<PAGE> 1
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON OCTOBER 10, 1996
REGISTRATION NOS. 333-13791
333-13791-1
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
---------------------
AMENDMENT NO. 1
TO
FORM S-4
REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933
---------------------
<TABLE>
<S> <C> <C> <C>
ENRON OREGON CORP. OREGON 5172 76-0511381
ENRON CORP.* DELAWARE 5172 47-0255140
(Exact names of (State or other (Primary Standard (I.R.S.
registrants as jurisdiction of Industrial Employer
specified in their incorporation or Classification Identification
charters) organization) Code Number) Number)
1400 SMITH STREET REX R. ROGERS
HOUSTON, TEXAS 77002-7369 ENRON CORP.
(713) 853-6161 1400 SMITH STREET
(Address, including zip code, and telephone HOUSTON, TEXAS 77002-7369
number, including area code, of (713) 853-3069
registrants' principal executive offices) (Name, address, including zip code, and
telephone number, including area
code, of agent for service)
</TABLE>
Copies to:
<TABLE>
<S> <C> <C>
J. MARK METTS STEVEN H. DAVIS SETH A. KAPLAN
VINSON & ELKINS L.L.P. LEBOEUF, LAMB, GREENE & WACHTELL, LIPTON
2300 FIRST CITY TOWER MACRAE ROSEN & KATZ
1001 FANNIN 125 WEST 55TH STREET 51 WEST 52ND STREET
HOUSTON, TX 77002-6760 NEW YORK, NY 10019-5389 NEW YORK, NY 10019
</TABLE>
APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE OF THE SECURITIES TO THE
PUBLIC: As soon as practicable following the effectiveness of this Registration
Statement.
If the securities being registered on this Form are being offered in
connection with the formation of a holding company and there is compliance with
General Instruction G, check the following box. / /
---------------------
CALCULATION OF REGISTRATION FEE
<TABLE>
<CAPTION>
===================================================================================================
PROPOSED
TITLE OF EACH CLASS OF MAXIMUM AGGREGATE AMOUNT OF
SECURITIES TO BE REGISTERED(1) OFFERING PRICE(2) REGISTRATION FEE
- ---------------------------------------------------------------------------------------------------
<S> <C> <C>
Common Stock................................ $12,989,387,542 $3,342,958 (paid herewith)
New Enron Cumulative Second Preferred
Convertible Stock......................... $593,221 (previously paid)(3)
===================================================================================================
</TABLE>
(1) This Registration Statement relates to the shares of the common stock of
Enron Oregon Corp. or Enron Corp. to be issued in exchange for the
outstanding shares of the common stock, par value $3.75 per share, of
Portland General Corporation ("PGC") and the outstanding shares of Common
Stock, par value $.10 per share, of Enron Corp., pursuant to the Mergers
described in the Joint Proxy Statement/Prospectus included herein and the
shares of New Enron Convertible Preferred Stock (as defined herein) issuable
to holders of Enron Convertible Preferred Stock (as defined herein) in the
Mergers. Also includes an indeterminate number of shares of New Enron Common
Stock issuable upon conversion of any shares of New Enron Convertible
Preferred Stock issued in the Mergers. See the Explanatory Note on the
following page.
(2) Estimated solely for the purpose of calculating the registration fee
pursuant to Rules 457(f) and 457(i), based on the number of shares of PGC
Common Stock, Enron Common Stock and Enron Convertible Preferred Stock and
options to purchase PGC Common Stock outstanding as of October 4, 1996,
using a value of $38.0625 per share of PGC Common Stock (the average of the
low and high sales prices of PGC Common Stock as reported on the New York
Stock Exchange on October 4, 1996) $40.625 per share of Enron Common Stock
(the average of the high and low closing prices the Enron Common Stock on
October 4, 1996) and $525 per share of Enron Convertible Preferred Stock,
the last reported sale price of such shares.
(3) Includes $403,659 paid by Enron Corp. in connection with its filing on
August 13, 1996 of the preliminary proxy materials included herein under the
Securities Exchange Act of 1934, and $189,562 paid in connection with the
original filing of the Registration Statement on October 9, 1996.
THE REGISTRANTS HEREBY AMEND THIS REGISTRATION STATEMENT ON SUCH DATE OR
DATES AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANTS
SHALL FILE A FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT THIS REGISTRATION
STATEMENT SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH SECTION 8(a) OF
THE SECURITIES ACT OF 1933 OR UNTIL THE REGISTRATION STATEMENT SHALL BECOME
EFFECTIVE ON SUCH DATE AS THE COMMISSION, ACTING PURSUANT TO SAID SECTION 8(a),
MAY DETERMINE.
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
* SEE THE EXPLANATORY NOTE ON THE FOLLOWING PAGE.
<PAGE> 2
EXPLANATORY NOTE: This Registration Statement relates to securities to be issued
by Enron Oregon Corp., an Oregon corporation ("New Enron"), to shareholders of
Portland General Corporation, an Oregon corporation ("PGC"), in connection with
the PGC Merger described herein. New Enron is a wholly owned subsidiary of Enron
Corp., a Delaware corporation ("Enron"), formed to succeed to the business of
Enron pursuant to the Reincorporation Merger described herein. The parties have
agreed that, under certain circumstances described herein, the Reincorporation
Merger will not be effected, in which case the securities issued to PGC
shareholders in the PGC Merger will be securities of Enron instead of New Enron.
In the event of such a revised transaction structure, this Registration
Statement will constitute a Registration Statement of Enron with respect to the
issuance of such securities. In no event will securities be issued by both New
Enron and Enron under this Registration Statement.
<PAGE> 3
[ENRON LOGO]
October 10, 1996
To Our Stockholders:
You are cordially invited to attend a Special Meeting of Stockholders to be
held at 4:00 p.m., local time, on Tuesday, November 12, 1996 at the Enron
Building, 1400 Smith Street, Houston, Texas. At the Special Meeting, you will be
asked to consider and vote upon an Amended and Restated Agreement and Plan of
Merger dated as of July 20, 1996 and amended and restated as of September 24,
1996 (the "Merger Agreement") under which Enron would combine with Portland
General Corporation by means of the mergers described in the accompanying Joint
Proxy Statement/Prospectus. For regulatory reasons, prior to completing the
merger with Portland General, Enron will reincorporate as an Oregon corporation
by merging into its wholly-owned subsidiary, Enron Oregon Corp. ("New Enron"),
unless certain regulatory reforms are enacted.
As a result of the mergers, each share of Common Stock of Enron and
Portland General issued and outstanding prior to the mergers will be converted
into one share of the Common Stock of New Enron (subject to adjustment in
certain circumstances) and each share of preferred stock of Enron issued and
outstanding prior to the mergers will be converted into one share of an
equivalent series of preferred stock of New Enron. After consummation of the
mergers, former Portland General shareholders will own approximately 17% of the
outstanding New Enron Common Stock, based on the number of shares currently
outstanding. The New Enron Common Stock will be traded on the New York Stock
Exchange as well as the Chicago, Pacific, London and Frankfurt exchanges.
Consummation of the mergers is subject to satisfaction of certain
conditions, including approval of the Merger Agreement by the shareholders of
Enron and Portland General and the satisfaction of certain regulatory conditions
described in the accompanying Joint Proxy Statement/Prospectus. It is expected
that the closing of the mergers will occur sometime in 1997.
Your Board of Directors believes that the combined enterprise will be well
positioned to take advantage of opportunities in the rapidly deregulating market
for electric power. By combining Enron's collective marketing and risk
management expertise with Portland General's physical delivery capabilities and
asset operation experience, the resulting company will have a strong presence in
the wholesale and retail markets.
A copy of the Merger Agreement and more detailed information concerning the
transactions contemplated thereby, together with financial and other information
concerning the businesses of Enron and Portland General, are included in the
enclosed Joint Proxy Statement/Prospectus. Please review the Joint Proxy
Statement/Prospectus carefully.
The Board of Directors of Enron has received the written opinion of Smith
Barney Inc. that the consideration to be issued to holders of Portland General
common stock in the mergers is fair, from a financial point of view, to Enron
and its stockholders. A copy of the opinion of Smith Barney Inc. is included in
the enclosed Joint Proxy Statement/Prospectus as Annex B. FOR THE REASONS SET
FORTH IN THE ACCOMPANYING JOINT PROXY STATEMENT/PROSPECTUS, YOUR BOARD OF
DIRECTORS BELIEVES THAT THE TRANSACTIONS CONTEMPLATED BY THE MERGER AGREEMENT
ARE FAIR TO, AND IN THE BEST INTERESTS OF, ENRON AND ITS STOCKHOLDERS, AND
RECOMMENDS THAT STOCKHOLDERS VOTE FOR APPROVAL AND ADOPTION OF THE MERGER
AGREEMENT.
Holders of record as of the close of business on September 23, 1996 of
Enron's Common Stock and Enron's Cumulative Second Preferred Convertible Stock
will be entitled to vote at the Special Meeting. YOUR VOTE IS IMPORTANT. FAILURE
TO VOTE WILL HAVE THE SAME EFFECT AS A VOTE AGAINST THE MERGERS. Regardless of
whether you plan to attend the meeting, we urge you to complete, sign and date
the enclosed proxy or voting instruction card and return it in the enclosed
return envelope.
If you have any questions prior to the Special Meeting or need further
assistance, please call Corporate Investor Communications, Inc., who will be
assisting in connection with the Special Meeting, at their toll-free number,
(888) 242-2756.
Sincerely,
/s/ KENNETH L. LAY
Kenneth L. Lay
Chairman of the Board and
Chief Executive Officer
<PAGE> 4
[ENRON LOGO]
NOTICE OF SPECIAL MEETING OF STOCKHOLDERS
TO BE HELD ON NOVEMBER 12, 1996
To the Stockholders of Enron Corp.:
A Special Meeting of Stockholders of Enron Corp., a Delaware corporation
("Enron"), will be held on Tuesday, November 12, 1996 at 4:00 p.m., local time,
at the Enron Building, 1400 Smith Street, Houston, Texas for the following
purposes:
1. To consider and vote upon a proposal to approve and adopt an
Amended and Restated Agreement and Plan of Merger dated as of July 20, 1996
and amended and restated as of September 24, 1996 (the "Merger Agreement")
providing for (i) the merger (the "Reincorporation Merger") of Enron Corp.
with and into its wholly-owned subsidiary, Enron Oregon Corp. ("New
Enron"), to effect the reincorporation of Enron as an Oregon corporation,
and (ii) immediately after the Reincorporation Merger, the merger of
Portland General Corporation ("PGC") with and into New Enron (the "PGC
Merger"). In the Reincorporation Merger, each issued and outstanding share
of the common stock, par value $.10 per share, of Enron ("Enron Common
Stock") will be converted into one share of the common stock, without par
value, of New Enron ("New Enron Common Stock"), and each issued and
outstanding share of Cumulative Second Preferred Convertible Stock ("Enron
Convertible Preferred
Stock") and 9.142% Perpetual Second Preferred Stock of Enron (as well as
any share of any other class or series of Enron preferred stock, second
preferred stock or preference stock issued and outstanding at the effective
time of the Reincorporation Merger) will be converted into one share of an
equivalent series of New Enron's preferred stock. In the PGC Merger, each
share of common stock, par value $3.75 per share, of PGC issued and
outstanding at the effective time of the PGC Merger will be converted into
one share of New Enron Common Stock (subject to adjustment in certain
circumstances). The Merger Agreement provides that if certain regulatory
reforms are enacted, the structure of the transactions contemplated by the
Merger Agreement will be revised to eliminate the Reincorporation Merger.
Further information concerning the Merger Agreement and the transactions
contemplated thereby is set forth in the accompanying Joint Proxy
Statement/Prospectus and in the Merger Agreement, a copy of which is
included as Annex A thereto.
2. To transact such other business as may properly come before the
Special Meeting or any adjournment(s) or postponement(s) thereof.
The Board of Directors has fixed the close of business on September 23,
1996 as the record date for the determination of holders of Enron Common Stock
and Enron Convertible Preferred Stock entitled to notice of, and to vote at, the
Special Meeting or any adjournment(s) or postponement(s) thereof. Only holders
of record of shares of Enron Common Stock and Enron Convertible Preferred Stock
at the close of business on the record date are entitled to notice of, and to
vote at, the Special Meeting. At the Special Meeting, holders of Enron Common
Stock and Enron Convertible Preferred Stock will vote together as a class, with
each holder of Enron Common Stock being entitled to one vote per share on all
matters brought before the Special Meeting and each holder of Enron Convertible
Preferred Stock being entitled to a number of votes per share equal to the
conversion rate of 13.652 shares of Enron Common Stock per share on all matters
brought before the Special Meeting. A complete list of such stockholders will be
available for examination at the offices of Enron in Houston, Texas during
normal business hours by any Enron stockholder, for any purpose germane to the
Special Meeting, for a period of 10 days prior to the meeting.
Under applicable law, no holders of Enron capital stock are entitled to
dissenters' or appraisal rights in connection with the transactions contemplated
by the Merger Agreement.
Your vote is important. Approval by a majority of the voting power
represented by the outstanding shares of Enron Common Stock and Enron
Convertible Preferred Stock entitled to vote is required for approval of the
Merger Agreement. Even if you plan to attend the Special Meeting in person, we
request that you sign and return the enclosed proxy or voting instruction card
and thus ensure that your shares will be represented at the Special Meeting if
you are unable to attend. If you do attend the Special Meeting and wish to vote
in person, you may withdraw your proxy and vote in person.
By Order of the Board of Directors
PEGGY B. MENCHACA
Peggy B. Menchaca
Vice President and Secretary
Houston, Texas
October 10, 1996
<PAGE> 5
[PORTLAND GENERAL CORPORATION LOGO]
OCTOBER 10, 1996
Dear Portland General Shareholder:
You are cordially invited to attend the Special Meeting of Shareholders of
Portland General Corporation ("PGC"), which will be held on Tuesday, November
12, 1996, at Portland General Corporation Headquarters, Two World Trade Center,
121 S.W. Salmon Street, Portland, Oregon. The meeting will start at 2:00 p.m.,
local time.
At this important meeting, you will be asked to approve a merger agreement
(the "Merger Agreement") with Enron Corp. ("Enron") and a wholly-owned
subsidiary of Enron. Pursuant to the transactions contemplated by the Merger
Agreement, Enron will be reincorporated in Oregon and PGC will be merged into
the corporation surviving the reincorporation transaction. As a result of these
transactions, you will receive one share of common stock of reincorporated Enron
for each of your PGC shares (subject to adjustment in certain circumstances).
Your Board of Directors believes that this combination with Enron
represents an outstanding opportunity for PGC shareholders. In addition to
receiving an attractive premium for your shares -- 48 percent, based upon the
closing prices of Enron and PGC stock on the trading day immediately preceding
public announcement of the transaction -- you will have a chance to participate
in the continued earnings growth of one of the most successful integrated energy
companies in the world. Over the past ten years, Enron has demonstrated a
superior track record of stock price appreciation and sustained dividend growth.
The combined enterprise will be well-positioned to take advantage of
opportunities in the rapidly deregulating market for electric power. By
combining Enron's collective marketing and risk management expertise with PGC's
physical delivery capabilities and asset operation experience, the resulting
company will have a strong presence in the wholesale and retail markets.
Based on the capitalization of Enron and PGC as of the date of the Merger
Agreement, the common shareholders of PGC would have held approximately 17% of
the shares of common stock of reincorporated Enron that would have been
outstanding if the merger had been consummated as of such date. Your Board of
Directors has received the written opinion of its financial advisor, Goldman,
Sachs & Co., that as of the date hereof and based on the factors and assumptions
described in such opinion, the exchange ratio pursuant to the Merger Agreement
is fair to the holders of PGC common stock (other than Enron or any of its
subsidiaries).
YOUR BOARD OF DIRECTORS HAS CAREFULLY REVIEWED AND CONSIDERED THE TERMS AND
CONDITIONS OF THE MERGER AGREEMENT, BELIEVES THAT THEY ARE IN THE BEST INTERESTS
OF PGC AND ITS SHAREHOLDERS, AND, BY A UNANIMOUS VOTE OF THE DIRECTORS PRESENT,
HAS APPROVED THE MERGER AGREEMENT AND UNANIMOUSLY RECOMMENDS A VOTE FOR APPROVAL
OF THE MERGER AGREEMENT.
Approval of the Merger Agreement by the shareholders of PGC and Enron
entitled to vote thereon is a condition to consummation of the transaction. The
transaction will be consummated only after certain regulatory approvals are
received and other conditions are satisfied or waived. It is presently
anticipated that the closing will occur sometime in 1997.
Your vote is important no matter how many shares you hold. Even if you plan
to attend the meeting, we urge you to mark, sign and date the enclosed proxy and
return it promptly. You have the option to revoke it at any time, or to vote
your shares personally on request if you attend the meeting. For the Merger
Agreement to be approved, it must have the support of the majority of the votes
entitled to be cast by the outstanding shares of PGC common stock.
PLEASE RETURN YOUR SIGNED PROXY CARD. IF YOU DO NOT RETURN THE PROXY CARD
AND DO NOT VOTE AT THE MEETING, IT WILL HAVE THE SAME EFFECT AS IF YOU VOTED
AGAINST THE MERGER AGREEMENT.
ONE WORLD TRADE CENTER
121 S.W. SALMON STREET, PORTLAND, OR 97204, (503) 464-8820
<PAGE> 6
You are urged to review carefully the attached Joint Proxy
Statement/Prospectus, which contains a detailed description of the Merger
Agreement, the terms and conditions thereof and the transactions contemplated
thereby.
Promptly after the mergers, a letter of transmittal will be mailed to each
holder of record of shares of PGC common stock. PLEASE DO NOT SEND YOUR PGC
COMMON STOCK CERTIFICATES WITH THE ENCLOSED PROXY. THE LETTER OF TRANSMITTAL TO
BE MAILED TO YOU LATER WILL INCLUDE INSTRUCTIONS AS TO THE PROCEDURE TO BE USED
IN SENDING IN YOUR PGC COMMON STOCK CERTIFICATES.
If you have any questions or need further assistance, please call D.F. King
& Co., who will be assisting PGC with the Special Meeting, at (800) 549-6650.
Sincerely,
/s/ KEN L. HARRISON
Ken L. Harrison
Chairman, Chief Executive Officer
and President
<PAGE> 7
[PORTLAND GENERAL CORPORATION LOGO]
NOTICE OF SPECIAL MEETING OF SHAREHOLDERS
TO BE HELD ON NOVEMBER 12, 1996
To the Shareholders of Portland General Corporation:
A Special Meeting of Shareholders (the "PGC Special Meeting") of Portland
General Corporation, an Oregon corporation ("PGC"), will be held on Tuesday,
November 12, 1996 at 2:00 p.m., local time, at Portland General Corporation
Headquarters, Two World Trade Center, 121 S.W. Salmon Street, Portland, Oregon,
for the following purposes:
1. To consider and vote upon a proposal to approve an Amended and
Restated Agreement and Plan of Merger by and among Enron Corp. ("Enron"),
Portland General Corporation ("PGC") and Enron Oregon Corp. ("New Enron"),
a wholly-owned subsidiary of Enron, dated as of July 20, 1996 and amended
and restated as of September 24, 1996 (the "Merger Agreement") providing
for the merger (the "PGC Merger") of PGC with and into New Enron, as a
result of which New Enron will be the surviving corporation and each share
of common stock, par value $3.75 per share, of PGC ("PGC Common Stock")
issued and outstanding at the effective time of the PGC Merger will be
converted into one share of the common stock, without par value, of New
Enron ("New Enron Common Stock") (subject to adjustment in certain
circumstances). Pursuant to the Merger Agreement, immediately prior to the
consummation of the PGC Merger, New Enron will succeed to the business of
Enron by means of the merger of Enron with and into New Enron (the
"Reincorporation Merger"). The Merger Agreement provides that if certain
regulatory reforms are enacted, the structure of the transactions
contemplated by the Merger Agreement will be revised to eliminate the
Reincorporation Merger. Information concerning the Merger Agreement and the
transactions contemplated thereby is set forth in the accompanying Joint
Proxy Statement/Prospectus and in the Merger Agreement, a copy of which is
included as Annex A thereto.
2. To transact such other business as may properly come before the PGC
Special Meeting or any adjournment(s) thereof.
The Board of Directors has fixed the close of business on September 23,
1996 as the record date for the determination of holders of PGC Common Stock
entitled to notice of, and to vote at, the PGC Special Meeting or any
adjournment(s) thereof. Only holders of record of shares of PGC Common Stock at
the close of business on the record date are entitled to notice of, and to vote
at, the PGC Special Meeting. A complete list of such shareholders will be
available for inspection at the offices of PGC in Portland, Oregon during normal
business hours upon written demand by any PGC shareholder or the shareholder's
agent or attorney beginning two business days after the date of this notice and
continuing through the PGC Special Meeting. Any shareholder or shareholder's
agent or attorney may, upon written notice and subject to Section 60.774(3) of
the Oregon Revised Statutes, copy the list of shareholders during regular
business hours during the inspection period at the shareholder's expense. If you
have shares registered in the name of a brokerage firm or trustee and plan to
attend the PGC Special Meeting, please obtain from the firm or trustee a letter,
account statement or other evidence of your beneficial ownership of those shares
to facilitate your admittance to the meeting.
Under applicable law, dissenters' rights do not apply to the holders of PGC
Common Stock in connection with the transactions contemplated by the Merger
Agreement.
YOUR VOTE IS IMPORTANT. The affirmative vote of the holders of a majority
of the outstanding shares of PGC Common Stock is required for approval of the
Merger Agreement. Even if you plan to attend the PGC Special Meeting in person,
please sign and return the enclosed proxy to ensure that your shares will be
represented at the PGC Special Meeting if you are unable to attend. If you do
attend the PGC Special Meeting and wish to vote in person, you may withdraw your
proxy and vote in person.
By Order of the Board of Directors
ALVIN L. ALEXANDERSON
Alvin L. Alexanderson
Senior Vice President,
General Counsel and Secretary
Portland, Oregon
October 10, 1996
ONE WORLD TRADE CENTER
121 S.W. SALMON STREET, PORTLAND, OR 97204, (503) 464-8820
<PAGE> 8
SUBJECT TO COMPLETION, DATED OCTOBER 10, 1996
ENRON CORP.
PORTLAND GENERAL CORPORATION
JOINT PROXY STATEMENT/PROSPECTUS
This Joint Proxy Statement/Prospectus relates to the Amended and Restated
Agreement and Plan of Merger dated as of July 20, 1996 and amended and restated
as of September 24, 1996 (the "Merger Agreement") among Enron Corp., a Delaware
corporation ("Enron"), Enron Oregon Corp., an Oregon corporation and
wholly-owned subsidiary of Enron ("New Enron" or the "Company"), and Portland
General Corporation, an Oregon corporation ("PGC"). Under the Merger Agreement,
and subject to the terms and conditions thereof, (i) Enron will be
reincorporated as an Oregon corporation by merging with and into New Enron (the
"Reincorporation Merger") and (ii) immediately thereafter, PGC will merge with
and into New Enron, with New Enron being the surviving corporation (the "PGC
Merger" and, together with the Reincorporation Merger, the "Mergers"). The
Merger Agreement provides that if certain regulatory reforms are enacted, the
structure of the transactions contemplated by the Merger Agreement will be
revised to eliminate the Reincorporation Merger.
In the Reincorporation Merger, each issued and outstanding share of the
common stock, par value $.10 per share, of Enron ("Enron Common Stock") will be
converted into one share of the common stock, without par value, of New Enron
("New Enron Common Stock"), and each issued and outstanding share of Cumulative
Second Preferred Convertible Stock, par value $1.00 per share ("Enron
Convertible Preferred Stock"), and 9.142% Perpetual Second Preferred Stock, par
value $1.00 per share, of Enron and each share of any other class or series of
preferred stock, second preferred stock or preference stock of Enron issued
after the date hereof and outstanding at the effective time of the
Reincorporation Merger (together, the "Enron Preferred Stock") will be converted
into one share of a series of New Enron preferred stock ("New Enron Preferred
Stock") having the same rights, preferences and limitations as the corresponding
class or series of Enron Preferred Stock. In the PGC Merger, each share of
common stock, par value $3.75 per share, of PGC ("PGC Common Stock") issued and
outstanding at the effective time of the PGC Merger (other than shares owned by
PGC, Enron, New Enron or any of their respective subsidiaries, which will be
cancelled) will be converted into one share of New Enron Common Stock (subject
to adjustment in certain circumstances).
This Joint Proxy Statement/Prospectus is being furnished to holders of
Enron Common Stock and Enron Convertible Preferred Stock in connection with the
solicitation of proxies by the Board of Directors of Enron for use at a special
meeting of stockholders of Enron (the "Enron Special Meeting") to be held on
November 12, 1996 to approve and adopt the Merger Agreement, and is also being
furnished to holders of PGC Common Stock in connection with the solicitation of
proxies by the Board of Directors of PGC for use at a special meeting of
shareholders of PGC (the "PGC Special Meeting" and, together with the Enron
Special Meeting, the "Special Meetings") to be held on November 12, 1996 to
approve the Merger Agreement. This Joint Proxy Statement/Prospectus and the
accompanying form of proxy are first being mailed to shareholders of Enron and
PGC on or about October 11, 1996.
This Joint Proxy Statement/Prospectus also constitutes a prospectus of New
Enron (or, if the Reincorporation Merger is not effected as described herein,
Enron) with respect to the shares of New Enron Common Stock (or Enron Common
Stock) and New Enron Convertible Preferred Stock (as defined herein) to be
issued in the Mergers in exchange for shares of Enron Common Stock, Enron
Convertible Preferred Stock and PGC Common Stock outstanding at the effective
time of the Mergers.
There is currently no established trading market for New Enron Common
Stock, although an application will be made to have the New Enron Common Stock
listed for trading on the New York Stock Exchange ("NYSE") following the
Mergers.
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE
SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION
PASSED UPON THE ACCURACY OR ADEQUACY OF THIS JOINT PROXY
STATEMENT/PROSPECTUS. ANY REPRESENTATION TO THE
CONTRARY IS A CRIMINAL OFFENSE.
The date of this Joint Proxy Statement/Prospectus is October 10, 1996.
<PAGE> 9
NO PERSON HAS BEEN AUTHORIZED TO GIVE ANY INFORMATION OR TO MAKE ANY
REPRESENTATION OTHER THAN THOSE CONTAINED IN THIS JOINT PROXY
STATEMENT/PROSPECTUS IN CONNECTION WITH THE SOLICITATION OF PROXIES OR THE
OFFERING OF SECURITIES MADE HEREBY AND, IF GIVEN OR MADE, SUCH INFORMATION OR
REPRESENTATION MUST NOT BE RELIED UPON AS HAVING BEEN AUTHORIZED BY ENRON, NEW
ENRON OR PGC. NEITHER THE DELIVERY OF THIS JOINT PROXY STATEMENT/PROSPECTUS NOR
ANY DISTRIBUTION OF THE SECURITIES OFFERED HEREBY SHALL UNDER ANY CIRCUMSTANCES
CREATE AN IMPLICATION THAT THERE HAS BEEN NO CHANGE IN THE AFFAIRS OF ENRON, NEW
ENRON OR PGC SINCE THE DATE HEREOF OR THAT THE INFORMATION SET FORTH OR
INCORPORATED BY REFERENCE HEREIN IS CORRECT AS OF ANY TIME SUBSEQUENT TO ITS
DATE. THIS JOINT PROXY STATEMENT/PROSPECTUS DOES NOT CONSTITUTE AN OFFER TO
SELL, OR A SOLICITATION OF AN OFFER TO PURCHASE, ANY SECURITIES, OR THE
SOLICITATION OF A PROXY, IN ANY JURISDICTION IN WHICH, OR TO ANY PERSON TO WHOM,
IT IS UNLAWFUL TO MAKE SUCH OFFER OR SOLICITATION OF AN OFFER OR PROXY
SOLICITATION.
THIS JOINT PROXY STATEMENT/PROSPECTUS INCORPORATES BY REFERENCE CERTAIN
DOCUMENTS CONCERNING ENRON AND PGC THAT ARE NOT PRESENTED HEREIN OR DELIVERED
HEREWITH. ENRON AND PGC EACH UNDERTAKES TO PROVIDE COPIES OF SUCH DOCUMENTS
(OTHER THAN EXHIBITS TO SUCH DOCUMENTS UNLESS SUCH EXHIBITS ARE SPECIFICALLY
INCORPORATED BY REFERENCE), WITHOUT CHARGE, TO ANY PERSON, INCLUDING ANY
BENEFICIAL OWNER, TO WHOM THIS JOINT PROXY STATEMENT/PROSPECTUS IS DELIVERED,
UPON WRITTEN OR ORAL REQUEST, IN THE CASE OF ENRON, TO ENRON CORP., 1400 SMITH
STREET, HOUSTON, TEXAS 77002, ATTENTION: PEGGY B. MENCHACA, CORPORATE SECRETARY,
(713) 853-6161, AND IN THE CASE OF PGC, TO PORTLAND GENERAL CORPORATION, ONE
WORLD TRADE CENTER, 121 S.W. SALMON STREET, PORTLAND, OREGON 97204, ATTENTION:
ALVIN L. ALEXANDERSON, CORPORATE SECRETARY, (503) 464-8820. IN ORDER TO ENSURE
DELIVERY OF DOCUMENTS PRIOR TO THE SPECIAL MEETINGS, REQUESTS SHOULD BE RECEIVED
BY NOVEMBER 4, 1996.
This Joint Proxy Statement/Prospectus does not cover any resale of the
securities to be received by shareholders upon consummation of the Mergers, and
no person is authorized to make any use of this Joint Proxy Statement/Prospectus
in connection with any such resale.
AVAILABLE INFORMATION
New Enron has not previously been subject to the reporting requirements of
the Securities Exchange Act of 1934, as amended (the "Exchange Act"). Enron and
PGC are subject to the informational requirements of the Exchange Act, and, in
accordance therewith, file reports and other information with the Securities and
Exchange Commission (the "Commission"). Reports, proxy statements and other
information filed by Enron and PGC can be inspected and copied at the public
reference facilities maintained by the Commission at 450 Fifth Street, N.W.,
Washington, D.C. 20549, and at the Commission's Regional Offices at Seven World
Trade Center, Suite 1300, New York, New York 10048 and CitiCorp Center, 500 West
Madison Street, Suite 1400, Chicago, Illinois 60661-2511. Copies of such
material can be obtained by mail from the Public Reference Section of the
Commission at 450 West Fifth Street, N.W., Washington, D.C. 20549, at prescribed
rates. In addition, reports, proxy statements and other information concerning
Enron or PGC may be inspected at the offices of the NYSE, 20 Broad Street, New
York, New York 10005, or the Pacific Stock Exchange, Inc., 301 Pine Street, San
Francisco, California 94104 on which exchanges the securities of Enron and PGC
are listed, and such material and other information concerning Enron can also be
inspected at the Chicago Stock Exchange, 440 South LaSalle Street, Chicago,
Illinois 60605, on which exchange the Enron Common Stock is listed. Certain of
such reports, proxy statements and other information filed by Enron or PGC are
also available on the Internet at the Commission's World Wide Web site at
http://www.sec.gov.
New Enron and Enron have filed with the Commission a Registration Statement
on Form S-4 (together with all amendments, supplements and exhibits thereto, the
"Registration Statement") under the Securities Act of 1933, as amended (the
"Securities Act"), with respect to the New Enron Common Stock (or Enron Common
Stock) and New Enron Convertible Preferred Stock to be issued in the Mergers.
The information contained herein with respect to Enron and its affiliates,
including New Enron, has been provided by Enron, and the information contained
herein with respect to PGC and its affiliates has been provided by PGC. This
Joint Proxy Statement/Prospectus does not contain all of the information set
forth in the Registration Statement, certain parts of which have been omitted in
accordance with the rules and regulations of the Commission. For further
information, reference is hereby made to the Registration Statement, copies of
which
2
<PAGE> 10
may be obtained from the Commission as set forth above. Any statements contained
herein concerning the provisions of any document filed as an exhibit to the
Registration Statement or otherwise filed with the Commission are not
necessarily complete, and in each instance reference is made to the copy of such
document so filed. Each such statement is qualified in its entirety by such
reference.
New Enron intends to furnish its shareholders with annual reports
containing audited financial statements certified by independent accountants
following the end of each fiscal year and, upon request, will furnish copies of
quarterly reports containing unaudited financial statements for the first three
fiscal quarters of each fiscal year.
INCORPORATION OF CERTAIN DOCUMENTS BY REFERENCE
The following documents filed by Enron with the Commission pursuant to the
Exchange Act are incorporated herein by reference:
(a) Annual Report on Form 10-K for the fiscal year ended December 31,
1995;
(b) Quarterly Reports on Form 10-Q for the quarters ended March 31,
1996 and June 30, 1996;
(c) Current Report on Form 8-K dated March 8, 1996; and
(d) Proxy Statement relating to the Enron Annual Meeting of
Stockholders held May 7, 1996.
In lieu of incorporating the description of Enron's capital stock set
forth in the Exchange Act registration statement relating to such
securities, a description of the New Enron capital stock is included herein
under the heading "Description of New Enron Capital Stock." Except as
otherwise noted herein, the New Enron capital stock will be substantially
similar to the Enron capital stock.
The following documents filed by PGC with the Commission pursuant to the
Exchange Act are incorporated herein by reference:
(a) Annual Report on Form 10-K for the fiscal year ended December 31,
1995;
(b) Quarterly Reports on Form 10-Q for the quarters ended March 31,
1996 and June 30, 1996;
(c) Current Reports on Form 8-K dated March 29, 1996, April 4, 1996,
July 20, 1996, August 23, 1996, September 6, 1996 and September 11, 1996;
(d) Proxy Statement relating to the PGC Annual Meeting of Shareholders
held May 7, 1996; and
(e) The description of PGC Common Stock set forth in PGC's
Registration Statement on Form 8-B dated April 7, 1986.
All documents filed by Enron or PGC pursuant to Section 13(a), 13(c), 14 or
15(d) of the Exchange Act subsequent to the date of this Joint Proxy
Statement/Prospectus and prior to the date of the Special Meetings shall be
deemed to be incorporated by reference herein and to be a part hereof from the
date of filing of such documents. Any statement contained in a document
incorporated or deemed to be incorporated by reference herein shall be deemed to
be modified or superseded for purposes of this Joint Proxy Statement/Prospectus
to the extent that a statement contained herein or in any other subsequently
filed document that also is or is deemed to be incorporated by reference herein
modifies or supersedes such statement. Any such statement so modified or
superseded shall not be deemed, except as so modified or superseded, to
constitute a part of this Joint Proxy Statement/Prospectus.
3
<PAGE> 11
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
AVAILABLE INFORMATION....................... 2
INCORPORATION OF CERTAIN DOCUMENTS BY
REFERENCE................................. 3
SUMMARY..................................... 6
The Companies............................. 6
The Special Meetings...................... 6
The Mergers and the Merger Agreement...... 7
Comparative Rights of New Enron, Enron and
PGC Shareholders........................ 14
Market Price Data......................... 14
Selected Historical Financial Information
of Enron................................ 15
Selected Historical Financial Information
of PGC.................................. 16
Summary Unaudited Pro Forma Combined
Financial Information................... 17
Comparative Per Share Data................ 18
Forward Looking Statements................ 18
THE COMPANIES............................... 19
Enron..................................... 19
New Enron................................. 20
PGC....................................... 20
THE SPECIAL MEETINGS........................ 22
The Enron Special Meeting................. 22
The PGC Special Meeting................... 23
THE MERGERS................................. 25
General Description of the Mergers........ 25
Background of the Mergers................. 25
Reasons for the Mergers; Recommendations
of the Boards of Directors.............. 29
Opinions of Financial Advisors............ 31
Interests of Certain Persons in the
Mergers................................. 40
Federal Income Tax Consequences........... 45
Governmental and Regulatory Approvals..... 46
Restrictions on Resales by PGC
Affiliates.............................. 49
Stock Exchange Listing.................... 49
Accounting Treatment...................... 49
No Appraisal Rights....................... 49
THE MERGER AGREEMENT........................ 50
Closing; Effective Times of the Mergers... 50
Manner and Basis of Converting Shares..... 50
Conditions to the Mergers................. 52
Representations and Warranties............ 53
Certain Covenants; Conduct of Business
Prior to the Effective Time............. 53
No Solicitation........................... 54
Employee Benefit Matters.................. 55
Stock Options and Incentive Plans......... 55
Certain Post-Merger Matters............... 56
Amendment................................. 56
Termination of the Merger Agreement....... 57
Expenses and Termination Fees............. 58
Indemnification........................... 59
MARKET PRICES AND DIVIDEND INFORMATION...... 60
UNAUDITED PRO FORMA FINANCIAL INFORMATION... 61
PRINCIPAL SHAREHOLDERS OF ENRON AND PGC..... 67
<CAPTION>
PAGE
----
<S> <C>
Enron..................................... 67
PGC....................................... 68
DESCRIPTION OF NEW ENRON CAPITAL STOCK...... 69
General................................... 69
Common Stock.............................. 69
Preferred Stock........................... 69
New Enron Convertible Preferred Stock..... 70
9.142% Preferred Stock.................... 71
Certain Provisions of the New Enron
Charter and Bylaws...................... 72
Certain Anti-Takeover Provisions of Oregon
Law..................................... 73
Transfer Agent and Registrar.............. 74
MANAGEMENT AND OTHER INFORMATION............ 75
COMPARATIVE RIGHTS OF NEW ENRON, ENRON AND
PGC SHAREHOLDERS.......................... 75
Authorized Capital Stock.................. 75
Board of Directors........................ 76
Removal of Directors...................... 76
Special Meeting of Shareholders;
Shareholder Action Without Meeting...... 76
Shareholder Proposals and Nominations..... 77
Dissenters' Rights........................ 77
Shareholder Approval Not Required for
Certain Mergers......................... 78
Charter Amendments........................ 78
Dividends and Stock Repurchases........... 78
Fair Price Charter Provisions............. 79
Business Combination Statutes............. 79
Control Share Statute..................... 80
Proper Factors for Consideration in
Evaluating Business Combinations........ 80
Form of Consideration for Capital Stock... 80
Limitation of Director Liability.......... 80
Indemnification........................... 81
INDEPENDENT PUBLIC ACCOUNTANTS.............. 81
LEGAL MATTERS............................... 81
EXPERTS..................................... 81
SHAREHOLDER PROPOSALS....................... 82
Enron..................................... 82
PGC....................................... 82
ANNEXES:
A -- Amended and Restated Agreement and
Plan of Merger........................ A-1
B -- Smith Barney Inc. Fairness Opinion.... B-1
C -- Goldman, Sachs & Co. Fairness
Opinion............................... C-1
D -- Employment Agreement of Ken L.
Harrison.............................. D-1
E -- Employment Agreement of Joseph M.
Hirko................................. E-1
F -- New Enron Restated Articles of
Incorporation......................... F-1
G -- Form of Series Designation for New
Enron Convertible Preferred Stock..... G-1
H -- Form of Series Designation for New
Enron 9.142% Preferred Stock.......... H-1
</TABLE>
4
<PAGE> 12
JOINT PROXY STATEMENT/PROSPECTUS INDEX OF DEFINED TERMS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
1935 Act.................................... 8
Accrued Benefits............................ 55
Affiliate Agreements........................ 49
Affiliate Shares............................ 49
Business Transaction........................ 72
Ceiling Price............................... 58
Change of Control Event..................... 57
Closing..................................... 9
Closing Date................................ 9
Code........................................ 10
Commission.................................. 2
Company..................................... 1
Continuing Directors........................ 72
Converted Shares............................ 51
Core Business............................... 42
Current Participants........................ 55
DGCL........................................ 7
DRP......................................... 24
EBIT........................................ 32
EBITDA...................................... 32
ECT......................................... 19
Effective Time.............................. 9
Employee.................................... 44
Employer.................................... 44
Engagement Letter........................... 39
Enron....................................... 1
Enron 9.142% Preferred Stock................ 69
Enron Business Combination.................. 59
Enron Bylaws................................ 14
Enron Charter............................... 14
Enron Common Stock.......................... 1
Enron Competing Transaction................. 54
Enron Convertible Preferred Stock........... 1
Enron Preferred Stock....................... 1
Enron QF's.................................. 47
Enron Record Date........................... 6
Enron Special Meeting....................... 1
Enron Transaction Price..................... 57
Enron Voting Stock.......................... 6
EOG......................................... 20
EPMI........................................ 48
EPP......................................... 20
EPS......................................... 36
ESOP........................................ 68
ESPP........................................ 24
Exchange Act................................ 2
Extraordinary Distribution.................. 50
Extraordinary Distribution Value............ 51
FERC........................................ 10
Floor Price................................. 57
Florida Gas................................. 19
Foundation.................................. 12
FTC......................................... 11
Gas Composite............................... 38
Goldman Sachs............................... 9
Goldman Selected Transactions............... 36
HSR Act..................................... 11
Initial Term................................ 41
IRS......................................... 45
Merger Agreement............................ 1
<CAPTION>
PAGE
----
<S> <C>
Mergers..................................... 1
New Enron................................... 1
New Enron 9.142% Preferred Stock............ 69
New Enron Bylaws............................ 14
New Enron Charter........................... 14
New Enron Common Stock...................... 1
New Enron Convertible Preferred Stock....... 69
New Enron Preferred Stock................... 1
New Enron 9.142% Preferred Stock............ 69
Nonqualified Plans.......................... 55
Northern.................................... 19
NRC......................................... 11
NYSE........................................ 1
OBCA........................................ 7
OEFSC....................................... 11
OPUC........................................ 10
P/E......................................... 36
PGC......................................... 1
PGC Business Combination.................... 58
PGC Bylaws.................................. 14
PGC Certificate............................. 51
PGC Charter................................. 14
PGC Common Stock............................ 1
PGC Competing Transaction................... 54
PGC Conversion Ratio........................ 7
PGC Employee................................ 55
PGC Employees............................... 55
PGC Merger.................................. 1
PGC Record Date............................. 6
PGC Special Meeting......................... 1
PGC Stock Option............................ 55
PGC Stock Plan.............................. 55
PGE......................................... 6
POL......................................... 11
PURPA....................................... 47
QF.......................................... 47
Registration Statement...................... 2
Reincorporation Merger...................... 1
Related Person.............................. 72
Revised Enron Share Value................... 51
RSP......................................... 24
Second Effective Time....................... 50
Securities Act.............................. 2
Selected Gas Companies...................... 36
Smith Barney Selected Transactions.......... 32
Selected Utility Companies.................. 36
SERP........................................ 41
Smith Barney................................ 8
Special Meetings............................ 1
Strategic Review Committee.................. 26
Success Fee................................. 39
Tax Penalties............................... 42
Termination Date............................ 57
Termination for Cause....................... 41
Transferred Employee........................ 55
Transition Year............................. 56
Transwestern................................ 19
Utility Composite........................... 38
Window Periods.............................. 41
</TABLE>
5
<PAGE> 13
SUMMARY
The following is a summary of certain information contained elsewhere in
this Joint Proxy Statement/Prospectus. Reference is made to, and this summary is
qualified in its entirety by, the more detailed information contained in or
incorporated by reference in this Joint Proxy Statement/Prospectus, including
the Merger Agreement and other documents included as Annexes hereto.
Shareholders are urged to read carefully this Joint Proxy Statement/Prospectus
and the Annexes hereto in their entirety.
THE COMPANIES
Enron and New Enron. Enron, a Delaware corporation organized in 1930, is an
integrated natural gas company with headquarters in Houston, Texas. Essentially
all of Enron's operations are conducted through its subsidiaries and affiliates,
which are principally engaged in the gathering, transportation and wholesale
marketing of natural gas to markets throughout the United States and
internationally through approximately 37,000 miles of natural gas pipelines; the
exploration for and production of natural gas and crude oil in the United States
and internationally; the production, purchase, transportation and worldwide
marketing of natural gas liquids and refined petroleum products; the independent
(i.e., non-utility) development, promotion, construction and operation of power
plants, natural gas liquids facilities and pipelines in the United States and
internationally; and the non-price regulated purchasing and marketing of energy
related commitments. New Enron is an Oregon corporation incorporated in July
1996 for the purpose of succeeding to the business of Enron pursuant to the
Reincorporation Merger. The principal executive offices of Enron and New Enron
are located at 1400 Smith Street, Houston, Texas 77002, and their telephone
number at such offices is (713) 853-6161.
Portland General Corporation. PGC is a public utility holding company whose
principal subsidiary is Portland General Electric Company ("PGE"), an electric
utility located in Portland, Oregon. The principal executive offices of PGC, an
Oregon corporation, are located at One World Trade Center, 121 S.W. Salmon
Street, Portland, Oregon 97204, and PGC's telephone number at such office is
(503) 464-8820.
THE SPECIAL MEETINGS
GENERAL
Enron. The Enron Special Meeting will be held on Tuesday, November 12,
1996, at the Enron Building, 1400 Smith Street, Houston, Texas 77002 commencing
at 4:00 p.m. local time. The purpose of the Enron Special Meeting is to consider
and vote upon (i) a proposal to approve and adopt the Merger Agreement and (ii)
such other matters as may properly be brought before the Enron Special Meeting.
Only holders of record of shares of Enron Common Stock and Enron Convertible
Preferred Stock (together, the "Enron Voting Stock") at the close of business on
September 23, 1996 (the "Enron Record Date") are entitled to notice of, and to
vote at, the Enron Special Meeting. On the Enron Record Date, there were
outstanding 253,823,320 shares of Enron Common Stock and 1,371,783 shares of
Enron Convertible Preferred Stock. At the Enron Special Meeting, holders of
Enron Common Stock and Enron Convertible Preferred Stock will vote together as a
single class, with each holder of Enron Common Stock being entitled to one vote
per share and each holder of Enron Convertible Preferred Stock being entitled to
13.652 votes per share on all matters brought before the Enron Special Meeting.
PGC. The PGC Special Meeting will be held on Tuesday, November 12, 1996, at
Portland General Corporation Headquarters, Two World Trade Center, 121 S.W.
Salmon Street, Portland, Oregon, commencing at 2:00 p.m. local time. The purpose
of the PGC Special Meeting is to consider and vote upon (i) a proposal to
approve the Merger Agreement and (ii) such other matters as may properly be
brought before the PGC Special Meeting. Only holders of record of shares of PGC
Common Stock at the close of business on September 23, 1996 (the "PGC Record
Date") are entitled to notice of, and to vote at, the PGC Special Meeting. On
the PGC Record Date, there were 51,202,763 shares of PGC Common Stock
outstanding. Each share of PGC Common Stock will be entitled to one vote on each
matter to be acted upon at the PGC Special Meeting.
6
<PAGE> 14
QUORUM; VOTE REQUIRED
Enron. The presence, in person or by proxy, at the Enron Special Meeting of
the holders of a majority of the voting power represented by the Enron Voting
Stock outstanding and entitled to vote is necessary to constitute a quorum at
the meeting. Approval by a majority of the voting power represented by the
outstanding Enron Voting Stock is required under the Delaware General
Corporation Law (the "DGCL") for approval and adoption of the Merger Agreement.
