. Bonus Payments
A. Payment Schedule -- Any bonus awarded pursuant to this Plan shall be
paid in cash (unless any executive participating in the ENSERCH
Deferred Compensation Plan opts by written notice in advance of the
relevant plan year to defer its receipt into the Deferred
Compensation Plan) to participating executives, not later than April
1 of the year succeeding the calendar year for which performance is
measured.
B. To be eligible for receipt of each payment of the bonus, a
Participant must continue to be employed by the Company at the time
each payment is to be paid, unless that Participant's employment
terminates by reason of retirement, death or disability, or as
described in D below. Participants who terminate their employment
voluntarily or who are terminated by the Company, other than under
circumstances described below, will not be eligible to receive any
portion of any bonus award which has been granted for prior years but
unpaid as of the date of termination.
C. All bonus payments credited to a Participant under this Plan during
his or her active employment shall be paid under the terms of the
Plan to any Participant who retires at age 60 or above in accordance
with his/her employer's approved retirement plan, or to any
Participant who becomes disabled and receives disability benefits in
accordance with its long-term disability plan.
In the event of a Participant's retirement at or above age 60 or
death during a Plan year, assuming employee has worked for at least
one-half of the Plan Year, to the extent practicable, any bonus
awarded for achievement of goals to which the Participant contributed
shall be prorated and the appropriate portion paid. A decision by the
Chairman of ENSERCH Corporation as to what may be an appropriate
portion shall be final and binding on all parties.
In the event of a Participant's death, all bonus awards resulting
from a partial award for a prorated portion of the Plan Year or those
which have been credited to such Participant prior to the date of
death but remain unpaid and which would
<PAGE>
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 practicable, but no later than six
months following the death of the employee.
In the event a Participant's employment terminates for any reason
other than retirement, disability or death, or as described in D
below, prior to the time a bonus payment is paid, no bonus shall be
payable for either a portion of or for a full Plan year, or for any
unpaid bonus awards credited in prior years.
D. Merger -- In the event that ENSERCH Corporation shall, pursuant to
action by its Board, at any time merge into, consolidate with, or
sell or otherwise transfer all or substantially all of the assets of
the Corporation or a segment to another corporation in which ENSERCH
or the segment would be in a minority position, all bonus awards
which have been granted but remain unpaid and a bonus award based on
a 100% performance factor applicable to the base salary earned during
the Plan Year for the period prior to the effective date of the
merger shall be immediately paid to Participant and the Participant
shall not be required to be employed by the Corporation in order to
receive the payment.
V. Establishment of Performance Goals
Performance Goals will be established annually by the President of
Enserch Power Group after receiving requisite approval, with one to five
certain expressed, specific, objective and measurable goals in such Plan
defined as the Performance Goals for which bonus will be paid if
achieved. A minimum of 50% of the weighting will be applied to the
attainment of operating income goal achievement.
VI. Operating Income Goal Achievement
The Goal Achievement Factor pertaining to achievement of operating income
goals is standardized as follows:
If Operating Income Ratio is: Operating Income Goal
Achievement Factor will be:
less than 0.90 0% minus 0.5% for each 0.01
less than 0.90
between 0.90 and 1.00 20% plus 8% for each 0.01
greater than 0.90
above 1.00 100% plus 1% for each
$1 million
greater than budgeted
operating
income, as adjusted, up to a
maximum of 150%
<PAGE>
Achievement Factors will be prorated between the amounts nearest
percentages specified above.
The following definitions apply:
Operating Income Ratio
----------------------
The ratio of the applicable business unit's actual operating income for
the Plan year to the budgeted operating income. The accrual of expense
for this Plan will be included as expense deducted for the determination
of actual operating income.
VII. Administrative Provisions
A. Discretion
----------
Notwithstanding any calculation of bonus in accordance with the
foregoing provisions, the Chairman 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.
B. Termination
-----------
This Plan may be terminated at any time by the Company. Notification
of termination will be given to the Participants. A Plan termination
will not prevent payment of bonuses where goal achievement has been
completed in a calendar year for which Performance Goals had been
approved. If the Plan is terminated during a Plan year in which
Performance Goals have been established under the Plan, performance
will be prorated and bonuses paid proportionally. The Company's
decision relative to such payment shall be final and binding on all
parties. Such termination will be applicable to new bonus awards and
will not affect credited but unpaid bonus amounts from prior bonus
years.
C. Effective Date
--------------
This Plan is effective with the calendar year commencing January 1,
1997 and for the ensuing calendar years until terminated.
D. No Contract
-----------
Nothing in this Performance Incentive Plan shall be deemed by
implication, action or otherwise to constitute a contract of
employment or otherwise to impose any limitation on any right of the
Corporation nor any of its operating units to terminate a
Participant's employment at any time.
E. Under provisions of the ENSERCH Retirement and Death Benefit Program
of 1969, this bonus program qualifies as an "annual performance based
incentive plan" and is to be included in "final average pay" for
purposes of pension calculations.
<PAGE>
VIII. Conflict of Interest
If at any time during the period the Participant is to receive or accrue
payments hereunder, the Participant 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 could be reasonably construed as being
adverse to the interest of the Company, the Participant and his
beneficiaries or heirs shall forfeit all rights to receive payments of
bonus awards provided under this Plan regardless of whether or not such
payments had been previously approved by the Company; except that before
any such termination under this section of the Participant's right to
receive payments, the Company shall notify the Participant in writing of
its opinion about the adversary situation, after which time the
Participant shall have a period of 15 days to correct the situation to
the satisfaction of the Company as to preclude benefit termination.
This provision shall apply to full-time and part-time employees of the
Company and to retired or terminated employees. For purposes of this
Plan, the Company shall determine within its sole discretion whether or
not the Participant's actions can be reasonably construed as adverse to
the Company's interests.
<PAGE>
EXHIBIT 10.8
ENSERCH CORPORATION
DEFERRED COMPENSATION PLAN
THIS PLAN, made and executed at Dallas, Texas by ENSERCH Corporation,
a Texas corporation (the "Company"), is being established primarily for the
purpose of providing deferred compensation for a select group of management or
highly compensated employees of the Company and its participating affiliates.
ARTICLE I.
DEFINITIONS
Section 1.1 Definitions. Unless the context clearly indicates otherwise,
when used in this Plan:
(a) "Adjustment Date" means the last day of each calendar quarter and
such other dates as the Administrative Committee in its discretion may
prescribe.
(b) "Affiliated Company" means any corporation or organization which
together with the Company would be treated as a single employer under Section
414 of the Code.
(c) "Administrative Committee" means the committee designated pursuant to
Section 2.1 to administer this Plan.
(d) "Board" means the Board of Directors of ENSERCH Corporation.
(e) "Change of Control" means a change in control of a nature that
would be required to be reported in response to Item 1(a) of the Securities and
Exchange Commission Form 8-K, as in effect on the date hereof, pursuant to
Section 13 or 15(d) of the Securities Exchange Act of 1934, as amended
("Exchange Act"), or would have been required to be so reported but for the fact
that such event had been "previously reported" as that term is defined Rule 12b-
2 of Regulation 12B under the Exchange Act; provided that, without limitation,
such a change in control shall be deemed to have occurred if (i) any Person is
or becomes the beneficial owner (as defined in Rule 13d-3 under the Exchange
Act), directly or indirectly, of securities of the Company representing 20% or
more of the combined voting power of the Company's then outstanding securities
ordinarily (apart from rights accruing under special circumstances) having the
right to vote at elections of directors ("Voting Securities"), or (ii)
individuals who constitute the Board on the date hereof (the "Incumbent Board")
cease for any reason to constitute at least a majority thereof, provided that
any person becoming a director subsequent to the date hereof whose election, or
nomination for election by the Company's shareholders, was approved by a vote of
at least three-quarters of the directors comprising the Incumbent Board (either
by a specific vote or by approval of the proxy statement of the Company in which
such person is named as a nominee for director, without objection to such
nomination) shall be, for purposes of this clause (ii), considered as though
such person were a member of the Incumbent Board, or (iii) a recapitalization of
the Company occurs which results in either a decrease
<PAGE>
by 33% or more in the aggregate percentage ownership of Voting Securities held
by Independent Shareholders (on a primary basis or on a fully diluted basis
after giving effect to the exercise of stock options and warrants) or an
increase in the aggregate percentage ownership of Voting Securities held by non-
Independent Shareholders (on a primary basis or on a fully diluted basis after
giving effect to the exercise of stock options and warrants) to greater than
50%. For purposes of this subsection (e), the term "Person" shall mean and
include any individual, corporation, partnership, group, association or other
"person", as such term is used in Section 14(d) of the Exchange Act, other than
the Company, a subsidiary of the Company or any employee benefit plan(s)
sponsored or maintained by the Company or any subsidiary thereof, and the term
"Independent Shareholder" shall mean any shareholder of the Company except any
employee(s) or director(s) of the Company or any employee benefit plan(s)
sponsored or maintained by the Company or any subsidiary thereof.
(f) "Code" means the Internal Revenue Code of 1986, as amended from time to
time.
(g) "Company" means ENSERCH Corporation and its successors.
(h) "Compensation Committee" means the Compensation Committee of the Board.
(i) "Deferral Account" means the account established and maintained on
the books of an Employer to record a Participant's interest under this Plan
attributable to amounts credited to such Participant pursuant to Plan Section
3.1 and Section 3.2.
(j) "Disability" means total and permanent disability of the
Participant as determined under the provisions of his or her Employer's group
long-term disability plan.
(k) "Election Period" means such period immediately prior to the
beginning of a Plan Year (or, with respect to the Plan's first Plan Year, the
period immediately prior to October 1, 1994) specified by the Administrative
Committee for the making of deferral elections for such Plan Year pursuant to
Plan Sections 3.1 and 3.2.
(l) "Eligible Employee" means any employee of an Employer who is one
of a select group of management or highly compensated employees and (i) whose
annual base salary equals or exceeds $125,000 or (ii) whose annual base salary
equals or exceeds $100,000 and whose position is of significant impact on the
operations of his or her Employer as determined by the Administrative Committee
in its absolute discretion.
(m) "Employer" includes the Company and any Affiliated Company which adopts
this Plan.
(n) "Participant" means an Eligible Employee or former Eligible
Employee for whom a Deferral Account is being maintained under this Plan.
(o) "Plan" means this ENSERCH Corporation Deferred Compensation Plan
as in effect from time to time on and after October 1, 1994.
(p) "Plan Year" means the twelve-month period commencing January 1 and
ending the following December 31.
<PAGE>
(q) "Retirement Age" means the age used as the retirement age for the
Participant under Section 216(l) of the Social Security Act.
ARTICLE II.
PLAN ADMINISTRATION
Section 2.1 Administrative Committee. This Plan shall be administered by an
Administrative Committee composed of at least three individuals appointed by the
Compensation Committee. Each member of the Administrative Committee so appointed
shall serve in such office until his or her death, resignation or removal by the
Compensation Committee. The Compensation Committee may remove any member of the
Administrative Committee at any time by giving written notice thereof to the
members of the Administrative Committee. Vacancies shall likewise be filled from
time to time by the Compensation Committee. The Administrative Committee shall
have discretionary and final authority to interpret and implement the provisions
of the Plan, including without limitation, authority to determine eligibility
for benefits under the Plan. The Administrative Committee shall act by a
majority of its members at the time in office and such action may be taken
either by a vote at a meeting or in writing without a meeting. The
Administrative Committee may adopt such rules and procedures for the
administration of the Plan as are consistent with the terms hereof and shall
keep adequate records of its proceedings and acts. Every interpretation, choice,
determination or other exercise by the Administrative Committee of any power or
discretion given either expressly or by implication to it shall be conclusive
and binding upon all parties having or claiming to have an interest under the
Plan or otherwise directly or indirectly affected by such action, without
restriction, however, on the right of the Administrative Committee to reconsider
and redetermine such action.
ARTICLE III.
DEFERRED COMPENSATION PROVISIONS
Section 3.1 Compensation Deferral Election. During the Election
Period prior to the beginning of each Plan Year, an Eligible Employee may elect
to have the payment of an amount of up to 50% of the annual base salary
otherwise payable by an Employer to such Eligible Employee for such Plan Year
deferred for payment in the manner and at the time specified in Article IV;
provided, however, that the minimum amount that may be deferred by an Eligible
Employee for a Plan Year pursuant to this Section 3.1 is $5,000 (or such other
amount as shall be determined by the Administrative Committee in its
discretion). The amount of annual base salary a Participant elects to defer
pursuant to this Section 3.1 shall be deducted from the Participant's pay in
substantially equal amounts over all pay periods during the Plan Year. All
elections made pursuant to this Plan Section 3.1 shall be made in writing on a
form prescribed by and filed with the Administrative Committee and shall be
irrevocable; provided, however, that effective as of the first day of any
calendar quarter during a Plan Year, an Eligible Employee may revoke his or her
deferral election and thereby suspend further salary deferrals for the remainder
of such Plan Year by providing written notice thereof to the Administrative
Committee no later than 15 days prior to the effective date of such suspension.
Any
<PAGE>
Eligible Employee who so suspends his or her salary deferrals pursuant to this
Section shall not be permitted to elect future salary deferrals pursuant to this
Section to be effective earlier than the first day of the next Plan Year.
Section 3.2 Bonus Deferral Election. During the Election Period
prior to the beginning of each Plan Year (other than the first Plan Year), an
Eligible Employee may elect to have the payment of an amount up to 100% of the
cash portion of any future bonus otherwise payable by an Employer with respect
to services to be performed by such Eligible Employee during such Plan Year
deferred for payment in the manner and at the time specified in Article IV;
provided, however, that the minimum amount that may be deferred by an Eligible
Employee pursuant to this Section 3.2 is $5,000 (or such other amount as shall
be determined by the Administrative Committee in its discretion); provided,
further, that there shall be no minimum deferral amount pursuant to this Section
3.2 with respect to an Eligible Employee who elects to defer in the same Plan
Year at least $5,000 (or such other amount as shall be determined by the
Administrative Committee in its discretion) pursuant to Section 3.1. All
elections made pursuant to this Plan Section 3.2 shall be made in writing on a
form prescribed by and filed with the Administrative Committee and shall be
irrevocable.
Section 3.3 Participant Deferral Accounts. An Employer shall
establish and maintain on its books a Deferral Account for each Eligible
Employee employed by such Employer who elects to participate in this Plan. Each
such Deferral Account shall be designated by the name of the Participant for
whom it is established. The amount of any base salary and/or cash bonus from an
Employer for a Plan Year that is deferred for a Participant pursuant to Section
3.1 and/or Section 3.2 shall be credited by such Employer to such Participant's
Deferral Account as of the date such amount would otherwise have been paid to
such Participant by such Employer. An Employer shall continue maintaining a
Deferral Account as long as a positive balance remains credited to such Deferral
Account.
Section 3.4 Deferral Account Adjustments. As of each Adjustment
Date, the amount credited to a Deferral Account shall be adjusted to reflect
such gain, loss and/or expenses incurred based on the experience of the
investments selected by the Participant prior to the date prescribed by the
Administrative Committee for the investment of his or her Deferral Account and
taking into account additional deferrals credited to and distributions made from
such Deferral Account since the last Adjustment Date. The Administrative
Committee shall have sole and absolute discretion with respect to the number and
type of investment choices made available for selection by Participants pursuant
to this Section, the timing of Participant elections and the method by which
adjustments are made. The designation of investment choices by the
Administrative Committee shall be for the sole purpose of adjusting Deferral
Accounts pursuant to this Section and this provision shall not obligate the
Employers to invest or set aside any assets for the payment of benefits
hereunder; provided, however, that an Employer may invest a portion of its
general assets in investments, including investments which are the same as or
similar to the investment choices designated by the Administrative Committee and
selected by Participants, but any such investments shall remain part of the
general assets of such Employer and shall not be deemed or construed to grant a
property interest of any kind to any Participant, designated beneficiary or
estate. The Administrative Committee shall notify the Participants of the
<PAGE>
investment choices available and the procedures for making and changing
investment elections.
Section 3.5 Vesting. Subject to Section 4.6, all amounts credited to
a Participant's Deferral Account shall be fully vested and nonforfeitable at all
times.
ARTICLE IV.
BENEFITS
Section 4.1 Source of Benefit Payments. Benefit payments to be made
with respect to a Participant's Deferral Account maintained pursuant to the Plan
will be paid in cash and will be the obligation solely of the Employer
maintaining such Deferral Account; provided, however, that whenever a payment
hereunder is to be made by an Employer, the Company may, in its discretion,
satisfy such payment obligation on behalf of such Employer, and the Company will
be obligated to satisfy any such payment obligation in the event the Employer
otherwise liable therefor fails to pay such amount when due for any reason.
Section 4.2 Amount of Benefit Payments. The amount payable from a
Participant's Deferral Account shall be determined based upon the amount
credited to such Deferral Account as of the Adjustment Date last preceding the
date of payment plus any deferrals credited to and less any distributions made
from such Deferral Account since such Adjustment Date. The amount of each
payment made with respect to a Deferral Account and any forfeiture amounts
applied pursuant to Section 4.6 shall be deducted from the balance credited to
such Deferral Account at the time of payment or forfeiture.
Section 4.3 Early Termination. Upon a Participant's termination of
employment with an Employer or Affiliated Company prior to the date which is ten
years prior to such Participant's Retirement Age for any reason other than
death, Disability or transfer to employment with another Employer or Affiliated
Company, the amount payable from such Participant's Deferral Account, as
determined in accordance with Section 4.2, shall be paid by the Employer to such
Participant in a single lump sum as soon as practicable following such
termination of employment.
Section 4.4 Death. Upon a Participant's termination of employment by
reason of death, the amount payable from such Participant's Deferral Account, as
determined in accordance with Section 4.2, shall be paid by the Employer to the
beneficiary or beneficiaries designated by such Participant pursuant to Section
4.7 in one of the following forms as elected by the Participant during the
Participant's initial Election Period:
(a) a single lump sum to be paid as soon as practicable following the
Participant's death; or
(b) if the amount payable from a Deferral Account is $50,000 or more
as of the date of the Participant's death, annual installments over the
period certain selected by the Participant not to exceed 15 years
commencing in payment as soon as practicable following the Participant's
death with each annual installment equal
<PAGE>
to the Deferral Account balance multiplied by a fraction the numerator of
which is one and the denominator of which is the number of payments
remaining;
provided, however, that if a beneficiary of a deceased Participant who is
entitled to installment payments hereunder encounters an unforeseeable emergency
(as determined in accordance with Section 4.8 hereof), the Administrative
Committee, in its absolute discretion, may direct the Employer to accelerate
such portion of the installment payments as the Administrative Committee shall
determine to be necessary to alleviate the severe financial hardship of the
beneficiary caused by such unforeseeable emergency.