PGC. The presence, in person or by proxy, at the PGC Special Meeting of the
holders of a majority of the shares of PGC Common Stock outstanding and entitled
to vote is necessary to constitute a quorum at the meeting. The affirmative vote
of the holders of a majority of the shares of PGC Common Stock outstanding and
entitled to vote thereon at the PGC Special Meeting is required under the Oregon
Business Corporation Act (the "OBCA") to approve the Merger Agreement.
SECURITY OWNERSHIP OF MANAGEMENT
Enron. As of the Enron Record Date, the directors and executive officers of
Enron and their affiliates owned approximately 1.6% of the outstanding shares of
Enron Common Stock and 25.3% of the outstanding shares of Enron Convertible
Preferred Stock entitled to vote at the Enron Special Meeting, constituting 3.2%
of the voting power represented by the Enron Voting Stock. Approval by a
majority of the votes entitled to be cast by holders of the Enron Voting Stock
is required for approval and adoption of the Merger Agreement. On the Enron
Record Date, Enron and its subsidiaries owned an aggregate of 400,000 shares of
PGC Common Stock, which it intends to vote in favor of the PGC Merger.
PGC. As of the PGC Record Date, the directors and executive officers of PGC
and their affiliates owned approximately 0.5% of the outstanding shares of PGC
Common Stock entitled to vote at the PGC Special Meeting. The affirmative vote
of the holders of a majority of the shares of PGC Common Stock outstanding and
entitled to vote thereon at the PGC Special Meeting is required under the OBCA
to approve the Merger Agreement. Each of the directors and executive officers of
PGC has advised PGC that he or she plans to vote or to direct the vote of all
such shares of PGC Common Stock entitled to vote thereon in favor of approval of
the Merger Agreement.
THE MERGERS AND THE MERGER AGREEMENT
GENERAL
The Reincorporation Merger. In the Reincorporation Merger, Enron will merge
with and into New Enron, with New Enron continuing in existence as the surviving
corporation. In connection with the Reincorporation Merger, the name of New
Enron will be changed to "Enron Corp." Each share of Enron Common Stock issued
and outstanding at the effective time of the Reincorporation Merger will be
converted into one share of New Enron Common Stock and each share of any class
or series of Enron Preferred Stock issued and outstanding at the effective time
of the Reincorporation Merger will be converted into one share of a series of
New Enron Preferred Stock having the same rights, preferences and limitations as
the corresponding class or series of Enron Preferred Stock.
The PGC Merger. Immediately following the Reincorporation Merger, the
parties will consummate the PGC Merger, in which PGC will merge with and into
New Enron with New Enron continuing in existence as the surviving corporation.
In the PGC Merger, each share of PGC Common Stock issued and outstanding at the
effective time of the PGC Merger (other than shares owned by PGC, Enron, New
Enron or any of their respective subsidiaries, which will be cancelled) will be
converted into one share of New Enron Common Stock, subject to adjustment in
certain circumstances (the "PGC Conversion Ratio"). See "The Merger
Agreement -- Manner and Basis of Converting Shares."
Alternative Transaction Structure in the Event of Regulatory Reform. The
Reincorporation Merger is intended solely to enable New Enron to qualify after
the PGC Merger as an intrastate holding company that is exempt from the
registration requirements of the Public Utility Holding Company Act of 1935, as
amended
7
<PAGE> 15
(the "1935 Act"). If, prior to the Effective Time, the 1935 Act is repealed or
amended in a manner such that it would be possible to merge PGC into Enron
without subjecting the surviving entity to 1935 Act registration, the Merger
Agreement provides that the parties will revise the structure of the
transactions contemplated by the Merger Agreement so that the Reincorporation
Merger will not occur and PGC will merge directly into Enron. In such event, PGC
shareholders will receive Enron Common Stock in the PGC Merger instead of New
Enron Common Stock, and the obligations of New Enron under the Merger Agreement
will be obligations of Enron. See Exhibit B to the Merger Agreement included
herewith for a complete description of the alternative transaction structure.
Approval of the Merger Agreement by the shareholders of Enron and PGC at the
Special Meetings will be deemed to constitute approval of a revised transaction
structure implemented pursuant to this provision.
BACKGROUND
For a description of the background of the Mergers, see "The
Mergers -- Background of the Mergers."
REASONS FOR THE MERGERS
Enron and PGC believe that the combined company and its shareholders can
benefit significantly in long-term earnings and cash flow as a result of the
expected strategic benefits resulting from the Mergers, including the following:
- At the wholesale marketing, trading and supply level, the combined entity
will be well positioned to be the provider of choice in energy products,
principally natural gas and electricity. By combining Enron's marketing
and risk management expertise with PGC's physical delivery capabilities
and asset operation experience, the combined entity will have a strong
presence in the wholesale and retail energy markets, both domestically
and internationally.
- At the domestic retail level, the combined entity will strive to be the
leading national brand-name total energy provider. By combining the
companies' respective retail marketing expertise in natural gas,
electricity and energy management, the combined entity will be able to
provide a full range of energy products and specialty services to
commercial, industrial and residential customers. By building on PGC's
experience in automated metering, billing, auditing and other end-user
customer service functions, the combined entity will be able to offer
reliable, low-cost energy and energy management services to customers
nationwide. In addition, PGC has several non-regulated service and
infrastructure investments that both companies believe have significant
growth potential.
- The combined entity will also aim to be the most innovative and efficient
manager of electric generation, transmission and distribution assets in
the rapidly changing worldwide marketplace for power. By leveraging the
operating and engineering expertise of PGC with Enron's worldwide asset
base and experience, the combined entity will be able to expand domestic
and international activities across multiple energy sources, including
natural gas, oil, coal and hydro power.
- For more than a decade, Enron has participated in the fully competitive
market for natural gas. More recently, Enron has participated in the
increasingly competitive market for electricity. Enron's competitive
experience will help the combined entity successfully compete in the
electricity marketplace.
As more fully described in "The Mergers -- Reasons for the Mergers;
Recommendations of the Boards of Directors," Enron and PGC also believe that the
Mergers will benefit their respective customers and employees.
OPINIONS OF FINANCIAL ADVISORS
Enron. The Board of Directors of Enron received the written opinion of
Smith Barney Inc. ("Smith Barney") on July 20, 1996, which opinion has been
confirmed in writing as of the date hereof, that the consideration to be issued
to the holders of PGC Common Stock in the PGC Merger is fair, from a financial
point of view, to Enron and its shareholders. For information regarding the
opinion of Smith Barney, including
8
<PAGE> 16
the assumptions made, matters considered and limits of such opinion, see "The
Mergers -- Opinions of Financial Advisors -- Enron" and the full text of the
opinion dated the date hereof, which is included as Annex B hereto.
PGC. Goldman, Sachs & Co. ("Goldman Sachs") has delivered its written
opinion as of July 20, 1996, which opinion has been confirmed in writing as of
the date hereof, that as of such dates and based upon the factors and
assumptions described in such opinion, the PGC Conversion Ratio pursuant to the
Merger Agreement is fair to the holders of PGC Common Stock (other than Enron or
any of its subsidiaries). For information regarding the opinion of Goldman
Sachs, including the assumptions made, matters considered and limits of such
opinion, see "The Mergers -- Opinions of Financial Advisors -- PGC" and the full
text of the opinion dated the date hereof, which is included as Annex C hereto.
RECOMMENDATIONS OF THE BOARDS OF DIRECTORS
Enron. The Board of Directors of Enron has determined that the transactions
contemplated by the Merger Agreement are fair to, and in the best interests of,
Enron and its shareholders and recommends that the holders of Enron Voting Stock
vote FOR approval and adoption of the Merger Agreement at the Enron Special
Meeting. See "The Mergers -- Background of the Mergers" and "-- Reasons for the
Mergers; Recommendations of the Boards of Directors."
PGC. The Board of Directors of PGC has determined that the transactions
contemplated by the Merger Agreement are fair to, and in the best interests of,
PGC and its shareholders and recommends that the holders of PGC Common Stock
vote FOR approval of the Merger Agreement at the PGC Special Meeting. See "The
Mergers -- Background of the Mergers" and "-- Reasons for the Mergers;
Recommendations of the Boards of Directors." In considering the recommendation
of the PGC Board with respect to the Merger Agreement, PGC shareholders should
be aware that certain officers and directors of PGC have certain interests
respecting the Mergers, apart from their interests as shareholders of PGC. See
"The Mergers -- Interests of Certain Persons in the Mergers."
CLOSING; EFFECTIVE TIME OF THE MERGERS
The closing of the transactions contemplated by the Merger Agreement (the
"Closing") and the effectiveness of the Mergers will occur as soon as
practicable after satisfaction of the various conditions to the Mergers (the
date of such closing being referred to herein as the "Closing Date"). The
Mergers will become effective upon the filing of required merger documents with
the Secretaries of State of Delaware and Oregon, or at such time as may be
agreed by the parties and specified in such filings. The Reincorporation Merger
will become effective prior to the PGC Merger. The time at which the PGC Merger
becomes effective is referred to herein as the "Effective Time."
While it is expected that many of the conditions to consummation of the
Mergers will be satisfied or capable of being satisfied immediately following
the Special Meetings, satisfaction of certain regulatory conditions to the
Mergers, particularly the required approval of the Mergers by the OPUC and the
FERC, is not expected to occur until sometime in 1997. See "The
Mergers -- Governmental and Regulatory Approvals." Either Enron or PGC may
terminate the Merger Agreement if the required regulatory approvals are not
received and finalized on or before July 20, 1997, subject to a six-month
extension by either party if that party believes there is a reasonable
probability that the regulatory approvals will be obtained on or prior to the
end of such six-month extension and certain other conditions are met. See "The
Merger Agreement -- Conditions to the Mergers" and "-- Termination of the Merger
Agreement."
NO SOLICITATION
Until the Effective Time, PGC and Enron have agreed not to, and to cause
their affiliates and representatives not to, solicit proposals from or provide
information to or engage in discussions with third parties with respect to
specified business combinations or similar transactions (which, in the case of
Enron, include only transactions that by their terms would prevent the
consummation of the transactions contemplated by the Merger Agreement or be
conditioned on termination of the Merger Agreement). The foregoing
9
<PAGE> 17
limitations are subject to exceptions that, prior to the Special Meetings only,
would permit discussions with third parties regarding competing transactions if
necessary to comply with the fiduciary duties of the respective boards of
directors. See "The Merger Agreement -- No Solicitation."
CONDITIONS TO THE CONSUMMATION OF THE MERGERS
The respective obligations of Enron, New Enron and PGC to consummate the
Mergers are subject to the satisfaction of certain conditions, including
approval of the Merger Agreement by the shareholders of Enron and PGC at the
Special Meetings, the absence of judgments or injunctions prohibiting the
Mergers, the listing of the New Enron Common Stock on the NYSE and the receipt
of certain required regulatory approvals. See "The Mergers -- Governmental and
Regulatory Approvals."
In addition, the obligations of Enron and New Enron to consummate the
Mergers are subject to the satisfaction of certain conditions, including the
performance by PGC of its obligations under the Merger Agreement and the
representations and warranties of PGC being true at the Closing Date (in each
case subject to certain materiality exceptions), the receipt by Enron of a
satisfactory opinion of its counsel that the Mergers will qualify as tax-free
reorganizations within the meaning of Section 368(a) of the Internal Revenue
Code of 1986, as amended (the "Code"), and that no gain or loss will be
recognized by Enron or the holders of Enron capital stock as a result of the
Mergers, the receipt by PGC of certain required third party consents to the
Mergers and the satisfactory approval (as specified in the Merger Agreement) of
regulatory plans filed with the Oregon Public Utility Commission ("OPUC") and
the Federal Energy Regulatory Commission ("FERC") in connection with the Mergers
and certain other matters. See "The Merger Agreement -- Conditions to the
Mergers" and "The Mergers -- Governmental and Regulatory Approvals."
The obligation of PGC to consummate the PGC Merger is subject to the
satisfaction of certain conditions, including the performance by Enron of its
obligations under the Merger Agreement and the representations and warranties of
Enron being true at the Closing Date (in each case subject to certain
materiality exceptions), the receipt by PGC of a satisfactory opinion of its
counsel that the Mergers will qualify as tax-free reorganizations within the
meaning of Section 368(a) of the Code and that no gain or loss will be
recognized by PGC or the holders of PGC capital stock as a result of the
Mergers, the receipt by Enron of certain required third party consents to the
Mergers and consummation of the Reincorporation Merger. See "The Merger
Agreement -- Conditions to the Mergers."
REGULATORY APPROVALS
Oregon Public Utility Commission. Upon completion of the PGC Merger, New
Enron will be the owner of the common stock of PGE, the electric utility
subsidiary of PGC. PGE is subject to the jurisdiction of the OPUC with respect
to its electric utility operations. The approval of the OPUC is required for any
transaction in which a person acquires the power to exercise any substantial
influence over the policies and actions of a public utility subject to its
jurisdiction. On August 30, 1996, Enron filed an application with the OPUC
seeking approval of the PGC Merger. The OPUC must approve the PGC Merger if it
finds that the PGC Merger will serve the customers of PGE in the public
interest. In making that finding, the OPUC may consider, among other matters,
whether the change in ownership of the public utility will impair the ability of
the utility to provide adequate service at just and reasonable rates. Under
Oregon law, the OPUC would have been required to act within 19 business days on
Enron's application, but Enron has agreed to extend the statutory deadline for
OPUC action on its application until February 18, 1997. There can be no
assurance, however, that the OPUC will have taken any action by such date.
In addition to Enron's application for approval of the PGC Merger, PGE has
filed an application seeking the OPUC's approval to change certain provisions of
PGE's tariffs and PGE will seek OPUC approval for the separation from PGE of
certain nonutility business and activities. PGE's proposed rate plan, submitted
August 6, 1996, included approximately $25 million in proposed rate reductions
for 1997 and acceleration of the recovery of PGE's investment in the Trojan
Nuclear Plant. In response, the OPUC staff has proposed to recommend adoption of
all of the proposals included in PGE's plan, but with a modification of the rate
consequences of the Trojan Nuclear Plant accelerated cost recovery, and
approximately $51 million in further
10
<PAGE> 18
rate reductions for 1997. Formal settlement discussions are currently scheduled
for early November 1996. See "The Mergers -- Governmental and Regulatory
Approvals."
1935 Act. Enron is not a holding company within the meaning of the 1935 Act
and therefore is not subject to the provisions of the 1935 Act. Pursuant to Rule
2 under Section 3(a)(1) of the 1935 Act, PGC is a holding company exempt from
all provisions of the 1935 Act except Section 9(a)(2) thereof. Following
consummation of the Mergers, pursuant to Rule 2 under Section 3(a)(1) of the
1935 Act, New Enron will be a holding company entitled to claim an exemption
from all provisions of the 1935 Act.
Federal Power Act. The approval of the FERC is required to consummate the
Mergers under Section 203 of the Federal Power Act, which provides that no
public utility may sell or otherwise dispose of its jurisdictional facilities
or, directly or indirectly, merge or consolidate such facilities with those of
any other person or acquire any security of any other public utility without
first having obtained authorization from the FERC. Under Section 203 of the
Federal Power Act, the FERC will approve a merger if it finds such merger
"consistent with the public interest." On September 20, 1996, Enron and PGC
filed an application with the FERC seeking approval of the PGC Merger under
Section 203 of the Federal Power Act. It is expected that the FERC will not take
action on the application until sometime in 1997.
Oregon Energy Facility Siting Council. The Oregon Energy Facility Siting
Council ("OEFSC") has regulatory authority over the siting of energy facilities,
including electric generating plants, in the State of Oregon. Under its rules,
OEFSC consent is required for certain direct or indirect transfers of site
certificates or facilities covered by a site certificate. As a result of the
Mergers, New Enron will become the owner of the common stock of PGE. PGE has
requested a declaratory ruling from the OEFSC that the change in ownership of
PGE common stock in connection with the PGC Merger will not result in a transfer
of site certificates that requires OEFSC consent.
Atomic Energy Act. PGE holds a majority interest in the license granted by
the Nuclear Regulatory Commission ("NRC") for the Trojan Nuclear Plant, which
ceased operations in 1993. Shortly thereafter, the facility operating license
was converted to a possession-only license ("POL") pursuant to a license
amendment accepted by the NRC. The Atomic Energy Act requires that NRC licenses
(including POLs) may not be amended or transferred or in any manner disposed of,
directly or indirectly, to any person through transfer of control unless the NRC
finds that such transfer is in accordance with the Atomic Energy Act and gives
prior consent to the transfer. On August 20, 1996, PGE filed an application
seeking approval from the NRC under the Atomic Energy Act of New Enron's
controlling interest in PGE after the Mergers. The NRC has indicated to PGE
that, as a condition to approving the application, it may require that PGE agree
to provide the NRC with 60 days prior notice of any significant transfer of
utility assets. PGE is currently negotiating with the NRC to explore
alternatives for permitted dispositions that would not require prior NRC
approval, but no assurance can be given as to the nature of the restrictions
that may ultimately be imposed by the NRC in connection with its approval of the
PGC Merger.
HSR Act. Enron and PGC will be required to file a notification and report
under the Hart-Scott-Rodino Anti-Trust Improvements Act of 1976, as amended (the
"HSR Act"), with the Federal Trade Commission (the "FTC") and the Antitrust
Division of the Department of Justice in respect of the transactions
contemplated by the Merger Agreement. Expiration or early termination of the
applicable waiting period under the HSR Act is a condition to the obligations of
Enron and PGC to consummate the Mergers.
See "The Mergers -- Governmental and Regulatory Approvals" for a more
complete description of these and other regulatory matters.
TERMINATION OF THE MERGER AGREEMENT
Under specified circumstances, the Merger Agreement may be terminated prior
to the Closing Date, before or after approval of the Merger Agreement by the
shareholders of Enron or PGC. See "The Merger Agreement -- Termination of the
Merger Agreement."
11
<PAGE> 19
TERMINATION FEES
If the Merger Agreement is terminated for specified reasons involving a
competing business transaction relating to PGC, PGC would be required to pay
Enron a termination fee of $60 million, and if the Merger Agreement is
terminated for specified reasons involving a change of control of Enron or a
competing business transaction relating to Enron, Enron would be required to pay
PGC a termination fee of $150 million. See "The Merger Agreement -- Expenses and
Termination Fees."
EMPLOYEE BENEFIT MATTERS; STOCK INCENTIVE PLANS
Subject to certain limitations, the Merger Agreement provides that, for two
years following the Effective Time, New Enron will provide PGC Employees (as
defined in the Merger Agreement), other than employees represented by labor
unions, with benefits that are not materially less favorable in the aggregate
than those provided to such individuals under the PGC benefit plans prior to the
Effective Time and will also cause certain benefit and severance plans of PGC to
be maintained. See "The Merger Agreement -- Employee Benefit Matters" and
"-- Stock Options and Incentive Plans" for a description of certain other
agreements contained in the Merger Agreement with respect to employee benefit
matters.
BOARD OF DIRECTORS AND MANAGEMENT OF NEW ENRON FOLLOWING THE MERGERS
The Merger Agreement provides that the Board of Directors of New Enron
after the Mergers will be comprised of no more than 16 members, of whom three
will be designated by PGC. One of the three PGC designees will be Ken L.
Harrison, currently the Chairman of the Board, Chief Executive Officer and
President of PGC. Enron intends that the other 13 members of the New Enron Board
of Directors will be comprised of members of the Enron Board of Directors at the
Effective Time. The current management of Enron will comprise the management of
New Enron after the Mergers, except that, pursuant to the Merger Agreement, Mr.
Harrison will serve as Vice Chairman of the Board of Directors of New Enron and
Chairman of the Board and Chief Executive Officer of PGE, and Joseph M. Hirko,
currently Senior Vice President and Chief Financial Officer of PGC, will hold
the position of Senior Vice President of New Enron. Pursuant to the Merger
Agreement, Enron has entered into employment agreements with each of Messrs.
Harrison and Hirko, which will become effective upon consummation of the Mergers
and which are included as Annexes D and E hereto, respectively. See "The
Mergers -- Interests of Certain Persons in the Mergers."
CERTAIN POST-MERGER OPERATIONS
After the Mergers, New Enron will continue to be based in Houston, Texas.
Pursuant to the Merger Agreement, PGE will maintain its principal corporate
offices in Portland, Oregon. The Merger Agreement also provides that the current
officers of PGE will be entitled to maintain their current titles and
responsibilities as officers of PGE unless and until otherwise determined by the
Board of Directors of New Enron. Following the Effective Time, New Enron will
designate a number of directors of PGE consisting of directors of Enron and/or
employees of Enron or any subsidiary thereof, including Ken L. Harrison and
Joseph M. Hirko. In addition, PGC will have the right to designate no more than
seven non-voting advisory directors to the PGE Board. The Merger Agreement
provides that immediately prior to the Effective Time, each of Enron and PGC
will cause contributions of $10 million to be made to the assets of the PGE
Foundation (the "Foundation"), and the assets of the Foundation will be used for
charitable purposes in accordance with the constituent documents of the
Foundation in the service area of PGE. The current directors of the Foundation,
or persons nominated by a majority of such directors or nominated by their
successors in accordance with this provision, will be the directors of the
Foundation. See "The Merger Agreement -- Certain Post-Merger Operations."
FEDERAL INCOME TAX CONSEQUENCES
The Mergers are intended to qualify as reorganizations under Section 368(a)
of the Code. Assuming the Mergers so qualify, no gain or loss will be recognized
for federal income tax purposes by Enron, New Enron or PGC as a result of the
Mergers, and holders of Enron Common Stock, Enron Preferred Stock and PGC
12
<PAGE> 20
Common Stock will not recognize any gain or loss as a result of the exchange of
such shares for New Enron Common Stock or New Enron Preferred Stock pursuant to
the Mergers (except to the extent of cash received, if any, in lieu of
fractional shares). For a discussion of these and other federal income tax
considerations in connection with the Mergers, see "The Mergers -- Federal
Income Tax Consequences."
ACCOUNTING TREATMENT
The PGC Merger will be accounted for as a "purchase" of PGC for financial
reporting purposes. See "The Mergers -- Accounting Treatment."
NO APPRAISAL RIGHTS
No holder of Enron Common Stock, Enron Preferred Stock or PGC Common Stock
will be entitled to any dissenters' or appraisal rights in connection with the
transactions contemplated by the Merger Agreement.
EXCHANGE OF STOCK CERTIFICATES
Enron. No certificates representing New Enron Common Stock or New Enron
Preferred Stock will be issued to holders of Enron Common Stock or Enron
Preferred Stock upon consummation of the Reincorporation Merger unless requested
by such holders. Instead, after the Reincorporation Merger, certificates that
previously represented shares of Enron Common Stock or Enron Preferred Stock
shall be deemed for all purposes to represent an equal number of shares of New
Enron Common Stock or the corresponding class or series of New Enron Preferred
Stock, as the case may be, until such shares are surrendered to New Enron's
transfer agent for transfer or exchange.
PGC. Promptly after consummation of the Mergers, a letter of transmittal
will be sent to each holder of record of PGC Common Stock immediately before the
Effective Time for use in exchanging certificates formerly representing shares
of PGC Common Stock for certificates representing shares of New Enron Common
Stock. Certificates should not be surrendered by the holders of PGC Common Stock
until they have received the letter of transmittal from New Enron. See "The
Merger Agreement -- Manner and Basis of Converting Shares."
INTERESTS OF CERTAIN PERSONS IN THE MERGERS
Certain members of PGC's Board of Directors and management have personal
interests with respect to the PGC Merger separate from their interests as
holders of PGC Common Stock, including the following:
Directorships. The Merger Agreement provides that PGC will designate, prior
to the Effective Time, three persons to the New Enron Board of Directors. One of
these three designees will be Ken L. Harrison, current Chairman, Chief Executive
Officer and President of PGC.
Employment Agreements. Mr. Harrison and Mr. Hirko have entered into
employment agreements with Enron which will become effective and supersede their
existing employment agreements with PGC at the Effective Time. Pursuant to the
Merger Agreement, PGC has authority to offer new employment agreements to
certain executive officers and has the authority to enter into amendments to the
existing employment agreements with certain other executive officers, in each
case, to become effective at the Effective Time. Such executives who do not
enter into superseding employment agreements will receive, under their existing
employment agreements with PGC, certain benefits upon PGC shareholder approval
of the Merger Agreement.
Vesting of Certain Benefits for PGC Directors and Executive Officers. Upon
PGC shareholder approval of the Merger Agreement, the shares of restricted PGC
Common Stock and options to purchase shares of PGC Common Stock held by certain
directors and executive officers will vest pursuant to the terms of the plans
under which they were granted.
See "The Mergers -- Interests of Certain Persons in the Mergers."
13
<PAGE> 21
COMPARATIVE RIGHTS OF NEW ENRON, ENRON AND PGC SHAREHOLDERS
Enron. Rights of shareholders of Enron are currently governed by the DGCL,
the Restated Certificate of Incorporation, as amended, of Enron (the "Enron
Charter") and Enron's Bylaws, as amended (the "Enron Bylaws"). Upon consummation
of the Reincorporation Merger, Enron shareholders will become shareholders of
New Enron and their rights as shareholders of New Enron will be governed by the
OBCA, the Articles of Incorporation of New Enron (the "New Enron Charter") and
New Enron's Bylaws (the "New Enron Bylaws"). There will be a number of
differences between the rights of Enron shareholders and the rights of New Enron
shareholders. See "Comparative Rights of New Enron, Enron and PGC Shareholders"
and "Description of New Enron Capital Stock."
PGC. Rights of shareholders of PGC are currently governed by the OBCA, the
Articles of Incorporation, as amended, of PGC (the "PGC Charter") and PGC's
Bylaws, as amended (the "PGC Bylaws"). Upon consummation of the PGC Merger, PGC
shareholders will become shareholders of New Enron and their rights as
shareholders of New Enron will be governed by the New Enron Charter and the New
Enron Bylaws. There will be a number of differences between the rights of PGC
shareholders and the rights of New Enron shareholders.
If the structure of the transaction contemplated by the Merger Agreement is
altered to eliminate the Reincorporation Merger as described under "The
Mergers -- General Description of the Mergers -- Alternative Transaction
Structure in the Event of Regulatory Reform," and PGC merges directly into
Enron, then the rights of Enron shareholders would not be affected, and the
rights of PGC shareholders would be governed by the DGCL and the Enron Charter
and Bylaws. The rights of Enron and PGC shareholders differ in a number of
respects. See "Comparative Rights of New Enron, Enron and PGC Shareholders" and
"Description of New Enron Capital Stock."
MARKET PRICE DATA
Enron Common Stock is traded on the NYSE and on the Chicago, Pacific,
London and Frankfurt exchanges under the symbol "ENE," the Enron Convertible
Preferred Stock is traded on the NYSE and the Chicago Stock Exchange under the
symbol "ENEpj," and the PGC Common Stock is traded on the NYSE and the Pacific
Stock Exchange under the symbol "PGN." The following table sets forth the
closing sales prices per share of PGC Common Stock, Enron Common Stock and Enron
Convertible Preferred Stock as reported on the NYSE on July 19, 1996, the last
business day prior to announcement by the parties of the Merger Agreement, and
on October 9, 1996, the last trading day for which prices were available prior
to the date of this Joint Proxy Statement/Prospectus:
<TABLE>
<CAPTION>
MARKET PRICE PER SHARE
-------------------------------------------------
ENRON
CONVERTIBLE
PGC ENRON PREFERRED
DATE COMMON STOCK COMMON STOCK STOCK
- ------------------------------------------------- ------------ --------------- ------------
<S> <C> <C> <C>
July 19, 1996.................................... $ 28.125 $ 41.75 $ N/A(1)
October 9, 1996.................................. $ 38.875 $41.375 $ N/A(1)
</TABLE>
- ---------------
(1) The last reported trade for the Enron Convertible Preferred Stock was on
April 19, 1996 at a price of $525 per share.
An application will be made to have the New Enron Common Stock listed for
trading on the NYSE and the Chicago, Pacific, London and Frankfurt exchanges and
the New Enron Convertible Preferred Stock listed for trading on the NYSE and
Chicago Stock Exchange after the Mergers.
14
<PAGE> 22
SELECTED HISTORICAL FINANCIAL INFORMATION OF ENRON
The financial information set forth below has been derived from the audited
and unaudited consolidated financial statements of Enron. The information should
be read in connection with, and is qualified in its entirety by reference to,
Enron's financial statements and notes thereto incorporated by reference herein.
See "Incorporation of Certain Documents by Reference." The interim data reflect
all adjustments that, in the opinion of the management of Enron, are necessary
to present fairly such information for the interim periods. The results of
operations for the six-month periods are not necessarily indicative of the
results expected for a full year or any other interim period.
<TABLE>
<CAPTION>
SIX MONTHS
YEAR ENDED DECEMBER 31, ENDED JUNE 30,
-------------------------------------------------------- -------------------
1991 1992 1993 1994 1995 1995 1996
------- ------- ------- ------- ------- ------- -------
(UNAUDITED)
(IN MILLIONS, EXCEPT PER SHARE AMOUNTS)
<S> <C> <C> <C> <C> <C> <C> <C>
INCOME STATEMENT DATA:
Revenues.................................. $ 5,698 $ 6,415 $ 7,985 $ 8,984 $ 9,189 $ 4,453 $ 6,015
Costs and expenses
Cost of gas and other products sold..... 3,646 4,222 5,567 6,517 6,733 3,170 4,652
Operating expenses...................... 1,039 1,037 1,146 1,124 1,218 492 578
Oil and gas exploration expenses........ 59 59 76 84 79 43 38
Depreciation, depletion and
amortization.......................... 366 376 458 441 432 210 230
Taxes, other than income taxes.......... 75 101 108 102 109 57 70
------- ------- ------- ------- ------- ------- -------
5,185 5,795 7,355 8,268 8,571 3,972 5,568
------- ------- ------- ------- ------- ------- -------
Operating income.......................... 513 620 630 716 618 481 447
Other income and deductions
Equity in earnings of unconsolidated
subsidiaries.......................... 55 56 73 112 86 28 71
Other, net.............................. 147 91 95 116 461 93 162
------- ------- ------- ------- ------- ------- -------
Income before interest, minority interest
and income taxes........................ 715 767 798 944 1,165 602 680
Interest and related charges, net......... 373 330 300 273 284 138 135
Dividends on preferred stock of
subsidiaries............................ -- -- 2 20 32 16 16
Minority interests........................ 7 18 28 31 44 23 38
Income taxes.............................. 103 90 135 167 285 136 162
------- ------- ------- ------- ------- ------- -------
Income before extraordinary items......... 232 329 333 453 520 289 329
Extraordinary items....................... -- (23)(1) -- -- -- -- --
------- ------- ------- ------- ------- ------- -------
Net income................................ 232 306 333(2) 453 520 289 329
Preferred stock dividends................. 25 22 17 15 16 8 8
------- ------- ------- ------- ------- ------- -------
Earnings on common stock.................. $ 207 $ 284 $ 316 $ 438 $ 504 $ 281 $ 321
======= ======= ======= ======= ======= ======= =======
Primary earnings per common share......... $ 1.03 $ 1.29 $ 1.32 $ 1.80 $ 2.07 $ 1.16 $ 1.31
======= ======= ======= ======= ======= ======= =======
Fully diluted earnings per common share... $ 0.98 $ 1.21 $ 1.25 $ 1.70 $ 1.94 $ 1.08 $ 1.22
======= ======= ======= ======= ======= ======= =======
Cash dividends per common share........... $ 0.63 $ 0.66 $ 0.71 $ 0.76 $ 0.81 $ 0.40 $ 0.425
======= ======= ======= ======= ======= ======= =======
</TABLE>
<TABLE>
<CAPTION>
DECEMBER 31,
------------------------------------------------------- JUNE 30,
1991 1992 1993 1994 1995 1996
------- ------- ------- ------- ------- --------
(UNAUDITED)
(IN MILLIONS, EXCEPT PER SHARE AMOUNTS)
<S> <C> <C> <C> <C> <C> <C>
BALANCE SHEET DATA:
Total assets......................................... $10,070 $10,312 $11,504 $11,966 $13,239 $14,628
Long-term debt (including amounts reclassified from
short-term debt)................................... 3,109 2,459 2,661 2,805 3,065 3,330
Company-obligated preferred stock of subsidiaries.... -- -- 214 377 377 392
Minority interests................................... 101 179 196 290 549 604
Shareholders' equity................................. 1,901 2,518 2,623 2,880 3,165 3,554
Book value per common share.......................... 8.16 9.61 10.01 10.94 12.01 13.35
</TABLE>
- ---------------
(1) Relates to an early extinguishment of debt.
(2) Includes a primarily non-cash charge of $54 million to adjust for the
increase in the corporate federal income tax rate from 34 percent to 35
percent.
15
<PAGE> 23
SELECTED HISTORICAL FINANCIAL INFORMATION OF PGC
The financial information set forth below has been derived from the audited
and unaudited consolidated financial statements of PGC. The information should
be read in connection with, and is qualified in its entirety by reference to,
PGC's financial statements and notes thereto incorporated by reference herein.
The interim data reflect all adjustments that, in the opinion of the management
of PGC, are necessary to present fairly such information for the interim
periods. The results of operations for the six-month periods are not necessarily
indicative of the results expected for a full year or any other interim period.
<TABLE>
<CAPTION>
SIX MONTHS
YEAR ENDED DECEMBER 31, ENDED JUNE 30,
---------------------------------------------- --------------
1991 1992 1993 1994 1995 1995 1996
------ ----- ----- ----- ----- ----- -----
(IN MILLIONS) (UNAUDITED)
<S> <C> <C> <C> <C> <C> <C> <C>
INCOME STATEMENT DATA:
Operating revenues.................. $ 890 $ 883 $ 947 $ 959 $ 984 $ 479 $ 534
Operating expenses
Purchased power and fuel.......... 226 222 312 347 294 134 129
Production and distribution....... 96 94 74 62 64 32 42
Maintenance and repairs........... 91 70 55 47 48 21 25
Administrative and other.......... 124 112 100 101 108 52 55
Depreciation and amortization..... 113 99 122 124 134 66 76
Taxes, other than income taxes.... 59 55 56 52 51 27 28
------ ----- ----- ----- ----- ----- -----
709 652 719 733 699 332 355
------ ----- ----- ----- ----- ----- -----
Operating income before income
taxes............................. 181 231 228 226 285 147 179
Income taxes........................ 44 67 70 72 89 50 61
------ ----- ----- ----- ----- ----- -----
Net operating income................ 137 164 158 154 196 97 118
Other income (deductions)
Loss from independent power -- net
of taxes of $16................ (74) -- -- -- -- -- --
Regulatory disallowance -- net of
income taxes of $25 and $17.... -- -- -- -- (50) (37) --
Interest expense.................. (82) (74) (71) (71) (79) (39) (39)
Allowance for funds used during
construction................... 2 3 1 4 11 5 1
Preferred dividend
requirement -- PGE............. (13) (13) (12) (11) (10) (6) (2)
Other -- net of income taxes...... 9 10 13 17 13 10 5
------ ----- ----- ----- ----- ----- -----
Income (loss) from continuing
operations........................ (21) 90 89 93 81 30 83
Discontinued operations............. (29)(1) -- -- 7(2) -- -- --
------ ----- ----- ----- ----- ----- -----
Net income (loss)................... $ (50) $ 90 $ 89 $ 100 $ 81 $ 30 $ 83
====== ===== ===== ===== ===== ===== =====
Primary earnings (loss) per common
share from continuing
operations........................ $(0.43) $1.93 $1.88 $1.86 $1.60 $0.60 $1.63
Primary earnings (loss) per common
share from discontinued
operations........................ (0.63) -- -- 0.13 -- -- --
------ ----- ----- ----- ----- ----- -----
Primary earnings (loss) per common
share............................. $(1.06) $1.93 $1.88 $1.99 $1.60 $0.60 $1.63
====== ===== ===== ===== ===== ===== =====
Cash dividends per common share..... $ 1.20 $1.20 $1.20 $1.20 $1.20 $0.60 $0.64
====== ===== ===== ===== ===== ===== =====
</TABLE>
<TABLE>
<CAPTION>
DECEMBER 31,
---------------------------------------------- JUNE 30,
1991 1992 1993 1994 1995 1996
------ ------ ------ ------ ------ --------
(IN MILLIONS) (UNAUDITED)
<S> <C> <C> <C> <C> <C> <C>
BALANCE SHEET DATA:
Total assets.............................. $3,093 $3,141 $3,449 $3,559 $3,448 $3,434
Short-term debt........................... 92 141 159 149 170 227
Long-term debt and preferred stock of
subsidiary due within one year.......... 15 48 52 82 105 67
Long-term debt............................ 913 856 843 836 891 865
Company-obligated preferred stock of
subsidiary.............................. 150 152 140 120 40 30
Shareholders' equity...................... 667 713 760 858 893 947
Book value per common share............... 14.97 15.65 16.35 17.27 17.67 18.66
</TABLE>
- ---------------
(1) Estimated loss on disposal of real estate operations, including provision
for operating losses during the phase-out period.
(2) Gain on disposal of real estate operations.
16
<PAGE> 24
SUMMARY UNAUDITED PRO FORMA COMBINED FINANCIAL INFORMATION
The following unaudited pro forma selected combined financial information
presents the combined financial data of Enron and PGC for the year ended
December 31, 1995 and as of and for the six months ended June 30, 1996. The
unaudited pro forma combined income statement data give effect to the Mergers as
if they had occurred on January 1, 1995 and the unaudited pro forma combined
balance sheet data give effect to the Mergers as if they had occurred on June
30, 1996. Enron will account for the Mergers as a purchase. The unaudited pro
forma selected combined financial data have been derived from the unaudited pro
forma combined financial statements included herein and should be read in
conjunction with those statements, the related notes thereto and with the
separate historical financial statements of Enron and PGC incorporated herein by
reference. See "Incorporation of Certain Documents by Reference." The pro forma
data are not necessarily indicative of the actual or future results of
operations or financial condition that would have been reported had the Mergers
occurred on the dates assumed.
<TABLE>
<CAPTION>
SIX MONTHS
YEAR ENDED ENDED
DECEMBER 31, 1995 JUNE 30, 1996
----------------- --------------
(UNAUDITED: IN MILLIONS EXCEPT PER
SHARE AMOUNTS)
<S> <C> <C>
INCOME STATEMENT DATA:
Revenues...................................................... $10,173 $6,549
------- ------
Costs and expenses
Cost of gas and other products.............................. 7,027 4,781
Operating expenses.......................................... 1,438 700
Oil and gas exploration expenses............................ 79 38
Depreciation, depletion and amortization.................... 595 321
Taxes, other than income taxes.............................. 160 98
------- ------
9,299 5,938
------- ------
Operating income.............................................. 874 611
Other income and deductions, net.............................. 558 239
Regulatory disallowance....................................... (75) --
------- ------
Income before interest, minority interests and income taxes... 1,357 850
Interest and related charges, net............................. 354 173
Dividends on preferred stock of subsidiaries.................. 42 18
Minority interests............................................ 44 38
Income taxes.................................................. 344 223
------- ------
Net income.................................................... 573 398
Preferred stock dividends..................................... 16 8
------- ------
Earnings on common stock...................................... $ 557 $ 390
======= ======
Earnings per share of common stock
Primary..................................................... $ 1.89 $ 1.32
======= ======
Fully diluted............................................... $ 1.80 $ 1.24
======= ======
Cash dividends per share of common stock(1)................... $ 0.81 $0.425
======= ======
</TABLE>
<TABLE>
<CAPTION>
JUNE 30, 1996
-------------
<S> <C> <C>
BALANCE SHEET DATA:
Total assets.................................................. $19,174
Short-term debt............................................... 227
Long-term debt due within one year............................ 67
Long-term debt (including amounts reclassified from
short-term debt)............................................ 4,204
Company-obligated preferred stock of subsidiaries............. 423
Minority interests............................................ 604
Shareholders' equity.......................................... 5,607
Book value per common share................................... 17.69
</TABLE>
- ---------------
(1) Pro forma cash dividends per common share reflect quarterly cash dividends
of Enron of $.20 per share ($.80 per share annually), which were increased
to $.2125 per share ($.85 per share annually) beginning in the fourth
quarter of 1995.
17
<PAGE> 25
COMPARATIVE PER SHARE DATA
The following table sets forth for the Enron Common Stock and PGC Common
Stock selected historical per share data and the corresponding unaudited pro
forma per share amounts for the periods indicated, giving effect to the Mergers.
The data presented are based upon the consolidated financial statements and
related notes of each of Enron and PGC incorporated by reference into this Joint
Proxy Statement/Prospectus and the unaudited pro forma combined balance sheet
and income statements, including the notes thereto, appearing elsewhere herein.
This information should be read in conjunction with, and is qualified in its
entirety by, the historical and unaudited pro forma combined financial
statements and related notes thereto. The assumptions used in the preparation of
this table appear under "Unaudited Pro Forma Financial Information." The
comparative per share data are not necessarily indicative of the results of the
future operations of the combined organization or the actual results that would
have occurred if the Mergers had been consummated at the beginning of the
periods indicated.
<TABLE>
<CAPTION>
ENRON/PGC
ENRON PGC PRO FORMA
HISTORICAL HISTORICAL COMBINED(1)
---------- ---------- -----------
<S> <C> <C> <C>
Book value per common share:
December 31, 1995...................................... $12.01 $17.67 $ --
June 30, 1996.......................................... 13.35 18.66 17.69
Cash dividends per common share:
Year ended December 31, 1995........................... 0.81 1.20 0.81(2)
Six months ended June 30, 1996......................... 0.425 0.64 0.425(2)
Net income:
Primary:
Year ended December 31, 1995........................ 2.07 1.60 1.89
Six months ended June 30, 1996...................... 1.31 1.63 1.32
Fully diluted:
Year ended December 31, 1995........................ 1.94 1.60 1.80
Six months ended June 30, 1996...................... 1.22 1.63 1.24
</TABLE>
- ---------------
(1) See "Unaudited Pro Forma Financial Information."
(2) Pro forma cash dividends per common share reflect quarterly cash dividends
of Enron of $.20 per share ($.80 per share annually), which were increased
to $.2125 per share ($.85 per share annually) beginning in the fourth
quarter of 1995.
FORWARD LOOKING STATEMENTS
This Joint Proxy Statement/Prospectus includes forward looking statements
within the meaning of Section 27A of the Securities Act and Section 21E of the
Exchange Act. All statements other than statements of historical facts included
or incorporated by reference in this Joint Proxy Statement/Prospectus,
including, without limitation, statements regarding PGC's, Enron's or the
surviving company's future financial position, business strategy, budgets,
reserve estimates, projected costs and plans and objectives of management for
future operations, are forward looking statements. Although Enron and PGC
believe their expectations reflected in such forward looking statements are
based on reasonable assumptions, no assurance can be given that such
expectations will prove to have been correct. Important factors that could cause
actual results to differ materially from the expectations reflected in the
forward looking statements herein include political developments in foreign
countries, the pace of deregulation of retail natural gas and electricity
markets in the United States, the timing and extent of changes in commodity
prices for crude oil, natural gas, electricity and interest rates, the extent of
success in acquiring oil and gas properties and in discovering, developing and
producing reserves, the timing and success of efforts to develop international
power, pipeline and other infrastructure projects, conditions of the capital
markets and equity markets and the ability of Enron and PGC to achieve the goals
described in "The Mergers -- Reasons for the Mergers; Recommendations of the
Boards of Directors" during the periods covered by the forward looking
statements. All subsequent written or oral forward looking statements
attributable to PGC or Enron, or persons acting on their behalf, are expressly
qualified in their entirety by the foregoing cautionary statements.
18
<PAGE> 26
THE COMPANIES
ENRON
Enron is an integrated natural gas company with headquarters in Houston,
Texas. Essentially all of Enron's operations are conducted through its
subsidiaries and affiliates which are principally engaged in the gathering,
transportation and wholesale marketing of natural gas to markets throughout the
United States and internationally through approximately 37,000 miles of natural
gas pipelines; the exploration for and production of natural gas and crude oil
in the United States and internationally; the production, purchase,
transportation and worldwide marketing of natural gas liquids and refined
petroleum products; the independent (i.e., non-utility) development, promotion,
construction and operation of power plants, natural gas liquids facilities and
pipelines in the United States and internationally; and the non-price regulated
purchasing and marketing of energy related commitments.
Transportation and Operation. Enron's operations include the interstate and
intrastate transmission of natural gas, and construction, management and
operation of natural gas and natural gas liquids pipelines, liquids plants,
clean fuel plants and power facilities. Enron and its subsidiaries operate
domestic interstate pipelines extending from Texas to the Canadian border and
across the southern United States from Florida to California. Included in
Enron's domestic interstate natural gas pipeline operations are Northern Natural
Gas Company ("Northern"), Transwestern Pipeline Company ("Transwestern") and
Florida Gas Transmission Company ("Florida Gas") (indirectly 50% owned by
Enron), and all such pipelines are subject to the regulatory jurisdiction of the
FERC. Each pipeline serves customers in a specific geographical area: Northern,
the upper Midwest; Florida Gas, the State of Florida; and Transwestern,
principally the California market and pipeline interconnects on the east end of
Transwestern's system. In addition, Enron holds a 13% interest in Northern
Border Partners, L.P., which owns a 70% interest in the Northern Border Pipeline
system. An Enron subsidiary operates the Northern Border Pipeline system, which
transports gas from western Canada to delivery points in the midwestern United
States. Also, Enron has an approximate 15% interest in Enron Liquids Pipeline,
L.P., which is engaged in pipeline transportation of natural gas liquids,
refined petroleum products and carbon dioxide, operates coal terminalling, gas
processing and natural gas liquids fractionation facilities, and is operated by
a wholly owned subsidiary of Enron. Enron is considering the sale of the stock
of the wholly owned subsidiary that is the general partner and owner of the 15%
interest in Enron Liquids Pipeline, L.P., as well as the sale of certain other
natural gas liquids assets, such as a natural gas gathering system in Kansas,
the assets related to a gas processing facility in Kansas, and stock in a
subsidiary company which owns interests in gas processing plants, fractionation
plants and related facilities in Louisiana. If no acceptable offers are
submitted, Enron will continue to own these assets and operate the facilities.
The disposition of any or all of these assets would not be material to Enron's
consolidated business.
Domestic Gas and Power Services. Through its wholly owned subsidiary Enron
Capital & Trade Resources Corp. and its affiliated companies ("ECT"), Enron is
the largest purchaser and marketer of natural gas and the largest non-regulated
marketer of electricity in North America. ECT purchases natural gas, natural gas
liquids, power and other energy products through a variety of contractual
arrangements, including both short-term and long-term contracts, the arrangement
of production payment and other financing transactions, and other contractual
arrangements. ECT markets these energy products to local distribution companies,
electric utilities, cogenerators, and both commercial and industrial end-users.
ECT also provides price risk management services in connection with natural gas,
natural gas liquids and power transactions through both physical delivery and
financial arrangements.
ECT offers a broad range of non-price regulated natural gas merchant
services by tailoring a variety of supply and marketing options to its
customers' specific needs. ECT's strategy is to provide predictable pricing,
reliable delivery and low cost capital to its customers. ECT provides these
services through a variety of instruments, including forward contracts, swap
agreements and other contractual commitments.