Section 4.5 Retirement or Disability. Upon a Participant's
termination of employment with an Employer or Affiliated Company (i) on or after
the date which is ten years prior to such Participant's Retirement Age for any
reason other than death or transfer to employment with another Employer or
Affiliated Company or (ii) on account of his or her Disability, the amount
payable from such Participant's Deferral Account, as determined in accordance
with Section 4.2, shall be paid by the Employer to such Participant (or, in the
event of his or her subsequent death, to the beneficiary or beneficiaries
designated by such Participant pursuant to Plan Section 4.7) in one of the
following forms as elected by the Participant during the Participant's initial
Election Period:
(a) a single lump sum to be paid as soon as practicable following the
Participant's termination of employment or, in the case of termination of
employment on account of Disability or prior to Retirement Age and the
Participant so elects, the Participant's Retirement Age; or
(b) if the amount payable from a Deferral Account is $50,000 or more
as of the date of the Participant's termination of employment, annual
installments over the period certain selected by the Participant not to
exceed 15 years commencing in payment as soon as practicable following the
Participant's termination of employment or, in the case of termination of
employment on account of Disability or prior to Retirement Age and the
Participant so elects, the Participant's Retirement Age, with each annual
installment equal to the Deferral Account balance multiplied by a fraction
the numerator of which is one and the denominator of which is the number of
payments remaining;
provided, however, that if a Participant who is entitled to a delayed lump sum
or installment payments hereunder encounters an unforeseeable emergency (as
determined in accordance with Section 4.8 hereof), the Administrative Committee,
in its absolute discretion, may direct the Employer to accelerate such portion
of the lump sum or installment payments as the Administrative Committee shall
determine to be necessary to alleviate the severe financial hardship of the
Participant caused by such unforeseeable emergency.
Section 4.6 Option to Request Immediate Payout. In lieu of any
other benefits or payments to be made pursuant to this Plan, each Participant
(or beneficiary in the case of a deceased Participant) shall have the right at
any time to elect a lump sum payment in an amount equal to:
<PAGE>
(a) the amount payable from the Participant's Deferral Account,
determined in accordance with Section 4.2, minus
(b) a forfeiture amount equal to 20% of (a) above, provided, however,
that if the election is made on or within two years following the date a
Change of Control occurs, such forfeiture amount shall be determined
substituting 10% for 20%.
A Participant's election for an immediate payout pursuant to this Section must
be in the form of a written notice provided to the Administrative Committee.
The Administrative Committee shall notify any Employer maintaining a Deferral
Account with respect to such Participant of the election and the amount so
determined shall be paid to the Participant (or, in the case of a deceased
Participant, to the beneficiary or beneficiaries designated by such Participant
pursuant to Plan Section 4.7) by the Employers no later than fifteen days
following receipt of notice by the Administrative Committee. Any amount
remaining credited to the Participant's Deferral Account shall be forfeited at
the time payment is made.
Section 4.7 Designation of Beneficiaries. Any amount payable under
this Plan on account of the death of a Participant shall be paid when otherwise
due hereunder to the beneficiary or beneficiaries designated by such
Participant. Such designation of beneficiary or beneficiaries shall be made in
writing on a form prescribed by and filed with the Administrative Committee and
shall remain in effect until changed by such Participant by the filing of a new
beneficiary designation form with the Administrative Committee. If a
Participant fails to so designate a beneficiary, or in the event all of the
designated beneficiaries are individuals who either predecease the Participant
or survive the Participant but die prior to receiving the full amount payable
under this Plan, any remaining amount payable under this Plan shall be paid to
such Participant's estate when otherwise due hereunder.
Section 4.8 Hardship Distributions. If a Participant encounters an
unforeseeable emergency, the Administrative Committee in its absolute discretion
may direct the Employer maintaining such Deferral Account to pay to such
Participant and deduct from such Deferral Account such portion of the amount
then credited to such Deferral Account (including, if appropriate, the entire
amount determined in accordance with Section 4.2) as the Administrative
Committee shall determine to be necessary to alleviate the severe financial
hardship of such Participant caused by such unforeseeable emergency. For this
purpose, an "unforeseeable emergency" shall be a severe financial hardship to
the Participant resulting from a sudden and unexpected illness or accident of
the Participant or of a dependent of the Participant, loss of the Participant's
property due to casualty, or other similar extraordinary and unforeseeable
circumstances arising as a result of events beyond the control of the
Participant. The circumstances that will constitute an unforeseeable emergency
will depend upon the facts of each case, but in any case, payment may not be
made to the extent that such hardship is or may be relieved (i) through
reimbursement or compensation by insurance or otherwise, (ii) by liquidation of
the Participant's assets, to the extent liquidation of such assets would not
itself cause severe financial hardship, or (iii) by cessation of deferrals under
the Plan. No distribution shall be made to a Participant pursuant to this
Section 4.8 unless such Participant requests such a distribution in writing and
provides to the Administrative Committee
<PAGE>
such information and documentation with respect to his or her unforeseeable
emergency as may be requested by the Administrative Committee.
Section 4.9 Change of Distribution Form. Each Participant may elect
at any time after a Participant's initial Election Period, but no more often
than once during each calendar year, to change the distribution forms elected
with respect to all amounts credited to such Participant's Deferral Account;
provided, however, that such election shall not be effective unless made by the
end of the second calendar year preceding the calendar year in which
distributions are to be made or commence to such Participant pursuant to
Sections 4.4 or 4.5 hereof.
ARTICLE V.
AMENDMENT AND TERMINATION
Section 5.1 Amendment and Termination. The Compensation Committee
shall have the right and power at any time and from time to time to amend this
Plan, in whole or in part, on behalf of all Employers, and the Board shall have
the right and power at any time to terminate this Plan or any Employer's
participation hereunder. Any amendment to or termination of this Plan shall be
made by or pursuant to a resolution duly adopted by the Compensation Committee
or the Board, as the case may be, and shall be evidenced by such resolution or
by a written instrument executed by such person as the Compensation Committee or
the Board, as the case may be, shall authorize for such purpose. Any provision
of this Plan to the contrary notwithstanding, no amendment to or termination of
this Plan shall reduce the amounts actually credited to a Participant's Deferral
Accounts as of the date of such amendment or termination, or further defer the
dates for the payment of such amounts, without the consent of the affected
Participant. Upon termination of this Plan, the Board, in its sole discretion,
may require the Administrative Committee to calculate final Deferral Account
balances as of such Adjustment Date as it may prescribe, and direct each
Employer to make immediate lump sum payments to each Participant (or beneficiary
in the case of a deceased Participant) with respect to which such Employer
maintains a Deferral Account in the amount determined to be credited to such
Participant's Deferral Account as of such final Adjustment Date.
Section 5.2 Change of Control. The preceding provisions of this
Article to the contrary notwithstanding, no action taken on or within two years
following a Change of Control to amend or terminate this Plan shall be effective
unless written consent thereto is obtained from a majority of the Participants.
ARTICLE VI.
MISCELLANEOUS PROVISIONS
Section 6.1 Nature of Plan and Rights. This Plan is unfunded and
maintained by the Employers primarily for the purpose of providing deferred
compensation for a select group of management or highly compensated employees of
the Employers. The Deferral Accounts established and maintained under this Plan
by an Employer are for its accounting purposes only and shall not be deemed or
construed to create a trust fund or
<PAGE>
security interest of any kind for or to grant a property interest of any kind to
any Participant, designated beneficiary or estate. The amounts credited by an
Employer to Deferral Accounts maintained under this Plan are and for all
purposes shall continue to be a part of the general assets and liabilities of
such Employer, and to the extent that a Participant, designated beneficiary or
estate acquires a right to receive a payment from such Employer pursuant to this
Plan, such right shall be no greater than the right of any unsecured general
creditor of such Employer.
Section 6.2 Spendthrift Provision. No Deferral Account balance or
other right or interest under this Plan of a Participant, designated beneficiary
or estate may be assigned, transferred or alienated, in whole or in part, either
directly or by operation of law, and no such balance, right or interest shall be
liable for or subject to any debt, obligation or liability of such Participant,
designated beneficiary or estate.
Section 6.3 Employment Noncontractual. The establishment of this
Plan shall not enlarge or otherwise affect the terms of any Participant's
employment with an Employer, and such Employer may terminate the employment of
such Participant as freely and with the same effect as if this Plan had not been
established.
Section 6.4 Adoption by Other Employers. With the consent of the
Compensation Committee, this Plan may be adopted by any Affiliated Company, such
adoption to be effective as of the date specified by such Affiliated Company at
the time of adoption.
Section 6.5 Claims Procedure. If any person (hereinafter called the
"Claimant") feels that he or she is being denied a benefit to which he or she is
entitled under this Plan, such Claimant may file a written claim for said
benefit with the Administrative Committee. Within sixty days following the
receipt of such claim the Administrative Committee shall determine and notify
the Claimant as to whether he or she is entitled to such benefit. Such
notification shall be in writing and, if denying the claim for benefit, shall
set forth the specific reason or reasons for the denial, make specific reference
to the pertinent provisions of this Plan, and advise the Claimant that he or she
may, within sixty days following the receipt of such notice, in writing request
to appear before the Administrative Committee or its designated representative
for a hearing to review such denial. Any such hearing shall be scheduled at the
mutual convenience of the Administrative Committee or its designated
representative and the Claimant, and at any such hearing the Claimant and/or his
or her duly authorized representative may examine any relevant documents and
present evidence and arguments to support the granting of the benefit being
claimed. The final decision of the Administrative Committee with respect to the
claim being reviewed shall be made within sixty days following the hearing
thereon, and Administrative Committee shall in writing notify the Claimant of
said final decision, again specifying the reasons therefor and the pertinent
provisions of this Plan upon which said final decision is based. The final
decision of the Administrative Committee shall be conclusive and binding upon
all parties having or claiming to have an interest in the matter being reviewed.
Section 6.6 Reimbursement of Expenses. In the event that a dispute
arises between a Participant or beneficiary and the Participant's Employer or
the Company with respect to the payment of benefits hereunder and the
Participant or beneficiary is successful in pursuing a benefit to which he
<PAGE>
or she is entitled under the terms of the Plan against the Participant's
Employer, the Company or any other party in the course of litigation or
otherwise and incurs attorneys' fees, expenses and costs in connection
therewith, the Participant's Employer and the Company shall reimburse the
Participant or beneficiary for the full amount of any such attorneys' fees,
expenses and costs.
Section 6.7 Withholding Tax. There shall be deducted from all
amounts paid under this Plan any taxes required to be withheld by any Federal,
state, local or other government. The Participant and/or his or her beneficiary
(including his or her estate) shall bear all taxes on amounts paid under this
Plan to the extent that no taxes are withheld, irrespective of whether
withholding is required.
Section 6.8 Applicable Law. This Plan shall be governed and
construed in accordance with the internal laws (and not the principles relating
to conflicts of laws) of the State of Texas, except where superseded by federal
law.
IN WITNESS WHEREOF, this Plan has been executed on this 30th day of
September, 1994 to be effective as of October 1, 1994.
ENSERCH CORPORATION
By /s/ D. W. Biegler
Title: Chairman, President
and Chief Executive
Officer
<PAGE>
AMENDMENT NO. 1 TO THE
ENSERCH CORPORATION
DEFERRED COMPENSATION PLAN
Pursuant to the provisions of Section 5.1 thereof, the ENSERCH Corporation
Deferred Compensation Plan (the "Plan") is hereby amended in the following
respect only:
Article III of the Plan is hereby amended effective as of January 1, 1995
by adding the following new Section to the end thereof:
Section 3.6 Deferred Compensation Awards. Effective as of January 1,
1995, the President of ENSERCH Corporation may enter into "Deferred
Compensation Award Agreements" with such Eligible Employees as may from
time to time be approved by the Compensation Committee. Such Agreements
shall provide for the grant of a deferred compensation award, either fixed
as to amount or determinable pursuant to a formula, to the Eligible
Employee subject to such vesting requirements, including performance
criteria, as shall be approved by the Compensation Committee. The amount of
any deferred compensation award which vests pursuant to the terms of a
Deferred Compensation Award Agreement entered into with an Eligible
Employee shall be credited to such Participant's Deferral Account as of the
date of such vesting, if such individual is an Eligible Employee as of the
date of vesting, and any such vested award so credited to a Deferral
Account shall for all purposes be considered to be, and shall be treated in
the same manner as, a deferral credited to such Deferral Account. The
Administrative Committee may maintain separate subaccounts within a
Participant's Deferral Account for amounts attributable to deferrals and
deferred compensation awards if separate identification is desired, but the
amounts credited to any subac counts shall be treated the same for all
purposes of this Plan.
IN WITNESS WHEREOF, this Amendment has been executed this 28th day of
March, 1995.
ENSERCH CORPORATION
By /s/ D. W. Biegler
Title: Chairman and President
<PAGE>
AMENDMENT NO. 2 TO THE
ENSERCH CORPORATION
DEFERRED COMPENSATION PLAN
Pursuant to the provisions of Section 5.1 thereof, the ENSERCH Corporation
Deferred Compensation Plan (the "Plan") is hereby amended in the following
respects only:
FIRST: Effective as of January 1, 1996, Article I, Section 1.1 of the Plan
is hereby amended by restating subsection (i) thereof to read as follows:
(i) "Deferral Account" means the account established and maintained on
the books of an Employer to record a Participant's interest under this Plan
attributable to amounts credited to such Participant pursuant to Plan
Sections 3.1, 3.2, 3.6 and 3.7.
SECOND: Effective as of January 1, 1996, Article I, Section 1.1 of the Plan
is hereby amended by adding the following new subsections to the end thereof:
(r) "Compensation" shall mean Compensation as defined in Section
1.2(f) of the ENSERCH Corporation Employee Stock Purchase and Savings Plan.
(s) "Contribution Service" shall mean Contribution Service as
described in Section 2.1 of the ENSERCH Corporation Employee Stock Purchase
and Savings Plan.
THIRD: Effective as of January 1, 1996, Article III of the Plan is hereby
amended by adding the following new section to the end thereof:
Section 3.7 Employer Contributions.
(a) Matching Contributions. For each payroll period, each Employer
shall make a matching contribution to the Plan for each Participant who is
an Eligible Employee during such pay period in an amount which will equal:
(1) with respect to a Participant who has completed less than five
years of Contribution Service as of the end of that pay period, 30% of
the amounts deferred by such Participant pursuant to Section 3.1 for
that pay period to the extent that such amounts deferred do not exceed
2% of such Participant's Compensation for such pay period;
(2) with respect to a Participant who has completed at least five
but less than fifteen years of Contribution Service
<PAGE>
as of the end of that pay period, 40% of the amounts deferred by such
Participant pursuant to Section 3.1 for that pay period to the extent
that such amounts deferred do not exceed 3% of such Participant's
Compensation for such pay period;
(3) with respect to a Participant who has completed at least
fifteen but less than twenty-five years of Contribution Service as of
the end of that pay period, 50% of the amounts deferred by such
Participant pursuant to Section 3.1 for that pay period to the extent
that such amounts deferred do not exceed 4% of such Participant's
Compensation for such pay period; and
(4) with respect to a Participant who has completed at least
twenty-five years of Contribution Service as of the end of that pay
period, 60% of the amounts deferred by such Participant pursuant to
Section 3.1 for that pay period to the extent that such amounts
deferred do not exceed 5% of such Participant's Compensation for such
pay period.
Employer matching contributions made under this Plan for a Participant
shall be credited each month to such Participant's Deferral Account under
the Plan.
(b) Discretionary Contributions. In addition to the Employer
contributions made pursuant to Section 3.7(a), for each Plan Year each
Employer shall contribute to the Plan as an Employer contribution such
amount, if any, to be determined by the Compensation Committee. Any
Employer contribution made for a Plan Year pursuant to this Section shall
be credited to the Deferral Accounts of those Participants specified by the
Compensation Committee in the manner determined by the Compensation
Committee in its absolute discretion.
IN WITNESS WHEREOF, this Amendment has been executed this 1st day of
January, 1996.
ENSERCH Corporation
By /s/ D. W. Biegler
Title: President
<PAGE>
AMENDMENT NO. 3 TO THE
ENSERCH CORPORATION
DEFERRED COMPENSATION PLAN
Pursuant to the provisions of Section 5.1 thereof, the ENSERCH Corporation
Deferred Compensation Plan (the "Plan") is hereby amended in the following
respects only:
FIRST: Section 3.2 of the Plan is hereby amended effective as of January 1,
1996 by adding the following to the end thereof:
In addition to the above, an Eligible Employee may elect to have the
payment of an amount of up to 100% of the cash portion of any bonus or
other special payment otherwise payable by an Employer with respect to such
Eligible Employee designated by the Chairman and President of the
Corporation (or with respect to amounts otherwise payable to the Chairman
and President of the Corporation, designated by the Chairman of the
Compensation Committee) deferred for payment in the manner and at the time
specified in Article IV with the deferral election to be made at the time
and in the manner prescribed by the Chairman and President of the
Corporation (or with respect to amounts otherwise payable to the Chairman
and President of the Corporation, the Chairman of the Compensation
Committee); provided, however, that any such election must be made in
writing by the Eligible Employee prior to the time at which the Eligible
Employee otherwise is entitled to receive payment of the amount from the
Employer and shall be irrevocable.
SECOND: The second sentence of Section 3.3 of the Plan is hereby amended
effective as of January 1, 1996 by restatement in its entirety to read as
follows:
Any amount for a Plan Year that is deferred for a Participant pursuant to
Section 3.1 and/or Section 3.2 shall be credited by the Employer to such
Participant's Deferral Account as of the date such amount would otherwise
have been paid to such Participant by such Employer.
THIRD: Article IV of the Plan is hereby amended effective as of January 1,
1996 to add a new Section 4.10 to the end thereof to read as follows:
Section 4.10 Accelerated Distribution of Reclassified Amounts. In the event
that the Internal Revenue Service formally assesses a deficiency against a
Participant on the grounds that a deferral election made by such
Participant with respect to
<PAGE>
salary, bonus, special payment or other amount pursuant to this Plan is not
effective for federal income tax purposes resulting in recognition by
Participant for federal income tax purposes of an amount credited to
Participant's Deferral Account hereunder (the "Reclassified Amount")
earlier than the time payment otherwise would be made to the Participant
pursuant to this Plan, then the Administrative Committee shall direct the
Employer maintaining such Participant's Deferral Account to pay to such
Participant and deduct from such Deferral Account the Reclassified Amount.
No payment made to a Participant pursuant to this Section 4.10 shall be
subject to forfeiture as provided in Section 4.6 hereof.
IN WITNESS WHEREOF, this Amendment has been executed this 23rd day of
September, 1996.
ENSERCH CORPORATION
By: /s/ D. W. Biegler
--------------------------
Title: Chairman and President
<PAGE>
AMENDMENT NO. 4
TO THE
ENSERCH CORPORATION
DEFERRED COMPENSATION PLAN
Pursuant to the provisions of Section 5.1 thereof, the ENSERCH Corporation
Deferred Compensation Plan (the "Plan") is hereby amended in the following
respects only:
FIRST: Effective as of January 1, 1996, Section 1.1(1) of the Plan is
hereby amended by adding a new sentence to the end thereof to read as follows:
Any provision of this Plan to the contrary notwithstanding, effective on
and after the date of a Change of Control, the term "Eligible Employee"
shall be limited to those individuals who satisfy the requirements set
forth above and who were Participants in this Plan as of the date
immediately prior to the date of such Change of Control.