ECT is engaged domestically in the extraction of natural gas liquids
(ethane, propane, normal butane, isobutane and natural gasoline), which are
typically extracted from natural gas in liquid form under low temperature and
high pressure conditions.
19
<PAGE> 27
International Gas and Power Services. Enron's international activities
principally involve the independent (i.e., non-utility) development,
acquisition, promotion and operation of natural gas and power projects, and the
marketing of natural gas liquids and other liquid fuels worldwide. As is the
case in the United States, Enron's emphasis is on businesses in which natural
gas or its components play a significant role. Development projects are focused
on power plants, gas processing and terminalling facilities, and gas pipelines,
while marketing activities center on fuels used by or transported through such
facilities. Enron's international activities include management of direct and
indirect ownership interests in and operation of power plants in England,
Germany, Guatemala, the Dominican Republic, the Philippines and China; pipeline
systems in Argentina and Colombia; retail gas and propane sales in the Caribbean
basin; processing of natural gas liquids at Teesside, England; and marketing of
natural gas liquids and other liquid fuels worldwide. Enron is also involved in
power, pipeline and liquefied natural gas projects in varying stages of
development in China, India, Puerto Rico, Italy, Turkey, Qatar, Vietnam, Israel,
Jordan, Bolivia, Brazil, Indonesia and elsewhere.
Enron Global Power & Pipelines L.L.C., a Delaware limited liability company
("EPP"), was formed in November 1994 by Enron to acquire, own and manage Enron's
operating power plant and natural gas pipeline business conducted outside the
United States, Canada and Western Europe, and to expand such business through
acquisitions. EPP's assets consist of interests contributed by Enron in two
power plants in the Philippines (with 226 megawatts of aggregate net generating
capacity), a power plant in Guatemala (with 110 megawatts of net generating
capacity), a 6,548 kilometer (4,069 mile) natural gas pipeline system in
Argentina, a 575 kilometer (357 mile) natural gas pipeline in Colombia and a 185
megawatt oil-fired, barge mounted power plant in the Dominican Republic. The
public offering of common shares of EPP was completed in November 1994. Enron
owns approximately 59% of the common shares of EPP. Enron formed EPP to attract
public equity capital to emerging market infrastructure projects, to enable
public investors to better evaluate and participate directly in the growth of
Enron's operating power plant and natural gas pipeline activities in emerging
markets and to generate additional capital for Enron to reinvest in future
development efforts and for other corporate purposes.
Exploration and Production. Substantially all of Enron's natural gas and
crude oil exploration and production operations are conducted by its subsidiary
Enron Oil & Gas Company ("EOG"). EOG is engaged in the exploration for, and
development, production and marketing of, natural gas and crude oil primarily in
major producing basins in the United States, as well as in Canada, Trinidad,
India and, to a lesser extent, in selected other international areas. At
December 31, 1995, EOG had estimated net proved natural gas reserves of 3,343
billion cubic feet (including 54.2 billion cubic feet attributable to a
volumetric production payment) and estimated net proved crude oil, condensate
and natural gas liquids reserves of 50 million barrels, and at such date,
approximately 78% of EOG's reserves (on a natural gas equivalent basis) were
located in the United States, 10% in Canada, 8% in Trinidad and 4% in India.
Enron owns approximately 59% of the common stock of EOG.
Additional information concerning Enron and its subsidiaries is included in
the Enron documents filed with the Commission and incorporated herein by
reference. See "Incorporation of Certain Documents by Reference."
NEW ENRON
New Enron is a wholly-owned subsidiary of Enron incorporated in Oregon in
July 1996 solely for the purpose of succeeding to the business of Enron pursuant
to the Reincorporation Merger. New Enron currently conducts no business and has
no material assets or liabilities.
PGC
PGC is an electric utility holding company headquartered in Portland,
Oregon. Its principal subsidiary is PGE, an electric utility incorporated in
Oregon in 1930. PGC also has certain non-utility subsidiaries. PGE is engaged in
the generation, purchase, transmission, distribution and sale of electricity
primarily in the State of Oregon. PGE purchases and sells energy on a wholesale
basis throughout the western United States through both long-term and short-term
arrangements. PGE provides price risk management services with power
20
<PAGE> 28
transactions through physical delivery and financial arrangements. PGE's Oregon
service area is 3,170 square miles, including 54 incorporated cities of which
Portland and Salem are the largest, within a state-approved service area
allocation of 4,070 square miles. PGE estimates that at the end of 1995, its
service-area population was approximately 1.4 million, constituting
approximately 44% of the state's population. At December 31, 1995 PGE served
approximately 650,000 customers. PGE owns hydroelectric and natural gas-fired
generating plants in Oregon and is a part owner and operator of a coal plant in
Oregon, and is a part owner of coal plants in Washington and Montana. PGC's
non-utility subsidiaries are engaged in leveraged leasing and accounting and
title-tracking administrative services to facilitate the trading of electricity
in the deregulating electric power market. Additional information concerning PGC
and its subsidiaries is included in the PGC documents filed with the Commission
which are incorporated by reference herein. See "Incorporation of Certain
Documents by Reference."
21
<PAGE> 29
THE SPECIAL MEETINGS
THE ENRON SPECIAL MEETING
Purpose of the Enron Special Meeting. The purpose of the Enron Special
Meeting is to consider and vote upon (i) a proposal to approve and adopt the
Merger Agreement, and (ii) such other matters as may properly be brought before
the Enron Special Meeting.
THE ENRON BOARD OF DIRECTORS, BY UNANIMOUS VOTE OF THE DIRECTORS PRESENT,
HAS DETERMINED THAT THE MERGERS ARE FAIR TO AND IN THE BEST INTERESTS OF ENRON
AND ITS SHAREHOLDERS AND UNANIMOUSLY RECOMMENDS THAT HOLDERS OF ENRON VOTING
STOCK VOTE FOR APPROVAL AND ADOPTION OF THE MERGER AGREEMENT.
Date, Time and Place. The Enron Special Meeting will be held on Tuesday,
November 12, 1996, at the Enron Building, 1400 Smith Street, Houston, Texas
commencing at 4:00 p.m. local time.
Record Date and Outstanding Shares. Only holders of record of shares of
Enron Common Stock and Enron Convertible Preferred Stock at the close of
business on September 23, 1996, the Enron Record Date, are entitled to notice
of, and to vote at, the Enron Special Meeting.
On the Enron Record Date, there were approximately 25,700 holders of record
of Enron Common Stock, with 253,823,320 shares of Enron Common Stock issued and
outstanding, and 225 holders of Enron Convertible Preferred Stock, with
1,371,783 shares of Enron Convertible Preferred Stock issued and outstanding. At
the Enron Special Meeting, the Enron Voting Stock will vote together as a class,
with each holder of Enron Common Stock being entitled to one vote per share on
all matters brought before the Enron Special Meeting, and each holder of Enron
Convertible Preferred Stock being entitled to a number of votes per share equal
to the conversion rate of 13.652 shares of Enron Common Stock per share on all
matters brought before the Enron Special Meeting. See "Principal Shareholders of
Enron and PGC" for information regarding persons known to the management of
Enron to be the beneficial owners of 5% or more of any class of the outstanding
Enron Voting Stock.
The Enron Special Meeting may be adjourned to another date and/or place for
proper purposes (including, without limitation, for the purpose of soliciting
additional proxies).
Voting and Revocation of Proxies. All properly executed proxies that are
not revoked will be voted at the Enron Special Meeting in accordance with the
instructions contained therein. If a holder of Enron Voting Stock executes and
returns a proxy and does not specify otherwise, the shares represented by such
proxy will be voted "FOR" approval and adoption of the Merger Agreement in
accordance with the recommendation of the Board of Directors of Enron. A
shareholder of Enron who has executed and returned a proxy may revoke it at any
time before it is voted at the Enron Special Meeting by (i) executing and
returning a proxy bearing a later date, (ii) filing written notice of such
revocation with the Secretary of Enron stating that the proxy is revoked or
(iii) attending the Enron Special Meeting and voting in person.
Quorum; Vote Required. The Enron Bylaws provide that the presence at the
Enron Special Meeting, in person or by proxy, of the holders of a majority of
the voting power represented by the outstanding Enron Voting Stock is necessary
to constitute a quorum for the transaction of business, and approval and
adoption of the Merger Agreement requires the affirmative vote of a majority of
the voting power represented by the outstanding Enron Voting Stock entitled to
vote thereon. In determining whether the Merger Agreement has received the
requisite number of affirmative votes, abstentions and broker non-votes will
have the same effect as a vote against the Merger Agreement. As of the Enron
Record Date, directors, executive officers and affiliates of Enron owned an
aggregate of 3,948,631 shares of Enron Common Stock and 346,725 shares of Enron
Convertible Preferred Stock, representing 3.2% of the votes represented by the
Enron Voting Stock on such date.
Solicitation of Proxies. In addition to solicitation by mail, the
directors, officers, employees and agents of Enron may solicit proxies from
Enron shareholders by personal interview, telephone, telegram or otherwise.
Enron will bear the cost of the solicitation of proxies from its shareholders,
except that Enron and PGC will each pay one-half of the cost of printing and
filing this Joint Proxy Statement/Prospectus. Arrangements will also be made
with brokerage firms and other custodians, nominees and fiduciaries who hold of
record voting
22
<PAGE> 30
securities of Enron for the forwarding of solicitation materials to the
beneficial owners thereof. Enron will reimburse such brokers, custodians,
nominees and fiduciaries for the reasonable out-of-pocket expenses incurred by
them in connection therewith. Enron has also engaged the services of Corporate
Investor Communications, Inc. to distribute proxy solicitation materials to
brokers, banks and other nominees and to assist in the solicitation of proxies
from Enron shareholders for a fee of $8,000, plus reasonable out-of-pocket
expenses.
Other Matters. At the date of this Joint Proxy Statement/Prospectus, the
Board of Directors of Enron does not know of any business to be presented at the
Enron Special Meeting other than as set forth in the notice accompanying this
Joint Proxy Statement/Prospectus. If any other matters should properly come
before the Enron Special Meeting, it is intended that the shares represented by
proxies will be voted with respect to such matters in accordance with the
judgment of the persons voting such proxies.
THE PGC SPECIAL MEETING
Purpose of the PGC Special Meeting. The purpose of the PGC Special Meeting
is to consider and vote upon (i) a proposal to approve the Merger Agreement and
(ii) such other matters as may properly be brought before the PGC Special
Meeting. The PGC Board is not aware, as of the date of mailing of this Joint
Proxy Statement/Prospectus, of any other matters that may properly come before
the PGC Special Meeting. If any such other matters properly come before the PGC
Special Meeting, or any adjournment thereof, it is the intention of the persons
named in the PGC proxy to vote such proxies in accordance with their best
judgment on such matters.
THE PGC BOARD, BY A UNANIMOUS VOTE OF THE DIRECTORS PRESENT, HAS ADOPTED
THE MERGER AGREEMENT, AUTHORIZED THE EXECUTION AND DELIVERY OF THE MERGER
AGREEMENT, AND UNANIMOUSLY RECOMMENDS THAT PGC SHAREHOLDERS VOTE FOR APPROVAL OF
THE MERGER AGREEMENT.
In considering the recommendation of the PGC Board with respect to the
Merger Agreement, shareholders should be aware that certain members of PGC's
management and the PGC Board have certain interests in the Mergers that are in
addition to the interests of shareholders of PGC generally and that could
potentially represent conflicts of interest. The PGC Board was aware of these
interests and considered them, among other matters, in adopting the Merger
Agreement. See "The Mergers -- Interests of Certain Persons in the Mergers."
Date, Place and Time; Record Date. The PGC Special Meeting is scheduled to
be held on Tuesday, November 12, 1996, at 2:00 p.m., local time, at Portland
General Corporation Headquarters, Two World Trade Center, 121 S.W. Salmon
Street, Portland, Oregon. Holders of record of PGC Common Stock at the close of
business on September 23, 1996, the PGC Record Date, will be entitled to notice
of and to vote at the PGC Special Meeting. As of the PGC Record Date, 51,202,763
shares of PGC Common Stock were issued and outstanding.
A complete list of shareholders entitled to notice of the PGC Special
Meeting will be available for inspection at the offices of PGC in Portland,
Oregon during normal business hours upon written demand by any PGC shareholder
or such shareholder's agent or attorney beginning two business days after the
date of PGC's notice of meeting for the PGC Special Meeting and continuing
through the PGC Special Meeting. Any shareholder or such shareholder's agent or
attorney may, upon written demand and, subject to Section 60.774(3) of the OBCA,
copy the shareholder list during regular business hours during the inspection
period at such shareholder's expense.
The PGC Special Meeting may be adjourned to another date and/or place for
proper purposes (including, without limitation, for the purpose of soliciting
additional proxies).
Voting Rights. Each shareholder of record on the PGC Record Date is
entitled to one vote for each share of PGC Common Stock held on each matter
submitted to a vote at the PGC Special Meeting. A majority of the outstanding
shares of PGC Common Stock entitled to vote on a matter, represented in person
or by proxy,
23
<PAGE> 31
constitutes a quorum for consideration of such matter at the PGC Special
Meeting. If a quorum is present, the affirmative vote of the holders of at least
a majority of the outstanding shares of PGC Common Stock will be sufficient to
approve the Merger Agreement. Abstentions and broker non-votes will have the
same effect as votes cast against approval of the Merger Agreement. Failure to
return a PGC proxy or vote in person at the PGC Special Meeting will have the
effect of a vote against approval of the Merger Agreement.
Proxies. Any holder of PGC Common Stock may vote such shareholder's shares
either in person or by duly authorized proxy. The giving of a proxy by a PGC
shareholder will not affect such shareholder's right to vote such shares if the
shareholder attends the PGC Special Meeting and desires to vote in person. Prior
to the voting of a PGC proxy, such proxy may be revoked by the shareholder by
delivering written notice of revocation to the Secretary of PGC, by executing a
subsequently dated proxy or by voting in person at the PGC Special Meeting. All
shares represented by effective proxies on the enclosed form of PGC proxy
received by PGC will be voted at the PGC Special Meeting in accordance with the
terms of such proxies. If no instructions are given, the PGC proxies will be
voted FOR the approval of the Merger Agreement.
PGC will bear the cost of the solicitation of proxies for the PGC Special
Meeting, except that PGC and Enron will share equally expenses incurred in
connection with the printing and filing of this Joint Proxy
Statement/Prospectus. Certain officers, directors, employees and agents of PGC
may solicit PGC proxies by correspondence, telephone, telegraph, telecopy or
other electronic means, or in person, but without extra compensation. PGC will
pay to banks, brokers, nominees and other fiduciaries their reasonable charges
and expenses incurred in forwarding the proxy soliciting material to their
principals. In addition, PGC has retained D. F. King & Co., Inc. to assist PGC
in the solicitation of proxies for a fee of $10,000 plus reasonable out-of-
pocket expenses. Such solicitation may be made by mail, telecommunication or in
person.
Voting Procedures for Participants in PGC's Dividend Reinvestment and
Optional Cash Payment Plan and Employee Benefit Plans. The enclosed proxy
includes power to vote the number of shares of PGC Common Stock registered in a
holder's name, according to the books of PGC's transfer agent, and the number of
shares of PGC Common Stock beneficially owned by a holder in PGC's Dividend
Reinvestment and Optional Cash Payment Plan ("DRP"). In addition, for
participants in PGC's Retirement Savings Plan ("RSP") or the PGC Employee Stock
Purchase Plan ("ESPP"), the proxy also serves as voting instructions to the
Trustee and Plan Administrator of those plans to vote the shares of PGC Common
Stock beneficially owned by the participant in those plans.
PGC will mail this Joint Proxy Statement/Prospectus and a proxy to all
persons who, according to the books of PGC's Transfer Agent and the books of the
Trustee and Plan Administrator of the RSP and ESPP, beneficially own shares of
PGC Common Stock in the DRP, RSP or ESPP.
24
<PAGE> 32
THE MERGERS
GENERAL DESCRIPTION OF THE MERGERS
Reincorporation Merger. At the First Effective Time, Enron will merge with
and into New Enron, with New Enron continuing in existence as the surviving
corporation. In connection with the Reincorporation Merger, the name of New
Enron will be changed to "Enron Corp." In the Reincorporation Merger, each
outstanding share of Enron Common Stock issued and outstanding at the First
Effective Time will be converted into one share of New Enron Common Stock, and
each share of any class or series of Enron Preferred Stock issued and
outstanding at the First Effective Time will be converted into one share of a
series of New Enron Preferred Stock having the same rights, preferences and
limitations as the corresponding class or series of Enron Preferred Stock.
PGC Merger. Immediately following the Reincorporation Merger, the parties
will consummate the PGC Merger, in which PGC will merge with and into New Enron,
with New Enron continuing in existence as the surviving corporation. In the PGC
Merger, each share of PGC Common Stock issued and outstanding at the Effective
Time (other than shares owned by PGC, Enron, New Enron or any of their
respective subsidiaries, which will be cancelled) will be converted into one
share of New Enron Common Stock (the "PGC Conversion Ratio"). If, prior to the
Effective Time, Enron effects certain changes in the Enron Common Stock or makes
certain distributions on the Enron Common Stock, the PGC Conversion Ratio will
be adjusted. See "The Merger Agreement -- Manner and Basis of Converting
Shares -- Adjustments to the PGC Conversion Ratio."
Alternative Transaction Structure in the Event of Regulatory Reform. The
Reincorporation Merger is intended solely to enable New Enron to qualify after
the PGC Merger as an intrastate holding company exempt from registration under
the 1935 Act. If, prior to the Effective Time, the 1935 Act is repealed or
amended such that it would be possible to merge PGC into Enron without
subjecting the surviving entity to 1935 Act registration, the Merger Agreement
provides that the parties will revise the structure of the transactions
contemplated by the Merger Agreement so that the Reincorporation Merger will not
occur and PGC will merge directly into Enron. In such event, PGC shareholders
will receive Enron Common Stock in the PGC Merger instead of New Enron Common
Stock, and the obligations of New Enron under the Merger Agreement will be
obligations of Enron. See Exhibit B to the Merger Agreement included herewith
for a complete description of the alternative transaction structure. Approval of
the Merger Agreement by the shareholders of Enron and PGC at the Special
Meetings will be deemed to constitute approval of a revised transaction
structure effected pursuant to these provisions. See "Comparative Rights of New
Enron, Enron and PGC Shareholders."
BACKGROUND OF THE MERGERS
In response to the accelerating pace of regulatory change within the
electric industry, Enron concluded by mid-1993 that it would benefit from the
addition of retail electricity expertise and physical assets that would
complement Enron's existing natural gas and electricity marketing, financial
services and risk management expertise. Accordingly, at that time Enron began
analyzing various alternatives for a strategic joint venture or acquisition in
the electric power industry. Enron's objective was to add both strategic assets
and unique skill sets that would complement Enron's existing wholesale power
marketing business and enhance Enron's shareholder value. As a result of this
analysis, Enron ultimately determined that a strategic transaction with a
utility having PGE's operating characteristics would be beneficial to Enron and
its stockholders.
In February 1994, the PGC Board directed its management to present
information and analyses to the PGC Board on the changes occurring in the
electric industry and related energy markets, the potential effects of those
changes on PGC's businesses and prospects and the potential strategic
alternatives available to PGC in the context of those developments.
In June 1994, Jeffrey Skilling, Chairman and Chief Executive Officer of
ECT, and Kenneth Rice, Managing Director of ECT, met in Portland with Joseph
Hirko, Senior Vice President and Chief Financial
25
<PAGE> 33
Officer of PGC. Mr. Skilling stated that the purpose for arranging the meeting
was to lay the groundwork for exploring possible future business opportunities
between the companies.
In November 1994, at the invitation of Mr. Skilling, Messrs. Harrison,
Hirko and Richard Dyer, Senior Vice President of PGE, visited Enron's corporate
headquarters in Houston. During this visit, Messrs. Skilling and Rice and J.
Clifford Baxter, Managing Director of ECT, indicated that Enron wished to enter
into a relationship with a utility having PGE's operating characteristics. PGC's
management responded that PGC was not interested at that time in pursuing a
strategic relationship with Enron. There were no further discussions regarding a
strategic business relationship between Enron and PGC until January 1996.
Enron and PGC began to engage in minimal trading activities with each other
in the ordinary course of business for buying and selling electric power in late
November 1994.
On September 12, 1995, the PGC Board formed a Strategic Review Committee
(the "Strategic Review Committee"), consisting of Ms. Booth and Messrs. Brix,
Harrison, McCain, Meyer and Willison, to supervise and direct management's
exploration of possible strategic alternatives. Beginning in September 1995, the
Strategic Review Committee and the PGC Board received periodic reports from
management and representatives of Goldman Sachs regarding the analysis of
strategic alternatives and covering general industry developments with respect
to regulatory reforms, updates on merger activities within the electric utility
industry, and comparative ratio analyses of PGC's performance relative to that
of other electric utility industry participants.
In October 1995, Enron and ECT retained Smith Barney to assist in the
investigation and analysis of possible strategic combinations and/or
acquisitions within the electric utility industry.
On January 17, 1996, at Enron's request, Messrs. Rice and Baxter met in
Portland with Messrs. Harrison, Hirko, Dyer and Mr. Alvin Alexanderson, Senior
Vice President and General Counsel of PGC. Mr. Rice articulated Enron's vision
of the future of the energy industry and the opportunities and challenges facing
companies such as Enron and PGC in an increasingly competitive environment.
Messrs. Rice and Baxter suggested that the parties enter into discussions
concerning possible joint ventures. The PGC and Enron executives agreed to
explore various possible business relationships and transactions between the two
companies.
On February 6, 1996, at a meeting of the PGC Board, PGC senior management
reported on the status of the discussions between PGC and Enron as well as other
strategic alternatives.
During the months since the January 17, 1996 meeting, up through the
completion of the merger negotiations, the Enron Board and its Executive
Committee were apprised from time to time by Enron management of the ongoing
discussions and negotiations between PGC and Enron.
On February 7 and 8, 1996, senior executives from Enron and PGC met to
conduct further discussions on the possible sale of certain assets to Enron.
Following these meetings, Enron and PGC established working teams that began to
meet periodically to explore the proposed disposition.
On March 4, 1996, the Executive Committee of the PGC Board received a
detailed report from PGC senior executives on the exploration of strategic
alternatives, including the discussions with Enron. The strategic alternatives
reviewed by the Executive Committee at this meeting, as well as at the earlier
Board of Directors meeting held on February 6, were among those ultimately
evaluated by the Board at its May 14, 1996 meeting.
On March 11, 1996, the companies entered into a confidentiality and
standstill agreement, pursuant to which the parties agreed to exchange
proprietary information, and Enron agreed generally, for a two-year period of
time, not to, among other things, (i) acquire, agree to acquire or make any
proposal to acquire any securities of PGC or its material subsidiaries, (ii)
seek or propose any merger or consolidation with (or tender offer or exchange
offer for the securities of) PGC or any material subsidiary, (iii) make any
"solicitation" of proxies or consents within the meaning of Rule 14a-1 under the
Exchange Act with respect to any securities of PGC or any material subsidiary,
(iv) form, join or in any way participate in a "group" (within the meaning of
Section 13(d)(3) of the Exchange Act) with respect to any securities of PGC or
any material subsidiary,
26
<PAGE> 34
(v) seek to control or direct the management or Board of Directors of PGC or
(vi) publicly announce the pursuit or intent to pursue any of the foregoing.
At a March 21, 1996 meeting of senior executives of Enron and PGC and a
representative of Goldman Sachs, Enron suggested that a merger of Enron and PGC
would create significantly greater long-term benefits to the companies than the
other alternatives that the companies had discussed. Following the March 21
meeting, the Enron and PGC teams began to develop a document detailing a joint
strategic vision for presentation to their respective Boards of Directors.
On April 1, 1996, at a meeting of the Executive Committee of the PGC Board,
PGC management and representatives of Goldman Sachs provided a detailed update
on the ongoing preliminary discussions with Enron, which presentation was again
delivered at a PGC Board meeting held the following day.
Senior management representatives from Enron and PGC and their respective
financial and legal advisors met in Denver on April 23 and 24, 1996. At this
meeting, Enron's representatives presented a detailed analysis of Enron's
various business units. The presentations included an articulation of Enron's
strategic vision and an overview of the major exploration, development and
trading initiatives being pursued in Enron's primary businesses. The working
group teams met again on May 1 and 2 in Phoenix where discussions focused on a
strategy for gaining regulatory approval for a business combination transaction
between the two companies if the companies decided to effect a transaction.
On May 7, 1996, PGC held its annual meeting of shareholders. At the PGC
Board meeting held in conjunction with that meeting, PGC's senior executives
presented the strategic vision outlining the opportunities for a combined
Enron/PGC enterprise in each line of business and the actions required to
successfully execute such a vision. At this meeting, PGC management also
presented to the PGC Board the company's five-year strategic and operating plan.
On May 7, 1996, Enron also held its annual meeting of shareholders. At the
accompanying Enron Board meeting, Enron's senior executives gave a presentation
to the Enron Board regarding the status of the discussions that had been held
between the two companies regarding a possible transaction.
During meetings between the two companies' representatives held on May 9
and 10, 1996 in Phoenix, Enron conducted due diligence of PGC. PGC senior
executives presented a review of PGC's regulated business and answered questions
from Enron regarding PGC's regulatory assets and its investment in and
decommissioning of the Trojan nuclear facility. PGC management made
presentations of certain of PGC's financial projections and forecasts, its
leasing business and PGC's regulatory initiatives and strategy. At this meeting,
the respective working groups established a preliminary timetable for continuing
due diligence, creating a communications plan and developing a strategy for
gaining regulatory approvals in connection with a proposed transaction if the
parties decided to proceed.
On May 14, 1996, a meeting of the PGC Board was held to review developments
in the electric industry and to evaluate strategic opportunities and
alternatives. Mr. Hirko reported that PGC's management had considered four
categories of potential business combinations: a regional merger of equals, a
merger with a regional local distribution company, a regional merger and a
merger to pursue a national energy market strategy. Mr. Hirko identified senior
management's view of the best candidate within each category, and presented
management's evaluation of the group of "best" candidates relative to various
evaluation criteria including the resultant strategic positioning of the
combined entity and the anticipated effects on the company's shareholder,
employee, and customer constituencies as well as the Oregon community generally.
In the judgment of PGC management, a business combination with Enron seemed to
be the most beneficial transaction, in the aggregate, from the perspective of
the various constituencies considered, and seemed to provide, in the aggregate,
the most favorable prospects for the combined entity relative to the other
alternatives it had considered. It was the sense of the meeting that management
should continue to pursue discussions with Enron. PGC did not engage in
negotiations with any third party other than Enron with respect to any strategic
alternatives and did not take any significant steps to develop any other
potential strategic opportunity or alternative. During the period subsequent to
the May 14, 1996 PGC Board meeting, the various working groups continued to
meet.
27
<PAGE> 35
On June 5, 1996, the PGC Board met to review the status of the merger
discussions with Enron. Following a review of PGC's financial performance and
opportunities for growth as a stand-alone entity, Mr. Hirko made a presentation
to the PGC Board on Enron's individual businesses and Enron's historical and
financial performance, and presented a vision of the combined companies. Mr.
Harrison explained that, because cost efficiencies were not the motivating force
of the transaction, continued long-term opportunities for PGC employees would
exist within the combined company, and a transaction between Enron and PGC would
seem to assure a long-term role for the local community. Representatives of
Goldman Sachs presented their analysis of Enron's performance and prospects
relative to its competitors. Following a comprehensive discussion, the Board
unanimously directed PGC management to proceed with negotiations with Enron.
On June 12, 1996, the working groups from each company met in San Francisco
to discuss the initial draft merger agreement that had been circulated by Enron
on June 7, discussed the regulatory plan and outlined a timetable for the
proposed merger.
At the invitation of the PGC Board, Kenneth L. Lay, Chairman and Chief
Executive Officer of Enron, and Mr. Skilling attended a special meeting of the
PGC Board of Directors on June 18. Messrs. Lay and Skilling made presentations
on Enron's businesses, Enron's financial performance and historical returns to
shareholders and its strategic and financial outlook for the future. Mr. Lay
discussed the role PGC's management would likely play in the combined business
and the continued presence of the combined company in the Oregon community
following the proposed merger. After Messrs. Lay and Skilling left the meeting,
the PGC Board received a financial presentation from Goldman Sachs on each of
Enron's and PGC's businesses and the prospects for the proposed combined entity.
Following the June 18, 1996 PGC Board meeting, representatives of Enron and
PGC held a series of meetings to conduct further due diligence and discuss the
proposed merger agreement, regulatory and communications issues, and the roles
that various individuals would assume in a combined organization. During this
period, Enron representatives indicated to representatives of PGC that Enron's
willingness to proceed with a transaction was conditioned on PGC senior
management's willingness to remain with the combined entity following the
transaction.
The PGC Board met on July 2, 1996 and received updates from management,
Goldman Sachs and PGC's legal advisors on the status of PGC's due diligence
review of Enron, the regulatory plan for the proposed merger and ongoing
discussions with regulators regarding the company's rate plans, the status of
negotiations on, and key terms and conditions of, the merger agreement, and
Enron's desire to retain PGC management following the proposed merger. Goldman
Sachs reviewed the nature of the analysis they would perform to arrive at a
conclusion as to the fairness of the consideration that would be offered to PGC
shareholders in the proposed transaction.
On July 8, 1996, there was a meeting of the Executive Committee of the
Enron Board, at which Richard D. Kinder, President and Chief Operating Officer
of Enron, updated the Executive Committee as to the status of the negotiations
with PGC.
During the week of July 8, 1996, the terms of the employment agreements for
Messrs. Harrison and Hirko were discussed, and substantial agreement on Mr.
Harrison's and Mr. Hirko's employment agreements was reached during the weekend
of July 13 and 14.
On July 16, 1996, representatives of Enron and PGC senior management and
their respective financial and legal advisors met in Phoenix to continue
negotiations on the merger agreement and the pricing terms. During these
negotiations, the respective working groups received reports indicating there
might be awareness of the merger discussions outside the working groups. As a
result, the respective working groups determined to accelerate the timetable for
completing the merger negotiations and due diligence efforts that had been
scheduled to be completed and presented to the Enron and PGC Boards on July 26.
On July 17, negotiations broke down as a result of the parties' failure to agree
on pricing terms. On July 18, Mr. Harrison contacted Mr. Kinder and they agreed
to resume negotiations. Pricing terms were agreed to late in the afternoon of
Friday, July 19, subject to approval by the respective boards of directors.
28
<PAGE> 36
On July 20, 1996, the PGC Board met and received presentations from Goldman
Sachs and legal counsel. All members of the PGC Board other than Mr. Meyer were
present at the meeting. Goldman Sachs reviewed various financial and other
information and rendered to the PGC Board its oral opinion to the effect that,
as of July 20, 1996 and based upon and subject to certain assumptions, the
proposed exchange ratio of one share of Enron Common Stock per share of PGC
Common Stock was fair to the holders of PGC Common Stock. Legal counsel reviewed
the form of the Merger Agreement and the employment agreements between Enron and
Messrs. Harrison and Hirko with the Board. The Board discussed the advice they
had received at the various PGC Board meetings and the significant potential
benefit to shareholders, customers, and employees of PGC which would result from
a merger of Enron and PGC. Following such discussions, the PGC Board, by a
unanimous vote of those present, adopted the Merger Agreement, authorized the
execution thereof, and determined to submit the Merger Agreement to the PGC
shareholders with the PGC Board's recommendation for approval.
On July 20, 1996, contemporaneously with the PGC Board meeting, the Enron
Board met and received presentations from Enron's senior management, Smith
Barney and legal counsel. All members of the Enron Board other than Mr. Blake
were present at the meeting. Mr. Skilling described for the Enron Board the
proposed terms of the Mergers, provided an overview of PGC's operations, assets
and financial performance, and discussed management's expectation as to the
impact on the market price of Enron Common Stock and other financial
information. Legal counsel reviewed the form of the Merger Agreement and the
effect of reincorporating Enron as an Oregon corporation as part of the proposed
transaction. Smith Barney reviewed various financial and other information and
rendered to the Enron Board its opinion to the effect that, as of the date of
said opinion and based upon and subject to the matters stated therein, the
consideration to be issued to PGC's shareholders in the PGC Merger was fair,
from a financial point of view, to Enron and its shareholders. The members of
the Enron Board discussed the advice they had received and the substantial
benefits to Enron and its shareholders that would result from the Mergers.
Following such discussions, the Enron Board members in attendance at the meeting
unanimously approved the Merger Agreement and the transactions contemplated
thereby.
Following the meetings of the PGC and Enron Boards of Directors, the Merger
Agreement was executed.
REASONS FOR THE MERGERS; RECOMMENDATIONS OF THE BOARDS OF DIRECTORS
Enron and PGC believe that the combined company and its shareholders can
benefit significantly in long-term earnings and cash flow as a result of the
expected strategic benefits resulting from the Mergers, including the following:
o At the wholesale marketing, trading and supply level, the combined entity
will be well positioned to be the provider of choice in energy products,
principally natural gas and electricity. By combining Enron's marketing
and risk management expertise with PGC's physical delivery capabilities
and asset operation experience, the combined entity will have a strong
presence in the wholesale and retail energy markets, both domestically and
internationally.
o At the domestic retail level, the combined entity will strive to be the
leading national brand-name total energy provider. By combining the
companies' respective retail marketing expertise in natural gas,
electricity and energy management, the combined entity will be able to
provide a full range of energy products and specialty services to
commercial, industrial and residential customers. By building on PGC's
experience in automated metering, billing, auditing and other end-user
customer service functions, the combined entity will be able to offer
reliable, low-cost energy and energy management services to customers
nationwide. In addition, PGC has several non-regulated service and
infrastructure investments which both companies believe have significant
growth potential.
o The combined entity will also aim to be the most innovative and efficient
manager of electric generation, transmission and distribution assets in
the rapidly changing worldwide marketplace for power. By leveraging the
operating and engineering expertise of PGC with Enron's worldwide asset
base and experience, the combined entity will be able to expand domestic
and international activities across multiple energy sources, including
natural gas, oil, coal and hydro power.
29
<PAGE> 37
- For more than a decade, Enron has participated in the fully competitive
market for natural gas. More recently, Enron has participated in the
increasingly competitive market for electricity. Enron's competitive
experience will help the combined entity successfully compete in the
electricity marketplace.
Recommendation of the Enron Board. The Enron Board of Directors believes
that the terms of the Mergers are fair to, and in the best interests of, Enron
and its shareholders.
In reaching its conclusion, the Enron Board considered the factors set
forth above as well as the following: (i) its belief that the combined entity
would be well-positioned strategically to capitalize on the changes occurring in
the electric power industry; (ii) the financial performance, operations, assets,
business condition and business prospects of PGC; (iii) the terms of the Merger
Agreement; (iv) the opinion of Smith Barney, as financial advisor to Enron, that
the proposed consideration to be issued to PGC shareholders pursuant to the
Merger Agreement would be fair to Enron and its shareholders from a financial
point of view; (v) the analyses presented to the Enron Board by Smith Barney in
connection with its opinion, as summarized below under "-- Opinion of Financial
Advisors -- Enron," with respect to the consideration being offered to PGC
shareholders in the PGC Merger; (vi) the complementary nature of the relative
strengths of the two companies, particularly in respect of customer mix,
combined skill sets and operational strengths, which the Enron Board believes
will create the opportunity for revenue and profit margin enhancement; (vii) an
analysis of the projected accretion in earnings and cash flow with respect to
Enron resulting from the PGC Merger; (viii) the advantages and disadvantages of
reincorporating in Oregon; and (ix) the expected federal income tax treatment of
the Mergers as tax-free reorganizations.
The Enron Board did not attach specific weight to any of the foregoing
factors; each was deemed to support the conclusion of the Enron Board that the
terms of the Mergers are fair to, and in the best interests of, Enron and its
shareholders.
THE ENRON BOARD, BY UNANIMOUS VOTE OF THE DIRECTORS PRESENT, HAS DETERMINED
THAT THE MERGERS ARE FAIR TO AND IN THE BEST INTERESTS OF ENRON AND ITS
SHAREHOLDERS AND UNANIMOUSLY RECOMMENDS THAT SHAREHOLDERS VOTE FOR APPROVAL AND
ADOPTION OF THE MERGER AGREEMENT.
Recommendation of the PGC Board. The PGC Board believes that the terms of
the Mergers are fair to, and in the best interests of, PGC and its shareholders.
Accordingly, the PGC Board, by a unanimous vote of those present, has adopted
the Merger Agreement and unanimously recommends its approval by PGC's
shareholders. The PGC Board believes that the Mergers represent a significant
strategic opportunity for PGC and should offer PGC and its shareholders better
prospects for the future than would be available to PGC as a stand-alone entity.
Of particular significance to the PGC Board was the fact that the transaction
contemplates a significant premium to the market price of PGC Common Stock--48
percent based on the closing price of the companies' shares on the trading day
immediately preceding public announcement of the transaction.
In reaching its decision to approve the Merger Agreement, and in addition
to the factors described above, the PGC Board considered the following factors:
(i) the current and historical market prices of the PGC Common Stock and Enron
Common Stock (as set forth under "Market Prices and Dividend Information"); (ii)
information concerning the financial performance, condition, business operations
and prospects of each of PGC and Enron; (iii) the effects of the Mergers on
PGC's existing shareholders, including the opportunity to share in the
anticipated benefits of ownership of the combined enterprise; (iv) the expected
federal income tax treatment of the Mergers as a tax-free reorganization to
shareholders (as described under "-- Certain Federal Income Tax Consequences");
(v) the regulatory treatment to be requested in connection with the Mergers (as
discussed under "-- Governmental and Regulatory Approvals") and the belief that
customers will benefit from a broader range of innovative products and services;
(vi) the terms of the Merger Agreement, which provide for balanced
representations and warranties, conditions to closing and rights to termination,
protection for employees of PGC and the communities it serves; (vii) the fact
that the transaction is not driven by a desire to cut costs through the
elimination of duplicative functions, and thus it is anticipated that the
combination will result in greater career opportunities for PGC employees both
in North America and
30
<PAGE> 38
internationally; (viii) the provision in the Merger Agreement that requires each
of Enron and PGC immediately prior to the Effective Time to cause contributions
of $10 million to be made to the assets of the Foundation to be used for
charitable purposes in accordance with the constituent documents of the
Foundation in the PGE service area, and that further specifies that the
Foundation will continue to be administered by the current directors of the
Foundation and their designated successors; and (ix) the opinion of PGC's
financial advisor, Goldman Sachs, that, as of the date hereof and based upon the
factors and assumptions described in such opinion, the PGC Conversion Ratio
pursuant to the Merger Agreement is fair to the holders of shares of PGC Common
Stock (other than Enron or any of its subsidiaries). In determining that the
Mergers are fair to PGC's shareholders, the PGC Board considered the above
factors as a whole and did not assign specific or relative weights to them. In
the view of the PGC Board, each of the factors listed above reinforced its
belief that the combined entity would have excellent business prospects going
forward. Because PGC's shareholders collectively would own approximately a 17%
interest in the combined entity, the prospects of such entity were an important
factor to the PGC Board in determining whether to approve the transaction.
THE PGC BOARD, BY A UNANIMOUS VOTE OF THE DIRECTORS PRESENT, HAS ADOPTED
THE MERGER AGREEMENT, BELIEVES THAT THE TERMS OF THE MERGERS ARE FAIR TO PGC'S
SHAREHOLDERS AND UNANIMOUSLY RECOMMENDS THAT THE SHAREHOLDERS OF PGC VOTE FOR
APPROVAL OF THE MERGER AGREEMENT.
In considering the recommendation of the PGC Board with respect to the
Merger Agreement, shareholders should be aware that certain members of PGC's
management and the PGC Board have certain interests in the Mergers that are in
addition to the interests of shareholders of PGC generally and that could
potentially represent conflicts of interest. The PGC Board was aware of these
interests and considered them, among other matters, in adopting the Merger
Agreement and the transactions contemplated thereby. See "-- Interests of
Certain Persons in the Mergers."
OPINIONS OF FINANCIAL ADVISORS
Enron
The Board of Directors of Enron engaged Smith Barney to act as financial
advisor to Enron in connection with the PGC Merger. In connection with this
engagement, Enron asked Smith Barney to evaluate the fairness, from a financial
point of view, to Enron and its shareholders of the consideration to be issued
to the PGC shareholders in the PGC Merger. Smith Barney delivered its oral
opinion to the Board of Directors of Enron on July 20, 1996 (subsequently
confirmed by delivery of a written opinion dated as of such date) to the effect
that, as of the date of the opinion and based upon and subject to certain
matters stated therein, the consideration to be issued to the PGC shareholders
in the PGC Merger was fair, from a financial point of view, to Enron and its
shareholders. Smith Barney subsequently confirmed its July 20, 1996 opinion as
of the date hereof in a written opinion dated the date hereof.
In rendering its opinion, Smith Barney assumed and relied upon the accuracy
and completeness of all financial and other information publicly available or
furnished to or otherwise discussed with it. With respect to financial forecasts
and other information provided to or otherwise reviewed by or discussed with it,
Smith Barney was advised by the managements of Enron and PGC, and assumed, that
such forecasts and other information were reasonably prepared on bases
reflecting the best currently available estimates and judgments of the
respective managements of Enron and PGC as to the future financial performance
of Enron and PGC and the strategic implications and operational benefits
anticipated from the PGC Merger. Smith Barney also assumed, with the consent of
the Board of Directors of Enron, that the Mergers would be treated as tax-free
reorganizations for federal income tax purposes. Smith Barney did not make and
was not provided with an independent evaluation or appraisal of the assets or
liabilities (contingent or otherwise) of Enron or PGC. Smith Barney was not
asked to consider, and its opinion did not address, the relative merits of the
Merger as compared to any alternative business strategies that might exist for
Enron or the effect of any other transaction in which Enron might engage. Smith
Barney was not requested to, and did not, determine or recommend the Exchange
Ratio.
31
<PAGE> 39
The full text of the written opinion of Smith Barney dated the date hereof,
which sets forth the assumptions made, matters considered and limitations on the
review undertaken, is attached hereto as Annex B and is incorporated herein by
reference. Enron's shareholders are urged to read this opinion carefully in its
entirety. Smith Barney's opinion is directed only to the fairness of the
consideration to be issued to the PGC shareholders in the PGC Merger from a
financial point of view to Enron and its shareholders, does not address any
other aspect of the PGC Merger or related transactions and does not constitute a
recommendation to any shareholder as to how such shareholder should vote at the
Enron Special Meeting. The summary of Smith Barney's opinion set forth in this
Joint Proxy Statement/Prospectus is qualified in its entirety by reference to
the full text of such opinion included as Annex B hereto.
In arriving at its opinion, Smith Barney reviewed the Merger Agreement and
held discussions with certain senior officers, directors and other
representatives of Enron and certain senior officers and other representatives
of PGC concerning the business, operations and prospects of Enron and PGC. Smith
Barney examined certain publicly available business and financial information
relating to Enron and PGC which were provided to or otherwise discussed with
Smith Barney by the respective managements of Enron and PGC, including
information relating to certain strategic implications and operational benefits
anticipated from the PGC Merger. Smith Barney reviewed the financial terms of
the Mergers as set forth in the Merger Agreement in relation to, among other
things: current and historical market prices and trading volumes of the Enron
Common Stock and PGC Common Stock; the respective companies' historical and
projected earnings and operating data; and the capitalization and financial
condition of Enron and PGC. Smith Barney considered, to the extent publicly
available, the financial terms of certain other similar transactions recently
effected which Smith Barney considered relevant in evaluating the PGC Merger and
analyzed certain financial, stock market and other publicly available
information relating to the businesses of other companies whose operations Smith
Barney considered relevant in evaluating Enron and PGC. Smith Barney also
evaluated the potential pro forma financial impact of the PGC Merger on Enron.
In addition to the foregoing, Smith Barney conducted such other analyses and
examinations and considered such other financial, economic and market criteria
as it deemed necessary to arrive at its opinion.
The following is a summary of the analyses that Smith Barney reviewed with
the Board of Directors of Enron on July 20, 1996.
Discounted Cash Flow Analysis. Smith Barney prepared a discounted cash flow
analysis of PGC, based on certain operating and financial assumptions provided
by the management of PGC. Based on discount rates of 8.0%, 9.0% and 10.0%, the
discounted cash flow analysis provided a range and values for PGC's equity of
between $32.86 per share and $44.28 per share using terminal multiples of 6.5x,
7.0x and 7.5x applied to PGC's projected earnings before interest, taxes,
depreciation and amortization ("EBITDA") and of between $32.45 per share and
$68.48 using terminal growth rates of 3.0%, 3.5% and 4.0% applied to PGC's
projected free cash flow.
Contribution Analysis. Smith Barney compared the post-Merger percentage
ownership of the combined companies by Enron's stockholders to the expected
financial contribution percentage of Enron to the pro forma and projected
financial results of the combined companies for 1996, 1997 and 1998 using
various measures of financial performance, including EBITDA, earnings before
interest and taxes ("EBIT"), net income and after-tax cash flow. The analysis
indicated that Enron's contribution based on the financial measures analyzed
would range from 73.7% to 88.4%, compared to pro forma stock ownership by
Enron's stockholders of 82.8% on a primary basis and 84.0% on a fully diluted
basis.
Precedent Transaction Analysis. Smith Barney reviewed 12 transactions
announced since October 1990 in the utility industry (the "Smith Barney Selected
Transactions"). The Selected Transactions and the date each Selected Transaction
was announced were as follows: Kansas City Power & Light Company/Western
Resources Inc. (April 1996), Kansas City Power & Light Company/UtiliCorp United
Inc. (April 1996), IES Industries Inc./Interstate Power Company/WPL Holdings,
Inc. (November 1995), Potomac Electric Power Co./Baltimore Gas & Electric Co.
(September 1995), Southwestern Public Service Co./Public Service Co. of Colorado
(August 1995), CIPSCO Incorporated/Union Electric Company (August 1995),
Northern States Power Co./Wisconsin Energy Corporation (May 1995), Iowa-Illinois
Gas & Electric Com-
32
<PAGE> 40
pany/Midwest Resources Inc. (July 1994), Sierra Pacific Resources/Washington
Water Power Co. (June 1994), PSI Resources Inc./The Cincinnati Gas & Electric
Company (December 1992), Gulf State Utilities Company/Entergy Corporation (June
1992) and Kansas Gas and Electric Company/The Kansas Power and Light Company
(October 1990).
For each of the Smith Barney Selected Transactions, Smith Barney calculated
multiples of (i) the transaction value to the target company's EBITDA and EBIT
for the twelve months ended as of the last day of the most recent quarter prior
to the announcement of the transaction, (ii) the transaction value to the target
company's assets as of the last day of such most recent quarter, (iii) the
purchase price to the target company's net income and after-tax cash flow for
the twelve months ended as of the last day of such most recent quarter and (iv)
the purchase price to the target company's book value as of the last day of such
most recent quarter. Smith Barney also calculated for each of the Smith Barney
Selected Transactions the premium (or discount) that the purchase prices
represented to the market prices of the target company's stock as of one day,
two weeks and four weeks prior to the announcement of the transaction. These
various multiples and premiums were compared with those that would result from
the PGC Merger, which were found to be within the range of the multiples for the
Smith Barney Selected Transactions, except that the multiple of equity purchase
price to book value for PGC was 2.3, compared to a range of 1.1 to 2.1 for the
Smith Barney Selected Transactions. Smith Barney noted, however, that such
multiple was not evaluated by Smith Barney solely on a numerical basis, nor did
Smith Barney consider any single factor or analysis as dispositive of its
fairness determination.