SECOND: Effective as of January 1, 1996, Article II of the Plan is hereby
amended by adding a new Section 2.2 to the end thereof to read as follows:
Section 2.2 Independent Committee. Any provision of this Plan to the
contrary notwithstanding, on and after the date of a Change of Control, the
Independent Committee appointed by the Board pursuant to the provisions of
the ENSERCH Corporation Deferred Compensation Trust shall be responsible
for the administration of this Plan and shall have all of the powers,
duties, responsibilities and obligations of the Administrative Committee as
provided hereunder.
THIRD: Effective as of April 1, 1996, Section 3.7(a) of the
Plan is hereby amended by restatement in its entirety to read as
follows:
(a) Matching Contributions. For each payroll period, each Employer
shall make a matching contribution to the Plan for each Participant who is
an Eligible Employee during such pay period in an amount which will equal:
(1) with respect to a Participant who has completed less than five
years of Contribution Service as of the end of that pay period, 50% of
the amounts deferred by such Participant pursuant to Section 3.1 for
that pay period to the extent that such amounts deferred do not exceed
2% of such Participant's Compensation for such pay period;
<PAGE>
(2) with respect to a Participant who has completed at least five
but less than fifteen years of Contribution Service as of the end of
that pay period, 50% of the amounts deferred by such Participant
pursuant to Section 3.1 for that pay period to the extent that such
amounts deferred do not exceed 3% of such Participant's Compensation
for such pay period;
(3) with respect to a Participant who has completed at least
fifteen but less than twenty-five years of Contribution Service as of
the end of that pay period, 50% of the amounts deferred by such
Participant pursuant to Section 3.1 for that pay period to the extent
that such amounts deferred do not exceed 4% of such Participant's
Compensation for such pay period; and
(4) with respect to a Participant who has completed at least
twenty-five years of Contribution Service as of the end of that pay
period, 60% of the amounts deferred by such Participant pursuant to
Section 3.1 for that pay period to the extent that such amounts
deferred do not exceed 5% of such Participant's Compensation for such
pay period.
Employer matching contributions made under this Plan for a Participant
shall be credited each month to such Participant's Deferral Account under
the Plan. Any provision of this Plan to the contrary notwithstanding,
effective as of January 1, 1997, no matching contribution shall be made
pursuant to this Section 3.7(a) for a Participant during a Plan Year unless
such Participant elects to have his or her Employer contribute to the
ENSERCH Corporation Employee Stock Purchase and Savings Plan on his or her
behalf during such Plan Year the maximum Pre-Tax Employee Contribution that
may be elected by the Participant pursuant to such plan.
FOURTH: Effective as of January 1, 1996, Article III of the Plan is hereby
amended by adding a new Section 3.8 to the end thereof to read as follows:
Section 3.8 Plan Freeze. Any provision of this Plan to the contrary
notwithstanding, effective as of the second anniversary following the date
of a Change of Control, no additional amounts of salary or bonus deferrals
or Employer contributions shall be credited to Deferral Accounts; provided,
however, that Deferral Accounts shall continue to be adjusted for earnings,
losses and expenses in accordance with the provisions of Section 3.4 of
this Plan and shall be subject to all of the remaining provisions of this
Plan.
FIFTH: Effective as of January 1, 1996, Section 4.3 of the Plan is hereby
amended by restatement in its entirety to read as follows:
Section 4.3 Early Termination. Upon a Participant's termination of
employment with an Employer or Affiliated Company prior to the date which
is ten years prior to such Participant's Retirement Age for any reason
other than death, Disability or transfer to employment with another
Employer or Affiliated Company, the amount payable from such
<PAGE>
Participant's Deferral Account, as determined in accordance with Section
4.2, shall be paid by the Employer to such Participant in a single lump sum
as soon as practicable following such termination of employment; provided,
however, that effective with respect to terminations of employment
occurring on or after November 15, 1997, the amount payable from such
Participant's Deferral Account, as determined in accordance with Section
4.2, shall be paid by the Employer to such Participant (or, in the event of
his or her subsequent death, to the beneficiary or beneficiaries designated
by such Participant pursuant to Plan Section 4.7) in one of the following
forms as elected by the Participant during the Participant's initial
Election Period (or with respect to Participants participating in the Plan
as of October 1, 1996, as elected by the Participant on or before November
15, 1996):
(a) a single lump sum to be paid as soon as practicable following
the Participant's termination of employment or the Participant's
Retirement Age; or
(b) if the amount payable from a Deferral Account is $50,000 or
more as of the date of the Participant's termination of employment,
annual installments over the period certain selected by the
Participant not to exceed 15 years commencing in payment as soon as
practicable following the Participant's termination of employment or
the Participant's Retirement Age, as elected by the Participant, with
each annual installment equal to the Deferral Account balance
multiplied by a fraction the numerator of which is one and the
denominator of which is the number of payments remaining;
provided, however, that if a Participant who is entitled to a delayed lump
sum or installment payments hereunder encounters an unforeseeable emergency
(as determined in accordance with Section 4.8 hereof), the Administrative
Committee, in its absolute discretion, may direct the Employer to
accelerate such portion of the delayed lump sum or installment payments as
the Administrative Committee shall determine to be necessary to alleviate
the severe financial hardship of the Participant caused by such
unforeseeable emergency.
Any provision of this Plan to the contrary notwithstanding, a
Participant shall not incur a termination of employment under this Plan
merely as a result of (i) his or her transfer of employment from the
Company to Enserch Exploration, Inc. or from Enserch Exploration, Inc. to
the Company or (ii) Enserch Exploration, Inc. no longer being an Affiliated
Company.
SIXTH: Effective as of January 1, 1996, Section 4.9 of the Plan is hereby
amended by restatement in its entirety to read as follows:
Section 4.9 Chance of Distribution Form. Each Participant may elect at
any time after a Participant's initial Election Period, but no more often
than once during each calendar year, to change the distribution forms
elected with respect to all amounts credited to such Participant's Deferral
Account; provided, however, that such
<PAGE>
election shall not be effective unless made at least twelve months
preceding the date of the Participant's termination of employment.
SEVENTH: Effective as of January 1, 1996, Section 5.2 of the Plan is hereby
amended by restatement in its entirety to read as follows:
Section 5.2 Change of Control. The preceding provisions of this
Article to the contrary notwithstanding, no action taken on or after a
Change of Control to amend or terminate this Plan shall be effective unless
written consent thereto is obtained from a majority of the Participants.
EIGHTH: Effective as of the date of the distribution of all shares of stock
of Enserch Exploration, Inc. owned by ENSERCH Corporation to the shareholders of
ENSERCH Corporation, Enserch Exploration, Inc. and its subsidiaries shall no
longer be participating Employers under this Plan.
IN WITNESS WHEREOF, this Amendment has been executed this day of 6th day of
November, 1996.
ENSERCH CORPORATION
By: /s/ D. W. Biegler
---------------------------
Title: Chairman and President
<PAGE>
AMENDMENT NO. 5
TO THE
ENSERCH CORPORATION
DEFERRED COMPENSATION PLAN
Pursuant to the provisions of Section 5.1 thereof, the ENSERCH Corporation
Deferred Compensation Plan (the "Plan") is hereby amended in the following
respects only:
FIRST: Effective as of January 1, 1996, Section 4.3 of the Plan is hereby
amended by restatement in its entirety to read as follows:
Section 4.3 Early Termination. Upon a Participant's termination of
employment with an Employer or Affiliated Company prior to the date which
is ten years prior to such Participant's Retirement Age for any reason
other than death, Disability or transfer to employment with another
Employer or Affiliated Company, the amount payable from such Participant's
Deferral Account, as determined in accordance with Section 4.2, shall be
paid by the Employer to such Participant in a single lump sum as soon as
practicable following such termination of employment; provided, however,
that effective with respect to terminations of employment occurring on or
after November 15, 1997 (or, with respect to distribution forms elected
prior to a Change of Control, terminations of employment occurring on or
after May 15, 1997), the amount payable from such Participant's Deferral
Account, as determined in accordance with Section 4.2, shall be paid by the
Employer to such Participant (or, in the event of his or her subsequent
death, to the beneficiary or beneficiaries designated by such Participant
pursuant to Plan Section 4.7) in one of the following forms as elected by
the Participant during the Participant's initial Election Period (or with
respect to Participants participating in the Plan as of October 1, 1996, as
elected by the Participant on or before November 15, 1996):
(a) a single lump sum to be paid as soon as practicable following
the Participant's termination of employment or the Participant's
Retirement Age; or
(b) if the amount payable from a Deferral Account is $50,000 or
more as of the date of the Participant's termination of employment,
annual installments over the period certain selected by the
Participant not to exceed 15 years commencing in payment as soon as
practicable following the Participant's termination of employment or
the Participant's Retirement Age, as elected by the Participant, with
each annual installment equal to the Deferral Account balance
multiplied by a fraction the numerator of which is one and the
denominator of which is the number of payments remaining ;
provided, however, that if a Participant who is entitled to a delayed lump
sum or installment payments hereunder encounters an unforeseeable emergency
(as determined in accordance with Section 4.8 hereof), the
<PAGE>
Administrative Committee, in its absolute discretion, may direct the
Employer to accelerate such portion of the delayed lump sum or installment
payments as the Administrative Committee shall determine to be necessary to
alleviate the severe financial hardship of the Participant caused by such
unforeseeable emergency.
Any provision of this Plan to the contrary notwithstanding, a
Participant shall not incur a termination of employment under this Plan
merely as a result of (i) his or her transfer of employment from the
Company to Enserch Exploration, Inc. or from Enserch Exploration, Inc. to
the Company or (ii) Enserch Exploration, Inc. no longer being an Affiliated
Company.
SECOND: Effective as of January 1, 1996, Section 4.9 of the Plan is hereby
amended by restatement in its entirety to read as follows:
Section 4.9 Change of Distribution Form. Each Participant may elect at
any time after a Participant's initial Election Period, but no more often
than once during each calendar year, to change the distribution forms
elected with respect to all amounts credited to such Participant's Deferral
Account; provided, however, that such election shall not be effective
unless made at least twelve months preceding the date of the Participant's
termination of employment; provided, further, that in the event of a Change
of Control, any election made prior to the Change of Control shall be
effective if made at least six months preceding the date of the
Participant's termination of employment.
IN WITNESS WHEREOF, this Amendment has been executed this 18th day of
February, 1997.
ENSERCH CORPORATION
By: /s/ D. W. Biegler
---------------------------
Title: Chairman and President
<PAGE>
EXHIBIT 10.9
ENSERCH CORPORATION
DEFERRED COMPENSATION TRUST
---------------------------
This Trust Agreement made this 30th day of September, 1994, by and between
ENSERCH Corporation, a Texas corporation (the "Company") and Texas Commerce Bank
National Association, a national banking association ( the "Trustee");
WHEREAS, the Company and certain Affiliated Companies have adopted
nonqualified deferred compensation plans known as the ENSERCH Corporation
Deferred Compensation Plan (the "Executive Plan") and the ENSERCH
Corporation Deferred Compensation Plan for Directors (the "Directors'
Plan") (collectively hereinafter referred to as the "Plan" or "Plans"); and
WHEREAS, the Company has incurred or expects to incur liability under
the terms of such Plans with respect to the individuals participating in
such Plans; and
WHEREAS, the Company wishes to establish a trust (hereinafter called
the "Trust") and to contribute to the Trust assets that shall be held
therein, subject to the claims of the Company's creditors in the event of
the Company's Insolvency, as herein defined, until paid to Plan
Participants and their beneficiaries in such manner and at such times as
specified in the Plans; and
WHEREAS, it is the intention of the parties that this Trust shall
constitute an unfunded arrangement and shall not affect the status of the
Plans as unfunded plans maintained for the purpose of providing deferred
compensation for a select group of management or highly compensated
employees for purposes of Title I of the Employee Retirement Income
Security Act of 1974; and
WHEREAS, it is the intention of the Company to make contributions to
the Trust to provide itself with a source of funds to assist it in the
meeting of its liabilities under the Plans;
NOW, THEREFORE, the parties do hereby establish the Trust and agree
that the Trust shall be comprised, held and disposed of as follows:
<PAGE>
Section 1. Establishment Of Trust.
----------------------
(a) The Company hereby deposits with the Trustee in trust $1,000.00, which
shall become the principal of the Trust to be held, administered and disposed of
by the Trustee as provided in this Trust Agreement.
(b) The Trust hereby established shall be irrevocable.
(c) The Trust is intended to be a grantor trust, of which the Company
is the grantor, within the meaning of subpart E, part I, subchapter J, chapter
1, subtitle A of the Internal Revenue Code of 1986, as amended, and shall be
construed accordingly.
(d) The principal of the Trust, and any earnings thereon shall be held
separate and apart from other funds of the Company and shall be used exclusively
for the uses and purposes of Plan Participants and general creditors as herein
set forth. Plan Participants and their beneficiaries shall have no preferred
claim on, or any beneficial ownership interest in, any assets of the Trust. Any
rights created under the Plans and this Trust Agreement shall be mere unsecured
contractual rights of Plan Participants and their beneficiaries against the
Company. Any assets held by the Trust will be subject to the claims of the
Company's general creditors under federal and state law in the event of
Insolvency, as defined in Section 4(a) herein.
(e) The Company, in its sole discretion, may at any time, or from
time to time, make additional deposits of cash or other property in trust with
the Trustee to augment the principal to be held, administered and disposed of by
the Trustee as provided in this Trust Agreement; provided, however, that the
Company shall contribute to the Trust each calendar year an amount of cash or
property at least equal in value to the total amount of deferrals credited to
the Deferral Accounts of Participants pursuant to the Executive Plan and the
Accounts of Participants pursuant to the Directors' Plan during such calendar
year.
(f) Any provision of this Trust Agreement to the contrary notwithstanding,
upon a Change of Control, as defined in the Plans, the Company shall (i) as soon
as possible, but in no event more than 30 days following the date of such Change
of Control, make an irrevocable contribution to the Trust in an amount, as
determined by an Independent Committee, as defined below, which when added to
the total value of the assets of the Trust at such time equals the total amount
credited to all Deferral Accounts
<PAGE>
under the Executive Plan and all Accounts under the Directors' Plan as of the
date on which the Change of Control occurred, and (ii) during the two-year
period following the date of the Change of Control, make monthly contributions
to the Trust in amounts sufficient, as determined by the Independent Committee,
to maintain the total value of the Trust assets at an amount equal to the total
amount credited to all Deferral Accounts under the Executive Plan and all
Accounts under the Directors' Plan.
Section 2. Payments to Plan Participants and their Beneficiaries.
-----------------------------------------------------
(a) The Administrative Committee shall deliver to the Trustee a
schedule (the "Payment Schedule") that indicates the amounts payable with
respect to each Plan Participant (and his or her beneficiaries), that provides a
formula or other instructions acceptable to the Trustee for determining the
amounts so payable, the form in which such amount is to be paid (as provided for
or available under the Plan), and the time of commencement for payment of such
amounts, if known. An updated Payment Schedule shall be provided by the
Administrative Committee to the Trustee periodically, but no less frequently
than once each calendar year. Except as otherwise provided herein, the Trustee
shall make payments to the Plan Participants and their beneficiaries in
accordance with such Payment Schedule. The Trustee shall make provision for the
reporting and withholding of any federal, state or local taxes that may be
required to be withheld with respect to the payment of benefits pursuant to the
terms of the Plans and shall pay amounts withheld to the appropriate taxing
authorities or determine that such amounts have been reported, withheld and paid
by an Employer under the Executive Plan or by the Company under the Directors'
Plan.
(b) The entitlement of a Plan Participant or his or her beneficiaries
to benefits under the Plan shall be determined by the Administrative Committee
or such other party as may be designated under the Plan, and any claim for such
benefits shall be considered and reviewed under the procedures set out in the
Plan.
(c) Employers participating in the Executive Plan or the Company with
respect to the Directors' Plan may make payments of benefits directly to Plan
Participants or their beneficiaries as they become due under the terms of the
Plan in lieu of payment from the Trust. The Administrative Committee shall
notify the Trustee of an Employer's or the Company's decision to make payments
of benefits directly prior to the time amounts are
<PAGE>
payable to Participants or their beneficiaries. In addition, if the Trust
assets are not sufficient to make payments of benefits in accordance with the
terms of the Plans, the Company shall make the balance of each such payment as
it falls due. The Trustee shall notify the Company immediately when Trust
assets are not sufficient to satisfy all payments due.
(d) Any provision of this Section 2 to the contrary notwithstanding,
upon and after a Change of Control, the Trustee shall make payments to Plan
Participants or their beneficiaries in accordance with the direction of the
Independent Committee rather than the Administrative Committee, regardless of
whether the Trustee has received a Payment Schedule or any other form of
direction from the Administrative Committee to make such payments.
Section 3. Appointment of Independent Committee. Any provision of
------------------------------------
this Trust Agreement to the contrary notwithstanding, upon a Change of Control,
an Independent Committee consisting of at least three members shall be appointed
by the Compensation Committee of the Board of Directors of the Company subject
to the approval of a majority of the Participants of the Plans on the date of
such Change of Control. The Independent Committee shall:
(a) determine the amount of the irrevocable contributions to be made by
the Company pursuant to Section 1(f) hereof;
(b) determine in accordance with the Plans the amounts payable with
respect to each Plan Participant (and his or her beneficiaries), the form
in which such amounts are to be paid, and the time of commencement for
payment of such amounts pursuant to Section 2(a) hereof;
(c) determine the entitlement of Plan Participants and beneficiaries to
benefits under the terms of the Plans pursuant to Section 2(b) hereof;
(d) direct the Trustee to make payments to Plan Participants and their
beneficiaries pursuant to Section 2 hereof; and
(e) select a successor Trustee for the Trust if a Trustee resigns or is
removed on or within two years following the date of a Change of Control
pursuant to Section 12.
<PAGE>
Section 4. Trustee Responsibility Regarding Payments to Trust
--------------------------------------------------
Beneficiary when the Company Is Insolvent.
- -----------------------------------------
(a) The Trustee shall cease payment of benefits to Plan Participants
and their beneficiaries if the Company is Insolvent. The Company shall be
considered "Insolvent" for purposes of this Trust Agreement if (i) the Company
is unable to pay its debts as they become due, or (ii) the Company is subject to
a pending proceeding as a debtor under the United States Bankruptcy Code.
(b) At all times during the continuance of this Trust, as provided in
Section 1(d) hereof, the principal and income of the Trust shall be subject to
claims of general creditors of the Company under federal and state law as set
forth below.
(1) The Board of Directors and the Chief Executive Officer of the
Company shall have the duty to inform the Trustee in writing of the
Company's Insolvency. If a person claiming to be a creditor of the
Company alleges in writing to the Trustee that the Company has become
Insolvent, the Trustee shall determine whether the Company is Insolvent
and, pending such determination, the Trustee shall discontinue payment
of benefits to Plan Participants or their beneficiaries.
(2) Unless the Trustee has actual knowledge of the Company's
Insolvency, or has received notice from the Company or a person claiming
to be a creditor alleging that the Company is Insolvent, the Trustee
shall have no duty to inquire whether the Company is Insolvent. The
Trustee may in all events rely on such evidence concerning the Company's
solvency as may be furnished to the Trustee and that provides the
Trustee with a reasonable basis for making a determination concerning
the Company's solvency.
(3) If at any time the Trustee has determined that the Company is
Insolvent, the Trustee shall discontinue payments to Plan Participants
or their beneficiaries and shall hold the assets of the Trust for the
benefit of the Company's general creditors. Nothing in this Trust
Agreement shall in any way diminish any rights of Plan Participants or
their beneficiaries to pursue their rights as general creditors of the
Company with respect to benefits due under the Plan or otherwise.
(4) The Trustee shall resume the payment of benefits to Plan
Participants or their beneficiaries in accordance
<PAGE>
with Section 2 of this Trust Agreement only after the Trustee has
determined that the Company is not Insolvent (or is no longer
Insolvent).
(c) Provided that there are sufficient assets, if the Trustee
discontinues the payment of benefits from the Trust pursuant to Section 4(b)
hereof and subsequently resumes such payments, the first payment following such
discontinuance shall include the aggregate amount of all payments due to Plan
Participants or their beneficiaries under the terms of the Plans for the period
of such discontinuance, less the aggregate amount of any payments made to Plan
Participants or their beneficiaries by the Employers participating in the
Executive Plan or by the Company with respect to the Directors' Plan in lieu of
the payments provided for hereunder during any such period of discontinuance.
Section 5. Payments to the Company.
-----------------------
(a) Except as provided in Sections 4 and 5(b) hereof, the Company
shall have no right or power to direct the Trustee to return to the Company or
to divert to others any of the Trust assets before payment of all benefits have
been made to Plan Participants and their beneficiaries pursuant to the terms of
the Plans.
(b) To the extent that the Administrative Committee determines that
the value of the assets in the Trust based upon information provided to the
Administrative Committee by the Trustee, at any time, exceeds 110% of the
amounts credited to Participants' Deferral Accounts under the Executive Plan and
Accounts under the Directors' Plan as of the most recent Adjustment Date plus
any deferrals made since such date, the Trustee shall pay such excess to the
Company upon receipt of written request therefor from the Company; provided,
however, that no such payment of excess assets to the Company shall be made on
or within two years following the date of a Change of Control.
Section 6. Investment Authority.
--------------------
(a) The Trustee shall have full power and authority to invest and
reinvest the Trust assets, or any part thereof, in such stocks (common or
preferred), bonds, mortgages, notes, interest-bearing deposits (including such
deposits with any corporate trustee acting hereunder), options and contracts for
the future or immediate receipt or delivery of property of any
<PAGE>
kind, or other securities, producing or nonproducing oil and gas royalties and
payments and other producing and nonproducing interests in minerals, or in
commodities, life insurance policies, annuity contracts or other property of any
kind or nature whatsoever, whether real, personal or mixed, as the Trustee, in
the Trustee's absolute discretion and judgment, deems appropriate for the Trust,
and to hold cash uninvested at any time and from time to time in such amounts
and to such extent as the Trustee, in the Trustee's absolute discretion and
judgment, deems appropriate for the Trust. The Trustee shall have full power
and authority to manage, handle, invest, reinvest, sell for cash or credit, or
for part cash or part credit, exchange, hold, dispose of, lease for any period
of time (whether or not longer than the life of the Trust), improve, repair,
maintain, work, develop, use, operate, mortgage, or pledge, all or any part of
the assets and property from time to time constituting any part of the trust
funds held in trust under the Trust; borrow or loan money or securities; write
options and sell securities or other property short or for future delivery;
engage in hedging procedures; buy and sell futures contracts; execute
obligations, negotiable and nonnegotiable; vote shares of stock in person and by
proxy, with or without power of substitution; register investments in the name
of a nominee; sell, convey, lease and/or otherwise deal with any producing or
nonproducing oil, gas and mineral leases or mineral rights, payments and
royalties; pay all reasonable expenses; execute and deliver any deeds,
conveyances, leases, contracts, or written instruments of any character
appropriate to any of the powers or duties of the Trustee, and shall, in
general, have as broad power respecting the management, operation and handling
of the Trust assets and property as if the Trustee were the owner of such assets
and property in the Trustee's own right. The preceding provisions of this
paragraph to the contrary notwithstanding, the Company shall have the right and
power at any time and from time to time to give the Trustee broad guidelines
within which it shall invest the assets of the Trust; provided, however, that
upon a Change of Control and continuing for two years thereafter, the
Independent Committee, rather than the Company, shall have the sole authority to
exercise such right.
(b) All rights associated with assets of the Trust shall be exercised
by the Trustee or the person designated by the Trustee, and shall in no event be
exercisable by or rest with Plan Participants.
(c) The Company shall have the right, at any time, and from time to
time in its sole discretion, to substitute assets of
<PAGE>
equal fair market value for any asset held by the Trust; provided, however, that
effective upon a Change in Control and for a period of two years thereafter, any
assets transferred to the Trust in substitution for assets held by the Trust
must consist of cash or marketable securities and the fair market value of the
respective assets shall be determined by the Trustee. This right is exercisable
by the Company in a nonfiduciary capacity without the approval or consent of any
person in a fiduciary capacity.
Section 7. Disposition of Income. During the term of this Trust, all
---------------------
income received by the Trust, net of expenses and taxes, shall be accumulated
and reinvested.
Section 8. Accounting by Trustee. The Trustee shall keep accurate
---------------------
and detailed records of all investments, receipts, disbursements, and all other
transactions required to be made, including such specific records as shall be
agreed upon in writing between the Company and the Trustee. Within 30 days
following the close of each calendar year and within 30 days after the removal
or resignation of the Trustee, the Trustee shall deliver to the Company a
written account of its administration of the Trust during such year or during
the period from the close of the last preceding year to the date of such removal
or resignation, setting forth all investments, receipts, disbursements and other
transactions effected by it, including a description of all securities and
investments purchased and sold with the cost or net proceeds of such purchases
or sales (accrued interest paid or receivable being shown separately), and
showing all cash, securities and other property held in the Trust at the end of
such year or as of the date of such removal or resignation, as the case may be.
Section 9. Responsibility of the Trustee.
-----------------------------
(a) The Trustee shall act with the care, skill, prudence and diligence
under the circumstances then prevailing that a prudent person acting in like
capacity and familiar with such matters would use in the conduct of an
enterprise of a like character and with like aims; provided, however, that the
Trustee shall incur no liability to any person for any action taken pursuant to
a direction, request or approval given by the Company which is contemplated by,
and in conformity with, the terms of the Plan or this Trust and is given in
writing by the Company. In the event of a dispute between the Company and a
party, the Trustee may apply to a court of competent jurisdiction to resolve the
dispute.
<PAGE>
(b) If the Trustee undertakes or defends any litigation arising in
connection with this Trust, the Company agrees to indemnify the Trustee against
the Trustee's costs, expenses and liabilities (including, without limitation,
attorneys' fees and expenses) relating thereto and to be primarily liable for
such payments. If the Company does not pay such costs, expenses and liabilities
in a reasonably timely manner, the Trustee may obtain payment from the Trust.
(c) The Trustee may consult with legal counsel (who may also be
counsel for the Company generally) with respect to any of its duties or
obligations hereunder.
(d) The Trustee may hire agents, accountants, actuaries, investment
advisors, financial consultants or other professionals to assist it in
performing any of its duties or obligations hereunder.
(e) The Trustee shall have, without exclusion, all powers conferred on
trustees by applicable law, unless expressly provided otherwise herein;
provided, however, that except as provided in Sections 5(b) and 6(c) hereof, if
an insurance policy is held as an asset of the Trust, the Trustee shall have no
power to name a beneficiary of the policy other than the Trust, to assign the
policy (as distinct from conversion of the policy to a different form) other
than to a successor Trustee, or to loan to any person the proceeds of any
borrowing against such policy.
(f) Notwithstanding any powers granted to the Trustee pursuant to this
Trust Agreement or applicable law, the Trustee shall not have any power that
could give this Trust the objective of carrying on a business and dividing the
gains therefrom, within the meaning of section 301.7701-2 of the Procedure and
Administrative Regulations promulgated pursuant to the Internal Revenue Code.
Section 10. Compensation and Expenses of the Trustee. The Trustee
----------------------------------------
shall be paid such reasonable compensation commensurate with the services and
responsibilities involved hereunder as shall from time to time be agreed upon by
the Trustee and the Company. The Company shall pay all administrative and the
Trustee's fees and expenses, but, if not so paid, the fees and expenses shall be
paid from the Trust.
Section 11. Resignation and Removal of the Trustee.
--------------------------------------
<PAGE>
(a) The Trustee may resign at any time by written notice to the
Company, which shall be effective 30 days after receipt of such notice unless
the Company and the Trustee agree otherwise.
(b) The Trustee may be removed by the Company on 30 days notice or
upon shorter notice accepted by the Trustee; provided, however, that the Trustee
may not be removed by the Company on or within two years following a Change of
Control except with the written consent of a majority of the Participants
entitled to payment of benefits pursuant to the terms of the Plans on the date
of such Change of Control.
(c) Upon resignation or removal of the Trustee and appointment of a
successor Trustee, all assets shall subsequently be transferred to the successor
Trustee. The transfer shall be completed within 30 days after receipt of notice
of resignation, removal or transfer, unless the Company extends the time limit.
(d) If the Trustee resigns or is removed, a successor shall be
appointed, in accordance with Section 12 hereof, by the effective date of
resignation or removal under paragraph(s) (a) or (b) of this section. If no
such appointment has been made, the Trustee may apply to a court of competent
jurisdiction for appointment of a successor or for instructions. All expenses
of the Trustee in connection with the proceeding shall be allowed as
administrative expenses of the Trust.
Section 12. Appointment of Successor.
------------------------
(a) If the Trustee resigns or is removed in accordance with Section
11(a) or (b) hereof, the Company may appoint any third party, such as a bank
trust department or other party that may be granted corporate trustee powers
under state law, as a successor to replace the Trustee upon resignation or
removal; provided, however, that if the Trustee resigns or is removed on or
within two years following the date of a Change of Control, the Independent
Committee shall select a successor Trustee in accordance with this Section 12.
The appointment shall be effective when accepted in writing by the new Trustee,
who shall have all of the rights and powers of the former Trustee, including
ownership rights in the Trust assets. The former Trustee shall execute any
instrument necessary or reasonably requested by the Company or the successor
Trustee to evidence the transfer.
(b) The successor Trustee need not examine the records and acts of any
prior Trustee and may retain or dispose of existing
<PAGE>
Trust assets, subject to Sections 8 and 9 hereof. The successor Trustee shall
not be responsible for and the Company shall indemnify and defend the successor
Trustee from any claim or liability resulting from any action or inaction of any
prior Trustee or from any other past event, or any condition existing at the
time it becomes successor Trustee.
Section 13. Amendment or Termination.
------------------------
(a) This Trust Agreement may be amended by a written instrument
executed by the Trustee and a representative of the Company so authorized by the
Compensation Committee of the Board of Directors of the Company.
Notwithstanding the foregoing, no such amendment shall conflict with the terms
of the Plans or shall make the Trust revocable.
(b) The Trust shall not terminate until the date on which Plan
Participants and their beneficiaries are no longer entitled to benefits pursuant
to the terms of the Plans. Upon termination of the Trust any assets remaining
in the Trust shall be returned to the Company.
(c) Upon written approval of at least two-thirds of the Participants
and beneficiaries entitled to payment of benefits pursuant to the terms of the
Plans, the Company may terminate this Trust prior to the time all benefit
payments under the Plans have been made. All assets in the Trust at termination
shall be returned to the Company.
(d) This Trust Agreement may not be amended by the Company on or
within two years following the date of a Change of Control, without the written
consent of a majority of the Participants entitled to payment of benefits
pursuant to the terms of the Plans on the date of such Change of Control.
Section 14. Miscellaneous.
-------------
(a) Any provision of this Trust Agreement prohibited by law shall be
ineffective to the extent of any such prohibition, without invalidating the
remaining provisions hereof.
(b) Benefits payable to Plan Participants and their beneficiaries
under this Trust Agreement may not be anticipated, assigned (either at law or in
equity), alienated, pledged, encumbered or subjected to attachment, garnishment,
levy, execution or other legal or equitable process.
<PAGE>
(c) This Trust Agreement shall be governed and construed in accordance
with the internal laws (and not the principles relating to conflicts of laws) of
the State of Texas, except where superseded by federal law.
(d) Unless the context clearly indicates otherwise, when used in this
Trust Agreement:
(i) "Administrative Committee" shall mean the "Administrative
Committee" appointed pursuant to each of the Plans.
(ii) "Participant" shall mean each "Participant" as that term is
defined in the Executive Plan and each Director who has an amount
credited to his or her Account under the Directors' Plan or who has
elected to have all or any portion of his or her Annual Fee deferred
under the terms of that Plan.
(e) Except where otherwise defined, capitalized terms used herein shall
have the meaning given to them in the Plans.
(f) In the event that a dispute arises between a Plan Participant or
beneficiary and the Participant's Employer, the Company or the Trustee with
respect to the payment of amounts from the Trust and the Participant or
beneficiary is successful in pursuing a benefit to which he or she is entitled
under the terms of the Plans and this Trust against the Participant's Employer,
the Company, the Trustee or any other party in the course of litigation or
otherwise and incurs attorneys' fees, expenses and costs in connection
therewith, the Company shall reimburse the Plan Participant or beneficiary for
the full amount of any such attorneys' fees, expenses and costs.
IN WITNESS WHEREOF, this Agreement has been executed this 30th day of
September, 1994, to be effective as of October 1, 1994.
ENSERCH CORPORATION
By /s/ D. W. Biegler
Title: Chairman, President
and Chief Executive
Officer
<PAGE>
TEXAS COMMERCE BANK NATIONAL
ASSOCIATION
By /s/ Karen Epps
Title:
THE STATE OF TEXAS )
)
COUNTY OF DALLAS )
BEFORE ME, the undersigned authority, a notary public in and for said
County and State, on this day personally appeared D. W. Biegler, known to me to
be the person whose name is subscribed to the foregoing instrument and
acknowledged to me that the same was the act of the said ENSERCH CORPORATION, a
Texas corporation, and that he/she executed the same as the act of such
corporation for the purposes and consideration therein expressed, and in the
capacity therein stated.
GIVEN UNDER MY HAND AND SEAL OF OFFICE, this 23rd day of September,
1994.
/s/ Cherry H. Sossamon
Notary Public, State of Texas
My Commission expires:
October 31, 1996
THE STATE OF TEXAS )
)
COUNTY OF DALLAS )
BEFORE ME, the undersigned authority, a notary public in and for said
County and State, on this day personally appeared Karen
<PAGE>
Epps, known to me to be the person whose name is subscribed to the foregoing
instrument and acknowledged to me that the same was the act of the said TEXAS
COMMERCE BANK NATIONAL ASSOCIATION, a national banking association, and that
he/she executed the same as the act of such banking association for the purposes
and consideration therein expressed, and in the capacity therein stated.
GIVEN UNDER MY HAND AND SEAL OF OFFICE, this 7th day of October, 1994.
/s/ Barbara Betik
Notary Public, State of Texas
My Commission expires:
January 30, 1997
<PAGE>
AMENDMENT NO. 1
TO THE
ENSERCH CORPORATION
DEFERRED COMPENSATION TRUST
Pursuant to the provisions of Section 13(a) thereof, the ENSERCH
Corporation Deferred Compensation Trust (the "Trust") is hereby amended in the
following respects only:
FIRST: Section l(f) of the Trust is hereby amended by restatement in its
entirety to read as follows:
(f) Any provision of this Trust Agreement to the contrary
notwithstanding, upon a Change of Control, as defined in the Plans, the
Company shall (i) as soon as possible, but in no event more than 30 days
following the date of such Change of Control, make an irrevocable
contribution to the Trust in an amount, as determined by an Independent
Committee, as defined below, which when added to the total value of the
assets of the Trust at such time equals the total amount credited to all
Deferral Accounts under the Executive Plan and all Accounts under the
Directors' Plan as of the date on which the Change of Control occurred,
and (ii) on and after the date of the Change of Control, make monthly
contributions to the Trust in amounts sufficient, as determined by the
Independent Committee, to maintain the total value of the Trust assets
at an amount equal to the total amount credited to all Deferral Accounts
under the Executive Plan and all Accounts under the Directors' Plan. Any
provision of this Trust Agreement to the contrary notwithstanding, on
and after the date of a Change of Control, the assets of this Trust,
including any additional contributions made by the Company in accordance
with this Section l(f) for the period following such Change of Control
and any earnings on the assets of the Trust, shall be held exclusively
for the benefit of those Participants in the Plans (or their
beneficiaries) as of the date immediately prior to the date of such
Change of Control, subject to the claims of general creditors of the
Company under federal and state law as set forth below.
<PAGE>
SECOND: Section 3 of the Trust is hereby amended by restatement in its
entirety to read as follows:
Section 3. Appointment of Independent Committee.
(a) Any provision of this Trust Agreement to the contrary
notwithstanding, upon a Change of Control, an Independent Committee
consisting of at least three members shall be appointed by the Board
subject to the written approval of a majority of the Participants in the
Plans on the date of such Change of Control. The Independent Committee
shall:
(i) determine the amount of the irrevocable contributions to be
made by the Company pursuant to Section l(f) hereof;
(ii) determine in accordance with the Plans the amounts payable
with respect to each Plan Participant (and his or her beneficiaries),
the form in which such amounts are to be paid, and the time of
commencement for payment of such amounts pursuant to Section 2(a)
hereof;
(iii) determine the entitlement of Plan Participants and
beneficiaries to benefits under the terms of the Plans pursuant to
Section 2(b) hereof;
(iv) direct the Trustee to make payments to Plan Participants and
their beneficiaries pursuant to Section 2 hereof; and
(v) select a successor Trustee for the Trust if a Trustee
resigns or is removed on or after the date of a Change of Control
pursuant to Section 12.
(b) Each member of the Independent Committee so appointed shall serve
in such office until his or her death, resignation or removal. The Board
may remove any member of the Independent Committee by giving written
notice thereof to all Plan Participants and all members of the
Independent Committee; provided, however, that no member of the
Independent Committee may be removed by the Board on or after a Change of
Control except with the written consent of a majority of the Plan
Participants. Vacancies on the Independent Committee shall be filled from
time to time by
<PAGE>
the Board subject to the written approval of a majority of the
Participants in the Plans on the date such vacancy is filled.