No company or transaction involved in the Smith Barney Selected
Transactions is identical to Enron, PGC or the PGC Merger. Accordingly, an
analysis of the results of the foregoing analysis of Smith Barney Selected
Transactions is not mathematical in nature; rather, it involves complex
considerations and judgments concerning differences in operational and financial
characteristics that could affect the public trading prices and acquisition
values of the target companies in the Smith Barney Selected Transactions.
Selected Publicly Traded Company Analysis. Using publicly available
information, Smith Barney compared certain financial and operating information
and ratios for PGC with the corresponding financial and operating information
and ratios for selected publicly traded combination utility companies. The
companies included in Smith Barney's analyses were Allegheny Power System, DPL
Inc., Enova Corp. (San Diego), The Montana Power Company, Nevada Power Company,
NIPSCO Industries Inc., Oklahoma Gas and Electric Company, Puget Sound Power &
Light Company, TECO Energy, Inc. and The Washington Water Power Company.
The ratios considered included the ratio of the equity market value of PGC
(i.e., the total number of shares of PGC Common Stock outstanding, multiplied by
the market price per share of PGC Common Stock) to the net income of PGC for the
latest twelve months and the estimated net income of PGC for 1996 and 1997; the
ratio of the equity market value of PGC to PGC's latest after-tax cash flow for
the latest twelve months and its estimated after-tax cash flow for 1996 and
1997; the ratio of PGC's enterprise value (i.e., the sum of PGC's equity market
value, plus the market value of PGC's preferred stock, plus the principal amount
of PGC's outstanding debt, plus minority interests, less unrestricted cash and
marketable securities held by PGC) to PGC's EBIT for the latest twelve months;
and the ratio of PGC's enterprise value to PGC's EBITDA for the latest twelve
months and to its estimated 1996 and 1997 EBITDA. Based on stock market prices
as of the close of business on July 18, 1996, these ratios for PGC were found to
be generally lower than the comparable ratios for the other companies included
in the analyses.
Exchange Ratio Analysis. Smith Barney reviewed and analyzed the historical
ratios of the daily closing prices of Enron Common Stock to the daily closing
prices of PGC Common Stock during the three-year period ended on July 18, 1996.
The exchange ratios for the daily closing prices per share of Enron Common Stock
to PGC Common Stock ranged from a low of 0.4981 to a high of 0.8566, with an
average of 0.6577 for the three-year period and 0.7718 for the six-month period
ended on July 18, 1996. Smith Barney indicated that these ratios were being
provided primarily for the information of the Enron Board.
Collar Analysis. Smith Barney analyzed the effective purchase prices per
share of PGC Common Stock that would result from various market prices of Enron
Common Stock ranging from $36.25 (the price at
33
<PAGE> 41
which PGC would be entitled to terminate the Merger Agreement) to $47.25 (the
price at which Enron would be entitled to terminate the Merger Agreement), and
the effective premiums that each of these prices would represent over $28.125,
which was the closing market price per share of PGC Common Stock on July 18,
1996. Smith Barney found that the effective purchase price per share of PGC
Common Stock could range from $36.25 (representing a 28.9% premium) to $47.25
(representing a 68.0% premium). See "The Merger Agreement -- Termination of the
Merger Agreement."
Pro Forma Merger Analysis. Smith Barney analyzed certain pro forma effects
resulting from the PGC Merger, including the potential impact of the PGC Merger
on Enron's earnings per share and after-tax cash flow per share. Based on the
estimates of the respective managements of Enron and PGC, the pro forma merger
analysis suggested that the PGC Merger would be neutral to earnings per share
for 1996, dilutive to earnings per share for 1997 and 1998, accretive to
after-tax cash flow per share in 1996 and 1997 and slightly dilutive to
after-tax cash flow per share in 1998, in each case, prior to consideration of
potential cost savings and other synergies anticipated from the PGC Merger.
Smith Barney also analyzed certain pro forma and projected coverage and
capitalization ratios for the combined companies resulting from the merger and
compared these ratios to the ratios for Enron on a stand-alone basis. Ratios
analyzed included the ratios of EBITDA to net interest expense, EBITDA to fixed
charges (i.e., net interest expense plus preferred dividends), EBITDA less
capital spending to fixed charges, after-tax cash flow to net interest expense,
EBIT to net interest expense, total debt to total capitalization, total debt to
shareholders' equity and total debt to EBITDA. The coverage ratios and
capitalization ratios for the combined companies resulting from the merger were
found to be improved, on an overall basis, over the ratios for Enron on a
stand-alone basis.
In preparing its opinion to the Board of Directors of Enron, Smith Barney
performed a variety of financial and comparative analyses, including those
described above. The summary of such analyses does not purport to be a complete
description of the analyses underlying Smith Barney's opinion. The preparation
of a fairness opinion is a complex analytic process involving various
determinations as to the most appropriate and relevant methods of financial
analyses and the application of those methods to the particular circumstances
and, therefore, such an opinion is not readily susceptible to summary
description. Accordingly, Smith Barney believes that its analyses must be
considered as a whole and that selecting portions of its analyses and factors,
without considering all analyses and factors, could create a misleading or
incomplete view of the processes underlying such analyses and its opinion. In
its analyses, Smith Barney made numerous assumptions with respect to Enron, PGC,
industry performance, general business, economic, market and financial
conditions and other matters, many of which are beyond the control of Enron and
PGC. The estimates contained in such analyses and the valuation ranges resulting
from any particular analysis are not necessarily indicative of actual values or
predictive of future results or values, which may be significantly more or less
favorable than those suggested by such analyses. In addition, analyses relating
to the value of businesses or securities do not purport to be appraisals or to
reflect the prices at which businesses or securities actually may be sold.
Accordingly, such analyses and estimates are inherently subject to substantial
uncertainty.
Smith Barney became entitled to a fee of $1,875,000 upon delivery of its
fairness opinion to the Board of Directors and the signing of the Merger
Agreement and will become entitled to an additional fee of $5,625,000 in the
event that the PGC Merger is completed. To date, Enron has paid to Smith Barney
as an advance against fees a total of $1,000,000, of which $500,000 will be
credited against the fee currently due and the remainder will be credited
against the fee due at completion of the PGC Merger. Enron has also agreed to
reimburse Smith Barney for its reasonable out-of-pocket expenses and to
indemnify Smith Barney against certain liabilities and expenses, including
certain liabilities under the federal securities laws, relating to or arising
out of Smith Barney's engagement as financial advisor.
Smith Barney in the normal course of its business may actively trade the
equity and debt securities of Enron and PGC for its own account or for the
account of its customers and, accordingly, may at any time hold a long or short
position in such securities. Smith Barney has provided investment banking
services for Enron and PGC in the past. In addition, Smith Barney and its
affiliates (including the Travelers Group Inc. and its affiliates) may maintain
other business relationships with Enron and PGC in the future.
34
<PAGE> 42
PGC
On July 20, 1996, Goldman Sachs delivered its oral opinion (subsequently
confirmed by delivery of a written opinion) to the PGC Board of Directors that
as of the date of such opinion the PGC Conversion Ratio pursuant to the Merger
Agreement was fair to the holders of PGC Common Stock (other than Enron or any
of its subsidiaries). Goldman Sachs subsequently confirmed its earlier opinion
by delivery of its written opinion, dated the date hereof, that, based upon the
factors and assumptions described in such opinion, as of the date hereof the PGC
Conversion Ratio pursuant to the Merger Agreement is fair to the holders of PGC
Common Stock (other than Enron or any of its subsidiaries).
The full text of the written opinion of Goldman Sachs dated as of the date
hereof, which sets forth assumptions made, matters considered and limits of the
review undertaken in connection with the opinion, is attached hereto as Annex C
and is incorporated herein by reference. Holders of shares of PGC Common Stock
are urged to, and should, read such opinion in its entirety. Goldman Sachs'
written opinion is addressed to the PGC Board of Directors and does not
constitute a recommendation to any PGC shareholder as to how such shareholder
should vote at the PGC Special Meeting, and should not be relied upon by any
shareholder as such. The summary of the written opinion of Goldman Sachs set
forth in this Joint Proxy Statement/Prospectus is qualified in its entirety by
reference to the full text of such opinion.
In connection with its opinion, Goldman Sachs reviewed, among other things,
the Merger Agreement; the Registration Statement, including this Joint Proxy
Statement/Prospectus; Annual Reports to Shareholders and Annual Reports on Form
10-K of PGC and Enron for the five years ended December 31, 1995; certain
interim reports to shareholders and Quarterly Reports on Form 10-Q of PGC and
Enron; certain FERC Forms 1 of PGC and FERC Forms 2 of Enron; certain other
communications from PGC and Enron to their respective shareholders; and certain
internal financial analyses and forecasts for PGC and Enron prepared by their
respective managements. Goldman Sachs also has held discussions with members of
the senior managements of PGC and Enron regarding the past and current business
operations, financial condition and future prospects of their respective
companies and the future prospects of New Enron. In addition, Goldman Sachs
reviewed the reported price and trading activity for the PGC Common Stock and
for the Enron Common Stock, compared certain financial and stock market
information for PGC and Enron with similar information for certain other
companies the securities of which are publicly traded, reviewed the financial
terms of certain recent business combinations in the electric utility industry
specifically and in other industries generally, and performed such other studies
and analyses as Goldman Sachs considered appropriate.
Goldman Sachs relied without independent verification upon the accuracy and
completeness of all of the financial and other information reviewed by it for
the purposes of its opinion, as well as upon assessments by each of PGC and
Enron of their respective contingent obligations. With respect to financial
forecasts and projections provided by the respective managements of PGC and
Enron, Goldman Sachs assumed, with the consent of the PGC Board of Directors,
that such financial forecasts and projections were reasonably prepared on bases
reflecting the best available estimates and judgments as to the future financial
and other performance of PGC and Enron, as applicable. Goldman Sachs further
assumed, with the consent of the PGC Board of Directors, that obtaining any
necessary regulatory or third-party approvals for the transactions contemplated
by the Merger Agreement will not have an adverse effect on PGC or Enron, as
applicable. Goldman Sachs has not made an independent evaluation or appraisal of
the assets and liabilities of PGC or Enron or any of their respective
subsidiaries and Goldman Sachs has not been furnished with any such evaluation
or appraisal.
The following is a summary of the financial analyses used by Goldman Sachs
believed by it to be material in connection with providing its oral opinion
(subsequently confirmed in writing) to the PGC Board of Directors as of July 20,
1996. Goldman Sachs utilized substantially the same type of financial analyses
in connection with providing the written opinion attached hereto as Annex C.
(i) Selected Companies Analysis. Goldman Sachs reviewed and compared
certain actual and estimated financial information relating to PGC to
corresponding financial information, ratios and public market multiples for
16 publicly-traded utility companies: Central Louisiana Electric Company,
Inc., The Dayton Power and Light Company, Florida Progress Corporation,
Idaho Power Company, IPALCO Enterprises, Inc., KU Energy Corporation, The
Montana Power Company, Nevada Power Company,
35
<PAGE> 43
Oklahoma Gas and Electric Company, PacifiCorp, Public Service Company of
Colorado, Puget Sound Power & Light Company, Sierra Pacific Resources,
UtiliCorp United Inc., The Washington Water Power Company and Western
Resources, Inc. (collectively, the "Selected Utility Companies"). The
Selected Utility Companies were chosen because they are publicly-traded
companies with operations that for purposes of analysis may be considered
similar to PGC. Goldman Sachs calculated and compared various financial
multiples and ratios. The multiples and ratios of PGC and the Selected
Utility Companies were calculated using a price of $28.625 per share of PGC
Common Stock, the closing price on the NYSE on July 18, 1996, and on
closing market prices on July 18, 1996 for each of the Selected Utility
Companies, publicly reported financial results and publicly available
information from a number of public sources as well as Goldman Sachs
Investment Research Estimates. PGC estimates were provided by PGC, and
other publicly available estimates were considered. Goldman Sachs
considered for the Selected Utility Companies estimated 1996 price/earnings
("P/E") ratios, which ranged from 10.7x to 14.4x, compared to 9.7x for PGC;
estimated 1997 P/E ratios, which ranged from 10.4x to 13.7x, compared to
11.0x for PGC; dividend yield, which ranged from 4.7% to 8.0%, compared to
4.5% for PGC; 1996 and 1997 estimated payout ratios, which ranged from 56%
to 97% and from 54% to 92%, respectively, compared to 43% and 49% for PGC;
five-year projected earnings per share ("EPS") and dividend per share
growth rates, which ranged from 1.0% to 4.0% and from 0.0% to 4.0%,
respectively, compared to 3.3% and 3.0% for PGC; and latest twelve months
return on equity, which ranged from 7.8% to 13.6%, compared to 15.7% for
PGC. Goldman Sachs also considered market values as a multiple of book
value and latest twelve months cash flow as of March 31, 1996 (which were
computed by adding net income available for common stock, depreciation, and
deferred taxes minus allowance for funds used during construction, deferred
fuel expenses and accrued revenues). Goldman Sachs' analyses of the
Selected Utility Companies indicated multiples of book value ranging from
0.8x to 1.8x, compared to a PGC multiple of 1.6x, and multiples of cash
flows ranging from 4.4x to 7.5x compared to a multiple of 6.0x for PGC.
Goldman Sachs also reviewed and compared certain actual and estimated
financial information relating to Enron to corresponding financial
information, ratios and public market multiples for eight publicly-traded
gas companies: The Columbia Gas System, Inc., Consolidated Natural Gas
Company, El Paso Natural Gas Company, Equitable Resources, Inc., NGC
Corporation, PanEnergy Corp., Sonat Inc. and The Williams Companies, Inc.
(collectively, the "Selected Gas Companies"). The Selected Gas Companies
were chosen because they are publicly-traded companies with operations that
for purposes of analysis may be considered similar to Enron. Goldman Sachs
calculated and compared various financial multiples and ratios. The
multiples and ratios of Enron and the Selected Gas Companies were
calculated using a price of $41.625 per share of Enron Common Stock, the
closing price on the NYSE on July 18, 1996, and on closing market prices on
July 18, 1996 for each of the Selected Gas Companies, publicly reported
financial results and publicly available information from a number of
public sources as well as Goldman Sachs Investment Research Estimates.
Enron estimates were provided by Enron, and other publicly available
estimates were considered. Goldman Sachs considered for the Selected Gas
Companies estimated 1996 P/E ratios, which ranged from 13.1x to 23.0x,
compared to 18.3x for Enron; estimated 1997 P/E ratios, which ranged from
12.4x to 20.2x, compared to 16.5x for Enron; dividend yield, which ranged
from 0.0% to 4.3%, compared to 2.0% for Enron; leveraged capitalization to
latest twelve months EBITDA (as of March 31, 1996) multiples, which ranged
from 6.7x to 16.1x, compared to 8.1x for Enron; and leveraged
capitalization to latest twelve months EBIT (as of March 31, 1996)
multiples, which ranged from 9.2x to 40.7x, compared to 11.1x for Enron.
Goldman Sachs also considered market values as a multiple of book value as
of March 31, 1996 and estimated 1996 and 1997 cash flows (which were
computed by adding estimated amounts for net income available for common
stock, depreciation, deferred taxes, oil and gas exploration expenses and
other non-cash charges). Goldman Sachs' analyses of the Selected Gas
Companies indicated multiples of book value ranging from 1.3x to 3.2x,
compared to a multiple of 3.1x for Enron, and multiples of estimated 1996
and estimated 1997 cash flows ranging from 6.1x to 12.5x and from 5.9x to
10.8x, respectively, compared to multiples of 8.1x and 7.2x for Enron.
(ii) Selected Transactions Analysis. Goldman Sachs analyzed certain
information relating to selected transactions in the electric utility
industry since 1987 (the "Goldman Selected Transactions"). Such analysis
indicated, among other things, that for the Goldman Selected Transactions
premium over
36
<PAGE> 44
market value ranged from 0.0% to 65.0%, with a median of 19.5%, compared to
a 45.4% premium over the market value of the PGC Common Stock in the PGC
Merger (based on the July 18, 1996 closing prices); premium over five year
high market value ranged from (61.5)% to 41.8%, with a median of (9.8)%,
compared to a 32.7% premium over the five year high market value of the PGC
Common Stock in the PGC Merger; multiple of price (based on closing prices
one day prior to announcement) to next year estimated earnings per share
ranged from 10.5x to 22.0x, compared to 15.9x for the PGC Common Stock
(based on the July 18, 1996 closing prices); percentage increase in
dividends to target shareholders (based on dividends paid prior to
announcement) ranged from (16.1)% to 101.9%, with a median of 10.0%,
compared to (33.6)% for the PGC Common Stock in the PGC Merger; multiple of
price (based on closing prices one day prior to announcement) to latest
twelve months cash flow (calculated as net income from operations plus
depreciation, amortization, deferred taxes and other non-cash charges and
before extraordinary items) ranged from 4.4x to 11.6x, with a median of
6.6x, compared to 6.0x for the PGC Common Stock in the PGC Merger (based on
the July 18, 1996 closing prices); and multiple of price (based on closing
prices one day prior to announcement) to book value ranged from 1.2x to
2.5x, with a median of 1.6x, compared to 2.3x for the PGC Common Stock in
the PGC Merger (based on the July 18, 1996 closing prices).
(iii) Pro Forma Merger Analysis. Goldman Sachs prepared pro forma
analyses of the financial impact of the Mergers on holders of shares of PGC
Common Stock. Using net income estimates for Enron and for PGC prepared by
their respective managements for the years 1997, 1998, 1999 and 2000,
Goldman Sachs, among other things, compared the estimated EPS of PGC Common
Stock, on a stand-alone basis, to the estimated EPS of the combined
company's common stock on a pro forma basis. Goldman Sachs performed this
analysis based on certain assumptions and financial forecasts (as provided
by PGC and Enron management). Based on such analysis and a closing Enron
Common Stock price of $41.625 on July 18, 1996, the proposed Mergers would
be accretive (dilutive) to PGC's shareholders on an EPS basis in the years
1997, 1998, 1999, and 2000 at levels of (5.3)%, 5.7%, 4.5% and 13.7%,
respectively.
(iv) Contribution Analysis. Goldman Sachs reviewed certain historical
and estimated future operating and financial information (including, among
other things, market capitalization, net income, cash flow and book value)
for PGC, Enron and the combined company resulting from the Mergers based on
PGC and Enron managements' respective financial forecasts for each of PGC
and Enron. Based on July 18, 1996 market values and March 31, 1996
financial information, the analysis indicated that on a pro forma basis PGC
would contribute 12% of the market capitalization, 22% of the book value
and 21% of the assets of the consolidated entity. Goldman Sachs also
analyzed the relative income statement contributions of PGC and Enron to
the consolidated entity on a pro forma basis based on actual 1994 and 1995,
and estimated years 1996, 1997 and 1998, financial data provided to Goldman
Sachs by PGC and Enron managements. This analysis indicated that on a pro
forma basis in 1994 and 1995 PGC would have contributed 18% and 21%,
respectively, of the net income of the consolidated entity and on a pro
forma basis in 1996, 1997 and 1998 PGC would contribute 21%, 18% and 16%,
respectively, of the net income of the consolidated entity. In addition,
this analysis indicated that on a pro forma basis in 1994 and 1995 PGC
would have contributed 22% and 18%, respectively, of the cash flows of the
consolidated entity and on a pro forma basis in 1996, 1997 and 1998 PGC
would contribute 19%, 19% and 17%, respectively, of the cash flows of the
consolidated entity. This analysis also indicated that on a pro forma basis
PGC would have contributed 9% of the latest twelve months revenues of the
consolidated entity.
(v) Historical Exchange Ratio. Goldman Sachs reviewed certain
historical trading prices for the shares of PGC Common Stock and the shares
of Enron Common Stock over various periods within the latest five years.
Such analysis demonstrated a range of exchange ratios (calculated by
dividing the price per share of PGC Common Stock by the price per share of
Enron Common Stock) from 0.66x to 0.77x and an exchange ratio of 0.69x as
of July 18, 1996 (based on the closing per share prices of $28.625 per
share of PGC Common Stock and $41.625 per share of Enron Common Stock on
July 18, 1996). The historical exchange ratio analysis indicated that the
market has valued PGC Common Stock within a range of 0.66x to 0.77x
relative to Enron Common Stock, and that on the trading day immediately
prior
37
<PAGE> 45
to the date of execution of the Merger Agreement, PGC Common Stock traded
within that range at 0.69x relative to Enron Common Stock, supporting the
conclusion that the market price of PGC Common Stock that was used in a
variety of valuation analyses was neither exceptionally high nor
exceptionally low compared to the historical trading price of PGC as it
relates to the historical trading price of Enron.
(vi) Discounted Cash Flow Analysis. Goldman Sachs performed discounted
cash flow analyses to value the PGC Common Stock using PGC's management
projections. Goldman Sachs calculated a net present value of free cash
flows for PGC for the years 1996 through 2000 using discount rates ranging
from 8% to 14%. Goldman Sachs calculated PGC's terminal values in the year
2001 based on a terminal multiple of the year 2001 earnings which were
assumed to remain constant at 2000 levels. The terminal values were based
on a multiple of 10x to 14x estimated earnings in 2001 and discounted to
present value using discount rates ranging from 8% to 14%. This valuation
resulted in implied per share values ranging from $25.93 to $42.13 for the
PGC Common Stock.
(vii) Dividend Discount Valuation Analysis. Goldman Sachs performed a
dividend discount valuation analysis for PGC. Using an estimated 1996
dividend of $1.28 per share for PGC, which represents a 44% payout ratio,
estimated dividend growth rates ranging from 1% to 5% and estimated
required return on equity rates ranging from 8% to 14%, the implied per
share values of PGC Common Stock ranged from $9.85 to $42.67. In varying
PGC's payout ratio from 50% to 80%, implied per share values of PGC Common
Stock ranged from $11.38 to $78.93.
(viii) Historical Stock Trading Analysis. Goldman Sachs reviewed the
historical trading prices and volumes for the PGC Common Stock and the
relationship between movements of the PGC Common Stock price and movements
in a composite index (the "Utility Composite") of the Selected Utility
Companies and in the S&P 500. This analysis indicated that, for the period
since July 17, 1995 the PGC Common Stock has outperformed both the Utility
Composite and the S&P 500, and for the period between June 30, 1991 and
June 30, 1996 the PGC Common Stock outperformed the Utility Composite and
slightly underperformed the S&P 500. Goldman Sachs also reviewed the
historical trading prices and volumes for the Enron Common Stock and the
relationship between movements of the Enron Common Stock price and
movements in a composite index (the "Gas Composite") of the Selected Gas
Companies and in the S&P 500. This analysis indicated that for the period
since July 17, 1995 the Enron Common Stock has underperformed the Gas
Composite and has outperformed the S&P 500, and for the period between June
30, 1991 and June 30, 1996 the Enron Common Stock outperformed both the Gas
Composite and the S&P 500.
The preparation of a fairness opinion is a complex process and is not
necessarily susceptible to partial analysis or summary description. Selecting
portions of the analyses or of the summary set forth above, without considering
the analyses as a whole, could create an incomplete view of the processes
underlying Goldman Sachs' opinion. In arriving at its fairness determination,
Goldman Sachs considered the results of all such analyses, taken as a whole.
Furthermore, in arriving at its fairness opinion, Goldman Sachs did not
attribute any particular weight to any analysis or factor considered by it;
rather, Goldman Sachs made its determination as to fairness on the basis of
qualitative judgments as to the significance and relevance of the financial and
comparative analyses and factors described above, taken as a whole. No company
or transaction used in the above analyses as a comparison is identical to PGC or
Enron or the contemplated transaction. The analyses were prepared solely for
purposes of Goldman Sachs in providing its opinion to the PGC Board of Directors
as to the fairness of the PGC Conversion Ratio to the holders of shares of PGC
Common Stock and do not purport to be appraisals or necessarily reflect the
prices at which businesses or securities actually may be sold. Analyses based
upon forecasts of future results are not necessarily indicative of actual future
results, which may be significantly more or less favorable than suggested by
such analyses. Because such analyses are inherently subject to uncertainty,
being based upon numerous factors or events beyond the control of the parties or
their respective advisors, none of PGC, Enron, Goldman Sachs or any other person
assumes responsibility if future results are materially different from those
forecast.
38
<PAGE> 46
As described above, Goldman Sachs' opinion to the PGC Board of Directors
was one of many factors taken into consideration by the PGC Board of Directors
in making its determination to adopt the Merger Agreement. Although Goldman
Sachs evaluated the fairness of the PGC Conversion Ratio to the holders of
shares of PGC Common Stock, the specific PGC Conversion Ratio was determined by
Enron and PGC through arm's-length negotiation. The foregoing summary does not
purport to be a complete description of the analyses performed by Goldman Sachs
and is qualified by reference to the written opinion of Goldman Sachs set forth
in Annex C hereto.
Goldman Sachs, as part of its investment banking business, is continually
engaged in the valuation of businesses and their securities in connection with
mergers and acquisitions, negotiated underwritings, competitive biddings,
secondary distributions of listed and unlisted securities, private placements
and valuations for estate, corporate and other purposes. PGC selected Goldman
Sachs as its financial advisor because it is a nationally recognized investment
banking firm that has substantial experience in transactions similar to the
Mergers. Goldman Sachs is familiar with PGC having provided certain investment
banking services to PGC and certain of its subsidiaries from time to time,
including having acted as managing underwriter of public offerings of $37
million of PGC Common Stock in February 1994 and $75 million principal amount of
8 1/4% Quarterly Income Debt Securities of PGC due 2035 in October 1995, and
having acted as its financial advisor in connection with, and having
participated in certain of the negotiations leading to, the Merger Agreement.
Goldman Sachs also has provided certain investment banking services to Enron and
certain of its subsidiaries from time to time, including having acted as
managing underwriter of public offerings by Enron of $675 million of common
stock of EOG in December 1995 and $228 million principal amount of 6 1/4%
Exchangeable Notes due 1998 in December 1995. Goldman Sachs may provide
investment banking services to Enron, the combined company or their respective
subsidiaries in the future.
In the ordinary course of the trading activities of Goldman Sachs, Goldman
Sachs actively trades the debt and equity securities of PGC and Enron for its
own account and for the accounts of customers of Goldman Sachs and may,
therefore, at any time, hold a long or short position in such securities.
Pursuant to a letter agreement dated April 26, 1996 (the "Engagement
Letter"), as supplemented by a letter dated August 22, 1996, PGC engaged Goldman
Sachs to act as its financial advisor in connection with a potential merger,
business combination or other strategic combination. Pursuant to the terms of
the Engagement Letter, PGC has paid Goldman Sachs retainer fees of $100,000,
which amount will be credited against the Success Fee (as defined below). In
addition, in connection with the Mergers, PGC has agreed to pay Goldman Sachs a
success fee of 0.44% of the aggregate consideration paid for the PGC Common
Stock (including amounts paid to holders of options, warrants and convertible
securities) (the "Success Fee"). For the purposes of calculating the Success
Fee, the value of the Enron Common Stock proposed to be received as
consideration in the Mergers will be the average of the last sales price for the
Enron Common Stock on the five trading days ending five days prior to the
consummation of the Mergers. The Success Fee is payable in three installments,
25% upon the execution of the Merger Agreement, 25% upon the approval of the
Merger Agreement by PGC shareholders and 50% upon the consummation of the
Mergers. Upon execution of the Merger Agreement, Goldman Sachs became entitled
to receive $2,266,066.48 in respect of the first installment of the Success Fee.
Such first installment was calculated based on the Enron Common Stock closing
price on July 19, 1996, the business day prior to the announcement of the
execution of the Merger Agreement, and the second installment will be based on
the average closing price of the Enron Common Stock for the five trading days
ending one trading day prior to the PGC Special Meeting. The final installment
will consist of the actual Success Fee less the first two installments
previously paid. The retainer fees were credited against the first installment
of the Success Fee. PGC has also agreed to reimburse Goldman Sachs quarterly for
its reasonable out-of-pocket expenses, including attorneys' fees and
disbursements of up to $25,000 (which amount may be increased with the consent
of PGC, which consent may not be unreasonably withheld), and to indemnify
Goldman Sachs against certain liabilities, including certain liabilities under
the federal securities laws.
39
<PAGE> 47
INTERESTS OF CERTAIN PERSONS IN THE MERGERS
In considering the recommendation of the PGC Board with respect to the PGC
Merger, shareholders should be aware that certain members of PGC's management
and Board of Directors have certain interests in the PGC Merger that are in
addition to the interests of shareholders of PGC generally and that could
potentially represent conflicts of interest. The PGC Board was aware of these
interests and considered them, among other things, in adopting the PGC Merger.
Board of Directors. As provided in the Merger Agreement, at the Effective
Time, it is intended that the Enron Board will consist of not more than sixteen
persons, of whom three will be designated by PGC and be reasonably acceptable to
Enron. Of these three, one will be Mr. Harrison. PGC has not yet determined who
the other two PGC designees will be.
Vesting of Certain Benefits for PGC Directors and Executive Officers.
Several of the employee benefit plans pertaining to PGC directors and executive
officers contain change of control provisions pursuant to which benefits
conferred by such plans vest immediately upon a change of control of PGC. On
September 10, 1996, the PGC Board approved the amendment of PGC's Amended and
Restated Outside Directors Stock Compensation Plan to provide that shares of
restricted PGC Common Stock held by certain of PGC's outside directors will vest
at the Effective Time. The number of shares that will so vest is as follows: Ms.
Booth: 2,376 shares; Mr. Brix: 2,376 shares; Ms. Chambers: 1,318 shares; Mr.
Creighton: 2,748 shares; Mr. Geary: 1,610 shares; Mr. Hudson: 2,376 shares; Mr.
Meyer: 1,318 shares; Mr. Miller: 2,376 shares; and Mr. Willison: 2,376 shares.
Similarly, pursuant to certain provisions of the Portland General Corporation
Long-Term Incentive Master Plan, certain PGC employees hold restricted PGC
Common Stock, and certain employees hold options to purchase shares of PGC
Common Stock, that will vest upon the date that shareholders approve the Merger
Agreement. Pursuant to such provisions, the following numbers of shares of PGC
Common Stock will vest for the following named executive officers if the Merger
Agreement is approved by the PGC shareholders as of September 10, 1996: Mr.
Alexanderson: 13,000 shares; Mr. Carboneau: 10,000 shares; Mr. Dyer: 17,000
shares; Ms. Fowler: 15,000 shares; Mr. Harrison: 44,000 shares; Mr. Hirko:
20,000 shares; Mr. Kielblock: 11,000 shares; and Mr. Miller: 10,000 shares.
Pursuant to such provisions, options to purchase the following numbers of shares
of PGC Common Stock will vest for the following named individuals if the Merger
Agreement is approved by the PGC shareholders as of September 10, 1996: Mr.
Alexanderson: 7,500 shares; Mr. Carboneau: 7,500 shares; Mr. Dyer: 7,500 shares;
Ms. Fowler: 7,500 shares; Mr. Hirko: 10,000 shares; Mr. Kielblock: 7,500 shares;
and Mr. Miller: 15,000 shares.
Employment Agreements. In February 1996, the PGC Board of Directors
approved employment agreements between PGC and certain executive officers of PGC
pursuant to which such officers obtain certain benefits upon a Change in Control
(as defined in such agreements) of PGC. Messrs. Harrison, Hirko, Dyer,
Alexanderson, Ms. Fowler, Messrs. Carboneau, Kielblock, and Miller have such
employment agreements with PGC. The approval of the PGC Merger by the PGC
shareholders will constitute a Change in Control within the meaning of these
executives' employment agreements. Accordingly, the affected executive officers
will obtain the benefits described below if shareholders approve the Merger
Agreement, except in the cases of the executives who have entered into, or will
enter into in the future, employment agreements with Enron that become effective
at the Effective Time and at such time replace and supersede the existing
employment agreements with PGC. If shareholders approve the Merger Agreement,
executives who have entered into such employment agreements with Enron will
receive benefits according to the terms of these superseding agreements. Messrs.
Harrison and Hirko have already entered into such superseding employment
agreements with Enron. Under the Merger Agreement, PGC has the authority to
offer new employment agreements to take effect at the Effective Time to Ms.
Fowler and Messrs. Dyer and Alexanderson. Further, under the Merger Agreement,
PGC has the authority to enter into amendments to the existing employment
agreements with Messrs. Carboneau, Kielblock, and Miller. These new agreements,
proposed agreements, and benefits conferred on executive officers under existing
agreements are described below.
As described above, Messrs. Harrison and Hirko have entered into employment
agreements with Enron that will become effective at the Effective Time, at which
time New Enron will assume the obligations thereunder. Copies of these
agreements are included as Annexes D and E hereto, respectively, and the
40
<PAGE> 48
following descriptions of these agreements are each qualified in their entirety
by reference to the respective agreements annexed hereto.
Pursuant to Mr. Harrison's employment agreement, Mr. Harrison will serve as
Vice Chairman of Enron and Chairman, President, and Chief Executive Officer of
PGE for a period of five years (the "Initial Term"), subject to certain
termination provisions described below, and thereafter as Mr. Harrison and Enron
may agree. Mr. Harrison will receive an annual base salary of not less than
$525,000 and will be entitled to participate in Enron's Executive Compensation
Program on the same basis as other senior executives of Enron (except as
otherwise provided in Mr. Harrison's agreement). Mr. Harrison will be entitled
to participate in other Enron benefit programs, such as health, life and
disability insurance, on the same basis generally as other employees of Enron.
In addition, Mr. Harrison will receive on the Effective Date (as defined in the
agreement) a grant under the Enron Corp. 1991 Stock Plan of an option to
purchase 120,000 shares of Enron Common Stock with an exercise price per share
equal to the fair market value of such stock at the Effective Time; this option
will have a ten- year term and will vest 20% on the date of grant and 20% on
each succeeding anniversary of the Effective Date, except in the case of Mr.
Harrison's Involuntary Termination (as defined below, but not including a
voluntary termination during an annual Window Period (as defined below)) or a
Change in Control (as defined in the agreement) of Enron or PGE, in which case
the option will vest immediately. At the Effective Time Mr. Harrison will also
receive shares of Enron restricted stock having a fair market value equal to his
annual base salary, such shares vesting in 20% increments on each of the first
five anniversaries of the date of grant and being subject to forfeiture upon
termination of Mr. Harrison's employment. Mr. Harrison will receive an annual
bonus of not less than $525,000, of which 20% will be paid in immediately vested
options to purchase Enron Common Stock and 80% will be paid in cash, except
that, until such time as Mr. Harrison beneficially owns Enron Common Stock with
a fair market value equal to twice his base salary, one-third of the cash amount
which would be paid to Mr. Harrison under the bonus plan will be paid in
unrestricted Enron Common Stock. Following termination of Mr. Harrison's
employment for any reason, he or his surviving spouse will be entitled to a
Supplemental Retirement Benefit (as defined in the agreement) to ensure that the
aggregate pension benefits he or his spouse receives, taking account of all
pension benefits from PGC and Enron, are at least equal to the aggregate pension
benefits he or his spouse would have received under PGC's Pension Plan and
Supplemental Executive Retirement Plan (the "SERP") had he retired on the
Effective Date having attained the Unreduced Benefit Date (as defined in the
SERP) and 25 years of service, and had his Final Average Earnings (as defined in
the SERP) equaled his Earnings (as defined in the SERP) for calendar year 1996.
Enron may terminate the employment agreement with Mr. Harrison for cause if
Mr. Harrison is convicted of a felony, willfully refuses to perform his duties
and responsibilities without proper legal cause and after notice by Enron of
such refusal or failure, or if he willfully engages in conduct which he knows or
should have reason to know may be materially injurious to Enron ("Termination
for Cause"). Mr. Harrison may terminate the agreement and will be treated as
involuntarily terminated in connection with or based on an assignment to him of
duties and responsibilities inappropriate for a senior officer of Enron or PGE;
a reduction in his annual base salary, incentive compensation, or relative
participation in benefit plans; a required relocation from Portland, Oregon; or
a Change in Control (as defined in the agreement) of PGE or Enron. "Involuntary
Termination" is defined in the employment agreement as termination (i) by Enron
other than (a) pursuant to a Termination for Cause or (b) upon death or
permanent disability, or (ii) by Mr. Harrison (a) in connection with any of the
circumstances described in the previous sentence or (b) during one of the
thirty-day periods beginning on the second, third, or fourth anniversaries of
the Effective Date ("Window Periods").
If, prior to the expiration of the initial five-year term, Mr. Harrison's
employment is terminated pursuant to an Involuntary Termination other than a
voluntary termination during a Window Period, he will be entitled to (1) all
payments of his annual base salary and bonus at such time and in such manner as
if his employment had continued for a two-year period following the Involuntary
Termination, and if the initial five-year term of the agreement would have
continued beyond this two-year period, a lump sum amount equal to the amount
that he would have been paid during the balance of the five year term; and (2)
coverage essentially equivalent to that under certain of Enron's insurance plans
for active employees. If Mr. Harrison terminates his
41
<PAGE> 49
employment voluntarily during a Window Period, he will be entitled to the
insurance coverage described in (2) and to all payments of his annual base
salary and bonus at such time and in such manner as if his employment had
continued for the balance of the Initial Term, provided that, if the Initial
Term would have continued beyond the second anniversary of the termination date,
then Enron will pay Mr. Harrison a lump sum amount on such second anniversary
date equal to the amount which would have been paid to Mr. Harrison during the
balance of the Initial Term if his employment had continued during such period.
In the event that the severance or other payments payable under the agreement
constitute "excess parachute payments" within the meaning of Section 280G of the
Code, and Mr. Harrison becomes liable for any excise tax or penalties or
interest thereon (the "Tax Penalties"), Enron will pay in cash to Mr. Harrison
an amount equal to such Tax Penalties and any incremental income tax liability
arising from such payments, grossing up Mr. Harrison on such gross ups until the
amount of the last gross up is less than one hundred dollars.
In addition, under Mr. Harrison's employment agreement, he may not
disclose, without authorization, any of Enron's confidential business
information or trade secrets, or make use of the same, during or after his
employment, except on behalf of Enron and for Enron's benefit. The agreement
further provides that, upon termination of Mr. Harrison's employment for any
reason, until the earlier of the fifth anniversary of the Effective Date and the
second anniversary of the date of termination, Mr. Harrison will not, directly
or indirectly, in any state of the United States or in any foreign country where
Enron or any of its affiliates is then conducting business (or has conducted
business during the previous twelve months), (1) engage in any business similar
or related to or competitive with the business conducted by PGC or any affiliate
of PGC immediately before the Effective Time, or in any other area of the
business of Enron or any affiliate with which Mr. Harrison has material
involvement during the two-year period immediately before the termination of his
employment (the "Core Business"); (2) render advice or services to, or otherwise
assist, any other person or entity who is engaged, directly or indirectly, in
any business similar or related to, or competitive with, the Core Business
conducted by Enron or any affiliate; (3) transact any business in any manner
pertaining to suppliers or customers of Enron or any affiliate which, in any
manner, would have, or is likely to have, an adverse effect upon Enron or any
affiliate; or (4) induce any employee of Enron or any affiliate to terminate his
or her employment with Enron or such affiliate.
Mr. Hirko's employment agreement is similar in structure to Mr. Harrison's
agreement. Under his agreement, Mr. Hirko will serve as a Senior Vice President
of Enron and as a senior executive officer of PGE for a period of five years,
subject to certain termination provisions similar to those in Mr. Harrison's
agreement, and thereafter as Mr. Hirko and Enron may agree. Mr. Hirko will
receive an annual base salary of not less than $250,000 and will be entitled to
participate in Enron's Executive Compensation Program on the same basis as other
senior executives of Enron (except as otherwise provided in Mr. Hirko's
agreement). Mr. Hirko will also be entitled to participate in other Enron
benefit programs, such as health, life and disability insurance, on the same
basis generally as other employees of Enron. On the Effective Date, Mr. Hirko
will receive a grant under the Enron Corp. 1991 Stock Plan of an option to
purchase 50,000 shares of Enron Common Stock with an exercise price per share
equal to the fair market value of such stock as of the Effective Date; this
option will have a ten-year term and will vest 20% on the date of grant and 20%
on each succeeding anniversary of the Effective Date, except in the case of Mr.
Hirko's Involuntary Termination (as defined in the agreement, but not including
a voluntary termination during a Window Period or a Change in Control (as
defined in the agreement) of Enron or PGE, in which case the option will vest
immediately. On the Effective Date Mr. Hirko will also receive shares of Enron
Restricted Stock having a fair market value equal to his annual base salary,
such shares vesting in 20% increments on each of the first five anniversaries of
the date of grant and being subject to forfeiture upon termination of Mr.
Hirko's employment. Mr. Hirko will receive an annual bonus of not less than
$250,000, of which 20% will be paid in immediately vested options to purchase
Enron Common Stock and 80% will be paid in cash, except that, until such time as
Mr. Hirko beneficially owns Enron Common Stock with a fair market value equal to
twice his base salary, one-third of the cash amount which would be paid to Mr.
Hirko under the bonus plan will be paid in unrestricted Enron Common Stock.
Following termination of Mr. Hirko's employment for any reason, he or his
surviving spouse will be entitled to a Supplemental Retirement Benefit (as
defined in the agreement) to ensure that the aggregate pension benefits he or
his spouse receives, taking account of all pension benefits from PGC and Enron,
are at least equal to the aggregate pension benefits he or his spouse would have
received under PGC's Pension Plan
42
<PAGE> 50
and the SERP had he continued to participate in such pension plan and the SERP
through the date of termination of employment. Mr. Hirko's Supplemental
Retirement Benefit thus differs from Mr. Harrison's Supplemental Retirement
Benefit described above.
The other terms of Mr. Hirko's employment agreement are substantially
similar to those of Mr. Harrison's, except that, in the event of an Involuntary
Termination prior to the expiration of the Initial Term, Mr. Hirko will be
entitled to receive a cash amount equal to the single sum actuarial equivalent
of the incremental amount that would be paid as the Supplemental Retirement
Benefit if that amount were computed assuming that Mr. Hirko had attained an
additional three years of age and an additional three years of service under the
SERP.
In connection with the Merger Agreement, PGC and Enron have agreed that PGC
or PGE will offer new employment agreements to Ms. Fowler, Mr. Alexanderson and
Mr. Dyer to become effective as of the Effective Time. The employment agreements
will generally provide as follows: (i) each agreement will have a term of three
years from the Effective Time; (ii) each agreement will provide for severance
pay in the event of involuntary termination by the employer based on the greater
of two years or the remainder of the term; (iii) Mr. Dyer's agreement will
provide that he will be treated as having been involuntarily terminated and
entitled to receive three years severance pay if he terminates his employment
for any reason during a thirty-day period beginning on the first anniversary of
the Effective Time; (iv) the aggregate minimum base salaries per year under such
agreements will equal $660,000 per year and the aggregate minimum guaranteed
annual cash incentives per year under such agreements will equal $437,500; (v)
the aggregate number of shares of Enron Common Stock subject to the options
granted under such agreements will equal 90,000; (vi) each agreement will
provide for the grant of a number of restricted shares of Enron Common Stock
having a market value equal to such employee's annual base salary; (vii) Mr.
Dyer's agreement will provide that the failure of the employer and Mr. Dyer to
extend the agreement for one year will be treated as involuntary termination,
while Ms. Fowler's and Mr. Alexanderson's agreements will provide that the
failure of the employer and the employee to extend the agreement for two years
will be treated as involuntary termination; (viii) each agreement will provide
for a supplemental retirement benefit; (ix) each agreement will provide that in
the event that the severance or other payments payable under the agreement for
involuntary termination (including under clauses (vii) above, except where such
employee is offered an extension of their existing agreement or a new agreement
on similar terms and the employee fails to accept such extension or new
agreement) constitute "excess parachute payments" within the meaning of Section
280G of the Code and the employee becomes liable for any Tax Penalties, the
employer will pay in cash to the employee an amount equal to such Tax Penalties
and any incremental income tax liability arising from such payments, grossing up
such employee on such gross ups until the amount of the last gross up is less
than one hundred dollars; and (x) each agreement will include a noncompetition
covenant substantially in the form included in the executive's current
employment agreement with PGC.
Also in connection with the Merger Agreement, PGC and Enron have agreed
that PGC or PGE will offer new employment agreements to Messrs. Kielblock,
Carboneau and Miller to become effective as of the Effective Time. The
employment agreements will generally provide as follows: (i) each agreement will
have a term of three years from the Effective Time, other than the agreement of
Mr. Kielblock, which will have a term of one year; (ii) each agreement will
provide for severance pay in the event of involuntary termination by the
employer based on the greater of two years or the remainder of the term, other
than the agreement of Mr. Kielblock which will provide for three years plus the
remainder of the term; (iii) the aggregate minimum base salaries per year under
such agreements will equal $495,000 per year and the aggregate minimum
guaranteed annual cash incentives per year under such agreements will equal
$148,500; (iv) the aggregate number of shares of Enron Common Stock subject to
the options granted under such agreements will equal 60,000; (v) Messrs.
Carboneau and Miller's agreements will provide that the failure of the employer
and the employee to extend the agreement for two years will be treated as
involuntary termination, while Mr. Kielblock's agreement will provide that
termination of the agreement at the end of its term will be treated as
involuntary termination; (vi) each agreement will provide for a supplemental
retirement benefit; (vii) each agreement will provide that in the event that the
severance or other payments payable under the agreement for involuntary
termination (including under clause (v) above, except where such employee is
offered an extension of their
43
<PAGE> 51
existing agreement or a new agreement on similar terms and the employee fails to
accept such extension or new agreement) constitute "excess parachute payments"
within the meaning of Section 280G of the Code and the employee becomes liable
for any Tax Penalties, the employer will pay in cash to the employee an amount
equal to such Tax Penalties and any incremental income tax liability arising
from such payments, grossing up such employee on such gross ups until the amount
of the last gross up is less than one hundred dollars; and (viii) each agreement
will include a noncompetition covenant substantially in the form included in the
executive's current employment agreement with PGC.
As disclosed above, certain executive officers of PGC, including Messrs.
Harrison, Hirko, Dyer, Alexanderson, Ms. Fowler, and Messrs. Carboneau,
Kielblock, and Miller, have existing employment agreements with PGC which
contain Change in Control provisions (as defined in the respective agreements)
pursuant to which the executives will receive certain benefits if the PGC
shareholders approve the Merger Agreement. If such an executive enters an
employment agreement with Enron replacing and superseding his or her employment
agreement with PGC as of the Effective Time (as Messrs. Harrison and Hirko have
done), and that agreement becomes effective at the Effective Time then, as a
consequence of the Mergers, such executive will receive benefits according to
the terms of his or her new employment agreement in lieu of those he or she
would have received under his or her existing employment agreement. Executives
who do not enter into superseding employment agreements will receive under their
existing employment agreements with PGC the benefits described below, subject to
any amendments as described above. In the following description, the executive
to whom the existing employment agreement pertains is sometimes called the
"Employee" and PGE and Enron, as successors to PGC, are called the "Employer".