(c) The Independent Committee shall act by a majority of its members
at the time in office and such action may be taken either by a vote at a
meeting or in writing without a meeting. The Independent Committee may by
such majority action authorize any one or more of its members to execute
any document or documents on behalf of the Independent Committee, in
which event the Independent Committee shall notify the Trustee in writing
of such action and the name or names of its member or members so
authorized to act. Every interpretation, choice, determination or other
exercise by the Independent Committee of any power or discretion given
either expressly or by implication to it shall be conclusive and binding
upon all parties having or claiming to have an interest under the Trust
or otherwise directly or indirectly affected by such action, without
restriction, however, on the right of the Independent Committee to
reconsider and redetermine such action.
(d) Any provision of this Trust Agreement to the contrary
notwithstanding, in the event that (i) the Board shall not appoint an
Independent Committee within 30 days following a Change of Control or a
majority of the Participants in the Plans do not approve in writing at
least three members selected by the Board to serve on an Independent
Committee within such 30-day period or (ii) the Board does not fill a
vacancy on the Independent Committee within 30 days of the date such
office becomes vacant or a majority of the Participants in the Plans do
not approve in writing the Board's selection to fill a vacancy on the
Independent Committee within such 30-day period, then the Participants in
the Plans shall elect, by majority vote, up to three individuals to the
extent necessary to ensure that the Independent Committee consists of
three members.
THIRD: Section 5(b) of the Trust is hereby amended by restatement in its
entirety to read as follows:
(b) To the extent that the Administrative Committee determines that
the value of the assets in the Trust based upon information provided to
the Administrative Committee by the Trustee, at any time, exceeds 110% of
the amounts credited to Participants' Deferral Accounts under the
<PAGE>
Executive Plan and Accounts under the Directors' Plan as of the most
recent Adjustment Date plus any deferrals made since such date, the
Trustee shall pay such excess to the Company upon receipt of written
request therefor from the Company; provided, however, that no such
payment of excess assets to the Company shall be made on or after the
date of a Change of Control without the written approval of the Plan
Participants.
FOURTH: Section 6(a) of the Trust is hereby amended by restating the last
sentence thereof in its entirety to read as follows:
The preceding provisions of this paragraph to the contrary
notwithstanding, the Company shall have the right and power at any time
and from time to time to give the Trustee broad guidelines within which
it shall invest the assets of the Trust; provided, however, that on and
after the date of a Change of Control, the Independent Committee, rather
than the Company, shall have the sole authority to exercise such right.
FIFTH: Section 6(c) of the Trust is hereby amended by restating the
first sentence thereof in its entirety to read as follows:
The Company shall have the right, at any time, and from time to time in
its sole discretion, to substitute assets of equal fair market value for
any asset held by the Trust; provided, however, that on and after the
date of a Change of Control, any assets transferred to the Trust in
substitution for assets held by the Trust must consist of cash or
marketable securities acceptable to the Independent Committee and the
fair market value of the respective assets shall be determined by the
Trustee.
SIXTH: Section 10 of the Trust is hereby amended by restating the last
sentence thereof in its entirety to read as follows:
<PAGE>
The Company shall pay all administrative and the Trustee's fees and
expenses, but, if not so paid, such fees and expenses shall be paid from
the Trust; provided, however, that in the event any such fees and
expenses are paid from the Trust, the Trustee shall notify the Company in
writing that such payment has been made and the Company shall reimburse
the Trust for such payment within 15 days from the date of such notice.
SEVENTH: Section ll(b) of the Trust is hereby amended by restatement in
its entirety to read as follows:
(b) The Trustee may be removed by the Company on 30 days notice or
upon shorter notice accepted by the Trustee; provided, however, that the
Trustee may not be removed by the Company on or after a Change of Control
except with the written consent of a majority of the Plan Participants.
EIGHTH: Section 12(a) of the Trust is hereby amended by restating the
first sentence thereof in its entirety to read as follows:
If the Trustee resigns or is removed in accordance with Section ll(a) or
(b) hereof, the Company may appoint any third party, such as a bank trust
department or other party that may be granted corporate trustee powers
under state law, as a successor to replace the Trustee upon resignation
or removal; provided, however, that if the Trustee resigns or is removed
on or after the date of a Change of Control, the Independent Committee
shall select a successor Trustee in accordance with this Section 12.
NINTH: Section 13(d) of the Trust is hereby amended by restatement in its
entirety to read as follows:
(d) Any provision of this Trust Agreement to the contrary
notwithstanding, this Trust Agreement may not be amended on or after the
date of a Change of Control, without the written consent of a majority of
the Plan Participants.
<PAGE>
IN WITNESS WHEREOF, this Amendment has been executed this 22nd day of
November, 1996, to be effective as of January 1, 1996.
ENSERCH CORPORATION
By: /s/ D. W. Biegler
---------------------------
Title: Chairman and President
TEXAS COMMERCE BANK NATIONAL
ASSOCIATION
By: /s/ James T. Allen
---------------------------
Title: Senior Vice President
and Trust Officer
THE STATE OF TEXAS )
)
COUNTY OF DALLAS )
BEFORE ME, the undersigned authority, a notary public in and for said
County and State, on this day personally appeared
D. W. Biegler, known to me to be the person whose name is subscribed to the
foregoing instrument and acknowledged to me that the same was the act of the
said ENSERCH CORPORATION, a Texas corporation, and that he/she executed the same
as the act of such corporation for the purposes and consideration therein
expressed, and in the capacity therein stated.
GIVEN UNDER MY HAND AND SEAL OF OFFICE, this 6th day of November, 1996.
/s/ Anita K. Brian
---------------------------
Notary Public,
State of Texas
<PAGE>
By Commission expires:
January 23, 1997
THE STATE OF TEXAS )
)
COUNTY OF DALLAS )
BEFORE ME, the undersigned authority, a notary public in and for said
County and State, on this day personally appeared James T. Allen, known to me to
be the person whose name is subscribed to the foregoing instrument and
acknowledged to me that the same was the act of the said TEXAS COMMERCE BANK
NATIONAL ASSOCIATION, a national banking association, and that he/she executed
the same as the act of such banking association for the purposes and
consideration therein expressed, and in the capacity therein stated.
GIVEN UNDER MY HAND AND SEAL OF OFFICE, this 22nd day of
November, 1996.
/s/ Bette Sue Farmer
---------------------------
Notary Public,
State of Texas
By Commission expires:
November 17, 1998
<PAGE>
EXHIBIT 10.10
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.
<PAGE>
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
<PAGE>
(ii) the amount of the benefit actually payable to the employee or
beneficiary under the Basic Plan and the amount of reduction of
Plan payments described in the agreement or agreements between
the Corporation and the employee relating to any individual
annuity contracts purchased on behalf of the employee by the
Corporation.
Section 4.2 Additional Service. In the event a Participating
------------------
Employee's employment is terminated within three (3) years after a Change in
Control of the Corporation by the Corporation without Cause or by the
Participating Employee for Good Reason, his years of Service for purposes of
Section 4.1 shall mean his actual years of Service plus
(a) in the case of the Chief Executive Officer of the Corporation and
Participating Employees reporting directly to him, 3 additional
years of Service; and
(b) in the case of Participating Employees other than the Chief
Executive Officer and Participating Employees reporting directly
to him, 2 additional years of Service;
provided further that (i) in no case shall any Participating Employee as a
result of this Change in Control provision be deemed to have more years of
Service than he would have had if his employment had terminated on the first of
the month coinciding with or Next following his sixty-fifth (65) birthday, and
(ii) the foregoing clauses (a) and (b) shall have no effect on the computation
of a Participating Employee's Average Monthly Earnings or are for purposes of
determining any amounts payable to him under the Basic Plan.
Section 4. 3 Payment of Benefits. Payment of benefits to an employee
--------------------
or beneficiary under this Plan shall be coincident with the payment of benefits
made to the employee or beneficiary under the Basic Plan.
Section 4.4 Employee's Rights to Benefits. An employee's rights under
------------------------------
this Plan, including his rights to vested benefits, shall be the same as his
rights under the Basic Plan, except that no payments due under this Plan shall
be paid from any fund maintained under the Basic Plan. In no event shall an
individual who is not entitled to benefits under the Basic Plan be entitled to a
benefit under this Plan. Benefits under this Plan shall be paid sole]y from the
general assets of the Companies, and no
<PAGE>
employee or beneficiary shall have any title to or beneficial interest in any
assets of the Companies as a result of this Plan.
Article V
---------
Amendment and Termination
-------------------------
While the Companies intend to maintain this Plan in conjunction with
the Basic Plans for as long as necessary, the Board of Directors of ENSERCH
Corporation reserves the right to amend or terminate this Plan if, in its sole
judgment, amendment or termination is appropriate. However, if the Board should
amend or discontinue this Plan, the Companies shall be liable for all benefits
accrued under this Plan as of the date of such action (determined on the basis
of the assumption that on such date each employee's employment terminated).
Article XI
----------
Rights of Employees
-------------------
The Companies may, but are not required to, set aside funds for their
convenience in order to facilitate the payment of any benefits that may be due
hereunder. However, in the event that the Companies set aside funds, no
employee or beneficiary shall have any right, title or interest in such funds
while held by the Companies. Any employee or beneficiary who is entitled to
receive a benefit under this Plan shall have the rights solely of a general and
unsecured creditor.
Article VII
-----------
Miscellaneous
-------------
Section 7.1 Assignment. The interest of an employee or beneficiary may
not be sold, transferred, assigned, or encumbered in any manner, either
voluntarily or involuntarily, and any attempt so to anticipate, alienate sell,
transfer, assign, pledge, encumber, or charge the same shall be null and void;
neither shall the benefits hereunder be liable for or subject to the debts,
contracts, liabilities, engagements, or torts of any person to whom such
benefits or funds are payable, nor shall they be subject to garnishment,
attachment, or other legal or equitable process nor shall they be an asset in
bankruptcy, except that no amount shall be payable hereunder until and unless
any and all amounts representing debts or other obligations owed to any Company
by the individual to whom such amount would otherwise be payable shall have been
fully paid and satisfied.
<PAGE>
Section 7.2 No Employment Rights. Nothing contained herein shall be
--------------------
construed as conferring upon any employee the right to continue in the employ of
the Companies in any capacity.
Section 7.3 Binding on Companies, Employees and Their Successors. The
-----------------------------------------------------
Plan shall be binding upon and inure to the benefit of the Companies, their
successors and assigns and the employee and his heirs, executors,
administrators, and legal representatives. The provisions of the Plan shall be
applicable with respect to each Company separately, and amounts payable
hereunder shall be paid by the Company that employed the individual employee in
respect of whom benefits are due hereunder.
Section 7.4 Arbitration. Any controversy arising out of, or relating
------------
to, the Plan or any modification thereof, including any claim for benefits,
shall be settled by arbitration in Dallas, Texas (or, if applicable law requires
some other forum, then such other forum) in accordance with the rules then
obtaining of the American Arbitration Association. The District Court of Dallas
County, Texas or, as the case may be, the United States District Court for the
Northern District of Texas shall have jurisdiction for all purposes in
connection with arbitration. Any process or notice of motion or other
application to either of said courts, and any paper in connection with
arbitration, may be served by certified mail, return receipt requested, or by
personal service or in such other manner as may be permissible under the rules
of the applicable court or arbitration tribunal, provided a reasonable time for
appearance is allowed. Arbitration proceedings must be instituted within one
year after the claimed breach occurred, and the failure to institute arbitration
proceedings within such period shall constitute an absolute bar to the
institution of any proceedings, and a waiver of all claims, with respect to such
breach.
Section 7.5 Withholding Tax. There shall be deducted from all
----------------
amounts paid under this Plan any taxes required to be withheld by any Federal,
state, local or other government. The employee and/or his beneficiary
(including his estate) shall bear all taxes on amounts paid under this Plan to
the extent that no taxes are withheld, irrespective of whether withholding is
required.
Section 7.6 Law Applicable. The Plan shall be construed in accordance
--------------
with and governed by the laws of the State of Texas.
Restated and adopted this 28th day of December, 1990.
<PAGE>
ENSERCH Corporation
By /s/ W. C. McCord
W. C. McCord
Chairman and President
<PAGE>
AMENDMENT TO THE
RETIREMENT INCOME RESTORATION PLAN
OF ENSERCH CORPORATION
AND PARTICIPATING SUBSIDIARY COMPANIES
--------------------------------------
Pursuant to the provisions of Article V thereof, the Retirement Income
Restoration Plan of ENSERCH Corporation and Participating Subsidiary Companies
(the "Plan") is hereby amended in the following respect only:
The definition of "Limitations" in the Plan is hereby amended
effective as of October 1, 1994 by restatement in its entirety to read as
follows:
"Limitations" shall mean the reductions imposed on the benefits
provided under the Basic Plans in order to comply with Sections 415
and 401(a)(17) of the Internal Revenue Code of 1986, and the reduction
in "compensation" considered for purposes of determining benefits
under the Basic Plans on account of salary and bonuses deferred by an
employee pursuant to the ENSERCH Corporation Deferred Compensation
Plan.
IN WITNESS WHEREOF, this Amendment has been executed this 30th day of
September, 1994.
ENSERCH CORPORATION
By /s/ D. W. Biegler
Title: Chairman, President
and Chief Executive
Officer
<PAGE>
AMENDMENT NO. 1-A
AMENDMENT TO THE
RETIREMENT INCOME RESTORATION PLAN
OF ENSERCH CORPORATION
AND PARTICIPATING SUBSIDIARY COMPANIES
Pursuant to the provisions of Article V thereof, the Retirement Income
Restoration Plan of ENSERCH Corporation and Participating Subsidiary Companies
(the "Plan") is hereby amended in the following respects only:
Each of the definitions of "Change in Control," "Cause," and "Good
Reason" is hereby amended as of February 13, 1996 by restatement each in its
entirety to read as follows:
"Change in Control" or "Change in Control of the Corporation"
shall mean a change in control of a nature that would be required to
be reported in response to Item l(a) of the Current Report on Form 8-
K, as in effect on February 13, 1996, pursuant to Section 13 or 15(d)
of the Securities Exchange Act of 1934, as amended ("Exchange Act") or
would have been required to be so reported but for the fact that such
event had been "previously reported" as that term is defined in Rule
12b-2 of Regulation 12B of the Exchange Act; provided that, without
limitation such a Change in Control
<PAGE>
shall be deemed to have occurred if (a) any Person is or becomes the
beneficial owner (as defined in Rule 13d-3 under the Exchange Act),
directly or indirectly, of securities of the Corporation representing 20%
or more of the combined voting power of the Corporation's then outstanding
securities ordinarily (apart from rights accruing under special
circumstances) having the right to vote at Sections of directors ("Voting
Securities"), or (b) individuals who constitute the Board on February 13,
1996 (the "Incumbent Board") cease for any reason to constitute at least
two-thirds thereof, provided that any person becoming a director subsequent
to February 13, 1996 whose election, or nomination for election by the
Corporation's shareholders, was approved by a vote of at least three-
quarters of the directors comprising the Incumbent Board (either by a
specific vote or by approval of the proxy statement of the Corporation in
which such person is named as a nominee for director, without objection to
such nomination) shall be, for purposes of this clause (b), considered as
though such person were a member of the Incumbent Board, or (c) a
recapitalization of the Corporation occurs which results in either a
decrease by 33% or more in the aggregate percentage ownership of Voting
Securities held by Independent Shareholders (on a primary basis or on a
fully diluted basis
<PAGE>
after giving effect to the exercise of stock options and warrants) or an
increase in the aggregate percentage ownership of Voting Securities hod by
non-Independent Shareholders (on a primary basis or on a fully diluted
basis after giving effect to the exercise of stock options and warrants) to
greater than 50%, or (d) the shareholders of the Corporation have approved
an agreement to merge or consolidate with or into another corporation or an
agreement to sell or otherwise dispose of all or substantially all of the
Corporation's assets (including a plan of liquidation). For purposes of
this definition, the term "Person" shall mean and include any individual,
corporation, partnership, group, association or other "person," as such
term is used in Section 14(d) of the Exchange Act, other than the
Corporation, a subsidiary of the Corporation or any employee benefit
plan(s) sponsored or maintained by the Corporation or any subsidiary
thereof, and the term "Independent Shareholder" shall mean any shareholder
of the Corporation except any employee(s) or director(s) of the Corporation
or any employee benefit plan(s) sponsored or maintained by the Corporation
or any subsidiary thereof.
"Cause" or "termination of employment by the Corporation for Cause"
shall mean termination upon (A) the
<PAGE>
willful and continued failure by a Participating Employee substantially to
perform his or her duties with the Corporation (other than any such failure
resulting from his or ha incapacity due to physical or mental illness),
after a demand for substantial performance is delivered to him or her by
the Chairman or President of Corporation which specifically identifies the
manner in which such executive believes that he or she has not
substantially performed his or her duties, and a reasonable period of
opportunity for such substantial performance is provided, or
(B) the willful engaging by the Participating Employee in illegal
misconduct materially and demonstrably injurious to the Corporation. For
purposes of this paragraph, no act, or failure to act, on the part of a
Participating Employee shall be considered "willful" unless done, or
omitted to be done, by the Participating Employee not in good faith and
without reasonable belief that his or her action or omission was in the
best interest of the Corporation. Any act, or failure to act, based upon
authority given pursuant to a resolution duly adopted by the Board or based
upon the advice of counsel for the Corporation shall be conclusively
presumed to be done, or omitted to be done, by the Participating Employee
in good faith and in the best
<PAGE>
interest of the Corporation. Notwithstanding the foregoing, the
Participating Employee shall not be deemed to have been terminated for
Cause unless and until there shall have been delivered to him or her a
copy of a resolution duly adopted by the affirmative vote of not less
than three-quarters of the entire membership of the Board at a meeting
of the Board called and held for that purpose (after reasonable notice
to the Participating Employee and an opportunity for the Participating
Employee, together with his or her counsel, to be heard before the
Board), finding that in the good faith opinion of the Board the
Participating Employee was guilty of conduct set forth above in
clauses (A) or (B) in this paragraph and specifying the particulars
thereof in detail.