If the PGC shareholders approve the Merger Agreement, the term of the
Employee's employment agreement will be extended to the date three years
following the date of the Change in Control of PGC and the agreement will no
longer be terminable by the Employer except for Cause (as defined in the
agreement). After this three-year period, the employment agreement expires.
During the three-year term, the Employer may not reduce, modify, or add to the
Employee's duties as such duties were defined at the time of the Change in
Control; nor may the Employer reduce the Employee's base salary. In addition,
the Employee will be entitled to short- and long-term incentives and benefits
under the Employer's incentive and benefit programs that are at least as
favorable, in the aggregate, as the most favorable of those benefits provided to
the Employee under such programs prior to the Change in Control. Any breach of
these provisions, including a transfer of the Employee's job to a site different
from that prior to the Change in Control, may be deemed a material breach of the
contract and will entitle the Employee to terminate the agreement and receive
damages, in one lump sum, consisting of (1) $30,000 plus three times the sum of
(A) the amount of the Employee's base salary immediately prior to termination of
employment, and (B) the aggregate of the amounts of the Employee's target Annual
Cash Incentive (as defined in the agreement) award for the year in which the
Employee's employment terminates under all of the Employer's plans or programs
in which the Employee participates; (2) the single sum actuarial equivalent of
the incremental value of adding three years of age and three years of service to
the Employee's vested accrued benefits under the SERP; and, (3) upon the
Employee's election, the single sum actuarial equivalent of the Employee's
vested accrued benefits under the SERP reduced by six percent, such election
resulting in a waiver of all further benefits under the SERP. In addition, the
Employee is entitled to receive, to the extent that such Employee or any of the
Employee's dependents may be covered under the terms of any medical or dental
plans of the Employer for active employees immediately prior to the termination,
equivalent coverage for a period not to exceed thirty-six months after
termination, subject to the Employee's obligation to make contributions equal to
those required from time to time from employees for equivalent coverage under
medical or dental plans. If shareholders approve the Merger Agreement and all
executives who have not already entered into superseding employment agreements
were terminated immediately after the Effective Time, PGC estimates that, based
on current compensation levels and valuation factors, the aggregate after-tax
cost of the severance benefits under these employment agreements would be
approximately $2.4 million.
Director and Executive Single Life Premium Insurance Policies. The Board of
Directors of PGC has approved the amendment of the Company's Outside Directors'
Life Insurance Benefit Plan and its Senior Officers' Life Insurance Benefit Plan
to provide that the consummation of the Mergers will not constitute a
44
<PAGE> 52
"change of control" under those plans. However, a participant whose Board
service terminates involuntarily within one year after the Effective Time, or
whose employment terminates involuntarily within two years after the Effective
Time, as applicable, will be entitled to receive a cash payment from PGC equal
to the remaining premiums necessary to cause his or her policy to be fully
paid-up. In addition, a participant whose Board service terminates more than one
year after the Effective Time or whose employment terminates more than two years
after the Effective Time, as applicable, will be permitted to be treated as
retiring under the Plan, with the result that he or she will be permitted to
elect to purchase the policy insuring his or her life from the Company or
continue as a participant in the Plan.
Changes to PGC's Management Deferred Compensation Plan. As permitted by the
Merger Agreement, the PGC Board of Directors approved a change to its Management
Deferred Compensation Plan to provide that (1) no amendment to the plan may
reduce the amount accrued in the account of any participant as of the date that
notice of the amendment is given; (2) no amendment may reduce the rate of
interest credited, after the date of amendment, to the amount accrued in the
account of any participant as of the date of the amendment; and (3) if the plan
is terminated, account balances of participants shall be paid in the form
designated by such participants.
Indemnification. Pursuant to the Merger Agreement, to the extent, if any,
not provided by an existing right of indemnification or other agreement or
policy, from and after the Effective Time, New Enron will, to the fullest extent
not prohibited by applicable law, indemnify, defend and hold harmless the
present and former directors, officers and management employees of the parties
to the Mergers and their respective subsidiaries against (i) all losses,
expenses (including reasonable attorneys' fees and expenses), claims, damages,
costs, liabilities, judgments or, subject to certain restrictions, amounts paid
in settlement of or in connection with any claim, action, suit, proceeding or
investigation based on or arising out of the fact that such person is or was a
director, officer, or management employee of such party or any subsidiary
thereof, whether pertaining to any matter existing or occurring at or prior to
the Effective Time and whether asserted or claimed prior to, at, or after the
Effective Time, and (ii) all liabilities based on, arising from, or pertaining
to the Merger Agreement or the transactions contemplated thereby.
In addition, the Merger Agreement provides that, for a period of six years
after the Effective Time, New Enron will cause to be maintained in effect the
policies of directors' and officers' liability insurance maintained by Enron and
PGC (subject to certain limitations). See "The Merger
Agreement -- Indemnification."
FEDERAL INCOME TAX CONSEQUENCES
The following discussion includes the opinion of Vinson & Elkins L.L.P.,
counsel to Enron, as to the material federal income tax consequences of the
Mergers to the holders of capital stock of Enron, and the opinion of Wachtell,
Lipton, Rosen & Katz, counsel to PGC, as to the material federal income tax
consequences of the Mergers to the holders of capital stock of PGC. The
discussion is based upon current provisions of the Code, existing regulations
thereunder, current administrative rulings of the Internal Revenue Service (the
"IRS") and court decisions, all of which are subject to change. The discussion
does not address all federal income tax consequences of the Mergers that may be
relevant to particular holders in light of their particular circumstances,
including holders that are subject to special tax rules such as dealers in
securities, foreign persons, mutual funds, insurance companies, tax-exempt
entities and holders who do not hold their shares as capital assets. Holders of
Enron Common Stock, Enron Preferred Stock and PGC Common Stock are advised and
expected to consult their own tax advisers regarding the federal income tax
consequences of the Mergers in light of their personal circumstances and the
consequences under state, local and foreign tax laws.
Enron has received from its counsel, Vinson & Elkins L.L.P., an opinion to
the effect that for federal income tax purposes the Mergers will constitute
reorganizations within the meaning of section 368(a) of the Code, that Enron and
New Enron will each be a party to the Reincorporation Merger and that New Enron
and PGC will each be a party to the PGC Merger, that Enron and New Enron will
not recognize any gain or loss as a result of the Mergers and that the
shareholders of Enron will not recognize any gain or loss upon the receipt of
New Enron Common Stock or New Enron Preferred Stock in exchange for their Enron
Common
45
<PAGE> 53
Stock or Enron Preferred Stock in the Reincorporation Merger. PGC has received
from its counsel, Wachtell, Lipton, Rosen & Katz, an opinion to the effect that
for federal income tax purposes the Mergers will constitute reorganizations
within the meaning of section 368(a) of the Code, that Enron and New Enron will
each be a party to the Reincorporation Merger and that New Enron and PGC will
each be a party to the PGC Merger, that PGC will not recognize any gain or loss
as a result of the PGC Merger and that the shareholders of PGC will not
recognize any gain or loss upon the receipt of New Enron Common Stock in
exchange for their PGC Common Stock, except with respect to cash received, if
any, in lieu of fractional shares of New Enron Common Stock. Such opinions are
based on certain representations of Enron, New Enron and PGC as to the
continuation by New Enron of the business of Enron and PGC and as to the absence
of any knowledge as to any plan or intention by the shareholders of Enron and
PGC to dispose of a substantial portion of New Enron stock following the
Mergers. Shareholders of Enron and PGC should be aware that such opinions are
not binding on the IRS and no assurance can be given that the IRS will not adopt
a contrary position or that a contrary IRS position would not be sustained by a
court.
Assuming the Mergers qualify as reorganizations under section 368(a) of the
Code, the following federal income tax consequences will occur:
(a) no gain or loss will be recognized by Enron, New Enron or PGC by
reason of the Mergers;
(b) no gain or loss will be recognized by a holder of Enron Common
Stock or Enron Preferred Stock upon the exchange of such shares for New
Enron Common Stock or New Enron Preferred Stock in the Reincorporation
Merger;
(c) no gain or loss will be recognized by a holder of PGC Common Stock
upon the exchange of such shares solely for New Enron Common Stock in the
PGC Merger;
(d) the aggregate basis of the shares of New Enron Common Stock or New
Enron Preferred Stock received by a holder of Enron Common Stock, Enron
Preferred Stock or PGC Common Stock in the Reincorporation Merger or the
PGC Merger (including any fractional share deemed received) will be the
same as the aggregate basis of the shares surrendered in exchange therefor;
(e) the holding period of the shares of New Enron Common Stock or New
Enron Preferred Stock received by a holder of Enron Common Stock, Enron
Preferred Stock or PGC Common Stock in the Reincorporation Merger or the
PGC Merger (including any fractional share deemed received) will include
the holding period of the shares surrendered in exchange therefor, provided
that such shares are held as capital assets at the Effective Time; and
(f) a holder of PGC Common Stock who receives cash in lieu of a
fractional share of New Enron Common Stock will recognize gain or loss
equal to the difference, if any, between such shareholder's basis in the
fractional share (as described in paragraph (d) above) and the amount of
cash received. Such gain or loss will be eligible for long-term capital
gain or loss treatment if the PGC Common Stock is held by such shareholder
as a capital asset at the Effective Time and the holding period for the
fractional share (as described in paragraph (e) above) is more than one
year.
HOLDERS OF ENRON COMMON STOCK, ENRON PREFERRED STOCK AND PGC COMMON STOCK
ARE URGED TO CONSULT WITH THEIR OWN TAX ADVISERS WITH RESPECT TO THE SPECIFIC
TAX CONSEQUENCES OF THE MERGERS TO SUCH HOLDERS, INCLUDING THE APPLICATION AND
EFFECT OF THE LAWS OF ANY STATE, MUNICIPAL, FOREIGN OR OTHER TAXING
JURISDICTION.
GOVERNMENTAL AND REGULATORY APPROVALS
Oregon Public Utility Commission. Upon completion of the PGC Merger, New
Enron will be the owner of the common stock of PGE, the electric utility
subsidiary of PGC. PGE is subject to the jurisdiction of the OPUC with respect
to its electric utility operations. The approval of the OPUC is required for any
transaction in which a person acquires the power to exercise any substantial
influence over the policies and actions of a public utility subject to its
jurisdiction. On August 30, 1996, Enron filed an application with the OPUC
seeking approval of the PGC Merger. The OPUC must approve the PGC Merger if it
finds that the PGC
46
<PAGE> 54
Merger will serve the customers of PGE in the public interest. In making that
finding the OPUC may consider, among other matters, whether the change in
ownership of the public utility will impair the ability of the utility to
provide adequate service at just and reasonable rates. Under Oregon law, the
OPUC would have been required to act within 19 business days on Enron's
application, but Enron has agreed to extend the statutory deadline for OPUC
action on its application until February 18, 1997. There can be no assurance,
however, that the OPUC will have taken any action by such date.
In addition to Enron's application for approval of the PGC Merger, PGE has
sought OPUC approval to change certain provisions of PGE's tariffs. On August 6,
1996, PGE submitted a proposed rate plan to the OPUC which included
approximately $25 million in proposed rate reductions for 1997 and acceleration
of the recovery of PGE's investment in the Trojan Nuclear Plant (Trojan), which
ceased commercial operations in early 1993. In March 1995, the OPUC authorized
the recovery in rates of PGE's remaining investment in Trojan. The price and
earnings reductions in PGE's August 6 proposal stem primarily from savings in
variable power costs representing, in part, benefits from PGE's decision to
close Trojan. PGE believes it appropriate to apply a portion of such savings to
offset the accelerated amortization of the Trojan investment. PGE believes
acceleration of the amortization of the Trojan investment (1) would benefit PGE
customers by reducing their total payments to PGE over time and (2) is
consistent with PGE's objective of reducing its level of regulatory assets in
anticipation of an increasingly competitive market. As of June 30, 1996, PGE's
remaining net Trojan investment was $290 million, with amortization planned
through 2011. PGE's proposed acceleration of amortization would result in an
additional $18 million of before tax expense for calendar year 1997 and, based
on current forecasts, would reduce the total amortization period by as much as
nine years. PGE's proposed plan, if adopted, would result in a $43 million
before tax and a $28 million after tax reduction to PGE's 1997 earnings,
consisting of a $25 million before tax ($15 million after tax) decrease due to
the rate reductions and an $18 million before tax ($13 million after tax)
decrease due to accelerated amortization of its Trojan investment. In response
to PGE's proposal, the OPUC staff has proposed to recommend adoption of all of
the proposals included in PGE's plan but with a modification of the rate
consequences of the Trojan accelerated cost recovery, and approximately $51
million in further rate reductions for 1997. The OPUC staff's proposal, if
adopted, would result in a $93 million before tax and a $57 million after tax
reduction to PGE's 1997 earnings.
To implement the rate plan, PGE proposed (i) acceleration of eligibility
for PGE's market-based retail rates for certain customers, (ii) reductions in
the rate charged to PGE's residential customers, (iii) a direct access
experiment for certain large industrial customers, (iv) development of tariffs
for time of day and direct access experiments for residential and small
commercial customers, and (v) if desired by the OPUC, extension for an
additional two years of an OPUC mechanism that decouples PGE's profits on sales
to certain customers from the level of sales to those customers. Formal
settlement discussions with the OPUC staff are currently scheduled for early
November 1996.
PGE is also seeking OPUC approval for the separation from PGE of certain
nonutility businesses and activities, including the offering of price risk
management services, energy management services and the wholesale purchase and
sale of electric power (except for power generated or purchased by PGE to serve
its retail customers in its service territory and its wholesale contracts in
place on the effective date of the PGC Merger).
1935 Act. Enron is not a holding company (as defined in the 1935 Act) and
therefore is not subject to the provisions of the 1935 Act. PGC is a holding
company exempt from all provisions of the 1935 Act except Section 9(a)(2)
thereof under Section 3(a)(1) pursuant to Rule 2 of the 1935 Act. Following
consummation of the Mergers, Enron will be a holding company entitled to claim
an exemption from all provisions of the 1935 Act except Section 9(a)(2) thereof
under Section 3(a)(1) pursuant to Rule 2 of the 1935 Act.
PURPA. Enron owns indirect interests in certain cogeneration facilities,
each of which constitutes a "qualifying facility" ("QF") under the Public
Utility Regulatory Policies Act of 1978 ("PURPA") (the "Enron QF's").
Substantial interests in certain of the facilities are also held by affiliates
of other entities which are classified as "electric utilities"under PURPA.
Following consummation of the PGC Merger, New Enron will become a holding
company under the 1935 Act that will qualify for the intrastate exemption under
Section 3(a)(1) thereof but, barring a change in law, will not be exempt from
classification as an "electric utility holding company" under PURPA. Therefore,
in order to avoid the loss of QF status for the Enron QF's
47
<PAGE> 55
and registration of Enron as a "holding company" under the 1935 Act, Enron must
cause its ownership in the Enron QF's (aggregated with ownership by all other
entities constituting "electric utilities") to be not more than 50% prior to
consummation of the PGC Merger. Enron is considering several alternatives to
accomplish this result. Enron's management does not believe that resolution of
the foregoing matters will have a material adverse effect on its consolidated
financial position or its consolidated results of operations.
Federal Power Act. Section 203 of the Federal Power Act provides that no
public utility shall sell or otherwise dispose of its jurisdictional facilities
or, directly or indirectly, merge or consolidate such facilities with those of
any other person or acquire any security of any other public utility without
first having obtained authorization from the FERC. The approval of the FERC is
required in order to consummate the Mergers. Under Section 203 of the Federal
Power Act, the FERC is required to approve a merger if it finds such merger
"consistent with the public interest." In reviewing a merger, the FERC generally
evaluates: (i) whether the merger will adversely affect competition, (ii)
whether the merger will adversely affect operating costs and rates, (iii)
whether the merger will impair the effectiveness of regulation, (iv) whether the
purchase price is reasonable, (v) whether the merger is the result of coercion
and (vi) whether the accounting treatment is reasonable. On September 20, 1996,
Enron and PGC filed an application with the FERC seeking approval of the PGC
Merger under Section 203 of the Federal Power Act. It is expected that FERC will
not take action on the FERC application until sometime in 1997.
The 1993 FERC order authorizing Enron Power Marketing, Inc. ("EPMI") to
sell electric power at market-based rates was predicated on its finding that
EPMI and its affiliates lacked market power over wholesale power buyers. The
order requires EPMI to inform the FERC of any changes in EPMI's status or
activities that relate to the basis for the FERC's original authorization of
EPMI's market-based rates, including acquisitions of generation or transmission
facilities and affiliation with franchised utilities. Pursuant to this
requirement, on July 24, 1996, EPMI filed a "Notification of Change in Status"
with the FERC in which EPMI advised the FERC of the Merger Agreement and
requested FERC to confirm that the proposed merger will not affect EPMI's
authorization to sell power at market-based rates. On September 20, 1996, EPMI
filed proposed changes to its FERC Electric Rate Schedule No. 1 under Section
205 of the Federal Power Act to become effective upon consummation of the PGC
Merger, as necessary for EPMI to continue to engage in wholesale power
transactions at market-based rates. It is expected that the FERC will address
both the Section 203 and Section 205 applications in conjunction with its
consideration of the Mergers. In the interim, EPMI's authorization to engage in
market-based sales remain effective.
Oregon Energy Facility Siting Council. The Oregon Energy Facility Siting
Council ("OEFSC") has regulatory authority over the siting of energy facilities,
including electric generating plants, in the State of Oregon. Under its rules,
OEFSC consent is required for certain direct or indirect transfers of site
certificates or facilities covered by a site certificate. As a result of the
Mergers, New Enron will become the owner of the common stock of PGE. PGE has
requested a declaratory ruling from the OEFSC that the change in ownership of
PGE common stock in connection with the PGC Merger will not result in a transfer
of site certificates that requires OEFSC consent.
Atomic Energy Act. PGE holds a majority interest in the NRC license for the
Trojan nuclear facility, which ceased operations in 1993. Shortly thereafter,
the facility operating license was converted to a possession-only license
("POL") pursuant to a license amendment accepted by the NRC. The Atomic Energy
Act requires that NRC licenses (including POLs) may not be amended or
transferred or in any manner disposed of, directly or indirectly, to any person
through transfer of control unless the NRC finds that such transfer is in
accordance with the Atomic Energy Act and gives prior consent to the transfer.
On August 20, 1996, PGE filed an application seeking approval from the NRC under
the Atomic Energy Act of New Enron's controlling interest in PGE after the
Mergers. The NRC has indicated to PGE that, as a condition to approving the
application, it may require that PGE agree to provide the NRC with 60 days prior
notice of any significant transfer of utility assets. PGE is currently
negotiating with the NRC to explore alternatives for permitted dispositions that
would not require prior NRC approval, but no assurance can be given as to the
nature of the restrictions that may ultimately be imposed by the NRC in
connection with its approval of the PGC Merger.
48
<PAGE> 56
HSR Act. Transactions such as the Mergers are reviewed by the Department of
Justice and the FTC to determine whether they comply with applicable antitrust
laws. Under the provisions of the HSR Act, the Mergers may not be consummated
until such time as the specified waiting period requirements of the HSR Act have
been satisfied. Enron and PGC will file notification reports, together with
requests for early termination of the waiting period, with the Department of
Justice and the FTC under the HSR Act. At any time before or after the Effective
Time, the Department of Justice, the FTC or a private person or entity could
seek under the antitrust laws, among other things, to enjoin the Mergers or to
cause Enron to divest itself, in whole or in part, of PGC or of other businesses
conducted by Enron. There can be no assurance that a challenge to the Mergers
will not be made or that, if such a challenge is made, Enron and PGC will
prevail.
Other than the foregoing, Enron and PGC are aware of no other governmental
or regulatory approvals required for consummation of the Mergers, other than
compliance with applicable securities laws.
RESTRICTIONS ON RESALES BY PGC AFFILIATES
The shares of New Enron Common Stock (or Enron Common Stock) and New Enron
Convertible Preferred Stock to be received by shareholders of PGC and Enron in
connection with the Mergers have been registered under the Securities Act and,
except as set forth in this paragraph, may be traded without restriction. The
securities to be issued in connection with the Mergers and received by persons
who are "affiliates" (as that term is defined in Rule 144 under the Securities
Act) of Enron or PGC prior to the Mergers may be resold by them only in
transactions permitted by the resale provisions of Rule 145 under the Securities
Act (or, in the case of such persons who become affiliates of Enron, Rule 144
under the Securities Act) or as otherwise permitted under the Securities Act.
Pursuant to the Merger Agreement, PGC has agreed to use its reasonable efforts
to cause its "affiliates" (as that term is used in Rule 145 under the Securities
Act) to deliver a written agreement to Enron with respect to the shares (the
"Affiliate Shares") to be received by such affiliate pursuant to the PGC Merger
(the "Affiliate Agreements"). It is intended that, pursuant to the Affiliate
Agreements, each affiliate will agree (i) not to make any offer to sell or any
sale or other disposition of all or any part of the Affiliate Shares in
violation of the Securities Act and to hold the Affiliate Shares subject to
applicable provisions of the Securities Act, (ii) that he has been advised that
any public reoffering or resale of the Affiliate Shares by the affiliate
requires compliance with certain registration requirements under the Securities
Act, and (iii) that he understands that New Enron will be under no obligation to
register the Affiliate Shares under the Securities Act or take certain other
actions that may be necessary in connection with dispositions by the affiliate.
STOCK EXCHANGE LISTING
Following the Mergers, an application will be made to have the New Enron
Common Stock listed for trading on the NYSE, as well as the Chicago, Pacific,
London and Frankfurt exchanges and an application will be made to have the New
Enron Convertible Preferred Stock listed for trading on the NYSE and the Chicago
Stock Exchange.
ACCOUNTING TREATMENT
The PGC Merger will be accounted for as a purchase for financial reporting
purposes. Under the purchase method of accounting, the assets and liabilities of
PGC will be recorded at their fair values at the Effective Time, with the
difference between such fair value and the value of the consideration paid in
the PGC Merger allocated to goodwill.
NO APPRAISAL RIGHTS
Under the DGCL and the OBCA, no holder of Enron Common Stock, Enron
Preferred Stock or PGC Common Stock will be entitled to any dissenters' or
appraisal rights in connection with the transactions contemplated by the Merger
Agreement.
49
<PAGE> 57
THE MERGER AGREEMENT
The following is a summary of the material terms of the Merger Agreement
and is qualified in its entirety by reference to the Merger Agreement. A copy of
the Merger Agreement is attached as Annex A to this Joint Proxy
Statement/Prospectus and is incorporated herein by reference.
CLOSING; EFFECTIVE TIMES OF THE MERGERS
The Closing of the transactions contemplated by the Merger Agreement will
occur on the second business day immediately following the date on which the
last of the conditions to the Mergers is satisfied or are capable of being
satisfied, or at such other time and date as PGC and Enron agree. It is
currently expected that the Closing will occur sometime in 1997.
The Reincorporation Merger will become effective upon the later of the
filing of articles of merger with the Oregon Department of State or the filing
of a certificate of merger with the Secretary of State of Delaware, or at such
later time as may be mutually agreed to by the parties and specified in such
articles of merger or certificate of merger. The PGC Merger will become
effective upon the filing of articles of merger with the Oregon Department of
State or at such later time as may be mutually agreed to by the parties and
specified in such articles of merger (the "Second Effective Time"), provided
that the Second Effective Time will be after the First Effective Time. As used
herein, the term "Effective Time" refers to the Second Effective Time.
MANNER AND BASIS OF CONVERTING SHARES
Conversion of Enron Common Stock and Enron Preferred Stock Pursuant to the
Reincorporation Merger. At the First Effective Time, by virtue of the
Reincorporation Merger and without any action on the part of any holder of
capital stock of Enron, each share of Enron Common Stock issued and outstanding
immediately prior to the First Effective Time will be converted into and become
one share of New Enron Common Stock. Each share of any series of Enron Preferred
Stock issued and outstanding immediately prior to the First Effective Time will
be converted into and become one share of a series of New Enron Preferred Stock
having the same rights, preferences and limitations as the corresponding class
or series of Enron Preferred Stock. Each share of the common stock of New Enron
issued and outstanding immediately prior to the First Effective Time will be
canceled without consideration therefor.
Conversion of PGC Common Stock Pursuant to the PGC Merger. At the Second
Effective Time, by virtue of the PGC Merger and without any action on the part
of any holder of capital stock of PGC or New Enron, each share of PGC Common
Stock issued and outstanding immediately prior to the Second Effective Time
(other than shares of PGC Common Stock owned by PGC or any of its subsidiaries
or by Enron, New Enron or any of their respective subsidiaries, which will be
canceled without consideration therefor) will be converted into one share of New
Enron Common Stock, subject to certain adjustments described below (the "PGC
Conversion Ratio").
Adjustments to PGC Conversion Ratio. If, prior to the Effective Time, there
is a change in the number of shares of Enron Common Stock issued and outstanding
as a result of reclassification, stock split (including a reverse stock split),
stock dividend or similar transaction, the PGC Conversion Ratio (and the Ceiling
Price and Floor Price, each as defined below under "-- Termination of the Merger
Agreement") will be equitably adjusted to eliminate the effects of such an
event. If, prior to the Effective Time, Enron effects a distribution to all
holders of Enron Common Stock of shares of any class or series of capital stock
(other than any distribution described in the preceding sentence and any
dividends paid exclusively in cash) (an "Extraordinary Distribution"), the PGC
Conversion Ratio in effect immediately prior to such Extraordinary Distribution
will be adjusted to equal $41.75 (or, if applicable, the Revised Enron Share
Value (as defined below) determined in connection with any previous adjustment
in the PGC Conversion Ratio) divided by the Revised Enron Share Value. In
addition, prior to the Special Meetings, the Ceiling Price in effect immediately
prior to such Extraordinary Distribution will be adjusted to equal 1.1317
multiplied by the Revised Enron Share Value, and the Floor Price in effect
immediately prior to such Extraordinary Distribution will be adjusted to equal
0.8683 multiplied by the Revised Enron Share Value. The PGC Conversion Ratio,
and, prior to the Special Meetings, the Ceiling Price and Floor Price, will be
so adjusted successively whenever an Extraordi-
50
<PAGE> 58
nary Distribution occurs prior to the Effective Time. Any securities distributed
by Enron in an Extraordinary Distribution will be listed on the NYSE from and
after the time such distribution is made. For purposes of the foregoing,
"Extraordinary Distribution Value" means the aggregate number of securities
distributed to each holder of Enron Common Stock pursuant to such Extraordinary
Distribution multiplied by the average of the daily closing prices per share of
such security for the 20 consecutive Trading Days (as defined in the Merger
Agreement) immediately following the date of such Extraordinary Distribution,
and the "Revised Enron Share Value" means $41.75 (or, if applicable, the Revised
Enron Share Value determined in connection with any previous adjustment in the
PGC Conversion Ratio) less the Extraordinary Distribution Value. If, prior to
the Effective Time, there is consummated a transaction other than a transaction
of the type described above pursuant to which shares of Enron Common Stock
become converted into the right to receive cash, securities or other property or
any combination thereof, Enron will make appropriate provision so that the
corporation surviving such transaction is substituted for Enron as a party to
the Merger Agreement, and appropriate adjustment is made so that, upon
consummation of the Mergers, each share of PGC Common Stock will be converted
into such amount of cash, securities or other property or combination thereof as
each such share would have been converted had the Mergers occurred prior to such
transaction.
No Exchange of Enron Certificates. No certificates representing New Enron
Common Stock or New Enron Preferred Stock will be issued to holders of Enron
Common Stock or Enron Preferred Stock by virtue of consummation of the
Reincorporation Merger unless requested by such holders. Instead, after the
Reincorporation Merger, certificates that previously represented shares of Enron
Common Stock or Enron Preferred Stock will be deemed for all purposes to
represent an equal number of shares of New Enron Common Stock or New Enron
Preferred Stock, as the case may be, until such shares are surrendered to New
Enron's transfer agent for transfer or exchange.
Exchange of PGC Certificates. Promptly after consummation of the Mergers,
New Enron will designate an exchange agent acceptable to PGC to distribute
shares of New Enron Common Stock exchanged for PGC Common Stock in the PGC
Merger. The Exchange Agent will send a letter of transmittal to each holder of
record of PGC Common Stock immediately before the Effective Time for use in
exchanging certificates formerly representing shares of PGC Common Stock (a "PGC
Certificate") that were converted ("Converted Shares") into New Enron Common
Stock for certificates representing shares of New Enron Common Stock. PGC
Certificates should not be surrendered by the holders of PGC Common Stock until
they have received the letter of transmittal from the Exchange Agent. Upon
delivery of a PGC Certificate to the Exchange Agent for exchange, together with
a duly executed letter of transmittal and such other documents as the Exchange
Agent shall require, the holder of such PGC Certificate will be entitled to
receive in exchange therefor a certificate representing that number of whole
shares of New Enron Common Stock and the amount of cash in lieu of fractional
share interests (if any) which such holder has the right to receive pursuant to
the Merger Agreement. In the event of a transfer of ownership of Converted
Shares which is not registered in the transfer records of PGC, a certificate
representing the proper number of shares of New Enron Common Stock may be issued
to a transferee if the PGC Certificate representing such Converted Shares is
presented to the Exchange Agent, accompanied by all documents required to
evidence and effect such transfer and by evidence satisfactory to the Exchange
Agent that any applicable stock transfer taxes have been paid. Until delivered
and exchanged for New Enron Common Stock as provided in the Merger Agreement,
each PGC Certificate will be deemed at any time after the Effective Time to
represent only the right to receive upon such delivery the certificate
representing shares of New Enron Common Stock and cash in lieu of any fractional
shares (and any distributions described below). Unless and until the certificate
or certificates representing Converted Shares have been surrendered for exchange
to the Exchange Agent, no dividends or other distributions payable to holders of
New Enron Common Stock as of a record date at or after the Effective Time will
be paid to any holder of a certificate representing such unexchanged Converted
Shares. Subject to the effect of unclaimed property, escheat and other
applicable laws, following delivery of any such certificate, there will be paid
to the record holder (or transferee) of the certificates representing whole
shares of New Enron Common Stock issued in exchange therefor, without interest,
(i) the amount of dividends or other distributions with a record date after the
Effective Time theretofore paid with respect to such whole shares of New Enron
Common Stock, and (ii) at the appropriate payment date, the amount of dividends
or other distributions with a record
51
<PAGE> 59
date at or after the Effective Time but prior to delivery and a payment date
subsequent to delivery payable with respect to such whole shares of New Enron
Common Stock, as the case may be.
In the event the PGC Conversion Ratio is adjusted as described above to a
number that would result in fractional shares, no certificates or scrip
representing fractional shares of New Enron Common Stock will be issued in
exchange for Converted Shares, but in lieu thereof, each holder of a certificate
representing Converted Shares will, upon surrender thereof, be entitled to
receive a cash payment as set forth in the Merger Agreement.
CONDITIONS TO THE MERGERS
Condition to Each Party's Obligation to Effect the Mergers. The respective
obligations of each party to effect the Mergers will be subject to the
satisfaction prior to the Closing Date of the following conditions, except to
the extent such condition is waived by the parties in writing: (a) the required
approval of the shareholders of Enron and PGC shall have been obtained at the
Special Meetings; (b) no temporary restraining order or preliminary or permanent
injunction or other judgment, decree, ruling or order by any court of competent
jurisdiction preventing consummation of either of the Mergers shall have been
issued and be continuing in effect, and the Mergers and the other transactions
contemplated by the Merger Agreement shall not have been prohibited under any
applicable federal or state law or regulation; (c) no stop order suspending the
effectiveness of the Registration Statement under the Securities Act shall have
been issued and remain in effect; (d) the shares of New Enron Common Stock
issuable in the Mergers shall have been approved for listing on the NYSE upon
official notice of issuance; (e) the required statutory approvals of the
transactions contemplated by the Merger Agreement (as specified in the Merger
Agreement) shall have been obtained at or prior to the Effective Time, such
approvals shall have become Final Orders (as defined in the Merger Agreement)
and no Final Order shall impose terms or conditions that would have, or would be
reasonably likely to have, an Enron Material Adverse Effect or a PGC Material
Adverse Effect (each as defined in the Merger Agreement).
Conditions to the Obligations of Enron and New Enron to Effect the Mergers.
The obligation of Enron and New Enron to effect the Reincorporation Merger and
of New Enron to effect the PGC Merger will be further subject to the
satisfaction, on or prior to the Closing Date, of certain conditions, including
the following, except as may be waived by Enron in writing: (a) PGC shall have
performed in all material respects its agreements and covenants contained in or
contemplated by the Merger Agreement required to be performed by it at or prior
to the Effective Time (subject to certain materiality exceptions); (b) subject
to certain materiality and other exceptions, the representations and warranties
of PGC shall be true and correct as of the date of the Merger Agreement and as
of the Closing Date; (c) Enron shall have received an opinion of counsel from
Vinson & Elkins L.L.P., in form and substance satisfactory to Enron, dated the
Closing Date to the effect that the Mergers will be treated as reorganizations
within the meaning of Section 368(a) of the Code and that no gain or loss will
be recognized to Enron or the holders of capital stock of Enron as a result
thereof; (d) the PGC Required Consents (as defined in the Merger Agreement)
shall have been obtained, except as would not have a PGC Material Adverse
Effect; (e) the regulatory approval process for approving the Regulatory Plans
(as defined in the Merger Agreement) shall have resulted in Final Orders that
confirm certain specified matters without any condition or qualification that
would adversely affect New Enron's or its subsidiaries' ability to compete
following the Effective Time on comparable terms and conditions in the markets
for their products and services, and the Regulatory Plans shall otherwise have
been approved without imposition or threatened imposition of changes to the
Regulatory Plans during the period covered thereby that individually or in the
aggregate (and taken together with any failure of any representations and
warranties of PGC set forth in the Merger Agreement to be true and correct) have
or could reasonably be expected to have a PGC Material Adverse Effect; and (f)
EPMI shall not have been subjected to a loss, in whole or in significant part,
of its FERC authority to sell power (other than sales to Enron's affiliates
(including PGE)) at market-based rates as a consequence of the execution of the
Merger Agreement, the performance of the transactions contemplated thereby or
affiliation with PGC or PGE.
Conditions to the Obligation of PGC to Effect the PGC Merger. The
obligation of PGC to effect the PGC Merger will be further subject to the
satisfaction, on or prior to the Closing Date, of certain conditions,
52
<PAGE> 60
including the following, except as may be waived by PGC in writing: (a) Enron
shall have performed in all material respects its agreements and covenants
contained in or contemplated by the Merger Agreement required to be performed by
it at or prior to the Effective Time (subject to certain materiality
exceptions); (b) with certain exceptions, the representations and warranties of
Enron set forth in the Merger Agreement shall be true and correct as of the date
of the Merger Agreement and as of the Closing Date (subject to certain
materiality exceptions); (c) PGC shall have received an opinion of counsel from
Wachtell, Lipton, Rosen & Katz, in form and substance satisfactory to PGC, dated
the Closing Date, to the effect that the Mergers will be treated as
"reorganizations" within the meaning of Section 368(a) of the Code and that no
gain or loss will be recognized to PGC or the holders of PGC Common Stock except
with respect to cash received in lieu of fractional share interests; (d) the
Enron Required Consents (as defined in the Merger Agreement) shall have been
obtained (subject to certain materiality exceptions); and (e) the
Reincorporation Merger shall have become effective.
REPRESENTATIONS AND WARRANTIES
The Merger Agreement contains various representations and warranties of PGC
and Enron relating to, among other things, (i) organization and similar
corporate matters, (ii) their respective capitalization, (iii) authorization,
execution, delivery, performance and enforceability of the Merger Agreement and
related matters, and the absence of conflicts, violations and defaults under
their respective charters and bylaws and certain other agreements and documents,
(iv) documents and reports filed by them with the Commission and the accuracy of
the information contained therein, (v) the absence of certain changes and
events, (vi) litigation, (vii) employee benefit matters, (viii) taxes and
matters relating to a tax-free reorganization, (ix) certain regulatory matters
and (x) certain other matters. The representations and warranties expire at the
Effective Time.
CERTAIN COVENANTS; CONDUCT OF BUSINESS PRIOR TO THE EFFECTIVE TIME
PGC. The Merger Agreement provides that, prior to the Effective Time, PGC
will, and will cause its subsidiaries to, carry on their respective businesses
in all material respects in the usual, regular and ordinary course, consistent
with past practice, and will cause its subsidiaries to, use all reasonable
efforts to (i) preserve intact their present business organizations and
goodwill, preserve the goodwill and relationships with customers, suppliers and
others having business dealings with them, (ii) subject to prudent management of
workforce needs and ongoing or planned programs relating to downsizing,
re-engineering and similar matters, keep available the services of their present
officers and employees as a group, (iii) maintain and keep its material
properties and assets in as good repair and condition as at present, subject to
ordinary wear and tear, and maintain supplies and inventories in quantities
consistent with past practice and (iv) with respect to wholesale power and
energy trading and transactions, comply with prudent policies, practices and
procedures with respect to risk management and trading limitations, all to the
end that their goodwill and ongoing businesses will not be impaired in any
material respect at the Effective Time.
In addition to the foregoing limitations, PGC has also agreed (as to itself
and its subsidiaries) to certain limitations on its ability to (a) declare or
pay dividends on or repurchase or redeem its securities; (b) issue securities;
(c) amend its charter documents; (d) make acquisitions of businesses or assets
or dispose of assets outside the ordinary course of business; (e) incur
indebtedness; (f) make capital expenditures; (g) make changes in its
compensation and benefit plans; (h) take action that would jeopardize the
qualification of the Mergers as tax-free reorganizations; (i) discharge
liabilities outside the ordinary course of business; and (j) take certain other
actions. With respect to nuclear operations, PGC has agreed not to take certain
actions with respect to nuclear materials and not to incur decommissioning
expenses in excess of a specified budget. PGC has also agreed to keep Enron
informed of matters relating to the Trojan decommissioning plan and to give
specified Enron representatives access to the Trojan facilities (subject to
applicable legal requirements). Also, Enron and PGC will establish a Nuclear
Oversight Committee, which will have advisory powers only, to consult with PGC
management with respect to the progress of the Trojan decommissioning.
Enron. Prior to the Effective Time, Enron has agreed (as to itself and its
subsidiaries) to certain limitations on its ability to (a) redeem or repurchase
shares of capital stock of Enron or its subsidiaries;
53
<PAGE> 61
(b) pay dividends on the Enron Common Stock; (c) amend its charter documents;
(d) take actions that would jeopardize the qualification of the Mergers as
tax-free reorganizations; and (e) take certain other actions. In addition, Enron
has agreed to conduct its business, and to cause its subsidiaries to conduct
their businesses, so that the character of the business of Enron and its
subsidiaries taken as a whole is not fundamentally altered.
NO SOLICITATION
PGC. The Merger Agreement provides that until the Effective Time or until
the Merger Agreement is terminated in accordance with its terms, PGC will not
initiate, solicit or encourage (including by way of furnishing information or
assistance), or take any other action to facilitate, any inquiries or the making
of any proposal relating to, or that may reasonably be expected to lead to, any
PGC Competing Transaction (as defined below), or enter into discussions or
negotiate with any person or entity in furtherance of such inquiries or to
obtain a PGC Competing Transaction, or agree to or endorse any PGC Competing
Transaction, or authorize or permit any of the officers, directors or employees
of PGC or any of its subsidiaries or any investment banker, financial advisor,
attorney, accountant or other representative retained by PGC or any of PGC's
subsidiaries to take any such action; provided, however, that, prior to receipt
of the PGC shareholders' approval at the PGC Special Meeting, nothing contained
in the foregoing will prohibit the Board of Directors of PGC from (i) furnishing
information to, or entering into discussions or negotiations with, any person or
entity in connection with an unsolicited bona fide offer in writing by such
person or entity to acquire PGC pursuant to a merger, consolidation, share
exchange, business combination or other similar transaction or to acquire a
substantial portion of the assets of PGC or any of its subsidiaries, to the
extent and only to the extent that (A) the Board of Directors of PGC, after
consultation with and based upon the written advice of independent legal
counsel, determines in good faith that such action is necessary for such Board
of Directors to comply with its fiduciary duties to its shareholders under
applicable law and (B) prior to furnishing such information to, or entering into
discussions or negotiations with, such person or entity, PGC (x) provides
written notice to Enron to the effect that it is furnishing information to, or
entering into discussions or negotiations with, such person or entity and (y)
enters into a confidentiality agreement with such person or entity reasonably
calculated under the circumstances, in the reasonable judgment of PGC, to
protect the confidentiality of PGC's proprietary data; or (ii) complying with
Rule 14e-2 promulgated under the Exchange Act with regard to a "PGC Competing
Transaction." For purposes of the foregoing, a "PGC Competing Transaction" means
any of the following (other than the transactions contemplated by the Merger
Agreement) involving PGC or any of its subsidiaries: (i) any merger,
consolidation, share exchange, business combination or similar transaction; (ii)
any sale, lease, exchange, mortgage, pledge, transfer or other disposition of
20% or more of the assets of PGC and its subsidiaries, taken as a whole, (iii)
any tender offer or exchange offer for 20% or more of the outstanding shares of
capital stock of PGC; (iv) any person acquiring beneficial ownership of, or any
group (as such term is defined under Section 13(d) of the Exchange Act and the
rules and regulations promulgated thereunder) being formed which beneficially
owns or has the right to acquire beneficial ownership of, 20% or more of the
outstanding shares of capital stock of PGC; or (v) any public announcement of a
proposal, plan or intention to do any of the foregoing or any agreement to
engage in any of the foregoing.
Enron. Enron is subject to similar restrictions (and fiduciary exceptions)
with respect to its ability to solicit, discuss or provide information with
respect to an "Enron Competing Transaction", which is defined to mean any of the
following (other than the transactions contemplated by the Merger Agreement)
involving Enron or any of its subsidiaries: (i) any merger, consolidation, share
exchange, business combination or similar transaction pursuant to which holders
of Enron Common Stock prior to such transaction would own in the aggregate less
than 50% of the voting power of the entity surviving or resulting from such
transaction (or the ultimate parent entity thereof); (ii) any sale, lease,
exchange, mortgage, pledge, transfer or other disposition of 50% or more of the
assets of Enron and its subsidiaries, taken as a whole, (iii) any tender offer
or exchange offer for 30% or more of the outstanding shares of capital stock of
Enron; (iv) any person acquiring beneficial ownership of, or any group (as such
term is defined under Section 13(d) of the Exchange Act and the rules and
regulations promulgated thereunder) being formed which beneficially owns or has
the right to acquire beneficial ownership of, 30% or more of the outstanding
shares of capital stock of Enron; or (v) any
54
<PAGE> 62
public announcement of a proposal, plan or intention to do any of the foregoing
or any agreement to engage in any of the foregoing; except that none of the
foregoing will be deemed an Enron Competing Transaction unless such transaction
by its terms would prevent the consummation of the transactions contemplated by
the Merger Agreement or be conditioned upon the termination of the Merger
Agreement.
EMPLOYEE BENEFIT MATTERS
The Merger Agreement provides that New Enron or its subsidiaries will
provide PGC Employees (as defined below) (other than represented employees), for
a period of not less than two years following the Effective Time, with benefits
that are not materially less favorable in the aggregate than those provided to
such individuals under the PGC Benefit Plans (as defined in the Merger
Agreement); provided, that the foregoing will not require New Enron to maintain
or prevent New Enron from amending, terminating, or merging any particular PGC
Benefit Plan. "PGC Employees" means (i) individuals who are, as of the Effective
Time, employees of PGC and its subsidiaries, except that such an individual will
cease to be considered a "PGC Employee" and will thereafter be considered a
"Transferred Employee" if and when he or she transfers to the employment of
Enron or an affiliate of Enron other than PGC and its subsidiaries; and (ii)
individuals who are, as of the Effective Time, former employees of PGC and its
subsidiaries entitled to benefits according to the provisions of any PGC Benefit
Plan as of the Effective Time. Also, for two years following the Effective Time:
(i) the Portland General Corporation Supplemental Executive Retirement Plan and
the Portland General Corporation Management Deferred Compensation Plan (the
"Nonqualified Plans") will continue in effect without any amendment that could
adversely affect PGC Employees who are participants in such plans as of the
Effective Time ("Current Participants") (including without any limitation an
amendment that reduces the rate at which benefits are accrued); (ii) the
Portland General Electric Company Umbrella Trust for Management will continue in
existence with assets sufficient to provide for all benefits of Current
Participants that have accrued through the Effective Time (the "Accrued
Benefits"), and such assets will not be used for any purposes other than the
payment of the Accrued Benefits or to pay creditors of PGC and its affiliates in
the event of insolvency, until such time as all Accrued Benefits have been paid;
and (iii) PGC Employees and Transferred Employees (other than represented
employees) will be entitled to severance benefits in amounts and upon terms and
conditions no less favorable than those in effect under the Portland General
Corporation Involuntary Severance and Outplacement Plan, as in effect as of the
Effective Time. New Enron and its subsidiaries will (i) for all purposes under
all compensation and benefit plans and policies applicable to employees of New
Enron and its subsidiaries, treat all service by PGC Employees and Transferred
Employees with PGC or any of its affiliates before the Effective Time as service
with New Enron and its subsidiaries, except to the extent such treatment would
result in a duplication of benefits, (ii) for purposes of any welfare or other
employee benefit plan maintained by them for the benefit of PGC Employees and/or
Transferred Employees or in which any PGC Employees and/or Transferred Employees
participate after the Effective Time, waive any waiting periods and limitations
regarding pre-existing conditions, and, if any PGC Employee or Transferred
Employee transfers from one such plan to another such plan during a plan year,
cause the second plan to recognize any out-of-pocket expenses incurred by such
PGC Employee or Transferred Employee and his or her eligible dependents during
the portion of the plan year before such transfer for purposes of determining
their deductibles and out-of-pocket maximums.
STOCK OPTIONS AND INCENTIVE PLANS
As of the Effective Time, each outstanding option to purchase shares of PGC
Common Stock (each, a "PGC Stock Option") pursuant to the 1990 Portland General
Corporation Long-Term Incentive Master Plan (the "PGC Stock Plan") will be
amended to constitute an option to acquire shares of New Enron Common Stock, on
the same terms and conditions as were applicable under such PGC Stock Option,
based on the same number of shares of New Enron Common Stock as the holder of
such PGC Stock Option would have been entitled to receive pursuant to the
Mergers had such holder exercised such option in full immediately prior to the
Effective Time; provided, that the option price of such option will be adjusted
as necessary to preserve both (A) the aggregate gain (or loss) on the PGC Stock
Option immediately prior to the Effective Time and (B) the ratio of the exercise
price per share subject to the PGC Stock Option to the fair market value
(determined immediately prior to the Effective Time) per share subject to such
option.
55
<PAGE> 63
Following the Effective Time until December 31, 2000, PGC Employees will be
entitled to receive either (i) a company matching contribution to a profit
sharing plan, in the form of New Enron Common Stock, on terms and conditions no
less favorable than those in effect under the Portland General Corporation
Retirement Savings Plan immediately before the Effective Time, or (ii) stock
options under the Enron All-Employee Stock Option Program on terms and
conditions no less favorable than similarly situated employees of Enron and its
subsidiaries, but prorated to reflect the time remaining between the time PGC
Employees begin to participate in such plan until December 31, 2000. For the
year in which the Effective Time occurs (the "Transition Year"), the Portland
General Corporation Annual Incentive Master Plan will remain in effect and will
be administered by the individuals who constitute the Compensation Committee of
the PGC Board immediately before the Effective Time, with only such amendments
as such individuals and Enron will jointly determine to be appropriate. For the
two years following the Transition Year, the employees of PGC will participate
in an annual incentive plan administered by the Chief Executive Officer of PGC
or his designees; provided, however, that the funding levels for such plan will
be determined by the Compensation Committee of the New Enron Board following the
Effective Time.
CERTAIN POST-MERGER MATTERS
Board of Directors and Management of New Enron Following the Mergers. The
Merger Agreement provides that the Board of Directors of New Enron after the
Mergers will be comprised of no more than 16 members, of whom three will be
designated by PGC (one of whom will be Ken L. Harrison, currently the Chairman
of the Board, Chief Executive Officer and President of PGC). Enron intends that
the other 13 members of the New Enron Board of Directors will be comprised of
members of the Enron Board of Directors at the Effective Time. The current
management of Enron will comprise the management of New Enron after the Mergers,
except that, pursuant to the Merger Agreement, Mr. Harrison will serve as Vice
Chairman of the Board of Directors of New Enron and Chairman of the Board and
Chief Executive Officer of PGE, and Mr. Joseph M. Hirko, currently Senior Vice
President and Chief Financial Officer of PGC, will hold the position of Senior
Vice President of New Enron. Pursuant to the Merger Agreement, Enron has entered
employment agreements with each of Messrs. Harrison and Hirko, which will become
effective upon consummation of the Mergers. See "The Mergers -- Interests of
Certain Persons in the Merger."
Post Merger Operations. After the Mergers, New Enron will continue to be
based in Houston, Texas. Pursuant to the Merger Agreement, PGE will maintain its
principal corporate offices in Portland, Oregon. The Merger Agreement also
provides that the current officers of PGE will be entitled to maintain their
current titles and responsibilities as officers of PGE unless and until
otherwise determined by the Board of Directors of New Enron. Following the
Effective Time, New Enron will designate a number of directors of PGE consisting
of directors of Enron and/or employees of Enron or any subsidiary thereof,
including Messrs. Harrison and Hirko. In addition, PGC shall have the right to
designate no more than seven non-voting advisory directors to the PGE Board. The
Merger Agreement provides that immediately prior to the Effective Time, each of
Enron and PGC shall cause contributions of $10 million to be made to the assets
of the Foundation, and the assets of the Foundation will be used for charitable
purposes in accordance with the constituent documents of the Foundation in the
service area of PGE. The current directors of the Foundation, or persons
nominated by a majority of such directors or nominated by their successors in
accordance with this provision, will be the directors of the Foundation.
AMENDMENT
The Merger Agreement may be amended by the parties pursuant to action of
the respective Boards of Directors of each of Enron and PGC, at any time before
or after approval of the Merger Agreement by the shareholders of Enron and PGC
and prior to the Effective Time, but after such approvals, no such amendment
shall (a) alter or change the amount or kind of shares, rights or any of the
proceedings of the exchange and/or conversion of securities under the Merger
Agreement, (b) alter or change any of the terms and conditions of the Merger
Agreement if any of the alterations or changes, alone or in the aggregate, would
materially and adversely affect the rights of holders of Enron Common Stock or
PGC Common Stock or (c) alter or change any term of the articles of
incorporation of New Enron, except for alterations or changes that could
otherwise
56
<PAGE> 64
be adopted by the Board of Directors of New Enron, without the further approval
of such shareholders, as applicable. The Merger Agreement may not be amended
except by an instrument in writing signed on behalf of each of the parties
thereto.
TERMINATION OF THE MERGER AGREEMENT
The Merger Agreement may be terminated at any time prior to the Closing
Date, whether before or after approval thereof by the shareholders of PGC or
Enron, in the following circumstances: (a) by the mutual written consent of
Enron and PGC, duly authorized by their respective Boards of Directors; (b)
subject to certain limitations, by Enron or PGC, if the Effective Time shall not
have occurred on or before July 20, 1997 (the "Termination Date") (which date
may be extended for an additional six months by either party if the
non-regulatory conditions have been satisfied or are then capable of being
satisfied by July 20, 1997, and such party believes there is a reasonable
probability that the regulatory approvals will be obtained on or prior to the
end of the six-month extension and certain other conditions are met); (c) by
Enron or PGC, if the required approvals of the Merger Agreement by the
shareholders of PGC or Enron are not obtained at the Special Meetings; (d) by
Enron or PGC in the event of certain regulatory or judicial actions that would
prohibit the Mergers or have certain adverse effects on the parties; (e) by
Enron, if the Board of Directors of PGC fails to make or withdraws, modifies or
changes its recommendation of the Merger Agreement or the PGC Merger (other than
in circumstances in which an Enron Material Adverse Effect has occurred) or
takes certain actions in favor of a PGC Competing Transaction or fails to
recommend against certain competing tender offers; (f) prior to receipt of the
PGC shareholders' approval at the PGC Special Meeting, by PGC, if as a result of
a bona fide written offer or proposal (including a tender offer) by a third
party relating to a PGC Competing Transaction, the Board of Directors of PGC,
after consultation with and based upon the written advice of independent legal
counsel, determines in good faith that its fiduciary duties to its shareholders
under applicable law require that such other written offer or proposal be
accepted (provided that, prior to any such termination, PGC must use reasonable
efforts to negotiate in good faith with Enron to make such adjustments in the
terms and conditions of the Merger Agreement as would enable PGC to proceed with
the transactions contemplated by the Merger Agreement); (g) by PGC, if the Board
of Directors of Enron fails to make or withdraws, modifies or changes its
recommendation of the Merger Agreement or the Reincorporation Merger (other than
in circumstances in which a PGC Material Adverse Effect has occurred) or takes
certain actions in favor of an Enron Competing Transaction or fails to recommend
against certain competing tender offers; (h) prior to receipt of the Enron
shareholders' approval at the Enron Special Meeting, by Enron, if as a result of
a bona fide written offer or proposal (including a tender offer) by a third
party relating to an Enron Competing Transaction, the Board of Directors of
Enron, after consultation with and based upon the written advice of independent
legal counsel, determines in good faith that its fiduciary duties to its
shareholders under applicable law require that such other written offer or
proposal be accepted; (i) by Enron, if there shall exist a breach of any
representation, warranty, covenant or agreement on the part of PGC set forth in
the Merger Agreement, which breach is not cured within 20 business days of
notice thereof (subject to certain materiality exceptions); (j) by PGC, if there
shall exist a breach of any representation, warranty, covenant or agreement on
the part of Enron set forth in the Merger Agreement, which breach is not cured
within 20 business days of notice thereof (subject to certain materiality
exceptions); (k) by PGC, if Enron adopts a plan of complete or partial
liquidation or dissolution or if Enron enters into an agreement for, or there is
consummated, (1) a merger, consolidation, share exchange, business combination
or similar transaction pursuant to which the holders of Enron capital stock
prior to such transaction would own less than 50% of the voting power
attributable to the capital stock of the entity surviving or resulting from such
transaction (or the ultimate parent entity thereof), (2) a sale, lease,
exchange, mortgage, pledge, transfer or other disposition of 50% or more of the
assets of Enron and its subsidiaries, taken as a whole, or (3) a transaction
pursuant to which a person or "group" (within the meaning of Rule 13d-1 under
the Exchange Act) acquires or would acquire "beneficial ownership" (within the
meaning of Rule 13d-3 under the Exchange Act) of at least 30% of the Enron
Common Stock (a "Change of Control Event"); (l) prior to the PGC Special
Meeting, by PGC, if the "Enron Transaction Price" (the average of the Closing
Prices (as defined) on the 20 consecutive trading day period ending five trading
days prior to the date of the PGC Special Meeting) is less than $36.25 (the
"Floor
57
<PAGE> 65
Price"); and (m) prior to the Enron Special Meeting, by Enron, if the Enron
Transaction Price is greater than $47.25 (the "Ceiling Price").
EXPENSES AND TERMINATION FEES
Except for the termination fees described below, the Merger Agreement
provides that all costs and expenses incurred in connection with the Merger
Agreement and the transactions contemplated thereby will be paid by the party
incurring such expenses, except that expenses incurred in connection with
printing this Joint Proxy Statement/Prospectus, as well as the filing fee
relating thereto, will be shared equally by Enron, on the one hand, and PGC, on
the other hand.
In the event of termination of the Merger Agreement by either Enron or PGC
pursuant to the provisions described above, generally there will be no liability
on the part of either Enron or PGC or their respective officers or directors
under the Merger Agreement except for any liability for breach of the covenants,
agreements, representations or warranties set forth in the Merger Agreement and
except for the termination fees described below.
PGC. The Merger Agreement provides that PGC will pay Enron $60 million in
cash if the Merger Agreement is terminated pursuant to the termination
provisions of the Merger Agreement under one of the following circumstances: (a)
if (i) the Merger Agreement is terminated as a result of the Termination Date
occurring, (ii) the Merger Agreement is terminated as a result of the failure to
obtain the required approval of the Merger Agreement by the shareholders of PGC
at the PGC Special Meeting, or (iii) the Merger Agreement is terminated by Enron
as a result of a wilful breach of any representation, warranty, covenant or
agreement of PGC set forth in the Merger Agreement, and at the time of the event
giving rise to any termination described in clauses (i), (ii) or (iii), there
shall exist a proposal or offer from a third party relating to a PGC Competing
Transaction and within twelve months after the date of termination of the Merger
Agreement a PGC Business Combination (as defined below) shall have occurred or
PGC shall have entered into a definitive agreement providing for a PGC Business
Combination in either case involving the party (or an affiliate thereof)
proposing the PGC Competing Transaction; (b) if the Merger Agreement is
terminated by Enron as a result of the Board of Directors of PGC failing to make
or withdrawing, modifying or changing its recommendation of the Merger Agreement
or the PGC Merger (other than in situations in which there has been an Enron
Material Adverse Effect, as defined in the Merger Agreement) or taking certain
actions in favor of a PGC Competing Transaction or failing to recommend against
certain competing tender offers; or (c) if the Merger Agreement is terminated by
PGC as a result of a third party proposal relating to a PGC Competing
Transaction that the Board of Directors of PGC determines (in the manner set
forth in the Merger Agreement) its fiduciary duties require it to accept. "PGC
Business Combination" means (i) a merger, consolidation, share exchange,
business combination or similar transaction involving PGC, (ii) a sale, lease,
exchange, transfer or other disposition of 20% or more of the assets of PGC and
its subsidiaries, taken as a whole, in a single transaction or a series of
transactions, or (iii) the acquisition, by a person (other than Enron or any
affiliate thereof) or group (as such term is defined under Section 13(d) of the
Exchange Act and the rules and regulations thereunder) of beneficial ownership
(as defined in Rule 13d-3 under the Exchange Act) of 20% or more of the PGC
Common Stock whether by tender or exchange offer or otherwise.
Enron. The Merger Agreement provides that Enron will pay PGC $150 million
in cash if the Merger Agreement is terminated pursuant to the termination
provisions of the Merger Agreement under one of the following circumstances: (a)
if (i) the Merger Agreement is terminated as a result of the Termination Date
occurring, (ii) the Merger Agreement is terminated as a result of the failure to
obtain the required approval of the Merger Agreement by the shareholders of
Enron at the Enron Special Meeting, or (iii) the Merger Agreement is terminated
by PGC as a result of a wilful breach of any representation, warranty, covenant
or agreement of Enron set forth in the Merger Agreement, and at the time of the
event giving rise to any termination described in clauses (i), (ii) or (iii),
there shall exist a proposal or offer from a third party relating to an Enron
Competing Transaction and within twelve months after the date of termination of
the Merger Agreement an Enron Business Combination (as defined below) shall have
occurred or Enron shall have entered into a definitive agreement providing for
an Enron Business Combination, in either case, involving the party (or an
affiliate thereof) proposing the Enron Competing Transaction; (b) if the Merger
Agreement is
58
<PAGE> 66
terminated by PGC as a result of the Board of Directors of Enron failing to make
or withdrawing, modifying or changing its recommendation of the Merger Agreement
or the Reincorporation Merger (other than in situations in which there has been
a PGC Material Adverse Effect, as defined in the Merger Agreement) or taking
certain actions in favor of an Enron Competing Transaction or failing to
recommend against a competing tender offer that would constitute an Enron
Competing Transaction; (c) if the Merger Agreement is terminated by Enron as a
result of a third party proposal relating to an Enron Competing Transaction that
the Board of Directors of Enron determines (in the manner set forth in the
Merger Agreement) its fiduciary duties require it to accept; or (d) the Merger
Agreement is terminated by PGC as a result of a Change of Control Event with
respect to Enron. "Enron Business Combination" means (i) a merger,
consolidation, share exchange, business combination or similar transaction
involving Enron as a result of which the shareholders of Enron prior to such
transaction in the aggregate cease to own at least a majority of the voting
securities of the entity surviving or resulting from such transaction (or the
ultimate parent entity thereof), (ii) a sale, lease, exchange, transfer or other
disposition of more than 50% of the assets of Enron and its subsidiaries, taken
as a whole, in a single transaction or a series of transactions, or (iii) the
acquisition, by a person (other than PGC or any affiliate thereof) or group (as
such term is defined under Section 13(d) of the Exchange Act and the rules and
regulations thereunder) of beneficial ownership (as defined in Rule 13d-3 under
the Exchange Act) of more than 30% of the Enron Common Stock whether by tender
or exchange offer or otherwise.
INDEMNIFICATION
The Merger Agreement provides that (subject to certain terms and
conditions) New Enron will, to the fullest extent not prohibited by applicable
law, indemnify, defend and hold harmless the present and former directors,
officers and management employees of the parties to the Merger Agreement and
their respective subsidiaries against certain losses and expenses incurred in
connection with claims, actions, suits, proceedings or investigations arising
out of the fact that such person is or was a director, officer or management
employee of such party or any subsidiary thereof and liabilities relating to the
Merger Agreement or the transactions contemplated thereby.
In addition, the Merger Agreement provides that, for a period of six years
after the Effective Time, New Enron will cause to be maintained in effect the
policies of directors' and officers' liability insurance maintained by Enron and
PGC; provided that New Enron may substitute therefor policies of at least the
same coverage containing terms that are no less advantageous with respect to
matters occurring at or prior to the Effective Time to the extent such liability
insurance can be maintained annually at a cost to New Enron not greater than 200
percent of the annual premiums for the policies maintained by Enron and PGC as
of July 20, 1996 for their directors' and officers' liability insurance.
59
<PAGE> 67
MARKET PRICES AND DIVIDEND INFORMATION
Enron Common Stock is traded on the NYSE and the Pacific, Chicago, London
and Frankfurt exchanges under the symbols "ENE," the Enron Convertible Preferred
Stock is traded on the NYSE and the Chicago Stock Exchange under the symbol
"ENEpj," and the PGC Common Stock is traded on the NYSE and the Pacific Stock
Exchange under the symbol "PGN." The following table sets forth, for the periods
indicated, the range of high and low per share sales prices for Enron Common
Stock, Enron Convertible Preferred Stock and PGC Common Stock as reported on the
NYSE Composite Tape, as well as information concerning quarterly dividends
declared on such shares.
<TABLE>
<CAPTION>
ENRON CONVERTIBLE
ENRON COMMON STOCK PREFERRED STOCK PGC COMMON STOCK
----------------------- --------------------------- -------------------------
DIVIDENDS DIVIDENDS DIVIDENDS
HIGH LOW PER SHARE HIGH LOW PER SHARE HIGH LOW PER SHARE
---- ---- --------- ----- ----- --------- ---- ---- ---------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Year ended December 31, 1994:
First Quarter.................. $34 1/4 $27 3/8 $.1875 $450 $376 3/4 $2.625 $20 1/2 $17 1/4 $.30
Second Quarter................. 34 5/8 28 5/8 .1875 455 450 2.625 18 7/8 16 3/8 .30
Third Quarter.................. 34 28 5/8 .1875 450 427 2.625 18 1/4 16 1/2 .30
Fourth Quarter................. 33 26 3/4 .20 410 410 2.7304 19 3/4 16 1/2 .30
Year ended December 31, 1995:
First Quarter.................. $34 $28 $.20 $398 $393 $2.7304 $20 7/8 $18 7/8 $.30
Second Quarter................. 36 7/8 32 1/2 .20 491 454 2.7304 23 1/4 20 1/4 .30
Third Quarter.................. 36 3/8 31 5/8 .20 477 454 2.7304 25 3/4 21 5/8 .30
Fourth Quarter................. 39 3/8 33 .2125 502 462 2.901 29 1/4 25 1/4 .30
Year ended December 31, 1996:
First Quarter.................. $40 $34 5/8 $.2125 $496 1/2 $496 1/2 $2.901 $30 1/2 $28 1/2 $.32
Second Quarter................. 42 3/8 36 3/8 .2125 525 525 2.901 30 7/8 27 3/4 .32
Third Quarter.................. 41 3/8 39 5/8 .2125 * * 2.901 38 5/8 28 .32
Fourth Quarter (through October
9, 1996).................... 41 7/8 40 1/4 .2250 * * 3.0717 39 5/8 37 5/8 --
</TABLE>
- ---------------
* The last reported sale of Enron Convertible Preferred Stock was on April 19,
1996 at a price of $525.
On July 19, 1996, the last trading day prior to the joint announcement by
Enron and PGC that they had executed the Merger Agreement, the closing per share
sales prices of Enron Common Stock and PGC Common Stock, as reported on the NYSE
Composite Tape, were $41.75 and $28.125 respectively.
An application will be made to have the New Enron Common Stock listed on
the NYSE and the Chicago, Pacific, London and Frankfurt exchanges, and to have
the New Enron Convertible Preferred Stock listed on the NYSE and the Chicago
Stock Exchange.
Enron has paid quarterly cash dividends on the Enron Common Stock for more
than 50 consecutive years. New Enron intends to continue Enron's policy of
paying regular quarterly cash dividends on its common stock, although future
dividend payments on the New Enron Common Stock will depend on New Enron's
results of operations, cash flow, anticipated capital requirements and such
other factors as the Board of Directors of New Enron deems relevant. Enron is
prohibited from paying dividends on the Enron Common Stock in the event of
default of certain guaranteed obligations under the terms of the Enron Capital
LLC 8% Cumulative Guaranteed Monthly Income Preferred Shares or Enron Capital
Resources, L.P. 9% Cumulative Preferred Securities, Series A. Enron does not
believe such provisions will materially restrict the ability of Enron or New
Enron to pay dividends in the future.
60
<PAGE> 68
UNAUDITED PRO FORMA FINANCIAL INFORMATION
The following unaudited pro forma combined balance sheet as of June 30,
1996 and the unaudited pro forma combined statements of income for the six
months ended June 30, 1996 and the year ended December 31, 1995, give effect to
the PGC Merger based on the historical consolidated financial statements of
Enron and PGC under the assumptions and adjustments set forth in the
accompanying notes to the pro forma financial statements.
The unaudited pro forma combined balance sheet assumes the PGC Merger was
consummated on June 30, 1996. The unaudited pro forma combined statements of
income assume that the PGC Merger was consummated on January 1, 1995. Enron will
account for the transaction as a purchase for financial reporting purposes.
These unaudited pro forma combined financial statements should be read in
conjunction with the notes thereto and with the historical consolidated
financial statements and related notes thereto of Enron and PGC which have been
incorporated herein by reference. See "Incorporation of Certain Documents by
Reference." The unaudited pro forma combined financial statements have been
prepared based upon assumptions deemed appropriate by the management of Enron
and PGC. These unaudited pro forma combined financial statements have been
prepared for informational purposes only and are not necessarily indicative of
the actual or future results of operations or financial condition that would
have been achieved had the PGC Merger occurred at the dates assumed.
61
<PAGE> 69
ENRON CORP.
UNAUDITED PRO FORMA COMBINED BALANCE SHEET
JUNE 30, 1996
(IN MILLIONS)
<TABLE>
<CAPTION>
PRO FORMA
------------------------
ENRON PGC* ADJUSTMENTS COMBINED
------- ------ ----------- --------
<S> <C> <C> <C> <C>
Current Assets
Cash and cash equivalents....................... $ 133 $ 8 $ (30)(A) $ 81
(30)(B)
Trade and other receivables..................... 1,728 146 1,874
Assets from price risk management activities.... 899 -- 899
Other........................................... 428 55 483
------- ------ ------- -------
Total Current Assets.................... 3,188 209 (60) 3,337
------- ------ ------- -------
Investments and Other Assets
Investments in and advances to unconsolidated
subsidiaries................................. 1,449 -- 1,449
Assets from price risk management activities.... 1,765 -- 1,765
Unamortized regulatory assets................... 230 938 1,168
Other........................................... 1,208 539 1,747
------- ------ ------- -------
Total Investments and Other Assets...... 4,652 1,477 6,129
------- ------ ------- -------
Property, Plant and Equipment, net................ 6,788 1,748 8,536
Goodwill.......................................... -- -- 1,172 (C) 1,172
------- ------ ------- -------
Total Assets...................................... $14,628 $3,434 $ 1,112 $19,174
======= ====== ======= =======
Current Liabilities
Accounts payable and accrued liabilities........ $ 1,398 $ 86 $ $ 1,484
Liabilities from price risk management
activities................................... 748 -- 748
Other........................................... 408 351 759
------- ------ ------- -------
Total Current Liabilities............... 2,554 437 -- 2,991
------- ------ ------- -------
Long-Term Debt.................................... 3,330 865 9 (D) 4,204
------- ------ ------- -------
Deferred Credits and Other Liabilities
Deferred income taxes........................... 2,135 636 (4)(E) 2,767
Liabilities from price risk management
activities................................... 1,194 -- 1,194
Trojan decommissioning and transition
obligation................................... -- 373 373
Other........................................... 865 146 1,011
------- ------ ------- -------
Total Deferred Credits and Other
Liabilities........................... 4,194 1,155 (4) 5,345
------- ------ ------- -------
Minority Interests................................ 604 -- 604
------- ------ ------- -------
Company-Obligated Preferred Stock of
Subsidiaries.................................... 392 30 1 (D) 423
------- ------ ------- -------
Shareholders' Equity
Convertible preferred stock..................... 137 -- 137
Common stock.................................... 26 191 1,862 (F) 3,983
1,904 (G)
Additional paid in capital...................... 1,904 577 (577)(F) --
(1,904)(G)
Retained earnings............................... 1,863 185 (155)(F) 1,863
(30)(B)
Other........................................... (376) (6) 6 (F) (376)
------- ------ ------- -------
3,554 947 1,106 5,607
------- ------ ------- -------
Total Liabilities and Shareholders' Equity........ $14,628 $3,434 $ 1,112 $19,174
======= ====== ======= =======
Common Stock outstanding as of June 30, 1996...... 247 51 298
======= ====== =======
</TABLE>
- ---------------
* Certain amounts have been reclassified to conform to Enron's presentation.
62
<PAGE> 70
ENRON CORP.
NOTES TO UNAUDITED PRO FORMA COMBINED BALANCE SHEET
A. To record payment of approximately $30 million for transaction costs related
to the PGC Merger incurred by Enron, including Enron's required contribution
to the Foundation of $10 million.
B. To reflect payment and reduction of PGC retained earnings of approximately
$30 million for transaction costs related to the PGC Merger incurred by PGC,
including PGC's required contribution to the Foundation of $10 million and
other compensation costs related to accelerated vesting provisions under
PGC's stock compensation plans.
C. To reflect the recognition of the purchase price allocation to goodwill. The
significant adjustments comprising the purchase price allocated to goodwill
are as follows (in millions):
<TABLE>
<S> <C>
Consideration paid in excess of PGC's net book value........................ $1,136
Increase in long-term debt and preferred stock.............................. 10
Decrease in deferred income tax liability................................... (4)
Transaction costs........................................................... 30
------
$1,172
======
</TABLE>
For purposes of these Pro Forma Combined Financial Statements, the assets
and liabilities acquired reflect their current net book value, except as
reflected above. The allocation of the purchase price has been made based
upon valuations and other studies which have not been finalized, including
asset appraisals and regulatory environment analysis. However, management
does not expect the final allocation of the purchase price to be materially
different from the preliminary allocation.
D. To increase long-term debt and preferred stock of subsidiary (PGE) by $9
million and $1 million, respectively, to reflect fair value based on the
quoted market prices for the same or similar issues or on the current rates
offered to PGC for debt of similar remaining maturities.
E. To reduce deferred income tax liabilities for the tax effect of the basis
differences between the fair value of certain liabilities and PGC's
corresponding historical net book values. It is assumed there will be no
change in the tax basis of PGC's assets and liabilities. For purposes of the
pro forma calculations, a statutory income tax rate of 41% has been
utilized.
F. To reflect the issuance of 51,116, 367 shares of New Enron Common Stock,
without par value, for the PGC Common Stock issued and outstanding as of
June 30, 1996 at $40.18 per share (reflecting the average share price of
Enron Common Stock for four trading days before and after the announcement
of the PGC Merger) and to eliminate PGC common shareholders' equity of $947
million.
G. To reflect the reclassification of Enron's additional paid in capital to
common stock due to the New Enron Common Stock being without a par value.
63
<PAGE> 71
ENRON CORP.
UNAUDITED PRO FORMA COMBINED STATEMENT OF INCOME
SIX MONTHS ENDED JUNE 30, 1996
(IN MILLIONS, EXCEPT PER SHARE AMOUNTS)
<TABLE>
<CAPTION>
PRO FORMA
------------------------
ENRON PGC* ADJUSTMENTS COMBINED
------ ----- ----------- --------
<S> <C> <C> <C> <C>
Revenues............................................ $6,015 $ 534 $ $6,549
------ ----- ------- ------
Costs and Expenses
Costs of gas and other products................... 4,652 129 4,781
Operating expenses................................ 578 122 700
Oil and gas exploration expenses.................. 38 -- 38
Depreciation, depletion and amortization.......... 230 76 15(A) 321
Taxes, other than income taxes.................... 70 28 98
------ ----- ------- ------
5,568 355 15 5,938
------ ----- ------- ------
Operating Income.................................... 447 179 (15) 611
Other Income and Deductions, net.................... 233 6 239
------ ----- ------- ------
Income before Interest, Minority Interests and
Income Taxes...................................... 680 185 (15) 850
Interest and Related Charges, net................... 135 39 (1)(B) 173
Dividends on Preferred Stock of Subsidiaries........ 16 2 18
Minority Interests.................................. 38 -- 38
Income Taxes........................................ 162 61 223
------ ----- ------- ------
Net Income.......................................... 329 83 (14) 398
Preferred Stock Dividends........................... 8 -- 8
------ ----- ------- ------
Earnings on Common Stock............................ $ 321 $ 83 $ (14) $ 390
====== ===== ======= ======
Earnings Per Share of Common Stock
Primary........................................... $ 1.31 $1.63 $ 1.32
====== ===== ======
Fully diluted..................................... $ 1.22 $1.63 $ 1.24
====== ===== ======
Average Number of Common Shares Used in Primary
Computation....................................... 245 51 296 (C)
====== ===== ======
</TABLE>
- ---------------
* Certain amounts have been reclassified to conform to Enron's presentation.
64
<PAGE> 72
ENRON CORP.
UNAUDITED PRO FORMA COMBINED STATEMENT OF INCOME
YEAR ENDED DECEMBER 31, 1995
(IN MILLIONS, EXCEPT PER SHARE AMOUNTS)
<TABLE>
<CAPTION>
PRO FORMA
-------------------------
ENRON PGC* ADJUSTMENTS COMBINED
------ ----- ------------- --------
<S> <C> <C> <C> <C>
Revenues.............................................. $9,189 $ 984 $ $10,173
------ ----- ---- -------
Costs and Expenses
Costs of gas and other products..................... 6,733 294 7,027
Operating expenses.................................. 1,218 220 1,438
Oil and gas exploration expenses.................... 79 -- 79
Depreciation, depletion and amortization............ 432 134 29 (A) 595
Taxes, other than income taxes...................... 109 51 160
------ ----- ---- -------
8,571 699 29 9,299
------ ----- ---- -------
Operating Income...................................... 618 285 (29) 874
Other Income and Deductions, net...................... 547 11 558
Regulatory Disallowances.............................. -- (75) (75)
------ ----- ---- -------
Income before Interest, Minority Interests and Income
Taxes............................................... 1,165 221 (29) 1,357
Interest and Related Charges, net..................... 284 71 (1)(B) 354
Dividends on Preferred Stock of Subsidiaries.......... 32 10 42
Minority Interests.................................... 44 -- 44
Income Taxes.......................................... 285 59 344
------ ----- ---- -------
Net Income............................................ 520 81 (28) 573
Preferred Stock Dividends............................. 16 -- 16
------ ----- ---- -------
Earnings on Common Stock.............................. $ 504 $ 81 $ (28) $ 557
====== ===== ==== =======
Earnings Per Share of Common Stock
Primary............................................. $ 2.07 $1.60 $ 1.89
====== ===== =======
Fully diluted....................................... $ 1.94 $1.60 $ 1.80
====== ===== =======
Average Number of Common Shares Used in Primary
Computation......................................... 244 51 295 (C)
====== ===== =======
</TABLE>
- ---------------
* Certain amounts have been reclassified to conform to Enron's presentation.
65
<PAGE> 73
ENRON CORP.
NOTES TO UNAUDITED PRO FORMA COMBINED STATEMENTS OF INCOME
The adjustments to the Unaudited Pro Forma Condensed Combined Statements of
Income do not give effect to any nonrecurring costs directly associated with the
PGC Merger that might be incurred within the next twelve months. The pro forma
financial data also do not give effect to any potential cost savings and
synergies that could result from the PGC Merger.
A. To reflect a 40-year amortization on the purchase price allocated to
goodwill.
B. To reflect amortization of the excess of fair value over book value from
revaluation of PGC's long-term debt and preferred stock.
C. The average number of common shares used in primary computation have been
determined using the PGC Conversion Ratio of one share of New Enron Common
Stock for each share of PGC Common Stock.
66
<PAGE> 74
PRINCIPAL SHAREHOLDERS OF ENRON AND PGC
ENRON
As of August 31, 1996, Enron knows of no one who beneficially owns in
excess of five percent of a class of the Enron Voting Stock except as set forth
in the table below:
<TABLE>
<CAPTION>
AMOUNT AND NATURE OF BENEFICIAL OWNERSHIP
---------------------------------------------------------------
SOLE SHARED SOLE VOTING
VOTING VOTING AND LIMITED
TITLE OF AND AND OR NO PERCENT
NAME AND ADDRESS CLASS INVESTMENT INVESTMENT INVESTMENT OF
OF BENEFICIAL OWNER OF STOCK POWER POWER POWER OTHER CLASS
- ------------------------ ----------- --------- ----------- ----------- ---------- -------
<S> <C> <C> <C> <C> <C> <C>
Robert A. Belfer Common 5,722,788(1)(13) 692,886(2) 12,185(12)(14) -- 2.5
767 Fifth Avenue Convertible
New York, NY 10153 Preferred 323,673(3) 23,052(4) -- -- 25.3
Mr. & Mrs. Lawrence Ruben Common 5,008,272(5) 925,293(6) -- -- 2.3
600 Madison Avenue Convertible
New York, NY 10022 Preferred 290,387(7) 16,275(8) -- -- 22.4
Jack Saltz Common 1,486,820(9) 817,103(10) -- -- *
767 Fifth Avenue Convertible
New York, NY 10153 Preferred 75,361 58,900(11) -- -- 9.8
Enron Employee Stock
Ownership Plan Common -- -- -- 16,969,639(15) 6.7
1400 Smith Street Convertible
Houston, TX 77002 Preferred -- -- -- --
Enron Savings Plan Common -- -- -- 7,250,283(16) 2.9
1400 Smith Street Convertible
Houston, TX 77002 Preferred -- -- -- 70,000(16) 5.1
</TABLE>
- ---------------
* Less than 1 percent
(1) Includes 15,726 shares held by trusts of which Mr. Belfer is trustee, in
all of which shares Mr. Belfer disclaims beneficial ownership. Also
includes 4,418,784 shares that would be acquired upon the conversion of the
Enron Convertible Preferred Stock shown in the table as being beneficially
owned by Mr. Belfer with sole voting and investment power.
(2) Includes 372,000 shares held by a trust of which Mr. Belfer's wife is
co-trustee and 6,180 shares held by Mr. Belfer's wife. Also includes
314,706 shares that would be issued upon the conversion of the Enron
Convertible Preferred Stock shown in the table as being beneficially owned
by Mr. Belfer with shared voting and investment power.
(3) Includes 61,870 shares held by trusts of which Mr. Belfer is trustee, in
all of which shares Mr. Belfer disclaims beneficial ownership.
(4) Includes 22,000 shares held by a trust of which Mr. Belfer's wife is
co-trustee, 625 shares held by Mr. Belfer's wife and 427 shares held by
trusts of which Mr. Belfer is a trustee, in all of which shares Mr. Belfer
disclaims beneficial ownership.
(5) Includes 9,513 shares held as trustee or co-trustees for their children and
61,200 shares held by Mrs. Ruben as trustee for a charitable trust. Also
includes 3,964,364 shares that would be acquired upon the conversion of the
Enron Convertible Preferred Stock.
(6) Includes 171,696 shares held by Mrs. Ruben as co-trustee for her children;
183,131 shares held by Mr. Ruben as co-trustee for his children; 332,280
shares held by Mr. Ruben as co-trustee for his nieces and nephews; and
16,000 shares held by the Selma and Lawrence Ruben Foundation in which
shares Mr. and Mrs. Ruben have no pecuniary interest. Also includes 222,186
shares that would be issued upon the conversion of the Enron Convertible
Preferred Stock.
(7) Includes 960 shares held as co-trustee for their children, 53,330 shares
held by Mrs. Ruben as trustee for her children and 3,600 shares held by
Mrs. Ruben as trustee for a charitable trust.
67
<PAGE> 75
(8) Includes 5,224 shares held by Mrs. Ruben as co-trustee for her children and
11,051 shares held by Mr. Ruben as co-trustee for his nieces and nephews,
in which shares Mr. Ruben has no pecuniary interest.
(9) Includes 1,028,828 shares that would be issued upon the conversion of the
Enron Convertible Preferred Stock.
(10) Includes 804,103 shares that would be issued upon the conversion of the
Enron Convertible Preferred Stock.
(11) Held by Mr. Saltz's wife as trustee for their children.
(12) Includes restricted shares of Enron Common Stock held under Enron's 1991
Stock Plan. Participants in the plan have sole voting power and no
investment power for restricted shares awarded under the plan until such
shares vest in accordance with plan provisions. After vesting, the
participant has sole investment and voting powers.
(13) 19,032 shares of Enron Common Stock are subject to stock options
exercisable within 60 days after August 31, 1996, which number is included
in the number of shares shown as beneficially owned as of such date.
(14) Includes shares held under Enron's Savings Plan. Participants in the
Savings Plan have sole voting power and limited investment power with
respect to shares in the Plan.
(15) Pursuant to the terms of Enron's Employee Stock Ownership Plan ("ESOP"),
shares allocated to employee accounts are voted by the respective
employees. The ESOP administrative committee has the power to vote Enron
Common Stock that has not been allocated to any employee accounts. If the
ESOP trustee receives no voting directions from the ESOP administrative
committee as to unallocated shares or from the respective employees as to
allocated shares, then all such shares are to be voted by the trustee in
the same proportion as the allocated shares that are voted by employees.
(16) Pursuant to the terms of Enron's Savings Plan, shares allocated to employee
accounts are voted by the respective employees. If the trustee receives no
voting directions from the respective employees, then all such shares are
to be voted by the trustee in the same proportion as the allocated shares
that are voted by employees. Includes 955,640 shares that would be acquired
upon the conversion of the Enron Convertible Preferred Stock.
PGC
As of the PGC Record Date, PGC does not know of any person or entity that
would be deemed to own beneficially more than 5% of the PGC Common Stock.
68
<PAGE> 76
DESCRIPTION OF NEW ENRON CAPITAL STOCK
GENERAL
The following descriptions of certain of the provisions of the New Enron
Charter and the New Enron Bylaws are summaries and do not purport to be
complete, and are qualified in their entirety by reference to the New Enron
Charter and the New Enron Bylaws. A copy of the New Enron Charter is included as
Annex F to this Joint Proxy Statement/Prospectus, and the proposed form of New
Enron Bylaws is included as an exhibit to the Registration Statement of which
this Joint Proxy Statement/Prospectus is a part. Generally, the terms of the New
Enron Charter and the New Enron Bylaws are substantially similar to those of the
Enron Charter and Enron Bylaws, respectively, except for changes necessary to
comply with Oregon law. See "Comparative Rights of New Enron, Enron and PGC
Shareholders" for a description of certain differences in the Enron Charter and
Bylaws and the New Enron Charter and Bylaws.
COMMON STOCK
New Enron is authorized to issue up to 600,000,000 shares of New Enron
Common Stock. As of the date of this Joint Proxy Statement/Prospectus, there
were 1,000 shares of New Enron Common Stock issued and outstanding, all of which
were owned by Enron. Based on the number of shares of Enron Common Stock and PGC
Common Stock outstanding on the PGC Record Date, there will be an aggregate of
304,626,083 shares of New Enron Common Stock issued in the Mergers. The holders
of New Enron Common Stock are entitled to one vote for each share on all matters
submitted to a vote of shareholders and do not have cumulative voting rights in
the election of directors. The holders of New Enron Common Stock are entitled to
receive ratably such dividends, if any, as may be declared by the Board of
Directors of New Enron out of legally available funds subject to the rights of
any preferred stock. In the event of liquidation, dissolution or winding up of
New Enron, the holders of New Enron Common Stock are entitled to share ratably
in all assets of New Enron remaining after provision for payment of liabilities
and satisfaction of the liquidation preference of any shares of New Enron
Preferred Stock that may be outstanding. The holders of New Enron Common Stock
have no preemptive, subscription, redemption or conversion rights. The rights,
preferences and privileges of holders of New Enron Common Stock may become
subject to those of holders of New Enron Preferred Stock, including any series
of New Enron Preferred Stock issued in the future.
PREFERRED STOCK
New Enron is authorized to issue up to 16,500,000 shares of New Enron
Preferred Stock, of which no shares are outstanding as of the date of this Joint
Proxy Statement/Prospectus. Based on the number of shares of Enron Convertible
Preferred Stock issued and outstanding as of the Enron Record Date, an aggregate
of 1,371,879 shares of New Enron Preferred Stock will be designated the New
Enron Cumulative Second Preferred Convertible Stock ("New Enron Convertible
Preferred Stock") for issuance in the Reincorporation Merger in exchange for the
shares of Enron Convertible Preferred Stock issued and outstanding as of the
Effective Time. Based on the number of shares of Enron's 9.142% Perpetual Second
Preferred Stock ("Enron 9.142% Preferred Stock") issued and outstanding as of
the Enron Record Date, an aggregate of 35.568509 shares of New Enron Preferred
Stock will be designated the New Enron 9.142% Perpetual Second Preferred Stock
("New Enron 9.142% Preferred Stock") for issuance in the Reincorporation Merger
in exchange for the shares of Enron 9.142% Preferred Stock issued and
outstanding as of the Effective Time.
In addition to the New Enron Convertible Preferred Stock and the New Enron
9.142% Preferred Stock, the New Enron Board of Directors have authority, without
shareholder approval (except to the extent that holders of any series of New
Enron Preferred Stock are entitled by their terms to class voting rights), to
issue shares of New Enron Preferred Stock in one or more series and to determine
the number of shares, designations, dividend rights, conversion rights, voting
power, redemption rights, liquidation preferences and other terms of any such
series. The issuance of New Enron Preferred Stock, while providing desired
flexibility in connection with possible acquisitions and other corporate
purposes, could adversely affect the voting power of holders of New Enron Common
Stock and the likelihood that such holders will receive dividend payments
69
<PAGE> 77
and payments upon liquidation and could have the effect of delaying, deferring
or preventing a change in control of New Enron.
NEW ENRON CONVERTIBLE PREFERRED STOCK
The following summary of the terms of the New Enron Convertible Preferred
Stock is qualified in its entirety by reference to the form of series
designation for the New Enron Convertible Preferred Stock included as Annex G to
this Joint Proxy Statement/Prospectus.
The annual rate of dividends payable on shares of the New Enron Convertible
Preferred Stock will be the greater of $10.50 per share or the dividend amount
payable on the number of shares of New Enron Common Stock into which one share
of New Enron Convertible Preferred Stock will be convertible (currently 13.652
shares, subject to adjustment). Such dividends will be payable quarterly on the
first days of January, April, July and October. These dividend rights are
superior to the dividend rights of the New Enron Common Stock and will rank
equally with the dividend rights on the New Enron 9.142% Preferred Stock.
The amount payable on shares of the New Enron Convertible Preferred Stock
in the event of any involuntary or voluntary liquidation, dissolution or winding
up of the affairs of New Enron will be $100 per share, together with accrued
dividends to the date of distribution or payment. The liquidation rights of the
New Enron Convertible Preferred Stock will be superior to the New Enron Common
Stock and will rank equally with the liquidation rights of the New Enron 9.142%
Preferred Stock
The New Enron Convertible Preferred Stock will be redeemable at the option
of New Enron at any time, in whole or in part, at a redemption price of $100 per
share, together with accrued dividends to the date of distribution or payment.
If the Effective Time were to occur on the date hereof, each share of New Enron
Convertible Preferred Stock would be convertible initially into 13.652 shares of
New Enron Common Stock at any time at the option of the holder (which conversion
rate is and will be subject to certain adjustments).
Holders of New Enron Convertible Preferred Stock will be entitled to vote
together with the New Enron Common Stock on all matters submitted to a vote of
New Enron shareholders, with each share of New Enron Convertible Preferred Stock
having a number of votes equal to the number of shares of New Common Stock into
which one share of New Enron Convertible Preferred Stock is convertible. In
addition, holders of New Enron Convertible Preferred Stock will be entitled to
certain class voting rights, including (unless provision is made for redemption
of such shares) (a) the requirement for approval by the holders of at least
two-thirds of the New Enron Convertible Preferred Stock (voting together with
all other shares of parity stock similarly affected) to effect (i) an amendment
to the New Enron Charter or Bylaws that would affect adversely the voting
powers, rights or preferences of the holders of the New Enron Convertible
Preferred Stock or reduces the time for any notice to which the holders of the
New Enron Convertible Preferred Stock may be entitled, (ii) the authorization,
creation or issuance of, or the increase in the authorized amount of, any stock
of any class or series or any security convertible into stock of any class or
series ranking prior to the New Enron Convertible Preferred Stock, (iii) the
voluntary dissolution, liquidation or winding up of the affairs of New Enron, or
the sale, lease or conveyance by New Enron of all or substantially all of its
property or assets, or (iv) the purchase or redemption (for sinking fund
purposes or otherwise) of less than all of the New Enron Convertible Preferred
Stock and other parity stock at the time outstanding unless the full dividends
on all shares of New Enron Convertible Preferred Stock then outstanding shall
have been paid or declared and a sum sufficient for payment thereof set apart,
and (b) the requirement for approval by the holders of at least a majority of
the New Enron Convertible Preferred Stock (voting together with all other shares
of parity stock similarly affected), to effect (i) the authorization, creation
or issuance of, or the increase in the authorized amount of, any stock of any
class or series or any security convertible into stock of any class or series,
ranking on a parity with the New Enron Convertible Preferred Stock, provided
that no such consent shall be required for the authorization, creation or
issuance by New Enron of a number of shares of one or more series of Preferred
Stock ranking on parity with the New Enron Convertible Preferred Stock that,
together with number of shares of New Enron Convertible Preferred Stock and
other Preferred Stock ranking on parity with the New Enron Convertible Preferred
Stock then outstanding, would equal 5,000,000, or (ii) the merger or
consolidation of New Enron with or into any other corporation, unless the
corporation resulting from such
70
<PAGE> 78
merger or consolidation will have after such merger or consolidation no class of
stock and no other securities either authorized or outstanding ranking prior to
or on a parity with the New Enron Convertible Preferred Stock, except the same
number of shares of stock and the same amount of other securities with the same
rights and preferences as the stock and securities of New Enron respectively
authorized and outstanding immediately preceding such merger or consolidation,
and each holder of New Enron Convertible Preferred Stock immediately preceding
such merger or consolidation shall receive the same number of shares, with the
same rights and preferences, of the resulting corporation. In addition, if
dividend payments on the New Enron Convertible Preferred Stock are in default in
an amount equivalent to six quarterly dividends on such shares, then the holders
of the New Enron Convertible Preferred Stock shall have certain voting rights
(together with any parity stock similarly affected) to elect two directors to
New Enron's Board of Directors until such dividends have been paid or funds
sufficient therefor deposited in trust.
9.142% PREFERRED STOCK
The following summary of the terms of the New Enron 9.142% Preferred Stock
is qualified in its entirety by reference to the form of series designation for
the New Enron 9.142% Preferred Stock included as Annex H to this Joint Proxy
Statement/Prospectus.
The annual rate of dividends payable on shares of the New Enron 9.142%
Preferred Stock will be $91,420 per share. Such dividends will be payable
quarterly on the first days of January, April, July and October. These dividend
rights will be superior to the dividend rights of the New Enron Common Stock and
will rank equally with the dividend rights on the New Enron Convertible
Preferred Stock.
The amount payable on shares of the New Enron 9.142% Preferred Stock in the
event of any voluntary or involuntary liquidation, dissolution or winding up of
the affairs of New Enron will be $1,000,000 per share, together with accrued
dividends. The liquidation rights of the New Enron 9.142% Preferred Stock will
be superior to the New Enron Common Stock and will rank equally with the
liquidation rights of the New Enron Convertible Preferred Stock.
The New Enron 9.142% Preferred Stock will not be redeemable at the option
of New Enron. Pursuant to an agreement between New Enron and its subsidiary,
however, such subsidiary will have the rights, exercisable at any time, in whole
or in part, for a 180-day period commencing January 31, 2004, to cause New Enron
to redeem 18 shares for $1,000,000 per share, together with accrued dividends.