"Good Reason" for a Participating Employee to terminate his or her
employment shall mean:
(A) an adverse change in status or position(s) of a
Participating Employee as an executive of the Corporation as in
effect immediately prior to a Change in Control, including,
without limitation, any adverse change in the status or position
of such Participating Employee as a result of a material
diminution in his or her duties or responsibilities (other than,
if
<PAGE>
applicable, any such change directly attributable to the fact that
less than 50% of the Corporation's voting securities are publicly
owned or the fact that his or her position becomes a position with
a subsidiary or division), or a material change in his or her
business location or the assignment to the Participating Employee
of any duties or responsibilities which are inconsistent with such
status or position(s), or a substantial increase in his or her
business travel or any removal of the Participating Employee from
or any failure to reappoint or reelect the Participating Employee
to such position(s) (except in connection with the termination of
his or her employment for Cause, Disability or Retirement or as a
result of his or her death or by the Participating Employee other
than for Good Reason);
(B) a reduction by the Corporation in base salary of a
Participating Employee as in effect immediately prior to the
Change in Control or in the number of vacation days to which the
Participating Employee is then entitled under the Corporation's
normal vacation policy as in effect immediately prior to the
Change in Control ;
<PAGE>
(C) the taking of any action by the Corporation (including
the elimination of a plan without providing substitutes therefor
or the reduction of awards thereunder) that would diminish or the
failure by the Corporation to take any action which would maintain
the aggregate projected value of the awards of a Participating
Employee under the Corporation's bonus, stock option or management
incentive unit plans in which the Participating Employee was
participating at the time of a Change in Control of the
Corporation;
(D) the taking of any action by the Corporation that would
diminish or the failure by the Corporation to take any action
which would maintain the aggregate value of the benefits provided
a Participating Employee under the Corporation's medical, health,
dental, accident, disability, life insurance, stock purchase or
retirement plans in which the Participating Employee was
participating at the time of a Change in Control of the
Corporation;
(E) the taking of any action by the Corporation that would
diminish or the failure of the Corporation
<PAGE>
to take any action that would maintain indemnification or
insurance for officers' liability; or
(F) a failure by the Corporation to obtain from any Successor
(as defined in a Participating Employee's Change in Control
Agreement) the assent to such Change in Control Agreement
contemplated by Section 7 thereof; or
(G) any purported termination by the Corporation of the
employment of a Participating Employee that is not effected
pursuant to a Notice of Termination satisfying the requirements of
paragraph (iv) (and, if applicable, paragraph (ii)) of Section 3
of such Participating Employee's Change in Control Agreement.
IN WITNESS WHEREOF, this Amendment has been executed as of 13th
day of February, 1996.
ENSERCH Corporation
By: /s/ D. W. Biegler
-----------------------------------
Title: D. W. Biegler
Chairman, President and
Chief Executive Officer
<PAGE>
AMENDMENT NO. 2
TO THE
RETIREMENT INCOME RESTORATION PLAN
OF ENSERCH CORPORATION AND
PARTICIPATING SUBSIDIARY COMPANIES
Pursuant to the provisions of Article V thereof, the Retirement Income
Restoration Plan of ENSERCH Corporation and Participating Subsidiary Companies
(the "Plan") is hereby amended in the following respects only:
FIRST: Article V of the Plan is hereby amended by restatement in its
entirety to read as follows:
Article V
Amendment and Termination
While the Companies intend to maintain this Plan in conjunction with
the Basic Plans for as long as necessary, the Board of Directors of ENSERCH
Corporation reserves the right to amend or terminate this Plan if, in its
sole judgment, amendment or termination is appropriate; provided, however,
that if the Board should amend or terminate this Plan, the Companies shall
be liable for all benefits accrued under this Plan as of the date of such
action determined on the basis of the assumption that on such date each
employee's employment terminated; and provided further, that (i) no
amendment may be made to Section 4.2 of this Plan within three years after
a Change in Control of the
<PAGE>
Corporation without the consent of all of the Participating Employees and
(ii) in the event of a termination of this Plan within three years after a
Change in Control of the Corporation each Participating Employee's benefit
hereunder shall be calculated as if such Participating Employee's
employment was terminated under circumstances qualifying him for the
additional years of Service provided in Section 4.2.
SECOND: Article VII of the Plan is hereby amended by adding the following
new Section 7.7 to the end thereof:
Section 7.7 Reimbursement of Expenses. In the event that a dispute
arises with respect to the payment of benefits hereunder and the
Participating Employee (or his beneficiary) is successful in pursuing a
benefit to which he is entitled under the terms of the Plan in the course
of litigation or otherwise and incurs attorneys' fees, expenses and costs
in connection therewith, the Companies shall provide reimbursement to the
Participating Employee (or his beneficiary) for the full amount of any such
attorneys' fees, expenses and costs.
THIRD: The Plan is hereby amended by spinning off to a new plan to be known
as the Retirement Income Restoration Plan of Enserch Exploration, Inc. and
Participating Subsidiary Companies, the benefits attributable to employees and
former employees of Enserch Exploration, Inc. effective as of the date of the
<PAGE>
distribution of all shares of stock of Enserch Exploration, Inc. Owned by
ENSERCH Corporation to the shareholders of ENSERCH Corporation.
IN WITNESS WHEREOF, this Amendment has been executed this 6th day of
December, 1996 to be effective as of January 1, 1996.
ENSERCH CORPORATION
By: /s/ D. W. Biegler
------------------------------------
Title: Chairman and President
<PAGE>
EXHIBIT 10.11
ENSERCH CORPORATION
RETIREMENT INCOME RESTORATION TRUST
-----------------------------------
This Trust Agreement made this 30th day of September, 1994, by and between
ENSERCH Corporation, a Texas corporation (the "Company"), Enserch Exploration,
Inc., a Delaware corporation, New Enserch Exploration, Inc., a Texas
corporation, Enserch Development Corporation, a Texas corporation, Lone Star
Energy Company, a Texas corporation, and Enserch Gas Company, a Texas
Corporation, and Texas Commerce Bank National Association, a national banking
association (the "Trustee");
WHEREAS, the Company and the participating subsidiaries enumerated on
the attached Appendix A (the Company and such participating subsidiaries
are hereinafter referred to as the "Employers") have adopted or may adopt a
nonqualified deferred compensation plan known as the Retirement Income
Restoration Plan of ENSERCH Corporation and Participating Subsidiary
Companies (the "Plan"); and
WHEREAS, the Employers have incurred or expect to incur liability
under the terms of such Plan with respect to their respective eligible
employees participating in such Plan and their beneficiaries; and
WHEREAS, the Employers wish to establish a trust (hereinafter called
"Trust"), pursuant to which each Employer will contribute assets that shall
be held therein in a Separate Account, as herein defined, subject to the
claims of such Employer's creditors in the event of the Employer's
Insolvency, as herein defined, until paid to Plan Participants and their
beneficiaries in such manner and at such times as specified in the Plan;
and
WHEREAS, it is the intention of the parties that this Trust shall
constitute an unfunded arrangement and shall not affect the status of the
Plan as an unfunded plan maintained for the purpose of providing deferred
compensation for a select group of management or highly compensated
employees for purposes of Title I of the Employee Retirement Income
Security Act of 1974; and
<PAGE>
WHEREAS, it is the intention of the Employers to make contributions to
the Trust to provide a source of funds to assist them in the meeting of
their liabilities under the Plan;
NOW, THEREFORE, the parties do hereby establish the Trust and agree that
the Trust shall be comprised, held and disposed of as follows:
Section 1. Establishment Of Trust.
----------------------
(a) The Employers hereby deposit with the Trustee in trust $1,000.00, which
shall become the principal of the Trust to be held, administered and disposed of
by the Trustee as provided in this Trust Agreement.
(b) The Trust hereby established shall be irrevocable.
(c) The Trust is intended to be a grantor trust, of which each Employer is
the grantor with respect to its Separate Account, within the meaning of subpart
E, part I, subchapter J, chapter 1, subtitle A of the Internal Revenue Code of
1986, as amended, and shall be construed accordingly.
(d) The principal of the Trust, and any earnings thereon shall be held
separate and apart from other funds of the Employers and shall be used
exclusively for the uses and purposes of Plan Participants and general creditors
as herein set forth. Plan Participants and their beneficiaries shall have no
preferred claim on, or any beneficial ownership interest in, any assets of the
Trust. Any rights created under the Plan and this Trust Agreement shall be mere
unsecured contractual rights of Plan Participants and their beneficiaries
against the Employers. Any assets held in an Employer's Separate Account under
the Trust will be subject to the claims of such Employer's general creditors
under federal and state law in the event of Insolvency, as defined in Section
4(a) herein.
(e) The Employers, in their sole discretion, may at any time, or from time
to time, make additional deposits of cash or other property in trust with the
Trustee to augment the principal to be held, administered and disposed of by the
Trustee as provided in this Trust Agreement. Neither the Trustee nor any Plan
Participant or beneficiary shall have any right to compel such additional
deposits.
<PAGE>
(f) Any provision of this Trust Agreement to the contrary notwithstanding,
upon a Change of Control of the Company, as defined in the Plan, each Employer
shall (i) as soon as possible, but in no event more than 30 days following the
date of such Change of Control, make an irrevocable contribution to the Trust in
an amount, as determined by an Independent Committee, as defined below, which
when added to the total value of the assets of the Employer's Separate Account
under the Trust at such time equals the total present value of all benefits
accrued under the Plan with respect to such Employer's respective Plan
Participants and beneficiaries as of the date on which the Change of Control
occurred, and (ii) during the two-year period following the date of the Change
of Control, make monthly contributions to the Trust in amounts sufficient, as
determined by the Independent Committee, to maintain the total value of the
assets in the Employer's Separate Account under the Trust at an amount equal to
the total present value of all benefits accrued under the Plan with respect to
such Employer's respective Plan Participants and beneficiaries.
(g) Any provision of this Trust Agreement to the contrary notwithstanding,
in the event that a Participant transfers employment between Employers
participating in this Trust, (i) the Employer from which the Participant is
transferred shall as soon as possible, but in no event more than 30 days
following the date of such transfer, make an irrevocable contribution to the
Trust in an amount, as determined by the Company, which equals the total present
value of the benefits accrued under the Plan with respect to such transferring
Participant as of the date on which the transfer occurred or, if less, an amount
equal to the total present value of all benefits accrued under the Plan with
respect to such Employer's respective Plan Participants and beneficiaries, and
(ii) immediately following the Employer's contribution described in (i), the
Trustee shall transfer assets from the transferring Employer's Separate Account
to the Separate Account of the Employer to which the Participant is being
transferred in an amount equal to the total present value of the benefits
accrued under the Plan with respect to such transferring Participant as of the
date on which the transfer occurred.
Section 2. Payments to Plan Participants and their Beneficiaries.
-----------------------------------------------------
(a) The Company shall deliver to the Trustee a schedule (the "Payment
Schedule") that indicates the amounts payable with respect to each Plan
Participant (and his or her beneficiaries) and the Separate Account of the
Employer from which such amounts
<PAGE>
are payable, that provides a formula or other instructions acceptable to the
Trustee for determining the amounts so payable, the form in which such amount is
to be paid (as provided for or available under the Plan), and the time of
commencement for payment of such amounts. An updated Payment Schedule shall be
provided by the Company to the Trustee periodically, but no less frequently than
once each calendar year. Except as otherwise provided herein, the Trustee shall
make payments to the Plan Participants and their beneficiaries in accordance
with such Payment Schedule. The Trustee shall make provision for the reporting
and withholding of any federal, state or local taxes that may be required to be
withheld with respect to the payment of benefits pursuant to the terms of the
Plan and shall pay amounts withheld to the appropriate taxing authorities or
determine that such amounts have been reported, withheld and paid by the
Employer.
(b) The entitlement of a Plan Participant or his or her beneficiaries to
benefits under the Plan shall be determined by the Company or such other party
as may be designated under the Plan, and any claim for such benefits shall be
considered and reviewed under the procedures set out in the Plan.
(c) The Employers may make payments of benefits directly to Plan
Participants or their beneficiaries as they become due under the terms of the
Plan in lieu of payment from the Trust. The Company shall notify the Trustee of
an Employer's decision to make payments of benefits directly prior to the time
amounts are payable to Participants or their beneficiaries. In addition, if the
assets of an Employer's Separate Account under the Trust are not sufficient to
make payments of benefits to its respective Plan Participants and beneficiaries
in accordance with the terms of the Plan, such Employer shall make the balance
of each such payment as it falls due, and the Separate Accounts of other
Employers hereunder shall not be liable for the payment of such benefits. The
Trustee shall notify the Company immediately when the assets in an Employer's
Separate Account under the Trust are not sufficient to satisfy all payments due.
(d) Any provision of this Section 2 to the contrary notwithstanding, upon
and after a Change of Control of the Company, the Trustee shall make payments to
Plan Participants or their beneficiaries in accordance with the direction of the
Independent Committee rather than the Company, regardless of whether the Trustee
has received a Payment Schedule or any other form of direction from the Company
to make such payments.
<PAGE>
Section 3. Appointment of Independent Committee. Any provision of this
------------------------------------
Trust Agreement to the contrary notwithstanding, upon a Change of Control of the
Company, an Independent Committee consisting of at least three members shall be
appointed by the Compensation Committee of the Board of Directors of the Company
(the "Compensation Committee") subject to the approval of a majority of the
Participants in the Plan on the date of such Change of Control. The Independent
Committee shall:
(a) determine the amount of the irrevocable contributions to be made
by each Employer pursuant to Section 1(f) hereof;
(b) determine in accordance with the Plan the amounts payable with
respect to each Plan Participant (and his or her beneficiaries), the form
in which such amounts are to be paid, and the time of commencement for
payment of such amounts pursuant to Section 2(a) hereof;
(c) determine the entitlement of Plan Participants and beneficiaries
to benefits under the terms of the Plan pursuant to Section 2(b) hereof;
(d) direct the Trustee to make payments to Plan Participants and their
beneficiaries pursuant to Section 2 hereof; and
(e) select a successor Trustee for the Trust if a Trustee resigns or
is removed on or within two years following the date of a Change of Control
of the Company pursuant to Section 12.
Section 4. Trustee Responsibility Regarding Payments to Trust Beneficiary
--------------------------------------------------------------
when an Employer Is Insolvent.
- -----------------------------
(a) The Trustee shall cease payment of benefits to Plan Participants and
their beneficiaries if the Participants' Employer is Insolvent. An Employer
shall be considered "Insolvent" for purposes of this Trust Agreement if (i) the
Employer is unable to pay its debts as they become due, or (ii) the Employer is
subject to a pending proceeding as a debtor under the United States Bankruptcy
Code.
(b) At all times during the continuance of this Trust, as provided in
Section 1(d) hereof, the principal and income of each Employer's Separate
Account under the Trust shall be subject to
<PAGE>
claims of general creditors of the Employer under federal and state law as set
forth below.
(1) The Board of Directors and the Chief Executive Officer of an
Employer shall have the duty to inform the Trustee in writing of the
Employer's Insolvency. If a person claiming to be a creditor of an Employer
alleges in writing to the Trustee that the Employer has become Insolvent,
the Trustee shall determine whether the Employer is Insolvent and, pending
such determination, the Trustee shall discontinue payment of benefits to
the Employer's respective Plan Participants or their beneficiaries.
(2) Unless the Trustee has actual knowledge of an Employer's
Insolvency, or has received notice from the Employer or a person claiming
to be a creditor alleging that the Employer is Insolvent, the Trustee shall
have no duty to inquire whether the Employer is Insolvent. The Trustee may
in all events rely on such evidence concerning the Employer's solvency as
may be furnished to the Trustee and that provides the Trustee with a
reasonable basis for making a determination concerning the Employer's
solvency.
(3) If at any time the Trustee has determined that an Employer is
Insolvent, the Trustee shall discontinue payments to the Employer's
respective Plan Participants or their beneficiaries and shall hold the
assets of the Employer's Separate Account under the Trust for the benefit
of the Employer's general creditors. Nothing in this Trust Agreement shall
in any way diminish any rights of Plan Participants or their beneficiaries
to pursue their rights as general creditors of an Employer with respect to
benefits due under the Plan or otherwise.
(4) The Trustee shall resume the payment of benefits to an Employer's
respective Plan Participants or their beneficiaries in accordance with
Section 2 of this Trust Agreement only after the Trustee has determined
that the Employer is not Insolvent (or is no longer Insolvent).
(c) Provided that there are sufficient assets in an Employer's Separate
Account under the Trust, if the Trustee discontinues the payment of benefits
from the Trust pursuant to Section 4(b) hereof and subsequently resumes such
payments, the first payment following such discontinuance shall include the
aggregate amount of all payments due to Plan Participants or their beneficiaries
under the terms of the Plan for the period of
<PAGE>
such discontinuance, less the aggregate amount of any payments made to Plan
Participants or their beneficiaries by the Employer in lieu of the payments
provided for hereunder during any such period of discontinuance.
Section 5. Payments to the Employers.
-------------------------
(a) Except as provided in Sections 4 and 5(b) hereof, the Employers shall
have no right or power to direct the Trustee to return to the Employers or to
divert to others any of the Trust assets before payment of all benefits have
been made to Plan Participants and their beneficiaries pursuant to the terms of
the Plan.
(b) To the extent that an Employer determines that the value of the assets
in its Separate Account under the Trust based upon information provided to the
Employer by the Trustee, at any time, exceeds 110% of the present value of the
benefits accrued under the Plan by the Employer's respective Plan Participants,
the Trustee shall pay such excess to the Employer upon receipt of written
request therefor from the Company; provided, however, that no such payment of
excess assets to the Employer shall be made on or within two years following the
date of a Change of Control of the Company.
Section 6. Investment Authority.
--------------------
(a) The Trustee shall establish and maintain a separate account within the
Trust for each Employer (the "Separate Account"). All amounts deposited with
the Trustee by an Employer shall be allocated to such Employer's Separate
Account. The Trustee shall invest, reinvest and administer the assets allocated
to each Employer's Separate Account under the Trust as an individual, separate
fund. At the end of each calendar year and at such other times as the Company
may determine, the Trustee shall determine the fair market value of the assets
of each Employer's Separate Account. The Separate Account of each Employer
shall be adjusted to reflect the income collected, realized and unrealized
profits and losses, expenses and all other transactions affecting such Separate
Account for the valuation period then ended.
(b) The Trustee shall have full power and authority to invest and reinvest
the assets of each Employer's Separate Account, or any part thereof, in such
stocks (common or preferred), bonds, mortgages, notes, interest-bearing deposits
(including such deposits with any corporate trustee acting
<PAGE>
hereunder), options and contracts for the future or immediate receipt or
delivery of property of any kind, or other securities, producing or nonproducing
oil and gas royalties and payments and other producing and nonproducing
interests in minerals, or in commodities, life insurance policies, annuity
contracts or other property of any kind or nature whatsoever, whether real,
personal or mixed, as the Trustee, in the Trustee's absolute discretion and
judgment, deems appropriate for the Trust, and to hold cash uninvested at any
time and from time to time in such amounts and to such extent as the Trustee, in
the Trustee's absolute discretion and judgment, deems appropriate for the Trust.