The holders of New Enron 9.142% Preferred Stock will generally have no
voting rights but will be entitled to certain class voting rights, including
(unless provision is made for redemption of such shares) (a) the requirement for
approval by the holders of at least two-thirds of the New Enron 9.142% Preferred
Stock (voting together with all other shares of parity stock similarly
affected), to effect (i) an amendment to the New Enron Charter or Bylaws that
would affect adversely the voting powers, rights or preferences of the holders
of the New Enron 9.142% Preferred Stock or reduces the time for any notice to
which the holders of the New Enron 9.142% Preferred Stock may be entitled, (ii)
the authorization, creation or issuance of, or the increase in the authorized
amount of, any stock of any class or series or any security convertible into
stock of any class or series ranking prior to the New Enron 9.142% Preferred
Stock, (iii) the voluntary dissolution, liquidation or winding up of the affairs
of New Enron, or the sale, lease or conveyance by New Enron of all or
substantially all of its property or assets, or (iv) the purchase or redemption
(for sinking fund purposes or otherwise) of less than all of the New Enron
9.142% Preferred Stock and other parity stock at the time outstanding unless the
full dividends on all shares of New Enron 9.142% Preferred Stock then
outstanding shall have been paid or declared and a sum sufficient for payment
thereof set apart, and (b) the requirement for approval by the holders of at
least a majority of the New Enron 9.142% Preferred Stock (voting together with
all other shares of parity stock similarly affected), to effect (i) the
authorization, creation or issuance of, or the increase in the authorized amount
of, any stock of any class or series or any security convertible into stock of
any class or series, ranking on a parity with the New Enron 9.142% Preferred
Stock, provided that no such consent shall be required for the authorization,
creation or issuance by New Enron of a number of shares of one or more series of
Preferred Stock ranking on parity with the New Enron 9.142% Preferred Stock
that, together with number of shares of New Enron 9.142% Preferred Stock and
other Preferred Stock ranking on
71
<PAGE> 79
parity with the New Enron 9.142% Preferred Stock then outstanding, would equal
5,000,000, or (ii) the merger or consolidation of New Enron with or into any
other corporation, unless the corporation resulting from such merger or
consolidation will have after such merger or consolidation no class of stock and
no other securities either authorized or outstanding ranking prior to or on a
parity with the New Enron 9.142% Preferred Stock, except the same number of
shares of stock and the same amount of other securities with the same rights and
preferences as the stock and securities of New Enron respectively authorized and
outstanding immediately preceding such merger or consolidation, and each holder
of New Enron 9.142% Preferred Stock immediately preceding such merger or
consolidation shall receive the same number of shares, with the same rights and
preferences, of the resulting corporation. In addition, if dividend payments on
the New Enron 9.142% Preferred Stock are in default in an amount equivalent to
six quarterly dividends on such shares, then the holders of the New Enron 9.142%
Preferred Stock shall have certain voting rights (together with any other parity
stock similarly affected) to elect two directors to New Enron's Board of
Directors until such dividends have been paid or funds sufficient therefor
deposited in trust.
CERTAIN PROVISIONS OF THE NEW ENRON CHARTER AND BYLAWS
Fair Price Provision. The New Enron Charter contains a "fair price"
provision which generally requires that certain mergers, business combinations
and similar transactions with a "Related Person" (generally the beneficial owner
of at least 10 percent of New Enron's voting stock) be approved by the holders
of at least 80 percent of New Enron's voting stock, unless (a) the transaction
is approved by at least 80 percent of the "Continuing Directors" of New Enron,
who constitute a majority of the entire board, (b) the transaction occurs more
than five years after the last acquisition of New Enron voting stock by the
Related Person or (c) certain "fair price" and procedural requirements are
satisfied. The New Enron Charter defines "Business Transaction" as (a) any
merger or consolidation involving New Enron or a subsidiary of New Enron, (b)
any sale, lease, exchange, transfer or other disposition (in one transaction or
a series of transactions), including without limitation a mortgage or any other
security device, of all or any substantial part of the assets either of New
Enron or of a subsidiary of New Enron, (c) any sale, lease, exchange, transfer
or other disposition of all or any substantial part of the assets of an entity
to New Enron or a subsidiary of New Enron, (d) the issuance, sale, exchange,
transfer or other disposition by New Enron or a subsidiary of New Enron of any
securities of New Enron or any subsidiary of New Enron, (e) any recapitalization
or reclassification of New Enron's securities (including without limitation, any
reverse stock split) or other transaction that would have the effect of
increasing the voting power of a Related Person, (f) any liquidation, spinoff,
splitoff, splitup or dissolution of New Enron, and (g) any agreement, contract
or other arrangement providing for any of the transactions described in this
definition of Business Transaction. "Continuing Director" is defined to mean a
director who either was a member of the Board of Directors of New Enron prior to
the time such Related Person became a Related Person or who subsequently became
a director of New Enron and whose election, or nomination for election by New
Enron's shareholders, was approved by a vote of at least 80 percent of the
Continuing Directors then on the Board, either by a specific vote or by approval
of the proxy statement issued by New Enron on behalf of the Board of Directors
in which such person is named as nominee for director, without an objection to
such nomination; provided, however, that in no event shall a director be
considered a "Continuing Director" if such director is a Related Person and the
Business Transaction to be voted upon is with such Related Person or is one in
which such Related Person otherwise has an interest (except proportionately as a
shareholder of New Enron).
Advance Notice Requirements for Shareholder Proposals and Nominations. The
New Enron Bylaws provide that for business to be properly brought before an
annual meeting of shareholders, it must be either (a) specified in the notice of
meeting (or any supplement thereto) given by or at the direction of the Board of
Directors, (b) otherwise brought before the meeting by or at the direction of
the Board of Directors or (c) otherwise properly brought before the meeting by a
shareholder of New Enron who is a shareholder of record at the time of giving of
notice hereinafter provided for, who shall be entitled to vote at such meeting
and who complies with the following notice procedures. In addition to any other
applicable requirements, for business to be brought before an annual meeting by
a shareholder of New Enron, the shareholder must have given timely notice in
writing of the business to be brought before an annual meeting of shareholders
to the Secretary of New Enron. To be timely, a shareholder's notice must be
delivered to or mailed and received at
72
<PAGE> 80
New Enron's principal executive offices not less than 120 days prior to the
anniversary date of the proxy statement for the previous year's annual meeting
of the shareholders of New Enron (or Enron, with respect to the first such
meeting after the Effective Time). A shareholder's notice to the Secretary must
set forth as to each matter the shareholder proposes to bring before the annual
meeting (i) a brief description of the business desired to be brought before the
annual meeting and the reasons for conducting such business at the annual
meeting, (ii) the name and address, as they appear on New Enron's books, of the
shareholder proposing such business, (iii) the acquisition date, the class and
the number of shares of voting stock of New Enron which are owned beneficially
by the shareholder, (iv) any material interest of the shareholder in such
business and (v) a representation that the shareholder intends to appear in
person or by proxy at the meeting to bring the proposed business before the
meeting. No business shall be conducted at an annual meeting except in
accordance with the procedures outlined above.
The New Enron Bylaws provide that only persons who are nominated for
election as a director of New Enron in accordance with the following procedures
shall be eligible for election as directors. Nominations of persons for election
to New Enron's Board of Directors may be made at a meeting of shareholders (a)
by or at the direction of the Board of Directors or (b) by any shareholder of
New Enron who is a shareholder of record at the time of giving of notice
hereinafter provided for, who shall be entitled to vote for the election of
directors at the meeting and who complies with the following notice procedures.
Such nominations, other than those made by or at the direction of the Board of
Directors, shall be made pursuant to timely notice in writing to the Secretary
of New Enron. To be timely, a shareholder's notice must be delivered to or
mailed and received at New Enron's principal executive offices, (i) with respect
to an election to be held at an annual meeting of shareholders of New Enron, not
less than 120 days prior to the anniversary date of the proxy statement for the
previous year's annual meeting of the shareholders of New Enron (or Enron, with
respect to the first such meeting after the Effective Time), and (ii) with
respect to an election to be held at a special meeting of shareholders of New
Enron for the election of directors, not later than the close of business on the
10th day following the date on which notice of the date of the meeting was
mailed or public disclosure of the date of the meeting was made, whichever first
occurs. Such shareholder's notice to the Secretary shall set forth (a) as to
each person whom the shareholder proposes to nominate for election or
re-election as a director, all information relating to the person that is
required to be disclosed in solicitations for proxies for election of directors,
or is otherwise required, pursuant to Regulation 14A under the Exchange Act
(including the written consent of such person to be named in the proxy statement
as a nominee and to serve as a director if elected); and (b) as to the
shareholder giving the notice, (i) the name and address, as they appear on New
Enron's books, of such shareholder, and (ii) the class and number of shares of
capital stock of New Enron which are beneficially owned by the shareholder.
CERTAIN ANTI-TAKEOVER PROVISIONS OF OREGON LAW
Business Combinations with Interested Shareholders. New Enron will be
subject to the provisions of Sections 60.825-60.845 of the OBCA, which generally
provide that any person who acquires 15% or more of a corporation's voting stock
(thereby becoming an "interested shareholder") may not engage in certain
"business combinations" with the corporation for a period of three years
following the date the person became an interested stockholder, unless (i) the
board of directors has approved, prior to the date the person became an
interested shareholder, either the business combination or the transaction that
resulted in the person becoming an interested shareholder, (ii) upon
consummation of the transaction that resulted in the person becoming an
interested shareholder, that person owns at least 85% of the corporation's
voting stock outstanding at the time the transaction is commenced (excluding
shares owned by person who are both directors and officers and shares owned by
employee stock plans in which participants do not have the right to determine
whether shares will be tendered in a tender or exchange offer), or (iii) on or
subsequent to the date the person became an interested shareholder, the business
combination is approved by the board of directors and authorized by the
affirmative vote of at least 66 2/3% of the outstanding voting stock not owned
by the interested shareholder.
Control Share Statute. As is permitted by the OBCA, the New Enron Charter
provides that New Enron will not be subject to the Oregon Control Share Act. The
Oregon Control Share Act restricts the ability of a
73
<PAGE> 81
shareholder of certain Oregon-based corporations to vote shares of stock
acquired in a transaction that causes the acquiring person to control at least
one-fifth, one-third or one-half of the votes entitled to be cast in the
election of directors, except as authorized by a vote of the corporation's
disinterested shareholders.
TRANSFER AGENT AND REGISTRAR
The transfer agent and registrar for the New Enron Common Stock and New
Enron Convertible Preferred Stock will be The First Chicago Trust Company of New
York.
74
<PAGE> 82
MANAGEMENT AND OTHER INFORMATION
Certain information relating to the management, executive compensation,
voting securities, certain relationships and related transactions and other
related matters pertaining to Enron and PGC is set forth in or incorporated by
reference in their respective Annual Reports on Form 10-K for the year ended
December 31, 1995. Such Annual Reports are incorporated in this Joint Proxy
Statement/Prospectus. See "Incorporation of Certain Documents by Reference."
COMPARATIVE RIGHTS OF NEW ENRON, ENRON AND PGC SHAREHOLDERS
Rights of shareholders of Enron are currently governed by the DGCL, the
Enron Charter and the Enron Bylaws. Rights of shareholders of PGC are currently
governed by the OBCA, the PGC Charter and the PGC Bylaws. Upon consummation of
the Mergers, Enron and PGC shareholders will become shareholders of New Enron
and their rights as shareholders of New Enron will be governed by the New Enron
Charter, the New Enron Bylaws and the OBCA. There are a number of differences
between the rights of Enron and PGC shareholders and the rights of New Enron
shareholders. The following is a brief summary of certain differences between
the rights of New Enron shareholders and the rights of Enron or PGC
shareholders, and is qualified in its entirety by reference to the relevant
provisions of the OBCA, the DGCL, the Enron Charter and Bylaws, the PGC Charter
and Bylaws and the New Enron Charter and Bylaws.
IF THE STRUCTURE OF THE TRANSACTION CONTEMPLATED BY THE MERGER AGREEMENT IS
ALTERED TO ELIMINATE THE REINCORPORATION MERGER AS DESCRIBED UNDER "THE
MERGERS -- GENERAL DESCRIPTION OF THE MERGERS -- ALTERNATIVE TRANSACTION
STRUCTURE IN THE EVENT OF REGULATORY REFORM," AND PGC IS MERGED DIRECTLY INTO
ENRON, THEN THE RIGHTS OF ENRON SHAREHOLDERS WOULD NOT BE AFFECTED, AND THE
RIGHTS OF PGC SHAREHOLDERS WOULD BE GOVERNED BY THE DGCL AND THE ENRON CHARTER
AND BYLAWS.
AUTHORIZED CAPITAL STOCK
Enron. The authorized capital stock of Enron consists of 600,000,000 shares
of Enron Common Stock, 1,500,000 shares of Preferred Stock, par value $100 per
share, 5,000,000 shares of Second Preferred Stock, par value $1.00 per share,
and 10,000,000 shares of Preference Stock, par value $1.00 per share. With
respect to the Preferred Stock, Second Preferred Stock or Preference Stock, the
Enron Board is authorized, without stockholder approval (subject to any class
voting rights of any existing holders of preferred stock), to designate series
of each such class and to determine the relative rights, preferences and
limitations of such series. As of the date hereof, there have been designated an
aggregate of 2,400,000 shares of Enron Convertible Preferred Stock (of which
1,371,783 shares were issued and outstanding as of the Enron Record Date) and
35.568509 shares of Enron 9.142% Preferred Stock (of which 35.568509 shares are
issued and outstanding), each of which is a series of Second Preferred Stock.
PGC. The authorized capital stock of PGC consists of 100,000,000 shares of
PGC Common Stock and 30,000,000 shares of preferred stock, with respect to which
the PGC Board of Directors is empowered to establish series and to determine the
relative rights, preferences and limitations of any such series.
New Enron. The authorized capital stock of New Enron consists of
600,000,000 shares of New Enron Common Stock and 16,500,000 shares of New Enron
Preferred Stock, of which, based on the number of shares outstanding on the
Enron Record Date, 1,371,783 shares will be designated the New Enron Convertible
Preferred Stock and 35.568509 shares will be designated the New Enron 9.142%
Preferred Stock for issuance to holders of Enron Convertible Preferred Stock and
Enron 9.142% Preferred Stock in the Reincorporation Merger. The Board of
Directors of New Enron is authorized, without shareholder approval (subject to
any class voting rights of any existing holders of preferred stock), to
designate series of New Enron Preferred Stock and to determine the relative
rights, preferences and limitations of any such series. See "Description of New
Enron Capital Stock."
75
<PAGE> 83
BOARDS OF DIRECTORS
Enron. The Board of Directors of Enron currently consists of 14 members,
with the number of directors constituting the Board of Directors to be
determined from time to time by resolution of the Board, except that no decrease
in the number of directors passed by the Board of Directors may shorten the term
of any incumbent director. The Enron Board is not divided into staggered
classes, and cumulative voting in the election of directors is not permitted.
PGC. The Board of Directors of PGC currently consists of 11 members (one
seat is currently vacant), which are divided into three staggered classes
serving three-year terms. The PGC Charter provides that the number of directors
must be not less than 11 nor more than 15 persons, the exact number to be
determined from time to time by a majority of the Board, except that no decrease
in the number of directors may shorten the term of any incumbent director.
Cumulative voting is not permitted in the election of directors.
New Enron. The Merger Agreement provides that, at the Effective Time, the
Board of Directors of New Enron will consist of 16 members. Following the
Effective Time, the number of directors may be changed from time to time by a
majority of the Board except that no reduction in the number of directors passed
by the Board of Directors may have the effect of shortening the term of any
incumbent director. The Board of Directors of New Enron is not divided into
classes, although, under the OBCA, the Board of Directors would be empowered to
establish a classified board of directors without shareholder approval by
amending the New Enron Bylaws, an act which would require shareholder approval
under the DGCL. Cumulative voting in the election of directors of New Enron will
not be permitted.
REMOVAL OF DIRECTORS
Enron. The Enron Bylaws provide that any director or the entire Board of
Directors may be removed, with or without cause, by the holders of a majority of
the shares entitled to vote at an election of directors (except that any
director elected by a particular class or series of stock may be removed only by
such class).
PGC. Under the PGC Charter, a director may be removed for cause only with
the approval of 80 percent of the voting power of the outstanding voting stock
and may be removed without cause only with the approval of 100 percent of the
voting power of the outstanding voting stock.
New Enron. The New Enron Bylaws contain provisions similar to those in the
Enron Bylaws with respect to the removal of directors.
SPECIAL MEETINGS OF SHAREHOLDERS; SHAREHOLDER ACTION WITHOUT MEETING
Enron. Under the DGCL, special meetings of stockholders may be called by
the board of directors or by such persons as may be authorized by the charter or
by the bylaws. The Enron Bylaws provide that special meetings of stockholders
may be called by the Chairman of the Board, President, any Vice Chairman of the
Board or by a majority of the Board or Executive Committee thereof. Stockholders
do not have the right to call a special meeting of stockholders. The Enron
Charter provides that stockholders do not have the power to act by written
consent (i.e., without a meeting).
PGC. Under the OBCA and the PGC Bylaws, special meetings of shareholders
may be called by the Board of Directors, the Chairman of the Board of Directors,
the President or the holders of at least 10 percent of all votes entitled to be
cast on any issue proposed to be considered at the meeting. The OBCA provides
that shareholders may take action by written consent only if such consent is
unanimous.
New Enron. The New Enron Bylaws contain a similar provision to the Enron
Bylaws as described above with respect to special shareholders meetings. In
addition, as required by the OBCA, the holders of at least 10 percent of all
votes entitled to be cast on any issue proposed to be considered at the meeting
will also be entitled to call a special shareholders' meeting. Under the OBCA,
New Enron shareholders will be entitled to act by written consent only if such
consent is unanimous.
76
<PAGE> 84
SHAREHOLDER PROPOSALS AND NOMINATIONS
Enron. The Enron Bylaws provide that for business to be properly brought
before an annual meeting of stockholders by a stockholder, the stockholder must
have given timely notice in writing of the business to be brought before the
meeting to the Secretary of Enron. To be timely, a stockholder's notice must be
delivered to or mailed and received at Enron's principal executive offices not
less than 120 days prior to the anniversary date of the proxy statement for the
previous year's annual meeting of the stockholders. The stockholder's notice to
the Secretary must set forth certain specified information as to each matter the
stockholder proposes to bring before the annual meeting. With respect to
director nominations, the Enron Bylaws provide that persons nominated by a
stockholder and not by or at the direction of the Board of Directors, shall be
eligible for election as a director only if such nomination is delivered to or
mailed and received at Enron's principal executive offices, (i) with respect to
an election to be held at an annual meeting of stockholders of Enron, not less
than 120 days prior to the anniversary date of the proxy statement for the
previous year's annual meeting of stockholders, and (ii) with respect to an
election to be held at a special meeting of stockholders of Enron for the
election of directors, not later than the close of business on the 10th day
following the date on which notice of the date of the meeting was mailed or
public disclosure of the date of the meeting was made, whichever first occurs.
Such stockholder's notice must set forth certain specified information with
respect to the nominee and the nominating stockholder.
PGC. PGC's Bylaws provide that for business to be properly brought before
an annual meeting of shareholders by a shareholder, the shareholder must have
given timely notice in writing of the business to be brought before the meeting
to PGC. To be timely, a shareholder's notice must be delivered to or mailed and
received by the Secretary of PGC at PGC's principal executive offices not more
than 70 days or less than 35 days prior to the meeting (subject to certain
exceptions in the event that less than 50 days' notice is given of the meeting).
The shareholder's notice must set forth certain specified information as to each
matter the shareholder proposes to bring before the annual meeting. With respect
to director nominations, PGC's Bylaws provide that persons nominated by a
shareholder shall be eligible for election as a director only if such nomination
is delivered to or mailed and received by the Secretary of PGC at PGC's
principal executive offices, (i) with respect to an election to be held at the
annual meeting of shareholders of PGC, not less than 90 days prior to the
anniversary date of the previous year's annual meeting of shareholders, and (ii)
with respect to an election to be held at a special meeting of shareholders of
PGC for the election of directors, not later than the close of business on the
10th day following the date on which notice of the date of the meeting was first
given to shareholders. Such shareholder's notice must set forth certain
specified information with respect to the nominee and the nominating
shareholder.
New Enron. The New Enron Bylaws contain provisions similar to those in the
Enron Bylaws with respect to shareholder nominations and proposals. See
"Description of New Enron Capital Stock -- Certain Provisions of the New Enron
Charter and Bylaws."
DISSENTERS' RIGHTS
Enron. Under the DGCL, dissenting stockholders are generally entitled to
appraisal rights only with respect to mergers or consolidations. Under the DGCL,
no appraisal rights exist if the stocks of the merging corporation are listed on
a national securities exchange or quoted on Nasdaq, or, if not listed, are held
of record by more than 2,000 stockholders, unless the holders are required to
accept cash or anything other than stocks of the survivor or stocks of another
corporation which are listed on a national stock exchange or quoted on Nasdaq.
PGC. Under the OBCA, a shareholder is entitled to dissent from, and obtain
payment of the fair value of the shareholder's shares in the event of (only to
the extent the shareholder is entitled to vote thereon) a merger, stock
exchange, sale or exchange of all or substantially all of the property of the
corporation other than in the usual and regular course of business (with certain
exceptions), or certain specified charter amendments. Under the OBCA, unless the
articles of incorporation provide otherwise (which the PGC Charter does not),
dissenters' rights do not apply to the holders of stocks of any class or series
if the stocks of the class or series
77
<PAGE> 85
were registered on a national securities exchange or quoted on the Nasdaq
National Market on the record date for the meeting of shareholders at which the
corporate action giving rise to dissenters' rights is to be approved.
New Enron. New Enron is governed by the OBCA with respect to dissenters'
rights.
SHAREHOLDER APPROVAL NOT REQUIRED FOR CERTAIN MERGERS
Enron. Under the DGCL, the stockholders of a Delaware corporation surviving
a merger are not required to vote on the merger if the agreement of merger does
not otherwise amend the certificate of incorporation, the outstanding shares of
the surviving corporation are not modified in the merger and the number of
shares of common stock issued by the surviving corporation, after giving effect
to conversions of securities issued in the merger, does not exceed 20% of the
common stock outstanding immediately before the effective date of the merger.
PGC. Under the OBCA, action by shareholders of a surviving corporation on a
plan of merger is not required if (i) the articles of incorporation of the
survivor will not differ from its articles before the merger (with certain
limited exceptions), (ii) each shareholder of the survivor will hold the same
number of shares with identical preferences and other rights as existed before
the merger, (iii) the number of voting shares outstanding after the merger, plus
the number of voting shares issuable as a result of conversions or the exercise
of warrants issued pursuant to the merger, will not exceed by more than 20% the
total number of voting shares of the survivor outstanding before the merger, and
(iv) the number of participating shares (shares entitling their holders to
participate without limitations in distributions) outstanding after the merger,
plus the number of participating shares issued upon conversion or exercise of
securities or rights issued pursuant to the merger, will not exceed by more than
20% the total number of participating shares outstanding before the merger.
New Enron. New Enron is governed by the OBCA with respect to approval of
mergers.
CHARTER AMENDMENTS
Enron. Under the DGCL and the Enron Charter, an amendment to the Enron
Charter must be approved by the holders of a majority of the outstanding stock
entitled to vote thereon and a majority of the outstanding stock of each class
entitled to vote thereon. Generally, the DGCL requires a separate class vote on
a charter amendment if the amendment would increase or decrease the aggregate
number of authorized shares of such class, increase or decrease the par value of
the shares of such class, or alter or change the powers, preferences or special
rights of shares of such class so as to affect them adversely.
PGC. Under the OBCA and the PGC Charter, an amendment to the PGC Charter
generally may be approved if the votes cast by a voting group entitled to vote
favoring the amendment exceed the votes cast by the voting group opposing the
action (except that a charter amendment that would result in a voting group
having dissenters' rights requires the affirmative vote of a majority of the
shares of such voting group). In addition to the instances in which an amendment
of a charter requires a class vote under Delaware law, the Oregon statute
requires, among other things, a class vote if the charter is amended to create a
new class of shares having rights or preferences prior to or on a parity with
the shares of the class or to increase the rights or preferences of another
authorized class so that such other class becomes prior to or on a parity with
the shares of a class. The OBCA provides that directors may make certain
amendments to the articles of incorporation without shareholder approval,
including making certain changes to the corporation's name or extending the
duration of the corporation.
New Enron. New Enron is governed by the OBCA with respect to charter
amendments.
DIVIDENDS AND STOCK REPURCHASES
Enron. The DGCL provides that a corporation may pay dividends from its
surplus or from its net profits during the current or immediately preceding
year, unless capital is less than the liquidation preferences of outstanding
preferred shares. The statute permits surplus to be determined by valuing the
corporation's net assets at fair market value rather than historical book value.
A Delaware corporation may not purchase or
78
<PAGE> 86
redeem its shares when the capital of the corporation is impaired or such
purchase or redemption would cause any impairment of its capital (except that
the corporation may redeem preferred stock and then reduce the capital of the
corporation in the manner permitted by the statute) and may not purchase shares
that are subject to redemption at the option of the corporation at a price
greater than the applicable redemption price.
PGC. The OBCA provides that, subject to any restrictions contained in the
articles of incorporation, a corporation may make a distribution to its
shareholders unless, after giving effect to the distribution (which is defined
to include a repurchase of shares), (i) the corporation would not be able to pay
its debts as they become due in the usual course of business or (ii) the
corporation's total assets would be less than the sum of its total liabilities
plus the amount that would be needed, if the corporation were to be dissolved,
to satisfy the preferential rights upon dissolution of shareholders whose
preferential rights are superior to those receiving the distribution. The board
of directors may base a decision that a distribution is not prohibited on (a)
financial statements prepared on the basis of accounting practices that are
reasonable in the circumstances, (b) a fair valuation, or (c) any other method
that is reasonable in the circumstances.
New Enron. New Enron is governed by the OBCA with respect to the payment of
dividends and stock repurchases.
FAIR PRICE CHARTER PROVISIONS
Enron. The Enron Charter contains a "fair price" provision which generally
requires that certain mergers, business combinations and similar transactions
with a "Related Person" (generally the beneficial owner of at least 10 percent
of Enron's voting stock) be approved by the holders of at least 80 percent of
Enron's voting stock, unless (i) the transaction is approved by at least 80
percent of the "Continuing Directors" (as defined) of Enron, who constitute a
majority of the entire board, (ii) the transaction occurs more than five years
after the last acquisition of Enron voting stock by the related person or (iii)
certain "fair price" and procedural requirements are satisfied.
PGC. The PGC Charter contains a fair price provision under which certain
mergers, business combinations and similar transactions with an "Interested
Shareholder" (generally the beneficial owner of at least 10 percent of PGC's
voting stock) must be approved by the holders of at least 80 percent of PGC's
voting stock, unless (i) the transaction is approved by a majority of the
"disinterested directors" (as defined) or (ii) certain "fair price" and
procedural requirements are satisfied.
New Enron. The New Enron Charter contains a provision substantially similar
to the fair price provision in the Enron Charter. See "Description of New Enron
Capital Stock -- Certain Provisions of the New Enron Charter and Bylaws."
BUSINESS COMBINATION STATUTES
Enron. Enron is subject to Section 203 of the DGCL, which provides that any
person who acquires 15% or more of a corporation's voting stock (thereby
becoming an "interested shareholder") may not engage in certain "business
combinations" with the corporation for a period of three years following the
date the person became an interested shareholder, unless (i) the board of
directors has approved, prior to that acquisition date, either the business
combination or the transaction that resulted in the person becoming an
interested shareholder, (ii) upon consummation of the transaction that resulted
in the person becoming an interested shareholder, that person owns at least 85%
of the corporation's voting stock outstanding at the time the transaction is
commenced (excluding shares owned by persons who are both directors and officers
and shares owned by employee stock plans in which participants do not have the
right to determine whether shares will be tendered in a tender or exchange
offer), or (iii) the business combination is approved by the board of directors
and authorized by the affirmative vote of at least 66% of the outstanding voting
stock not owned by the interested shareholder.
PGC. PGC is subject to the provisions of the Oregon Business Combination
Act, which is substantially similar to Section 203 of the DGCL as described
above.
New Enron. New Enron is subject to the provisions of the Oregon Business
Combination Act.
79
<PAGE> 87
CONTROL SHARE STATUTE
Enron. Under the DGCL Enron is not subject to a "control share" statute.
PGC. PGC is subject to the Oregon Control Share Act, which regulates the
process by which a person may acquire control of certain Oregon-based
corporations (as defined in the statute) without the consent and cooperation of
the board of directors. The law restricts a shareholder's ability to vote shares
of stock acquired in any transaction not approved by the board of directors that
causes the acquiring person's control of the corporation's stock to exceed
one-fifth, one-third or one-half of the votes entitled to be cast in the
election of directors. Shares acquired in a control share acquisition have no
voting rights except as authorized by a vote of the shareholders.
New Enron. As is permitted by the OBCA, the New Enron Charter contains a
provision "opting out" of the application of the Oregon Control Share Act, so
New Enron is not subject to the provisions of such Act.
PROPER FACTORS FOR CONSIDERATION IN EVALUATING BUSINESS COMBINATIONS
Enron. The DGCL does not contain a statutory provision outlining proper
factors for consideration in evaluating a business combination or transaction.
PGC. The OBCA provides that, when evaluating a tender offer, merger,
consolidation or sale of assets, the directors may, in determining what they
believe to be in the best interests of the corporation, give consideration to
the social, legal and economic effects on employees, customers and suppliers of
the corporation and on the communities and geographical areas in which the
corporation operates, the economy of the state and nation, the long-term as well
as short-term interests of the corporation and its shareholders, including the
possibility that these interests may be best served by the continued
independence of the corporation, and other relevant factors.
New Enron. New Enron is governed by the OBCA with respect to evaluating
business combinations and related transactions.
FORM OF CONSIDERATION FOR CAPITAL STOCK
Enron. The DGCL provides that the consideration for which capital stock is
issued must consist of cash, services rendered, personal property, real
property, leases of real property or a combination thereof.
PGC. Under the OBCA, shares may be issued for a consideration consisting of
any tangible or intangible property or benefit to the corporation, including
cash, promissory notes, services performed, contracts for services to be
performed or other securities of the corporation.
New Enron. New Enron is governed by the OBCA with respect to share
issuances.
LIMITATION OF DIRECTOR LIABILITY
Enron. The Enron Charter contains a provision, permitted by the DGCL, that
eliminates the personal liability of a director to the corporation or its
stockholders for monetary damages for breach of fiduciary duties as a director,
except for liability of a director (i) for breach of the duty of loyalty, (ii)
for actions or omissions not in good faith or which involve intentional
misconduct or a knowing violation of law, (iii) for the payment of improper
dividends or redemptions, or (iv) for any transaction from which the director
derived an improper personal benefit.
PGC. The PGC Charter does not contain a provision limiting the liability of
directors.
New Enron. As is permitted by the OBCA, the New Enron Charter contains
essentially the same provision as is contained in the Enron Charter with respect
to limiting director liability, except that, as permitted under the OBCA,
damages are limited for monetary damages "for conduct as a director," which
differs from the DGCL provision, which permits limits on monetary damages "for
breach of fiduciary duty as a director."
80
<PAGE> 88
INDEMNIFICATION
Enron. The Enron Charter contains provisions under which Enron will
indemnify, to the fullest extent permitted by law, persons who are made a party
to an action or proceeding by virtue of the fact that the person is or was a
director, officer, or, in certain circumstances, an employee or agent, of Enron
or another corporation at Enron's request. The DGCL generally permits such
indemnification to the extent that the person acted in good faith and in a
manner which he reasonably believed to be in the best interest of or not opposed
to the corporation or, with respect to criminal matters, if the individual had
no reasonable cause to believe his or her conduct was unlawful.
PGC. The PGC Bylaws contain a provision under which PGC will indemnify, to
the fullest extent permitted by law, persons who are made a party to an action
or proceeding by virtue of the fact that the person is or was a director or
officer of PGC or another corporation at PGC's request. The OBCA generally
permits such indemnification to the extent that the person acted in good faith
and in a manner which he reasonably believed to be in, or not opposed to, the
best interest of the corporation or, with respect to criminal matters, if the
individual had no reasonable cause to believe his or her conduct was unlawful.
New Enron. The New Enron Charter contains provisions substantially similar
to the indemnification provisions in the Enron Charter, subject to any
limitations in the OBCA.
INDEPENDENT PUBLIC ACCOUNTANTS
Representatives of Arthur Andersen LLP will be present at the Enron Special
Meeting and the PGC Special Meeting to respond to appropriate questions of
shareholders and to make a statement if they so desire.
LEGAL MATTERS
The validity of the securities to be issued in the Mergers has been passed
upon for New Enron and Enron by James V. Derrick, Jr., Senior Vice President and
General Counsel of Enron. Certain tax consequences of the Mergers have been
passed upon for New Enron and Enron by Vinson & Elkins L.L.P., Houston, Texas,
and for PGC by Wachtell, Lipton, Rosen & Katz, New York, New York.
EXPERTS
The consolidated financial statements and financial statements schedules,
included in Enron's annual report on Form 10-K for the year ended December 31,
1995, have been incorporated by reference herein and in the Registration
Statement in reliance upon the reports of Arthur Andersen LLP, independent
public accountants, incorporated by reference herein, and upon the authority of
said firm as experts in accounting and auditing.
The letter report of DeGolyer and MacNaughton, independent petroleum
consultants, included as an exhibit to Enron's Annual Report on Form 10-K for
the year ended December 31, 1995, and the estimates from the reports of that
firm appearing in such Annual Report, are incorporated by reference herein on
the authority of said firm as experts in petroleum engineering and in giving
such reports.
The consolidated financial statements and financial statements schedules
included in PGC's annual report on Form 10-K for the year ended December 31,
1995, have been incorporated by reference herein and in the Registration
Statement in reliance upon the reports of Arthur Andersen LLP, independent
public accountants, incorporated by reference herein, and upon the authority of
said firm as experts in accounting and auditing.
81
<PAGE> 89
SHAREHOLDER PROPOSALS
ENRON
Pursuant to various rules promulgated by the Commission and provisions of
the Enron Bylaws, any proposals of holders of Enron voting stock intended to be
presented to the Annual Meeting of Shareholders of Enron to be held in 1997 must
be received by Enron, addressed to Peggy B. Menchaca, Vice President and
Secretary, 1400 Smith Street, Houston, Texas 77002, no later than November 25,
1996, to be included in the Enron proxy statement and form of proxy relating to
that meeting. Pursuant to the Enron Bylaws and the rules of the Commission, a
shareholder proposal or nomination must contain certain information specified in
the Enron Bylaws.
PGC
To be considered for inclusion in the proxy statement for the 1997 Annual
Meeting of Shareholders of PGC, a proposal by a shareholder must be received by
the Secretary of PGC at One World Trade Center, 121 SW Salmon Street, Portland,
Oregon 97204, not later than the close of business on December 3, 1996.
Proposals received by that date will be included in the 1997 Proxy Statement if
the proposals are proper for consideration at an annual meeting of shareholders
and are required for inclusion in the proxy statement by, and conform to, the
rules of the Commission.
Under the PGC Bylaws, for business to be properly brought before an annual
meeting by a shareholder, written notice to the Secretary of PGC must be
delivered or mailed and received at the above address no more than 70 days nor
less than 35 days prior to the annual meeting. However, if notice or public
disclosure of the date of the annual meeting is made less than 50 days in
advance, the notice to the Secretary must be received no later than 15 days
after the announcement. If the annual meeting date is announced less than 15
days before the meeting, the notice must be received no later than the day
before the annual meeting. Under the PGC Bylaws, the notice must (a) briefly
describe the business to be presented and the reason for presenting it at the
annual meeting, (b) state the name and record address of the shareholder
proposing the business, state the class and number of shares of stock
beneficially owned by the shareholder and (c) describe any material interests
the shareholder has in the business to be presented.
82
<PAGE> 90
ANNEX A
AMENDED AND RESTATED
AGREEMENT AND PLAN OF
MERGER
BY AND AMONG
ENRON CORP.,
PORTLAND GENERAL CORPORATION
AND
ENRON OREGON CORP.
DATED AS OF JULY 20, 1996
AND
AMENDED AND RESTATED
AS OF
SEPTEMBER 24, 1996
<PAGE> 91
TABLE OF CONTENTS
<TABLE>
<S> <C> <C>
ARTICLE I
THE MERGERS
Section 1.1 The Reincorporation Merger............................................... A-1
Section 1.2 The PGC Merger........................................................... A-2
Section 1.3 Effective Times of the Mergers........................................... A-2
ARTICLE II
TREATMENT OF SHARES
Section 2.1 Effect of the Reincorporation Merger on Capital Stock.................... A-3
Section 2.2 Effect of the PGC Merger on Capital Stock................................ A-3
Section 2.3 No Exchange of Enron Stock Certificates.................................. A-3
Section 2.4 Exchange of PGC Common Stock Certificates................................ A-4
Section 2.5 Adjustments to PGC Conversion Ratio...................................... A-5
ARTICLE III
THE CLOSING
Section 3.1 Closing.................................................................. A-6
ARTICLE IV
REPRESENTATIONS AND WARRANTIES OF ENRON
Section 4.1 Organization and Qualification........................................... A-6
Section 4.2 Subsidiaries............................................................. A-6
Section 4.3 Capitalization........................................................... A-7
Section 4.4 Authority; Non-Contravention; Statutory Approvals; Compliance............ A-7
Section 4.5 Reports and Financial Statements......................................... A-8
Section 4.6 Absence of Certain Changes or Events..................................... A-9
Section 4.7 Litigation............................................................... A-9
Section 4.8 Registration Statement and Proxy Statement............................... A-9
Section 4.9 Tax Matters.............................................................. A-9
Section 4.10 Employee Matters; ERISA.................................................. A-10
Section 4.11 Environmental Protection................................................. A-11
Section 4.12 Regulation as a Utility.................................................. A-12
Section 4.13 Vote Required............................................................ A-12
Section 4.14 Opinion of Financial Advisor............................................. A-12
Section 4.15 Insurance................................................................ A-13
Section 4.16 Applicability of Certain Delaware Law Provisions......................... A-13
Section 4.17 Operations of the Company................................................ A-13
ARTICLE V
REPRESENTATIONS AND WARRANTIES OF PGC
Section 5.1 Organization and Qualification........................................... A-13
Section 5.2 Subsidiaries............................................................. A-13
Section 5.3 Capitalization........................................................... A-14
Section 5.4 Authority; Non-Contravention; Statutory Approvals; Compliance............ A-14
Section 5.5 Reports and Financial Statements......................................... A-15
Section 5.6 Absence of Certain Changes or Events..................................... A-15
Section 5.7 Litigation............................................................... A-15
Section 5.8 Registration Statement and Proxy Statement............................... A-16
</TABLE>
A-i
<PAGE> 92
<TABLE>
<S> <C> <C>
Section 5.9 Tax Matters.............................................................. A-16
Section 5.10 Employee Matters; ERISA.................................................. A-17
Section 5.11 Environmental Protection................................................. A-19
Section 5.12 Regulation as a Utility.................................................. A-20
Section 5.13 Vote Required............................................................ A-20
Section 5.14 Opinion of Financial Advisor............................................. A-20
Section 5.15 Insurance................................................................ A-20
Section 5.16 Applicability of Certain Oregon Law Provision............................ A-20
Section 5.17 Status of PGC Nuclear Facility........................................... A-21
ARTICLE VI
CONDUCT OF BUSINESS PENDING THE MERGER
Section 6.1 Ordinary Course of Business.............................................. A-21
Section 6.2 Dividends and Repurchases................................................ A-21
Section 6.3 Issuance of Securities................................................... A-22
Section 6.4 Charter Documents........................................................ A-22
Section 6.5 Acquisitions............................................................. A-22
Section 6.6 No Dispositions.......................................................... A-22
Section 6.7 Indebtedness............................................................. A-22
Section 6.8 Capital Expenditures..................................................... A-23
Section 6.9 Compensation, Benefits................................................... A-23
Section 6.10 Tax-Free Status.......................................................... A-23
Section 6.11 Discharge of Liabilities................................................. A-23
Section 6.12 Cooperation, Notification................................................ A-23
Section 6.13 Conduct of Business by Enron............................................. A-24
Section 6.14 Third-Party Consents..................................................... A-24
Section 6.15 No Breach, Etc. ......................................................... A-24
Section 6.16 Insurance................................................................ A-24
Section 6.17 Permits.................................................................. A-24
Section 6.18 Nuclear Operations....................................................... A-24
Section 6.19 Operations of Company.................................................... A-25
Section 6.20 Agreements............................................................... A-25
ARTICLE VII
ADDITIONAL AGREEMENTS
Section 7.1 Access to Information.................................................... A-25
Section 7.2 Joint Proxy Statement and Registration Statement......................... A-25
Section 7.3 Regulatory Matters....................................................... A-26
Section 7.4 Shareholder Approvals.................................................... A-27
Section 7.5 Directors' and Officers' Indemnification................................. A-27
Section 7.6 Disclosure Schedules..................................................... A-28
Section 7.7 Public Announcements..................................................... A-29
Section 7.8 Rule 145 Affiliates...................................................... A-29
Section 7.9 Employee Agreements...................................................... A-29
Section 7.10 Employee Benefit Plans................................................... A-30
Section 7.11 Incentive, Stock and Other Plans......................................... A-30
Section 7.12 No Solicitations......................................................... A-31
Section 7.13 Company Board of Directors............................................... A-33
Section 7.14 Company Officers......................................................... A-33
Section 7.15 Employment Contracts..................................................... A-33
Section 7.16 Post-Merger Operations................................................... A-33
Section 7.17 NYSE Listing............................................................. A-33
</TABLE>
A-ii
<PAGE> 93
<TABLE>
<S> <C> <C>
Section 7.18 Expenses................................................................. A-33
Section 7.19 Further Assurances....................................................... A-33
ARTICLE VIII
CONDITIONS
Section 8.1 Conditions to Each Party's Obligation to Effect the Mergers.............. A-34
Section 8.2 Conditions to Obligation of Enron and the Company to Effect the
Mergers.................................................................. A-34
Section 8.3 Conditions to Obligation of PGC to Effect the PGC Merger................. A-36
ARTICLE IX
TERMINATION, AMENDMENT AND WAIVER
Section 9.1 Termination.............................................................. A-36
Section 9.2 Effect of Termination.................................................... A-38
Section 9.3 Termination Fees......................................................... A-38
Section 9.4 Amendment................................................................ A-39
Section 9.5 Waiver................................................................... A-39
ARTICLE X
GENERAL PROVISIONS
Section 10.1 Non-Survival of Representations, Warranties, Covenants and Agreements.... A-40
Section 10.2 Brokers.................................................................. A-40
Section 10.3 Notices.................................................................. A-40
Section 10.4 Miscellaneous............................................................ A-41
Section 10.5 Interpretation........................................................... A-41
Section 10.6 Counterparts; Effect..................................................... A-41
Section 10.7 Parties in Interest...................................................... A-41
Section 10.8 Specific Performance..................................................... A-41
Section 10.9 Waiver of Jury Trial..................................................... A-42
</TABLE>
A-iii
<PAGE> 94
INDEX OF DEFINED TERMS
<TABLE>
<CAPTION>
TERM PAGE
- --------------------------------------------------------------------------------- ---------
<S> <C>
1935 Act......................................................................... A-6
Accrued Benefits................................................................. A-30
Act.............................................................................. A-43
Affiliate Agreement.............................................................. A-29
Agreement........................................................................ A-1
Atomic Energy Act................................................................ A-15
Ceiling Price.................................................................... A-38
Change in Control................................................................ A-23
Closing.......................................................................... A-6
Closing Date..................................................................... A-6
Closing Price.................................................................... A-4
Code............................................................................. A-1
Committee........................................................................ A-24
Company.......................................................................... A-1, A-43
Company Common Stock............................................................. A-3, A-43
Company Preferred Stock.......................................................... A-3
Confidentiality Agreement........................................................ A-25
Converted Shares................................................................. A-4
Current Participants............................................................. A-29
Decommissioning Plan............................................................. A-21
DGCL............................................................................. A-1
Disclosure Schedules............................................................. A-29
Effective Time................................................................... A-2
Enron............................................................................ A-1, A-43
Enron Benefit Plans.............................................................. A-10
Enron Business Combination....................................................... A-39
Enron Common Stock............................................................... A-3
Enron Competing Transaction...................................................... A-32
Enron Convertible Preferred Stock................................................ A-3
Enron Disclosure Schedule........................................................ A-29
Enron Employee Arrangements...................................................... A-10
Enron Financial Statements....................................................... A-8
Enron Material Adverse Effect.................................................... A-6
Enron Preferred Stock............................................................ A-3
Enron Required Consents.......................................................... A-8
Enron Required Statutory Approvals............................................... A-8
Enron SEC Reports................................................................ A-8
Enron Shareholders' Approval..................................................... A-12
Enron Special Meeting............................................................ A-27
Enron Transaction Price.......................................................... A-38
Enron Violation.................................................................. A-7
Environmental Claim.............................................................. A-12
Environmental Laws............................................................... A-12
Environmental Permits............................................................ A-11
ERISA............................................................................ A-10
Exchange Act..................................................................... A-8
Exchange Agent................................................................... A-4
Extraordinary Distribution....................................................... A-5
Extraordinary Distribution Value................................................. A-5
Final Order...................................................................... A-34
</TABLE>
A-iv
<PAGE> 95
<TABLE>
<CAPTION>
TERM PAGE
- --------------------------------------------------------------------------------- ---------
<S> <C>
First Effective Time............................................................. A-12
Floor Price...................................................................... A-38
Foundation....................................................................... A-33
GAAP............................................................................. A-8
Governmental Authority........................................................... A-8
Hazardous Materials.............................................................. A-12
HSR Act.......................................................................... A-27
Indemnified Parties.............................................................. A-27
Indemnified Party................................................................ A-27
Joint Proxy Statement............................................................ A-9
Joint Proxy/Registration Statement............................................... A-25
Merger Agreement................................................................. A-43
Mergers.......................................................................... A-2
Nonqualified Plans............................................................... A-29
NRC.............................................................................. A-15
NYSE............................................................................. A-5
OBCA............................................................................. A-1
ODOE............................................................................. A-25
Oregon Department of State....................................................... A-2
Permits.......................................................................... A-8
PGC.............................................................................. A-1
PGC Benefit Plans................................................................ A-17
PGC Business Combination......................................................... A-39
PGC Certificates................................................................. A-4
PGC Common Stock................................................................. A-3
PGC Competing Transaction........................................................ A-31
PGC Conversion Ratio............................................................. A-3
PGC Disclosure Schedule.......................................................... A-29
PGC Employees.................................................................... A-29
PGC ERISA Affiliate.............................................................. A-17
PGC Financial Statements......................................................... A-15
PGC Group........................................................................ A-16
PGC Material Adverse Effect...................................................... A-13
PGC Merger....................................................................... A-2
PGC Required Consents............................................................ A-14
PGC Required Statutory Approvals................................................. A-15
PGC SEC Reports.................................................................. A-15
PGC Shareholders' Approval....................................................... A-20
PGC Special Meeting.............................................................. A-27
PGC Stock Option................................................................. A-30
PGC Stock Plan................................................................... A-30
PGC Violation.................................................................... A-14
PGE.............................................................................. A-20
Power Act........................................................................ A-15
Registration Statement........................................................... A-9
Regulatory Plans................................................................. A-26
Reincorporation Merger........................................................... A-1
Release.......................................................................... A-12
Representatives.................................................................. A-25
Revised Enron Share Value........................................................ A-6
SEC.............................................................................. A-8
</TABLE>
A-v
<PAGE> 96
<TABLE>
<CAPTION>
TERM PAGE
- --------------------------------------------------------------------------------- ---------
<S> <C>
Second Effective Time............................................................ A-2
Securities Act................................................................... A-8
Shares........................................................................... A-43
Stock Plans...................................................................... A-31
Surviving Corporation............................................................ A-1
Tax Return....................................................................... A-9
Taxes............................................................................ A-9
Termination Date................................................................. A-36
Trading Day...................................................................... A-5
Transferred Employee............................................................. A-29
Transition Year.................................................................. A-30
</TABLE>
A-vi
<PAGE> 97
AMENDED AND RESTATED
AGREEMENT AND PLAN
OF MERGER
THIS AMENDED AND RESTATED AGREEMENT AND PLAN OF MERGER, dated as of July
20, 1996 and amended and restated as of September 24, 1996 (this "Agreement"),
is by and among Enron Corp., a Delaware corporation ("Enron"), Portland General
Corporation, an Oregon corporation ("PGC"), and Enron Oregon Corp. (formerly New
Falcon Corp.), an Oregon corporation and wholly owned subsidiary of Enron (the
"Company").