The Trustee shall have full power and authority to manage, handle, invest,
reinvest, sell for cash or credit, or for part cash or part credit, exchange,
hold, dispose of, lease for any period of time (whether or not longer than the
life of the Trust), improve, repair, maintain, work, develop, use, operate,
mortgage, or pledge, all or any part of the assets and property from time to
time constituting any part of the trust funds held in trust under the Trust;
borrow or loan money or securities; write options and sell securities or other
property short or for future delivery; engage in hedging procedures; buy and
sell futures contracts; execute obligations, negotiable and nonnegotiable; vote
shares of stock in person and by proxy, with or without power of substitution;
register investments in the name of a nominee; sell, convey, lease and/or
otherwise deal with any producing or nonproducing oil, gas and mineral leases or
mineral rights, payments and royalties; pay all reasonable expenses; execute and
deliver any deeds, conveyances, leases, contracts, or written instruments of any
character appropriate to any of the powers or duties of the Trustee, and shall,
in general, have as broad power respecting the management, operation and
handling of the Trust assets and property as if the Trustee were the owner of
such assets and property in the Trustee's own right. The preceding provisions
of this paragraph to the contrary notwithstanding, the Company shall have the
right and power at any time and from time to time to give the Trustee broad
guidelines within which it shall invest the assets of the Trust; provided,
however, that upon a Change of Control of the Company and continuing for two
years thereafter, the Independent Committee, rather than the Company, shall have
the sole authority to exercise such right.
(c) All rights associated with assets of the Trust shall be exercised by
the Trustee or the person designated by the Trustee, and shall in no event be
exercisable by or rest with Plan Participants.
<PAGE>
(d) Each Employer shall have the right, at any time, and from time to time
in its sole discretion, to substitute assets of equal fair market value for any
asset held in its Separate Account under the Trust provided, however, that
effective upon a Change of Control of the Company and for a period of two years
thereafter, any assets transferred to the Trust in substitution for assets held
in an Employer's Separate Account under the Trust must consist of cash or
marketable securities and the fair market value of the respective assets shall
be determined by the Trustee. This right is exercisable by the Employer in a
nonfiduciary capacity without the approval or consent of any person in a
fiduciary capacity.
Section 7. Disposition of Income. During the term of this Trust, all
---------------------
income received by the Trust, net of expenses and taxes, shall be accumulated
and reinvested.
Section 8. Accounting by Trustee. The Trustee shall keep accurate and
---------------------
detailed records of all investments, receipts, disbursements, and all other
transactions required to be made, including such specific records as shall be
agreed upon in writing between the Company and the Trustee. Within 30 days
following the close of each calendar year and within 30 days after the removal
or resignation of the Trustee, the Trustee shall deliver to the Company a
written account of its administration of the Trust and to each Employer a
written account of its administration of the Employer's Separate Account during
such year or during the period from the close of the last preceding year to the
date of such removal or resignation, setting forth all investments, receipts,
disbursements and other transactions effected by it, including a description of
all securities and investments purchased and sold with the cost or net proceeds
of such purchases or sales (accrued interest paid or receivable being shown
separately), and showing all cash, securities and other property held in the
Trust at the end of such year or as of the date of such removal or resignation,
as the case may be.
Section 9. Responsibility of the Trustee.
-----------------------------
(a) The Trustee shall act with the care, skill, prudence and diligence
under the circumstances then prevailing that a prudent person acting in like
capacity and familiar with such matters would use in the conduct of an
enterprise of a like character and with like aims; provided, however, that the
Trustee shall incur no liability to any person for any action taken pursuant to
a direction, request or approval given by an Employer
<PAGE>
which is contemplated by, and in conformity with, the terms of the Plan or this
Trust and is given in writing by the Employer. In the event of a dispute between
an Employer and a party, the Trustee may apply to a court of competent
jurisdiction to resolve the dispute.
(b) If the Trustee undertakes or defends any litigation arising in
connection with this Trust, the Employers agree to indemnify the Trustee against
the Trustee's costs, expenses and liabilities (including, without limitation,
attorneys' fees and expenses) relating thereto and to be primarily liable for
such payments. If the Employers do not pay such costs, expenses and liabilities
in a reasonably timely manner, the Trustee may obtain payment from the Trust.
(c) The Trustee may consult with legal counsel (who may also be counsel for
the Employers generally) with respect to any of its duties or obligations
hereunder.
(d) The Trustee may hire agents, accountants, actuaries, investment
advisors, financial consultants or other professionals to assist it in
performing any of its duties or obligations hereunder.
(e) The Trustee shall have, without exclusion, all powers conferred on
trustees by applicable law, unless expressly provided otherwise herein;
provided, however, that except as provided in Sections 5(b) and 6(d) hereof, if
an insurance policy is held as an asset of the Trust, the Trustee shall have no
power to name a beneficiary of the policy other than the Trust, to assign the
policy (as distinct from conversion of the policy to a different form) other
than to a successor Trustee, or to loan to any person the proceeds of any
borrowing against such policy.
(f) Notwithstanding any powers granted to the Trustee pursuant to this
Trust Agreement or applicable law, the Trustee shall not have any power that
could give this Trust the objective of carrying on a business and dividing the
gains therefrom, within the meaning of section 301.7701-2 of the Procedure and
Administrative Regulations promulgated pursuant to the Internal Revenue Code.
Section 10. Compensation and Expenses of the Trustee. The Trustee shall
----------------------------------------
be paid such reasonable compensation commensurate with the services and
responsibilities involved hereunder as shall from time to time be agreed upon by
the Trustee and the Company. The Employers shall pay all administrative and the
<PAGE>
Trustee's fees and expenses, but, if not so paid, the fees and expenses shall be
paid from the Trust.
Section 11. Resignation and Removal of the Trustee.
--------------------------------------
(a) The Trustee may resign at any time by written notice to the Company,
which shall be effective 30 days after receipt of such notice unless the Company
and the Trustee agree otherwise.
(b) The Trustee may be removed by the Company on 30 days notice or upon
shorter notice accepted by the Trustee; provided, however, that the Trustee may
not be removed by the Company on or within two years following a Change of
Control of the Company except with the written consent of a majority of the
Participants entitled to payment of benefits pursuant to the terms of the Plan
on the date of such Change of Control.
(c) Upon resignation or removal of the Trustee and appointment of a
successor Trustee, all assets shall subsequently be transferred to the successor
Trustee. The transfer shall be completed within 30 days after receipt of notice
of resignation, removal or transfer, unless the Company extends the time limit.
(d) If the Trustee resigns or is removed, a successor shall be appointed,
in accordance with Section 12 hereof, by the effective date of resignation or
removal under paragraph(s) (a) or (b) of this section. If no such appointment
has been made, the Trustee may apply to a court of competent jurisdiction for
appointment of a successor or for instructions. All expenses of the Trustee in
connection with the proceeding shall be allowed as administrative expenses of
the Trust.
Section 12. Appointment of Successor.
------------------------
(a) If the Trustee resigns or is removed in accordance with Section 11(a)
or (b) hereof, the Company may appoint any third party, such as a bank trust
department or other party that may be granted corporate trustee powers under
state law, as a successor to replace the Trustee upon resignation or removal;
provided, however, that if the Trustee resigns or is removed on or within two
years following the date of a Change of Control of the Company, the Independent
Committee shall select a successor Trustee in accordance with this Section 12.
The appointment shall be effective when accepted in writing by the new Trustee,
who shall have all of the rights and powers of the former Trustee, including
ownership rights in the Trust assets. The former Trustee shall execute any
instrument necessary or
<PAGE>
reasonably requested by the Company or the successor Trustee to evidence the
transfer.
(b) The successor Trustee need not examine the records and acts of any
prior Trustee and may retain or dispose of existing Trust assets, subject to
Sections 8 and 9 hereof. The successor Trustee shall not be responsible for and
the Employers shall indemnify and defend the successor Trustee from any claim or
liability resulting from any action or inaction of any prior Trustee or from any
other past event, or any condition existing at the time it becomes successor
Trustee.
Section 13. Amendment or Termination.
------------------------
(a) This Trust Agreement may be amended by a written instrument executed by
the Trustee and the Company. Notwithstanding the foregoing, no such amendment
shall conflict with the terms of the Plan or shall make the Trust revocable.
(b) The Trust shall not terminate until the date on which Plan Participants
and their beneficiaries are no longer entitled to benefits pursuant to the terms
of the Plan. Upon termination of the Trust any assets remaining in an
Employer's Separate Account under the Trust shall be returned to such Employer.
(c) Upon written approval of at least two-thirds of the Participants and
beneficiaries entitled to payment of benefits pursuant to the terms of the Plan,
the Company may terminate this Trust prior to the time all benefit payments
under the Plan have been made. All assets in an Employer's Separate Account
under the Trust at termination shall be returned to such Employer.
(d) The Company may terminate this Trust with respect to the Separate
Account of any Employer with the written approval of at least two-thirds of the
Employer's respective Plan Participants and beneficiaries who are entitled to
payment of benefits pursuant to the terms of the Plan. All assets in an
Employer's Separate Account under the Trust on the date of such termination
shall be returned to such Employer.
(e) This Trust Agreement may not be amended by the Company on or within two
years following the date of a Change of Control of the Company, without the
written consent of a majority of the Participants entitled to payment of
benefits pursuant to the terms of the Plan on the date of such Change of
Control.
<PAGE>
Section 14. Miscellaneous.
-------------
(a) Any provision of this Trust Agreement prohibited by law shall be
ineffective to the extent of any such prohibition, without invalidating the
remaining provisions hereof.
(b) Benefits payable to Plan Participants and their beneficiaries under
this Trust Agreement may not be anticipated, assigned (either at law or in
equity), alienated, pledged, encumbered or subjected to attachment, garnishment,
levy, execution or other legal or equitable process.
(c) This Trust Agreement shall be governed and construed in accordance with
the internal laws (and not the principles relating to conflicts of laws) of the
State of Texas, except where superseded by federal law.
(d) Except where otherwise defined, capitalized terms used herein shall
have the meaning given to them in the Plan.
(e) In the event that a dispute arises between a Plan Participant or
beneficiary and the Participant's Employer, the Company or the Trustee with
respect to the payment of amounts from the Trust and the Participant or
beneficiary is successful in pursuing a benefit to which he or she is entitled
under the terms of the Plan and this Trust against the Participant's Employer,
the Company, the Trustee or any other party in the course of litigation or
otherwise and incurs attorneys' fees, expenses and costs in connection
therewith, the Participant's Employer shall reimburse the Plan Participant or
beneficiary for the full amount of any such attorneys' fees, expenses and costs.
(f) Upon the written consent of the Company delivered to the Trustee, any
other affiliate of the Company which adopts the Plan may become a party to this
Trust by delivering to the Trustee a certified copy of a resolution of its board
of directors or other governing authority adopting this Trust. For purposes of
this Trust, any such affiliate which adopts this Trust with the written consent
of the Company shall be an Employer hereunder.
<PAGE>
IN WITNESS WHEREOF, this Agreement has been executed this 30th day of
September, 1994, to be effective as of October 1, 1994.
ENSERCH CORPORATION
By /s/ D. W. Biegler
Title: Chairman, President
and Chief Executive
Officer
ENSERCH EXPLORATION, INC.
By /s/ D. W. Biegler
Title: Chairman and Chief
Executive Officer
NEW ENSERCH EXPLORATION, INC.
By /s/ D. W. Biegler
Title: Chairman and Chief
Executive Officer
ENSERCH DEVELOPMENT CORPORATION
By /s/ G. R. Bryan
Title: Chairman
LONE STAR ENERGY COMPANY
By /s/ D. W. Biegler
Title: Chairman and Chief
Executive Officer
ENSERCH GAS COMPANY
By /s/ D. W. Biegler
Title: Chairman and Chief
<PAGE>
Executive Officer
TEXAS COMMERCE BANK NATIONAL ASSOCIATION
By /s/ Karen Epps
Title:
THE STATE OF TEXAS )
)
COUNTY OF DALLAS )
BEFORE ME, the undersigned authority, a notary public in and for said
County and State, on this day personally appeared D. W. Biegler, known to me to
be the person whose name is subscribed to the foregoing instrument and
acknowledged to me that the same was the act of the said ENSERCH CORPORATION, a
Texas corporation, and that he/she executed the same as the act of such
corporation for the purposes and consideration therein expressed, and in the
capacity therein stated.
GIVEN UNDER MY HAND AND SEAL OF OFFICE, this 23rd day of September, 1994.
/s/ Cherry H. Sossamon
Notary Public, State of Texas
My Commission expires:
October 31, 1996
THE STATE OF TEXAS )
)
COUNTY OF DALLAS )
BEFORE ME, the undersigned authority, a notary public in and for said
County and State, on this day personally appeared D. W. Biegler, known to me to
be the person whose name is subscribed to the foregoing instrument and
acknowledged to me that the same was the act of the said ENSERCH EXPLORATION,
INC., a Delaware corporation, and that he/she executed the same as the act of
such
<PAGE>
corporation for the purposes and consideration therein expressed, and in the
capacity therein stated.
GIVEN UNDER MY HAND AND SEAL OF OFFICE, this 23rd day of September, 1994.
/s/ Cherry H. Sossamon
Notary Public, State of Texas
My Commission expires:
October 31, 1996
THE STATE OF TEXAS )
)
COUNTY OF DALLAS )
BEFORE ME, the undersigned authority, a notary public in and for said
County and State, on this day personally appeared D. W. Biegler, known to me to
be the person whose name is subscribed to the foregoing instrument and
acknowledged to me that the same was the act of the said NEW ENSERCH
EXPLORATION, INC., a Texas corporation, and that he/she executed the same as the
act of such corporation for the purposes and consideration therein expressed,
and in the capacity therein stated.
GIVEN UNDER MY HAND AND SEAL OF OFFICE, this 23rd day of September, 1994.
/s/ Cherry H. Sossamon
Notary Public, State of Texas
My Commission expires:
October 31, 1996
THE STATE OF TEXAS )
)
COUNTY OF DALLAS )
BEFORE ME, the undersigned authority, a notary public in and for said
County and State, on this day personally appeared G. R.
<PAGE>
Bryan, known to me to be the person whose name is subscribed to the foregoing
instrument and acknowledged to me that the same was the act of the said ENSERCH
DEVELOPMENT CORPORATION, a Texas corporation, and that he/she executed the same
as the act of such corporation for the purposes and consideration therein
expressed, and in the capacity therein stated.
GIVEN UNDER MY HAND AND SEAL OF OFFICE, this 23rd day of September, 1994.
/s/ Glynnda S. Rice
Notary Public, State of Texas
My Commission expires:
February 28, 1997
THE STATE OF TEXAS )
)
COUNTY OF DALLAS )
BEFORE ME, the undersigned authority, a notary public in and for said
County and State, on this day personally appeared D. W. Biegler, known to me to
be the person whose name is subscribed to the foregoing instrument and
acknowledged to me that the same was the act of the said LONE STAR ENERGY
COMPANY, a Texas corporation, and that he/she executed the same as the act of
such corporation for the purposes and consideration therein expressed, and in
the capacity therein stated.
GIVEN UNDER MY HAND AND SEAL OF OFFICE, this 23rd day of September, 1994.
/s/ Cherry H. Sossamon
Notary Public, State of Texas
My Commission expires:
October 31, 1996
THE STATE OF TEXAS )
)
COUNTY OF DALLAS )
<PAGE>
BEFORE ME, the undersigned authority, a notary public in and for said
County and State, on this day personally appeared D. W. Biegler, known to me to
be the person whose name is subscribed to the foregoing instrument and
acknowledged to me that the same was the act of the said ENSERCH GAS COMPANY, a
Texas corporation, and that he/she executed the same as the act of such
corporation for the purposes and consideration therein expressed, and in the
capacity therein stated.
GIVEN UNDER MY HAND AND SEAL OF OFFICE, this 23rd day of September, 1994.
/s/ Cherry H. Sossamon
Notary Public, State of Texas
My Commission expires:
October 31, 1996
THE STATE OF TEXAS )
)
COUNTY OF DALLAS )
BEFORE ME, the undersigned authority, a notary public in and for said
County and State, on this day personally appeared Karen Epps, known to me to be
the person whose name is subscribed to the foregoing instrument and acknowledged
to me that the same was the act of the said TEXAS COMMERCE BANK NATIONAL
ASSOCIATION, a national banking association, and that he/she executed the same
as the act of such banking association for the purposes and consideration
therein expressed, and in the capacity therein stated.
GIVEN UNDER MY HAND AND SEAL OF OFFICE, this 7th day of October, 1994.
/s/ Barbara Betik
Notary Public, State of Texas
My Commission expires:
January 30, 1997
<PAGE>
APPENDIX A
TO THE
ENSERCH CORPORATION
RETIREMENT INCOME RESTORATION TRUST
PARTICIPATING SUBSIDIARIES
--------------------------
1. Enserch Exploration, Inc., a Delaware corporation
2. New Enserch Exploration, Inc., a Texas corporation
3. Enserch Development Corporation, a Texas corporation
4. Lone Star Energy Company, a Texas corporation
5. Enserch Gas Company, a Texas Corporation
<PAGE>
AMENDMENT NO. 1
TO THE
ENSERCH CORPORATION
RETIREMENT INCOME RESTORATION TRUST
Pursuant to the provisions of Section 13(a) thereof, the ENSERCH
Corporation Retirement Income Restoration Trust (the "Trust") is hereby amended
in the following respects only: FIRST: Section l(f) of the Trust is hereby
amended by restatement in its entirety to read as follows:
(f) Any provision of this Trust Agreement to the contrary
notwithstanding, upon a Change of Control of the Company, as defined in the
Plan, each Employer shall (i) as soon as possible, but in no event more
than 30 days following the date of such Change of Control, make an
irrevocable contribution to the Trust in an amount, as determined by an
Independent Committee, as defined below, which when added to the total
value of the assets of the Employer's Separate Account under the Trust at
such time equals the total present value of all benefits accrued under the
Plan with respect to such Employer's respective Plan Participants and
beneficiaries as of the date on which the Change of Control occurred, and
(ii) on and after the date of the Change of Control, make monthly
contributions to the Trust in amounts sufficient, as determined by the
Independent Committee, to maintain the total value of the assets in the
Employer's Separate Account under the Trust at an amount equal to the total
present value of all benefits accrued under the Plan with respect to such
Employer's respective Plan Participants and beneficiaries. Any provision of
this Trust Agreement to the contrary notwithstanding, on and after the date
of a Change of Control of the Company, such portion of the assets in each
Separate Account of an Employer under this Trust as of the date of the
Change of Control equal in value to the total present value of such
Employer's Plan Participants' accrued benefits under the Plan as of such
date shall be segregated into a subaccount of such Separate Account to be
used and held exclusively for the benefit of such Employer's Plan
Participants (and their beneficiaries) as of the date immediately prior to
the date of such Change of Control, subject to the claims of general
<PAGE>
creditors of the Employer under federal and state law as set forth below.
SECOND: Section 3 of the Trust is hereby amended by restatement in its
entirety to read as follows:
Section 3. Appointment of Independent Committee.
(a) Any provision of this Trust Agreement to the contrary
notwithstanding, upon a Change of Control of the Company, an Independent
Committee consisting of at least three members shall be appointed by the
Board of Directors of ENSERCH Corporation (the "Board") subject to the
written approval of a majority of the Plan Participants. The Independent
Committee shall :
(i) determine the assumptions to be used in calculating present
values of benefits accrued for purposes of this Trust;
(ii) determine the amount of the irrevocable contributions to be
made by each Employer pursuant to Section l(f) hereof;
(iii) determine in accordance with the Plan the amounts payable
with respect to each Plan Participant (and his or her beneficiaries),
the form in which such amounts are to be paid, and the time of
commencement for payment of such amounts pursuant to Section 2(a)
hereof;
(iv) determine the entitlement of Plan Participants and
beneficiaries to benefits under the terms of the Plan pursuant to
Section 2(b) hereof;
(v) direct the Trustee to make payments to Plan Participants and
their beneficiaries pursuant to Section 2 hereof; and
(vi) select a successor Trustee for the Trust if a Trustee resigns
or is removed on or after the date of a Change of Control of the
Company pursuant to Section 12.
(b) Each member of the Independent Committee so appointed shall serve
in such office until his or her death, resignation or removal. The Board
may remove any member of the Independent Committee by giving written notice
thereof to all Plan
<PAGE>
Participants and all members of the Independent Committee; provided,
however, that no member of the Independent Committee may be removed by the
Board on or after a Change of Control of the Company except with the
written consent of a majority of the Plan Participants. Vacancies on the
Independent Committee shall be filled from time to time by the Board
subject to the written approval of a majority of the Plan Participants on
the date such vacancy is filled.
(c) The Independent Committee shall act by a majority of its members
at the time in office and such action may be taken either by a vote at a
meeting or in writing without a meeting. The Independent Committee may by
such majority action authorize any one or more of its members to execute
any document or documents on behalf of the Independent Committee, in which
event the Independent Committee shall notify the Trustee in writing of such
action and the name or names of its member or members so authorized to act.
Every interpretation, choice, determination or other exercise by the
Independent Committee of any power or discretion given either expressly or
by implication to it shall be conclusive and binding upon all parties
having or claiming to have an interest under the Trust or otherwise
directly or indirectly affected by such action, without restriction,
however, on the right of the Independent Committee to reconsider and
redetermine such action.
(d) Any provision of this Trust Agreement to the contrary
notwithstanding, in the event that (i) the Board shall not appoint an
Independent Committee within 30 days following a Change of Control of the
Company or a majority of the Participants in the Plan do not approve in
writing at least three members selected by the Board to serve on an
Independent Committee within such 30-day period or (ii) the Board does not
fill a vacancy on the Independent Committee within 30 days of the date such
office becomes vacant or a majority of the Participants in the Plan do not
approve in writing the Board's selection to fill a vacancy on the
Independent Committee within such 30-day period, then the Participants in
the Plan shall elect, by majority vote, up to three individuals to the
extent necessary to ensure that the Independent Committee consists of three
members.
THIRD: Section 5(b) of the Trust is hereby amended by restatement in its
entirety to read as follows:
<PAGE>
(b) To the extent that an Employer determines that the value of the
assets in its Separate Account under the Trust based upon information
provided to the Employer by the Trustee, at any time, exceeds 110` of the
present value of the benefits accrued under the Plan by the Employer's
respective Plan Participants, the Trustee shall pay such excess to the
Employer upon receipt of written request therefor from the Company;
provided, however, that no such payment of excess assets to the Employer
shall be made on or after the date of a Change of Control of the Company
without the written approval of the Participants in the Plan.
FOURTH: Section 6(b) of the Trust is hereby amended by restating the
last sentence thereof in its entirety to read as follows:
The preceding provisions of this paragraph to the contrary notwithstanding,
the Company shall have the right and power at any time and from time to
time to give the Trustee broad guidelines within which it shall invest the
assets of the Trust; provided, however, that on and after the date of a
Change of Control of the Company, the Independent Committee, rather than
the Company, shall have the sole authority to exercise such right.
FIFTH: Section 6(d) of the Trust is hereby amended by restating the
first sentence thereof in its entirety to read as follows:
Each Employer shall have the right, at any time, and from time to time in
its sole discretion, to substitute assets of equal fair market value for
any asset held in its Separate Account under the Trust; provided, however,
that on and after the date of a Change of Control of the Company, any
assets transferred to the Trust in substitution for assets held in an
Employer's Separate Account under the Trust must consist of cash or
marketable securities acceptable to the Independent Committee and the fair
market value of the respective assets shall be determined by the Trustee.
<PAGE>
SIXTH: Section 9(b) of the Trust is hereby amended by restating the last
sentence thereof in its entirety to read as follows:
If the Employers do not pay such costs, expenses and liabilities in a
reasonably timely manner, the Trustee may obtain payment from the Trust;
provided, however, that in the event any such costs, expenses and
liabilities are paid from the Trust, the Trustee shall notify the Employers
in writing that such payment has been made and the Employers shall reimburse
the Trust for such payment within 15 days from the date of such notice.
SEVENTH: Section 10 of the Trust is hereby amended by restating the last
sentence thereof in its entirety to read as follows:
The Employers shall pay all administrative and the Trustee's fees and
expenses, but, if not so paid, such fees and expenses shall be paid from the
Trust; provided, however, that in the event any such fees and expenses are
paid from the Trust, the Trustee shall notify the Employers in writing that
such payment has been made and the Employers shall reimburse the Trust for
such payment within 15 days from the date of such notice.
EIGHTH: Section ll(b) of the Trust is hereby amended by restatement in its
entirety to read as follows:
(b) The Trustee may be removed by the Company on 30 days notice or
upon shorter notice accepted by the Trustee; provided, however, that the
Trustee may not be removed by the Company on or after the date of a Change
of Control of the Company except with the written consent of a majority of
the Plan Participants.
NINTH: Section 12(a) of the Trust is hereby amended by restating the first
sentence thereof in its entirety to read as follows:
<PAGE>
If the Trustee resigns or is removed in accordance with Section ll(a) or
(b) hereof, the Company may appoint any third party, such as a bank trust
department or other party that may be granted corporate trustee powers
under state law, as a successor to replace the Trustee upon resignation or
removal; provided, however, that if the Trustee resigns or is removed on or
after the date of a Change of Control of the Company, the Independent
Committee shall select a successor Trustee in accordance with this Section
12.
TENTH: Section 13(e) of the Trust is hereby amended by restatement in its
entirety to read as follows:
(e) Any provision of this Trust Agreement to the contrary notwithstanding,
this Trust Agreement may not be amended on or after the date of a Change of
Control of the Company without the written consent of a majority of the
Plan Participants.
ELEVENTH: The Trust is hereby amended by spinning off to a new trust to be
known as the Enserch Exploration, Inc. Retirement Income Restoration Trust, the
assets held in the Separate Accounts of Enserch Exploration, Inc. and its
subsidiaries effective as of the date of the distribution of all shares of stock
of Enserch Exploration, Inc. owned by ENSERCH Corporation to the shareholders of
ENSERCH Corporation.
IN WITNESS WHEREOF, this Amendment has been executed this day of ,
1996, to be effective as of January 1, 1996.
ENSERCH CORPORATION
By: /s/ D. W. Biegler
----------------------------
Title: Chairman and President
TEXAS COMMERCE BANK NATIONAL
<PAGE>
ASSOCIATION
By:
----------------------
Title:
THE STATE OF TEXAS )
)
COUNTY OF DALLAS )
BEFORE ME, the undersigned authority, a notary public in and for said
County and Stake, on this day personally appeared D. W. Biegler, known to me to
be the person whose name is subscribed to the foregoing instrument and
acknowledged to me that the same was the act of the said ENSERCH CORPORATION, a
Texas corporation, and that he/she executed the same as the act of such
corporation for the purposes and consideration therein expressed, and in the
capacity therein stated.
GIVEN UNDER MY HAND AND SEAL OF OFFICE, this 6th day of November, 1996.
/s/ Anita K. Brian
--------------------------
Notary Public,
State of Texas
My Commission expires:
January 23, 1997
THE STATE OF TEXAS )
)
COUNTY OF DALLAS )
BEFORE ME, the undersigned authority, a notary public in and for said
County and State, on this day personally appeared ,
known to me to be the person whose name is subscribed to the foregoing
instrument and acknowledged to me that the same was the act of the said TEXAS
COMMERCE BANK NATIONAL ASSOCIATION, a national banking association, and that
he/she executed the same as the act of such banking association for the
<PAGE>
purposes and consideration therein expressed, and in the capacity therein
stated.
GIVEN UNDER MY HAND AND SEAL OF OFFICE, this day of , 1996.
--------------------------
Notary Public,
State of Texas
My Commission expires:
<PAGE>
EXHIBIT 21
ENSERCH Corporation, its subsidiaries and their subsidiaries and
affiliates, respectively, on March 1, 1997, are listed below.
STATE OR
COUNTRY
NAME OF COMPANY INCORPORATION
ENSERCH Corporation (unincorporated divisions include:
Lone Star Gas Company and
Lone Star Pipeline Company) Texas
Lone Star Energy Services, Inc. Texas
Lone Star Gas Company of Texas, Inc. Texas
National Pipeline Company Texas
Enserch de Mexico S.A. de C.V. Mexico
Enserch de Monterrey S.A. de C.V. Mexico
Enserch Gas Transmission Company Texas
Ensat Pipeline Company Texas
Enserch Processing, Inc. Delaware
Enserch Energy Services, Inc. Texas
Enserch Gas Marketing Company Texas
Direct Gas Supply Corp. New York
Enserch Energy Services (New York), Inc. Delaware
Enserch Energy Services (Canada), Inc. Texas
Lone Star Energy Company Texas
Fleet Star of Texas, L.C. (1) Texas
TRANSTAR Technology, L.C. (1) Texas
Lone Star Energy Plant Operations, Inc. Texas
Lone Star Gas International, Inc. Texas
Lone Star Gas Chile S.A. Chile
Lone Star Dallas Energy Center, Inc. Texas
LS Energy, Inc. Texas
Enserch Development Corporation Texas
Enserch Development Corporation One, Inc. Delaware
EDC Catskill Cogeneration, Inc. Delaware
EDC Four Inc. Delaware
Enserch Development Corporation Hamakua, Inc. Texas
Enserch Development Corporation Hawaii, Inc. Texas
Enserch International Ltd. Cayman Islands
EDC International (Karnataka No. 1) Ltd. Cayman Islands
EDC Northwest Cogeneration, Inc. Delaware
EDC Palakkad Power Ltd. Cayman Islands
EDC Palakkad One Holding Company Mauritius
EDC Palakkad Two Holding Company Mauritius
EDC Power Marketing, Inc. Texas
EDC Shaoxing Power Ltd. Cayman Islands
Ensat Northwest Cogeneration Company Texas
Palakkad Power Generating Company India
Enserch International Services, Inc. Texas
Ensat Cogeneration Company Texas
Enserch Exploration Holdings, Inc. Delaware
2
<PAGE>
Enserch Exploration, Inc.(2) Texas
EEX Capital L.L.C. Texas
MIStS Issuer L.L.C.(3) 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
Enserch International Investments Limited Delaware
Humphreys & Glasgow Limited* United Kingdom
Aleasco, Inc. Alaska
ENS Claims Management, Inc. Delaware
Enserch Finance, Inc. Texas
ENSERCH Finance N.V. Netherlands Antilles
ENS Holdings I, Inc. Texas
ENS Holdings, II, Inc. Texas
Enserch House, Inc. Texas
ENS Insurance Company Vermont
Enserch Shirley, Inc. Delaware
Enserch Preferred Acquisitions, Inc. Texas
Enserch E&C Holdings, Inc. Nevada
Enserch E&C, Inc. Nevada
ESICORP Industries Inc. (Delaware) Delaware
Ebasco Cayman Limited Cayman Islands
Ebasco Services Singapore Pte. Ltd. Singapore
Ebasco Energy A.G. Switzerland
ESICORP Risk Management Consultants, Inc. New York
Associated Company Management of
ESICORP Limited Bermuda
Ebasco Services of Canada Limited Canada
ESICORP Constructors International Inc. Delaware
ENS (U.K.) Limited United Kingdom
ENS Limited United Kingdom
Process Engineering International
Limited United Kingdom
ENS Equipment Corporation Delaware
E & L Technologies Inc. Delaware
E & L Associates, Inc. California
E & L International, Inc. California
- -----------------------
* Company in liquidation.
(1) 50% owned by parent corporation.
(2) 17% owned by public shareholders.
(3) .999% owned by EEX Capital L.L.C. and .001% owned by Enserch Preferred
Capital, Inc.
(4) 67% owned by parent corporation.
3
<PAGE>
Except as noted above, the voting stock of each subsidiary company and their
subsidiaries and affiliates is wholly owned (100%) by its parent. The financial
statements of each subsidiary are included in the consolidated financial
statements except that the equity method of accounting is used for subsidiaries
in which the Corporation has 50% or less ownership. Such unconsolidated
subsidiaries considered in the aggregate do not constitute a significant
subsidiary.
PARTNERSHIP AFFILIATES
STATE OF
NAME OF COMPANY ORGANIZATION
Enserch Financing, L.P. Texas
Enserch SACROC, Inc. (1) Texas
Encogen One Partners, Ltd. Texas
Encogen Hawaii, L.P. Hawaii
Encogen Four Partners, L.P. Delaware
Encogen Northwest, L.P. Delaware
ENS Holdings Limited Partnership Texas
Gulf Coast Natural Gas Company** Texas
Lavair Cogeneration Limited Partnership Delaware
FinaStar Partnership** Texas
Metrogas S.A. (2) Chile
Compania Mexicana de Gas S.A. de C.V. (3) Mexico
Zhejiang Yong-Ke Thermal Power Corporation, Ltd. (4) China
**General partnership.
(1) 99.65% owned by Enserch Financing, L.P. and .35% owned by ENS Holdings
Limited Partnership.
(2) 10% owned by Lone Star Gas Chile S.A. de C.V., 22.5% owned by COPEC, 37.5%
owned by Gasco, 7.5% owned by Enargas, 10% owned by Novacorp, 12.5% owned
by Chilgener.
(3) 100% owned by Grupo Diavez, subject to contract right of Enserch de
Monterrey S.A. de C.V. to aquire 49%.
(4) 70% owned by EDC Shaoxing Power Ltd., 30% owned by Zhejiang Thermal Power
Plant.
4
<PAGE>
EXHIBIT 23.1
INDEPENDENT AUDITORS' CONSENT
ENSERCH Corporation:
We consent to the incorporation by reference in Registration Statements No.
2-59259, No. 33-47911, No. 33-40589 and No. 2-77572 on Form S-8 in Registration
Statements No. 33-15623, No. 33-52525 and No. 33-61635 of ENSERCH Corporation on
Form S-3, and in Registration Statement No. 333-12391 on Form S-4 of our report
dated February 10, 1997, appearing in this Annual Report on Form 10-K of ENSERCH
Corporation for the year ended December 31, 1996.
DELOITTE & TOUCHE LLP
Dallas, Texas
March 27, 1997
<PAGE>
EXHIBIT 23.2
DeGolyer and MacNaughton
One Energy Square
Dallas, Texas 75206
March 25, 1997
ENSERCH Corporation
300 South St. Paul Street
Dallas, Texas 75201
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
Corporation (the Corporation) 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 Corporation 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 - Natural Gas and Oil Exploration and
Production - General, and - Recent Developments - Core Areas, and - Offshore
Activities" and "Properties" in Part I of the Annual Report and in Note 12 of
the "Notes to Financial Statements" in the Annual Report. Additionally, we
hereby consent to the incorporation by reference in the Corporation's
Registration Statements Nos. 2-59259, 2-77572, 33-40589 and 33-47911 on Form S-
8, Nos. 33-15623, 33-52525 and 33-61635 on Form S-3 and No. 333-12391 on Form S-
4 of such references made in the Annual Report.
Very truly yours,
DeGOLYER and MacNAUGHTON
<PAGE>
EXHIBIT 24
POWER OF ATTORNEY
WHEREAS, ENSERCH Corporation, a Texas corporation (the "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 the
Corporation, does hereby appoint D. W. Biegler, W. T. Satterwhite or M. E.
Rescoe, 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 the Corporation, 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
18th day of March, 1997.
/s/ B. A. Bridgewater, Jr.
----------------------------------------
B. A. Bridgewater, Jr.
<PAGE>
POWER OF ATTORNEY
WHEREAS, ENSERCH Corporation, a Texas corporation (the "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 the
Corporation, does hereby appoint D. W. Biegler, W. T. Satterwhite or M. E.
Rescoe, 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 the Corporation, 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
20th day of March, 1997.
/s/ Odie C. Donald
----------------------------------------
Odie C. Donald
<PAGE>
POWER OF ATTORNEY
WHEREAS, ENSERCH Corporation, a Texas corporation (the "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 the
Corporation, does hereby appoint D. W. Biegler, W. T. Satterwhite or M. E.
Rescoe, 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 the Corporation, 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
18th day of March, 1997.
/s/ Marvin J. Girouard
----------------------------------------
Marvin J. Girouard
<PAGE>
POWER OF ATTORNEY
WHEREAS, ENSERCH Corporation, a Texas corporation (the "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 the
Corporation, does hereby appoint D. W. Biegler, W. T. Satterwhite or M. E.
Rescoe, 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 the Corporation, 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
19th day of March, 1997.
/s/ Joseph M. Haggar, Jr.
----------------------------------------
Joseph M. Haggar, Jr.
<PAGE>
POWER OF ATTORNEY
WHEREAS, ENSERCH Corporation, a Texas corporation (the "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 the
Corporation, does hereby appoint D. W. Biegler, W. T. Satterwhite or M. E.
Rescoe, 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 the Corporation, 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
21st day of March, 1997.
/s/ Thomas W. Luce, III
----------------------------------------
Thomas W. Luce, III
<PAGE>
POWER OF ATTORNEY
WHEREAS, ENSERCH Corporation, a Texas corporation (the "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 the
Corporation, does hereby appoint D. W. Biegler, W. T. Satterwhite or M. E.
Rescoe, 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 the Corporation, 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
18th day of March, 1997.
/s/ W. C. McCord
----------------------------
W. C. McCord
<PAGE>
POWER OF ATTORNEY
WHEREAS, ENSERCH Corporation, a Texas corporation (the "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 her capacity as a director of the
Corporation, does hereby appoint D. W. Biegler, W. T. Satterwhite or M. E.
Rescoe, and each of them severally, her 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 her name, place and stead in her capacity as a
director of the Corporation, 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
19th day of March, 1997.
/s/ Diana S. Natalicio
----------------------------------------
Diana S. Natalicio
<PAGE>
POWER OF ATTORNEY
WHEREAS, ENSERCH Corporation, a Texas corporation (the "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 an officer of the
Corporation, does hereby appoint D. W. Biegler or W. T. Satterwhite, 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 an officer of the
Corporation, 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
18th day of March, 1997.
/s/ M. E. Rescoe
----------------------------------------
M. E. Rescoe
<PAGE>
POWER OF ATTORNEY
WHEREAS, ENSERCH Corporation, a Texas corporation (the "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 an officer of the
Corporation, does hereby appoint D. W. Biegler, W. T. Satterwhite or M. E.
Rescoe, 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
an officer of the Corporation, 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
18th day of March, 1997.
/s/ J. W. Pinkerton
----------------------------------------
J. W. Pinkerton
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