WHEREAS, the boards of directors of Enron and PGC have approved and deemed
it advisable and in the best interests of their respective shareholders to
consummate the transactions contemplated herein under which the businesses of
Enron and PGC would be combined by means of (i) the reincorporation of Enron as
an Oregon corporation through the merger of Enron with and into the Company, as
a result of which shareholders of Enron will become shareholders of the Company,
and (ii) the subsequent merger of PGC with and into the Company, as a result of
which the shareholders of PGC will become shareholders of the Company, all on
the terms and subject to the conditions set forth in this Agreement; and
WHEREAS, for federal income tax purposes, it is intended that the
transactions contemplated hereby will qualify as reorganizations under the
provisions of Section 368(a) of the Internal Revenue Code of 1986, as amended,
and rules and regulations promulgated thereunder (the "Code");
NOW THEREFORE, in consideration of the foregoing and the respective
representations, warranties, covenants and agreements contained herein, the
parties hereto agree as follows:
ARTICLE I
THE MERGERS
Section 1.1 The Reincorporation Merger. Upon the terms and subject to the
conditions of this Agreement, at the First Effective Time (as defined in Section
1.3(a)):
(a) Effect. Enron shall be merged with and into the Company (the
"Reincorporation Merger") in accordance with the applicable provisions of
the laws of the States of Delaware and Oregon, as a result of which the
separate corporate existence of Enron shall cease, and the Company shall be
the surviving corporation (sometimes referred to herein as the "Surviving
Corporation") and shall continue its corporate existence under the laws of
the State of Oregon. The effects and consequences of the Reincorporation
Merger shall be as set forth in Section 252 of the Delaware General
Corporation Law ("DGCL") and Section 60.497 of the Oregon Business
Corporation Act (the "OBCA").
(b) Articles of Incorporation. At the First Effective Time, the
articles of incorporation of the Company, which shall be substantially
similar to the certificate of incorporation of Enron in effect on the date
hereof, with such changes as are necessary to comply with the OBCA or as
may be agreed upon by Enron and PGC prior to the PGC Special Meeting (as
defined herein), shall be the articles of incorporation of the Surviving
Corporation and thereafter shall continue to be its articles of
incorporation until amended as provided therein and pursuant to the
applicable provisions of the OBCA, except that Article 1 of such articles
of incorporation shall be amended to read in its entirety as follows:
"The name of the corporation is Enron Corp."
(c) Bylaws. The bylaws of the Company, which shall be substantially
similar to the bylaws of Enron in effect on the date hereof, with such
changes as are necessary to comply with the OBCA or as may be agreed upon
by Enron and PGC prior to the PGC Special Meeting, shall be the bylaws of
the Surviving Corporation and thereafter shall continue to be its bylaws
until amended as provided therein and pursuant to the applicable provisions
of the OBCA.
(d) Officers and Directors. The directors of Enron immediately prior
to the First Effective Time shall be the directors of the Surviving
Corporation, each to hold office in accordance with the articles of
A-1
<PAGE> 98
incorporation and bylaws of the Surviving Corporation, and the officers of
Enron immediately prior to the First Effective Time shall be the officers
of the Surviving Corporation, each to hold office in accordance with the
bylaws of the Surviving Corporation.
Section 1.2 The PGC Merger. Upon the terms and subject to the conditions
of this Agreement, at the Second Effective Time (as defined in Section 1.3(b)):
(a) Effect. PGC shall be merged with and into the Company (the "PGC
Merger" and, together with the Reincorporation Merger, the "Mergers") in
accordance with the applicable provisions of the OBCA, as a result of which
the separate corporate existence of PGC shall cease, and the Company shall
be the Surviving Corporation and shall continue its corporate existence
under the laws of the State of Oregon. The effects and consequences of the
PGC Merger shall be as set forth in Section 60.497 of the OBCA.
(b) Articles of Incorporation. At the Second Effective Time, the
articles of incorporation of the Company, as in effect immediately prior to
the Second Effective Time, shall be the articles of incorporation of the
Surviving Corporation and thereafter shall continue to be its articles of
incorporation until amended as provided therein and pursuant to the
applicable provisions of the OBCA.
(c) Bylaws. The bylaws of the Company, as in effect immediately prior
to the Second Effective Time, shall be the bylaws of the Surviving
Corporation and thereafter shall continue to be its bylaws until amended as
provided therein and pursuant to the applicable provisions of the OBCA.
(d) Officers and Directors. Subject to Section 7.13, the directors of
the Company immediately prior to the Second Effective Time shall be the
directors of the Surviving Corporation, each to hold office in accordance
with the articles of incorporation and bylaws of the Surviving Corporation
and, subject to Section 7.14, the officers of the Company immediately prior
to the Second Effective Time shall be the officers of the Surviving
Corporation, each to hold office in accordance with the bylaws of the
Surviving Corporation.
Section 1.3 Effective Times of the Mergers.
(a) First Effective Time. On the Closing Date (as defined in Section 3.1),
articles of merger in proper form under Section 60.494 of the OBCA, and a
certificate of merger in proper form under Section 252 the DGCL, each relating
to the Reincorporation Merger, will be duly executed and filed by the parties to
the Reincorporation Merger with the Office of the Department of State of the
State of Oregon (the "Oregon Department of State") and the Office of the
Secretary of State of the State of Delaware in accordance with the applicable
provisions of the OBCA and the DGCL, respectively. The Reincorporation Merger
shall become effective upon the later of the filing of such articles of merger
with the Oregon Department of State or the filing of such certificate of
incorporation with the Secretary of State of Delaware, or at such later time as
may be mutually agreed to by the parties hereto and specified in such articles
of merger or certificate of merger (the time the Reincorporation Merger becomes
effective being herein called the "First Effective Time").
(b) Second Effective Time. On the Closing Date articles of merger in proper
form under Section 60.494 of the OBCA relating to the PGC Merger will be duly
executed and filed by the parties to the PGC Merger with the Oregon Department
of State in accordance with the applicable provisions of the OBCA. The PGC
Merger shall become effective upon the filing of such articles of merger with
the Oregon Department of State or at such later time as may be mutually agreed
to by the parties hereto and specified in such articles of merger (the time the
PGC Merger becomes effective being herein called the "Second Effective Time");
provided, however, that the Second Effective Time shall in any event be later
than the First Effective Time. As used herein, the term "Effective Time" refers
to the Second Effective Time.
A-2
<PAGE> 99
ARTICLE II
TREATMENT OF SHARES
Section 2.1 Effect of the Reincorporation Merger on Capital Stock. At the
First Effective Time, by virtue of the Reincorporation Merger and without any
action on the part of any holder of any capital stock of Enron or the Company:
(a) Conversion of Enron Common Stock. Each share of Enron common
stock, par value $.10 per share ("Enron Common Stock"), issued immediately
prior to the First Effective Time shall be converted into and become one
share of the common stock, no par value, of the Company ("Company Common
Stock").
(b) Conversion of Enron Preferred Stock. Each share of Cumulative
Second Preferred Convertible Stock, par value $1.00 per share ("Enron
Convertible Preferred Stock") issued and outstanding immediately prior to
the First Effective Time, each share of 9.142% Perpetual Second Preferred
Stock, par value $1.00 per share, issued and outstanding immediately prior
to the First Effective Time, and each share of any series of Preferred
Stock, Second Preferred Stock or Preference Stock of Enron issued after the
date hereof and issued and outstanding immediately prior to the First
Effective Time (together, the "Enron Preferred Stock") shall be converted
into and become one share of a class or series of preferred stock of the
Company having substantially equivalent rights, preferences and limitations
as the corresponding class or series of Enron Preferred Stock (together,
the "Company Preferred Stock").
(c) Cancellation of Company Common Stock. Each share of Company Common
Stock issued and outstanding immediately prior to the First Effective Time
shall be canceled, and no consideration shall be delivered in exchange
therefor.
Section 2.2 Effect of the PGC Merger on Capital Stock. At the Second
Effective Time, by virtue of the PGC Merger and without any action on the part
of any holder of any capital stock of PGC or the Company:
(a) Cancellation of Certain PGC Common Stock. Each share of PGC common
stock, par value $3.75 per share ("PGC Common Stock"), owned by PGC or any
of its subsidiaries or by Enron, the Company or any of their respective
subsidiaries, shall be canceled and shall cease to exist, and no
consideration shall be delivered in exchange therefor.
(b) Conversion of PGC Common Stock. Each share of PGC Common Stock
issued and outstanding immediately prior to the Second Effective Time
(other than shares canceled pursuant to Section 2.2(a)) shall be converted
into one share of Company Common Stock (the "PGC Conversion Ratio"). Upon
such conversion as provided for herein, each holder of a certificate
formerly representing any such shares of PGC Common Stock shall cease to
have any rights with respect thereto, except the right to receive the
shares of Company Common Stock to be issued in consideration therefor (and
cash in lieu of fractional shares as provided below in Section 2.4(d)) upon
the surrender of such in accordance with Section 2.4.
Section 2.3 No Exchange of Enron Stock Certificates. No certificates
representing Company Common Stock or Company Preferred Stock shall be issued to
holders of Enron Common Stock or Enron Preferred Stock by virtue of consummation
of the Reincorporation Merger unless requested by such holders. Instead,
following the Reincorporation Merger, certificates that prior to the First
Effective Time represented shares of Enron Common Stock or Enron Preferred Stock
shall be deemed for all purposes to represent an equal number of shares of
Company Common Stock or Company Preferred Stock, as the case may be. From and
after the First Effective Time, the stock transfer books of Enron shall be
closed and no transfer of any such shares shall thereafter be made, but when
certificates that formerly represented shares of Enron Common Stock or Enron
Preferred Stock are duly presented to the Company or its transfer agent for
exchange or transfer, the Company will cause to be issued in respect thereof
certificates representing an equal number of shares of Company Common Stock or
Company Preferred Stock, as the case may be.
A-3
<PAGE> 100
Section 2.4 Exchange of PGC Common Stock Certificates.
(a) Deposit with Exchange Agent. As soon as practicable after the
Effective Time, the Company shall deposit with a bank, trust company or
other agent selected by the Company and acceptable to PGC ("Exchange
Agent"), pursuant to an agreement in form and substance reasonably
acceptable to the Company and PGC, certificates representing shares of
Company Common Stock required to effect the conversion of PGC Common Stock
into Company Common Stock in accordance with Section 2.2(b).
(b) Exchange Procedures. As soon as practicable after the Effective
Time, the Company shall cause the Exchange Agent to mail to each holder of
record as of the Effective Time of a certificate or certificates that
immediately prior to the Effective Time represented issued and outstanding
shares of PGC Common Stock ("PGC Certificates") that were converted
("Converted Shares") into shares of Company Common Stock pursuant to
Section 2.2(b), a letter of transmittal and instructions for use in
submitting PGC Certificates to the Exchange Agent in exchange for
certificates representing shares of Company Common Stock in accordance with
the terms hereof. Upon delivery of a PGC Certificate to the Exchange Agent
for exchange, together with a duly executed letter of transmittal and such
other documents as the Exchange Agent shall require, the holder of such PGC
Certificate shall be entitled to receive in exchange therefor a certificate
representing that number of whole shares of Company Common Stock and the
amount of cash in lieu of fractional share interests which such holder has
the right to receive pursuant to the provisions of this Article II. In the
event of a transfer of ownership of Converted Shares which is not
registered in the transfer records of PGC, a certificate representing the
proper number of shares of Company Common Stock may be issued to a
transferee if the PGC Certificate representing such Converted Shares is
presented to the Exchange Agent, accompanied by all documents required to
evidence and effect such transfer and by evidence satisfactory to the
Exchange Agent that any applicable stock transfer taxes have been paid.
Until delivered and exchanged for Company Common Stock as contemplated by
this Section 2.4, and except as provided in Section 2.4(c), each PGC
Certificate shall be deemed at any time after the Effective Time to
represent only the right to receive upon such delivery the certificate
representing shares of Company Common Stock and cash in lieu of any
fractional shares as contemplated by this Section 2.4.
(c) Distributions with Respect to Unexchanged Shares. Unless and until
the certificate or certificates representing Converted Shares have been
surrendered for exchange to the Exchange Agent as contemplated in Section
2.4, no dividends or other distributions payable to holders of Company
Common Stock as of a record date at or after the Effective Time shall be
paid to any holder of a certificate representing such unexchanged Converted
Shares. Subject to the effect of unclaimed property, escheat and other
applicable laws, following delivery of any such certificate, there shall be
paid to the record holder (or transferee) of the certificates representing
whole shares of Company Common Stock issued in exchange therefor, without
interest, (i) the amount of dividends or other distributions with a record
date after the Effective Time theretofore paid with respect to such whole
shares of Company Common Stock, and (ii) at the appropriate payment date,
the amount of dividends or other distributions with a record date at or
after the Effective Time but prior to delivery and a payment date
subsequent to delivery payable with respect to such whole shares of Company
Common Stock, as the case may be.
(d) No Fractional Shares. No certificates or scrip representing
fractional shares of Company Common Stock shall be issued upon the delivery
for exchange of Converted Shares, and such fractional share interests will
not entitle the owner thereof to vote or to any rights of a shareholder of
the Company. In lieu of any such fractional shares, each holder of a
certificate previously evidencing Converted Shares, upon surrender of such
certificate for exchange pursuant to this Section 2.4, shall be paid an
amount in cash, without interest, rounded to the nearest cent, determined
by multiplying (a) the average of the Closing Prices (as defined herein) of
the Enron Common Stock for the ten Trading Days ending on and including the
Trading Day prior to the Closing Date, by (b) the fractional interest to
which such holder would otherwise be entitled (after taking into account
all Converted Shares held of record by such holder at the Effective Time).
The "Closing Price" for each day shall be the last reported 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
A-4
<PAGE> 101
securities listed or admitted to trading on the New York Stock Exchange
("NYSE"). The term "Trading Day" shall mean a day on which the NYSE is open
for the transaction of business.
(e) Closing of Transfer Books. From and after the Effective Time, the
stock transfer books of PGC shall be closed and no transfer of any such
shares shall thereafter be made. If, after the Effective Time, PGC
Certificates are presented to the Company, they shall be canceled and
exchanged for certificates representing the appropriate number of whole
shares of Company Common Stock and cash in lieu of fractional shares of
Company Common Stock as provided in this Section 2.4.
(f) Termination of Exchange Agent Duties. Any certificates
representing shares of Company Common Stock deposited with the Exchange
Agent pursuant to Section 2.4(a) and not exchanged within six months after
the Effective Time pursuant to this Section 2.4 shall be returned by the
Exchange Agent to the Company, which shall thereafter act as Exchange
Agent.
(g) Escheat. The Company shall not be liable to any person for such
shares or funds delivered to a public official pursuant to the requirements
of any applicable abandoned property, escheat or similar law.
(h) Taxes. The Company shall be entitled to deduct and withhold from
the consideration otherwise payable pursuant to this Agreement to any
former holder of Converted Shares such amounts as the Company (or any
affiliate thereof) is required to deduct and withhold with respect to the
making of such payment under the Code, or any provision of state, local or
foreign tax law. To the extent that amounts are so withheld by the Company,
such withheld amounts shall be treated for all purposes of this Agreement
as having been paid to the former holder of the Converted Shares in respect
of which such deduction and withholding was made by the Company.
Section 2.5 Adjustments to PGC Conversion Ratio.
(a) If, on or after the date hereof and prior to the Effective Time,
there is a change in the number of shares of Enron Common Stock issued and
outstanding as a result of reclassification, stock split (including a
reverse stock split), stock dividend or similar transaction, the PGC
Conversion Ratio, the Ceiling Price (as defined in Section 9.1(m)) and the
Floor Price (as defined Section 9.1(l)) shall be equitably adjusted to
eliminate the effects of such event.
(b) If, on or after the date hereof and prior to the Effective Time,
Enron effects a distribution to all holders of Enron Common Stock of shares
of any class or series of capital stock (but excluding any distribution
that results in an adjustment under clause (a) above and any dividends paid
exclusively in cash) (an "Extraordinary Distribution"), the PGC Conversion
Ratio in effect immediately prior to such Extraordinary Distribution shall
be adjusted to equal $41.75 (or, if applicable, the Revised Enron Share
Value determined in connection with any previous adjustment in the PGC
Conversion Ratio) divided by the Revised Enron Share Value (as hereinafter
defined). In addition, the Ceiling Price in effect immediately prior to
such Extraordinary Distribution shall be adjusted to equal 1.1317
multiplied by the Revised Enron Share Value, and the Floor Price in effect
immediately prior to such Extraordinary Distribution shall be adjusted to
equal 0.8683 multiplied by the Revised Enron Share Value. The PGC
Conversion Ratio, the Ceiling Price and Floor Price shall be so adjusted
successively whenever an Extraordinary Distribution shall occur on or after
the date hereof and prior to the Effective Time. Any securities distributed
by Enron in an Extraordinary Distribution shall be listed on the NYSE from
and after the time such distribution is made.
(c) For purposes of this Section 2.5(b), the following terms shall
have the following meanings in respect of any Extraordinary Distribution:
"Extraordinary Distribution Value" means the aggregate number of
securities distributed to each holder of Enron Common Stock pursuant to
such Extraordinary Distribution multiplied by the market price of such
security, with the "market price" being the average of the daily closing
prices (as hereinafter defined) per share of such security for the 20
consecutive Trading Days immediately following the date of such
Extraordinary Distribution.
A-5
<PAGE> 102
"Revised Enron Share Value" shall equal $41.75 (or, if applicable, the
Revised Enron Share Value determined in connection with any previous
adjustment in the PGC Conversion Ratio) less the Extraordinary Distribution
Value.
(d) If, on or after the date hereof and prior to the Effective Time,
there is consummated a transaction other than a transaction of the type
described in Sections 2.5(a) or (b) above pursuant to which shares of Enron
Common Stock become converted into the right to receive cash, securities or
other property or any combination thereof, Enron shall make appropriate
provision so that the corporation surviving such transaction is substituted
for Enron as a party hereto, and appropriate adjustment is made to Section
2.2(b) hereof so that, upon consummation of the Mergers, each share of PGC
Common Stock shall be converted into such amount of cash, securities or
other property or combination thereof as each such share would have been
converted had the Mergers occurred prior to such transaction.
ARTICLE III
THE CLOSING
Section 3.1 Closing. The closing (the "Closing") of the transactions
contemplated by this Agreement shall take place at a place and time to be
mutually agreed upon by the parties hereto on the second business day
immediately following the date on which the last of the conditions set forth in
Article VIII (other than conditions that by their nature are required to be
performed on the Closing Date, but subject to satisfaction of such conditions)
is fulfilled or waived, or at such other time and date as PGC and Enron shall
mutually agree (the "Closing Date").
ARTICLE IV
REPRESENTATIONS AND WARRANTIES OF ENRON
Enron represents and warrants to PGC as follows:
Section 4.1 Organization and Qualification. Except as disclosed in Section
4.1 of the Enron Disclosure Schedule (as defined in Section 7.6(ii)), Enron and
each of its subsidiaries (as defined below) is a corporation or other entity
duly organized, validly existing and in good standing under the laws of its
jurisdiction of incorporation or organization, has all requisite corporate power
and authority, and has been duly authorized by all necessary regulatory
approvals and orders, to own, lease and operate its assets and properties and to
carry on its business as it is now being conducted, and is duly qualified and in
good standing to do business in each jurisdiction in which the nature of its
business or the ownership or leasing of its assets and properties makes such
qualification necessary other than in such jurisdictions where the failure to be
so qualified and in good standing will not, when taken together with all other
such failures, have a material adverse effect on the business, properties,
financial condition, results of operations or prospects of Enron and its
subsidiaries and joint ventures, taken as a whole or on the consummation of this
Agreement (any such material adverse effect being hereinafter referred to as an
"Enron Material Adverse Effect"). As used in this Agreement, references to a
"subsidiary" of Enron means any corporation or other entity (including
partnerships and other business associations) in which Enron directly or
indirectly owns outstanding capital stock or other voting securities having the
power, under ordinary circumstances, to elect a majority of the directors or
similar members of the governing body of such corporation or other entity.
Section 4.2 Subsidiaries. Section 4.2 of the Enron Disclosure Schedule
contains a listing as of the date hereof of all material and certain other
subsidiaries and joint ventures of Enron, including the name of each such
entity, the state or jurisdiction of its incorporation or organization and
Enron's interest therein. Such entities are not subject to, or are exempt from,
regulation as a "public utility company", a "holding company", a "subsidiary
company" or an "affiliate" of any public utility company within the meaning of
Section 2(a)(5), 2(a)(7), 2(a)(8) or 2(a)(11) of the Public Utility Holding
Company Act of 1935, as amended (the "1935 Act"), respectively. Except as
disclosed in Section 4.2 of the Enron Disclosure Schedule, all of the issued and
outstanding shares of capital stock of each subsidiary of Enron are validly
issued, fully paid,
A-6
<PAGE> 103
nonassessable and free of preemptive rights and are owned directly or indirectly
by Enron. Except as disclosed in Section 4.2 of the Enron Disclosure Schedule,
such shares are owned free and clear of any liens, claims, encumbrances,
security interests, equities, charges and options of any nature whatsoever, and
there are no outstanding subscriptions, options, calls, contracts, voting
trusts, proxies or other commitments, understandings, restrictions,
arrangements, rights or warrants, including any right of conversion or exchange
under any outstanding security, instrument or other agreement, obligating any
such subsidiary to issue, deliver or sell, or cause to be issued, delivered or
sold, additional shares of its capital stock or obligating it to grant, extend
or enter into any such agreement or commitment, except for any of the foregoing
that could not reasonably be expected to have an Enron Material Adverse Effect.
As used in this Agreement, references to a "joint venture" of Enron means any
corporation or other entity (including partnerships and other business
associations and joint ventures) in which Enron and its subsidiaries in the
aggregate own an equity interest that is less than a majority of the outstanding
voting securities but at least 10% of such voting securities.
Section 4.3 Capitalization.
(a) The authorized capital stock of Enron and the number of shares of
each class or series of capital stock outstanding as of the close of
business on July 18, 1996 is set forth in Section 4.3 of the Enron
Disclosure Schedule. All of the issued and outstanding shares of the
capital stock of Enron are validly issued, fully paid, nonassessable and
free of preemptive rights. Except as disclosed in Section 4.3 of the Enron
Disclosure Schedule, as of the date hereof there are no outstanding
subscriptions, options, calls, contracts, voting trusts, proxies or other
commitments, understandings, restrictions, arrangements, rights or
warrants, including any right of conversion or exchange under any
outstanding security, instrument or other agreement, obligating Enron to
issue, deliver or sell, or cause to be issued, delivered or sold,
additional shares of the capital stock or other voting securities of Enron
or obligating Enron to grant, extend or enter into any such agreement or
commitment.
(b) The authorized capital stock of the Company consists of 1,000
shares of Company Common Stock and no shares of preferred stock. As of the
date hereof, 1,000 shares of Company Common Stock and no shares of
preferred stock were issued and outstanding.
Section 4.4 Authority; Non-Contravention; Statutory Approvals; Compliance.
(a) Authority. Enron and the Company have all requisite power and
authority to enter into this Agreement and, subject to the Enron
Shareholders' Approval (as defined in Section 4.13) and the Enron Required
Statutory Approvals (as defined in Section 4.4(c)), to consummate the
transactions contemplated hereby. The execution and delivery of this
Agreement and the consummation by Enron and the Company of the transactions
contemplated hereby have been duly authorized by all necessary corporate
action on the part of Enron or the Company, as the case may be, subject to
obtaining the Enron Shareholders' Approval. This Agreement has been duly
and validly executed and delivered by Enron and the Company and, assuming
the due authorization, execution and delivery of this Agreement by PGC,
constitutes the legal, valid and binding obligation of Enron and the
Company, enforceable against Enron and the Company in accordance with its
terms.
(b) Non-Contravention. Except as disclosed in Section 4.4(b) of the
Enron Disclosure Schedule, the execution and delivery of this Agreement by
Enron do not, and the consummation of the transactions contemplated hereby
will not, violate, conflict with or result in a breach of any provision of,
or constitute a default (with or without notice or lapse of time or both)
under, or result in the termination of, or accelerate the performance
required by, or result in a right of termination, cancellation or
acceleration of any obligation under, or result in the creation of any
lien, security interest, charge or encumbrance upon any of the properties
or assets of Enron or any of its subsidiaries or, to Enron's knowledge, any
of its joint ventures (any such violation, conflict, breach, default, right
of termination, cancellation or acceleration, loss or creation, a "Enron
Violation"), under any provisions of (i) the certificate of incorporation,
bylaws or similar charter documents of Enron or any of its subsidiaries or,
to Enron's knowledge, any of its joint ventures, (ii) subject to obtaining
the Enron Required Statutory Approvals and the receipt of the Enron
Shareholders' Approval, any statute, law, ordinance, rule, regulation,
judgment, decree, order, injunction, writ, permit or license of any court,
governmental or regulatory body (including a stock exchange or other
A-7
<PAGE> 104
self-regulatory body) or authority, domestic or foreign (each, a
"Governmental Authority"), applicable to Enron or any of its subsidiaries
or, to Enron's knowledge, any of its joint ventures, or any of their
respective properties or assets or (iii) subject to obtaining the
third-party consents or other approvals set forth in Section 4.4(b) of the
Enron Disclosure Schedule (the "Enron Required Consents"), any note, bond,
mortgage, indenture, deed of trust, license, franchise, permit, concession,
contract, lease or other instrument, obligation or agreement of any kind to
which Enron or any of its subsidiaries or, to Enron's knowledge, any of its
joint ventures, is now a party or by which any of them or any of their
respective properties or assets may be bound or affected, excluding from
the foregoing clauses (ii) and (iii) such Enron Violations as would not
have, in the aggregate, an Enron Material Adverse Effect.
(c) Statutory Approvals. Except as disclosed in Section 4.4(c) of the
Enron Disclosure Schedule, no declaration, filing or registration with, or
notice to or authorization, consent, finding by or approval of, any
Governmental Authority is necessary for the execution and delivery of this
Agreement by Enron and the Company or the consummation by Enron and the
Company of the transactions contemplated hereby, the failure to obtain,
make or give which would have, in the aggregate, an Enron Material Adverse
Effect (the "Enron Required Statutory Approvals"), it being understood that
references in this Agreement to "obtaining" such Enron Required Statutory
Approvals shall mean making such declarations, filings or registrations;
giving such notice; obtaining such consents or approvals; and having such
waiting periods expire as are necessary to avoid a violation of law.
(d) Compliance. Except as disclosed in Section 4.4(d) or 4.11 of the
Enron Disclosure Schedule or as disclosed in the Enron SEC Reports (as
defined in Section 4.5), neither Enron nor any of its subsidiaries nor, to
Enron's knowledge, its joint ventures, is in violation of or under
investigation with respect to, or has been given notice or been charged
with any violation of, any law, statute, order, rule, regulation, ordinance
or judgment (including, without limitation, any applicable Environmental
Laws (as defined in Section 4.11(f)) of any Governmental Authority, except
for violations that, in the aggregate, do not have, and, to the knowledge
of Enron, are not reasonably likely to have, an Enron Material Adverse
Effect. Except as disclosed in Section 4.4(d) or 4.11 of the Enron
Disclosure Schedule, Enron and its subsidiaries and, to Enron's knowledge,
its joint ventures, have all permits, licenses, franchises and other
governmental authorizations, consents and approvals necessary to conduct
their respective businesses as currently conducted (collectively,
"Permits"), except those which the failure to obtain would, in the
aggregate, not have an Enron Material Adverse Effect.
Section 4.5 Reports and Financial Statements. The filings required to be
made by Enron and its subsidiaries since January 1, 1991 under the Securities
Act of 1933, as amended (the "Securities Act"), and the Securities Exchange Act
of 1934, as amended (the "Exchange Act"), have been filed with the Securities
and Exchange Commission (the "SEC") and complied in all material respects with
all applicable requirements of the appropriate act and the rules and regulations
thereunder. Enron has made available to PGC a true and complete copy of each
report, schedule, registration statement and definitive proxy statement filed by
Enron with the SEC since January 1, 1991 and through the date hereof (as such
documents have since the time of their filing been amended, the "Enron SEC
Reports"). The Enron SEC Reports, including without limitation any financial
statements or schedules included therein, at the time filed did not, and any
forms, reports or other documents filed by Enron with the SEC after the date
hereof will not, contain any untrue statement of a material fact or omit to
state a material fact required to be stated therein or necessary to make the
statements therein, in light of the circumstances under which they were made,
not misleading. The audited consolidated financial statements and unaudited
interim financial statements of Enron included in the Enron SEC Reports
(collectively, the "Enron Financial Statements") that have been included in
Enron SEC Reports have been prepared, and the Enron Financial Statements to be
included in any forms, reports or other documents filed by Enron with the SEC
after the date hereof will be prepared, in accordance with generally accepted
accounting principles applied on a consistent basis ("GAAP") (except as may be
indicated therein or in the notes thereto and except with respect to unaudited
statements as permitted by Form 10-Q) and fairly present the consolidated
financial position of Enron as of the respective dates thereof or the
consolidated results of operations and cash flows for the respective periods
then ended, as the case may be, subject, in the case of the unaudited interim
financial statements, to normal, recurring audit adjustments. True, accurate and
A-8
<PAGE> 105
complete copies of the certificate or articles of incorporation and bylaws of
Enron and the Company, each as in effect on the date hereof, have been delivered
to PGC.
Section 4.6 Absence of Certain Changes or Events. Except as disclosed in
the Enron SEC Reports filed prior to the date hereof or as disclosed in Section
4.6 or 4.7 of the Enron Disclosure Schedule, since December 31, 1995 (i) there
has not been and, no event has occurred which has had, and no fact or condition
exists that would have or, to the knowledge of Enron, is reasonably likely to
have, an Enron Material Adverse Effect, and (ii) none of Enron nor any of its
subsidiaries has taken any action that would have been prohibited by Article VI
hereof had this Agreement been in effect at the time of such action.
Section 4.7 Litigation. Except as disclosed in the Enron SEC Reports filed
prior to the date hereof or as disclosed in Section 4.7, 4.9 or 4.11 of the
Enron Disclosure Schedule, (i) there are no claims, suits, actions or
proceedings pending or, to the knowledge of Enron, threatened, nor, to the
knowledge of Enron, are there any investigations or reviews pending or
threatened against, relating to or affecting Enron or any of its subsidiaries or
any Enron Benefit Plan or Enron Employee Arrangement, (ii) there are no
judgments, decrees, injunctions, rules or orders of any court, governmental
department, commission, agency, instrumentality or authority or any arbitrator
applicable to Enron or any of its subsidiaries, except for any of the foregoing
under clauses (i) and (ii) that individually or in the aggregate would not
reasonably be expected to have an Enron Material Adverse Effect.
Section 4.8 Registration Statement and Proxy Statement. None of the
information supplied or to be supplied by or on behalf of Enron that is included
or incorporated by reference in (i) the registration statement on Form S-4 to be
filed with the SEC by the Company in connection with the issuance of shares of
Company Common Stock in the PGC Merger (the "Registration Statement") will, at
the time the Registration Statement becomes effective under the Securities Act,
contain any untrue statement of a material fact or omit to state any material
fact required to be stated therein or necessary to make the statements therein
not misleading and (ii) the joint proxy statement/prospectus in definitive form,
relating to the meetings of the shareholders of PGC and Enron to be held in
connection with the Mergers and the prospectus relating to the Company Common
Stock to be issued in the PGC Merger (the "Joint Proxy Statement") will, at the
date mailed to such shareholders and, as the same may be amended or
supplemented, at the times of such meetings, contain any untrue statement of a
material fact or omit to state any material fact necessary in order to make the
statements therein, in light of the circumstances under which they are made, not
misleading. All documents that Enron is responsible for filing with the SEC in
connection with the transactions contemplated herein shall comply as to form in
all material respects with the applicable requirements of the Securities Act and
the rules and regulations thereunder and the Exchange Act and the rules and
regulations thereunder.
Section 4.9 Tax Matters. "Taxes", as used in this Agreement, means any
federal, state, county, local or foreign taxes, charges, fees, levies, or other
assessments, including all net income, gross income, sales and use, ad valorem,
transfer, gains, profits, excise, franchise, real and personal property, gross
receipts, capital stock, production, business and occupation, disability,
employment, payroll, license, estimated, stamp, custom duties, severance or
withholding taxes or charges imposed by any governmental entity, and includes
any interest and penalties (civil or criminal) on or additions to any such taxes
and any expenses incurred in connection with the determination, settlement or
litigation of any tax liability. "Tax Return", as used in this Agreement, means
a report, return or other information required to be supplied to a governmental
entity with respect to Taxes including, where permitted or required, combined or
consolidated returns for any group of entities that includes Enron or any of its
subsidiaries on the one hand, or PGC or any of its subsidiaries on the other
hand.
(a) Filing of Timely Tax Returns. Except as disclosed in Section
4.9(a) of the Enron Disclosure Schedule, Enron and each of its subsidiaries
have filed all Tax Returns required to be filed by each of them under
applicable law. All Tax Returns were (and, as to Tax Returns not filed as
of the date hereof, will be) in all material respects true, complete and
correct and filed on a timely basis.
(b) Payment of Taxes. Enron and each of its subsidiaries have, within
the time and in the manner prescribed by law, paid (and until the Closing
Date will pay within the time and in the manner prescribed by law) all
Taxes that are currently due and payable except for those contested in good
faith and for which adequate reserves have been taken.
A-9
<PAGE> 106
(c) Tax Liens. There are no Tax liens upon the assets of Enron or any
of its subsidiaries except liens for Taxes not yet due.
(d) Withholding Taxes. Enron and each of its subsidiaries have
complied (and until the Closing Date will comply) in all material respects
with the provisions of the Code relating to the payment and withholding of
Taxes, including, without limitation, the withholding and reporting
requirements under Code sec.sec. 1441 through 1464, 3401 through 3606, and
6041 and 6049, as well as similar provisions under any other laws, and
have, within the time and in the manner prescribed by law, withheld from
employee wages and paid over to the proper governmental authorities all
amounts required.
(e) Extensions of Time for Filing Tax Returns. Except as disclosed in
Section 4.9(e) of the Enron Disclosure Schedule, neither Enron nor any of
its subsidiaries has requested any extension of time within which to file
any Tax Return, which Tax Return has not since been filed.
(f) Waivers of Statute of Limitations. Except as disclosed in Section
4.9(f) of the Enron Disclosure Schedule, neither Enron nor any of its
subsidiaries has executed any outstanding waivers or comparable consents
regarding the application of the statute of limitations with respect to any
Taxes or Tax Returns.
(g) Availability of Tax Returns. Enron and its subsidiaries have made
available to PGC complete and accurate copies, covering all years ending on
or after December 31, 1991, of (i) all Tax Returns, and any amendments
thereto, filed by Enron or any of its subsidiaries, (ii) all audit reports
received from any taxing authority relating to any Tax Return filed by
Enron or any of its subsidiaries and (iii) any closing agreements entered
into by Enron or any of its subsidiaries with any taxing authority.
Section 4.10 Employee Matters; ERISA.
(a) Benefit Plans. Section 4.10(a) of the Enron Disclosure Schedule
contains a true and complete list of: (i) each "employee benefit plan"
within the meaning of Section 3(3) of the Employee Retirement Income
Security Act of 1974, as amended ("ERISA") covering employees or former
employees of Enron (the "Enron Benefit Plans"); and (ii) each contract,
agreement or arrangement other than the Enron Benefit Plans with or
covering any employee or director pursuant to which Enron or any of its
subsidiaries could have material statutory or contractual liability (the
"Enron Employee Arrangements"). With respect to each Enron Benefit Plan,
Enron has made available to PGC a true and correct copy of, as applicable,
(i) the current plan document (including all amendments adopted since the
most recent restatement) and its most recently prepared summary plan
description and all summaries of material modifications prepared since the
most recent summary plan description, (ii) the most recently prepared
annual report (IRS Form 5500 Series) including financial statements, (iii)
each related trust agreement, insurance contract, service provider or
investment management agreement (including all amendments to each such
document), (iv) the most recent IRS determination letter with respect to
the qualified status under Code sec. 401(a) of such plan and a copy of any
application of an IRS determination letter filed since the most recent IRS
determination letter was issued, and (v) the most recent actuarial report
or valuation.
(b) Qualification; Compliance. Except as disclosed in Section 4.10(b)
of the Enron Disclosure Schedule, (i) each Enron Benefit Plan that is
intended to be "qualified" within the meaning of Code sec. 401(a) has been
determined by the IRS to be so qualified, and, to the knowledge of Enron,
no event or condition exists or has occurred that could reasonably be
expected to result in the revocation of any such determination; (ii) each
Enron Benefit Plan and each Enron Employee Arrangement is and has been
operated and administered substantially in compliance with its terms and
provisions and in compliance with all applicable laws, rules and
regulations; (iii) no individual or entity has engaged in any transaction
with respect to any Enron Benefit Plan as a result of which Enron or any of
its subsidiaries could reasonably expect to be subject to liability
pursuant to ERISA sec. 409 or sec. 502, or subjected to Taxes; and (iv) no
Enron Benefit Plan is subject to any ongoing audit, investigation, or other
administrative proceeding of any federal, state, or local governmental
entity, or is the subject of any pending application with any federal,
state or local governmental entity for administrative or other relief.
A-10
<PAGE> 107
(c) Title IV Liabilities. No event has occurred and, to the knowledge
of Enron, there exists no condition or set of circumstances, that could
subject or potentially subject Enron or any of its subsidiaries to any
liability arising under or based upon the provision of Title IV of ERISA
(whether to a governmental agency, a multiemployer plan or to any other
person or entity) which could reasonably be expected to have an Enron
Material Adverse Effect.
Section 4.11 Environmental Protection.
(a) Compliance. Except as disclosed in Section 4.11(a) of the Enron
Disclosure Schedule, or as disclosed in the Enron SEC Reports, Enron and
each of its subsidiaries is in compliance with all applicable Environmental
Laws (as hereinafter defined in Section 4.11(f)), except where the failure
to be so in compliance would not in the aggregate have an Enron Material
Adverse Effect. Except as disclosed in Section 4.11(a) of the Enron
Disclosure Schedule, neither Enron nor any of its subsidiaries has received
any written notice from any person or Governmental Authority that alleges
that Enron or any of its subsidiaries is not in compliance with applicable
Environmental Laws, except where the failure to be in such compliance would
not in the aggregate have an Enron Material Adverse Effect.
(b) Environmental Permits. Except as disclosed in Section 4.11(b) of
the Enron Disclosure Schedule, or as disclosed in the Enron SEC Reports,
Enron and each of its subsidiaries has obtained or has applied for all
environmental, health and safety permits and authorizations (collectively,
"Environmental Permits") necessary for the construction of their facilities
and the conduct of their operations, and all such Environmental Permits are
in good standing or, where applicable, a renewal application has been
timely filed and is pending agency approval, and Enron and its subsidiaries
are in compliance with all terms and conditions of all such Environmental
Permits and are not required to make any expenditures in connection with
any renewal application pending agency approval, except where the failure
to obtain or be in such compliance and the requirement to make such
expenditures would not have in the aggregate an Enron Material Adverse
Effect.
(c) Environmental Claims. Except as disclosed in Section 4.11(c) of
the Enron Disclosure Schedule, or as disclosed in the Enron SEC Reports,
there is no Environmental Claim (as hereinafter defined in Section 4.11(f))
pending, or to the knowledge of Enron, threatened (i) against Enron or any
of its subsidiaries or, to Enron's knowledge, any of its joint ventures,
(ii) against any person or entity whose liability for any Environmental
Claim Enron or any of its subsidiaries or, to Enron's knowledge, any of its
joint ventures, has or may have retained or assumed either contractually or
by operation of law or (iii) against any real or personal property or
operations that Enron or any of its subsidiaries or, to Enron's knowledge,
any of its joint ventures, owns, leases or manages, in whole or in part,
that, if adversely determined, would have in the aggregate an Enron
Material Adverse Effect.
(d) Releases. Except as disclosed in Section 4.11(c) or 4.11(d) of the
Enron Disclosure Schedule, or as disclosed in the Enron SEC Reports, to the
knowledge of Enron, there has been no Release (as hereinafter defined in
Section 4.11(f)) of any Hazardous Material (as hereinafter defined in
Section 4.11(f)) that would be reasonably likely to form the basis of any
Environmental Claim against Enron or any subsidiary or joint venture of
Enron, or against any person or entity whose liability for any
Environmental Claim Enron or any subsidiary of Enron has or may have
retained or assumed either contractually or by operation of law, except for
Releases of Hazardous Materials the liability for which would not have in
the aggregate an Enron Material Adverse Effect.
(e) Predecessors. Except as disclosed in Section 4.11(e) of the Enron
Disclosure Schedule, or as disclosed in the Enron SEC Reports, to the
knowledge of Enron, with respect to any predecessor of Enron or any
subsidiary or joint venture of Enron, there are no Environmental Claims
pending or threatened, or any Releases of Hazardous Materials that would be
reasonably likely to form the basis of any Environmental Claims that would
have, or that Enron reasonably believes would have, in the aggregate an
Enron Material Adverse Effect.
A-11
<PAGE> 108
(f) As used in this Agreement:
(i) "Environmental Claim" means any and all administrative,
regulatory or judicial actions, suits, demands, demand letters,
directives, claims, liens, investigations, proceedings or notices of
noncompliance or violation by any person or entity (including, without
limitation, any Governmental Authority) alleging potential liability
(including, without limitation, potential liability for enforcement
costs, investigatory costs, cleanup costs, response costs, removal
costs, remedial costs, natural resources damages, property damages,
personal injuries, fines or penalties) arising out of, based on or
resulting from (A) the presence, or Release or threatened Release of any
Hazardous Materials at any location, whether or not owned, operated,
leased or managed by Enron or any of its subsidiaries or joint ventures
(for purposes of this Section 4.11 only), or by PGC or any of its
subsidiaries (for purposes of Section 5.11 only), (B) circumstances
forming the basis of any violation, or alleged violation, of any
Environmental Law or (C) any and all claims by any third party seeking
damages, contribution, indemnification, cost recovery, compensation or
injunctive relief resulting from the presence or Release of any
Hazardous Materials.
(ii) "Environmental Laws" means all federal, state and local laws,
rules and regulations relating to pollution or protection of human
health or the environment as in effect on the date hereof (including,
without limitation, ambient air, surface water, groundwater, land
surface or subsurface strata) including, without limitation, laws and
regulations relating to Releases or threatened Releases of Hazardous
Materials or otherwise relating to the manufacture, processing,
distribution, use, treatment, storage, disposal, transport or handling
of Hazardous Materials.
(iii) "Hazardous Materials" means (A) any petroleum or petroleum
products or petroleum wastes (including crude oil or any fraction
thereof), radioactive materials, friable asbestos or friable
asbestos-containing material, urea formaldehyde foam insulation, and
transformers or other equipment that contain dielectric fluid containing
polychlorinated biphenyls, (B) any chemicals, materials or substances
which are now defined as or included in the definition of "hazardous
substances", "hazardous wastes", "hazardous materials", "extremely
hazardous wastes", "restricted hazardous wastes", "toxic substances",
"toxic pollutants", or words of similar import, under any Environmental
Law and (C) any other chemical, material, substance or waste, exposure
to which is now prohibited, limited or regulated under any Environmental
Law in a jurisdiction in which Enron or any of its subsidiaries or joint
ventures operates (for purposes of this Section 4.11 only) or in which
PGC or any of its subsidiaries or joint ventures operates (for purposes
of Section 5.11 only).
(iv) "Release" means any release, spill, emission, leaking,
injection, deposit, disposal, discharge, dispersal, leaching or
migration into the atmosphere, soil, surface water, groundwater or
property (indoors or outdoors).
Section 4.12 Regulation as a Utility. Enron shall not, prior to the
Effective Time, become a "holding company" within the meaning the 1935 Act
without complying with the registration, exemption or other provisions
applicable thereto.
Section 4.13 Vote Required. The approval by the holders of a majority of
the votes entitled to be cast by holders of the Enron Common Stock and the Enron
Convertible Preferred Stock, voting together as a single class, with each share
of Enron Common Stock being entitled to one vote per share and each share of
Enron Convertible Preferred Stock being entitled to a number of votes per share
equal to the number of shares of Enron Common Stock into which such share of
Enron Preferred Stock is then convertible (the "Enron Shareholders' Approval"),
is the only vote of the holders of any class or series of the capital stock of
Enron required to approve the Reincorporation Merger, this Agreement and the
other transactions contemplated hereby. Enron, as the sole shareholder of the
Company, has duly approved the Mergers and this Agreement and the transactions
contemplated hereby, and no other vote of the holders of any class or series of
the capital stock of the Company is required to consummate such transactions.
Section 4.14 Opinion of Financial Advisor. Enron has received the opinion
of Smith Barney Inc., dated the date hereof, to the effect that, as of the date
hereof, the consideration to be issued to holders of PGC
A-12
<PAGE> 109
Common Stock in the PGC Merger is fair from a financial point of view to the
holders of Enron Common Stock and the Enron Preferred Stock.
Section 4.15 Insurance. Except as disclosed in Section 4.15 of the Enron
Disclosure Schedule, each of Enron and each of its subsidiaries is, and has been
continuously since January 1, 1991, insured in such amounts and against such
risks and losses as are customary for companies conducting the respective
businesses conducted by Enron and its subsidiaries during such time period.
Except as disclosed in Section 4.15 of the Enron Disclosure Schedule, neither
Enron nor any of its subsidiaries has received any notice of cancellation or
termination with respect to any material insurance policy thereof. All material
insurance policies of Enron and its subsidiaries are valid and enforceable
policies.
Section 4.16 Applicability of Certain Delaware Law Provisions. Neither the
business combination provisions of Section 203 of the DGCL nor any similar
provisions of the certificate of incorporation or bylaws of Enron are applicable
to the transactions contemplated by this Agreement.
Section 4.17 Operations of the Company. The Company was formed for
purposes of the transactions contemplated by this Agreement and, except as
contemplated by this Agreement, has not conducted any business operations or
incurred any liabilities since its formation.
ARTICLE V
REPRESENTATIONS AND WARRANTIES OF PGC
PGC represents and warrants to Enron and the Company as follows:
Section 5.1 Organization and Qualification. Except as disclosed in Section
5.1 of the PGC Disclosure Schedule (as defined in Section 7.6(i)), PGC and each
of its subsidiaries is a corporation duly organized, validly existing and in
good standing under the laws of its jurisdiction of incorporation, has all
requisite corporate power and authority, and has been duly authorized by all
necessary regulatory approvals and orders, to own, lease and operate its assets
and properties and to carry on its business as it is now being conducted, and is
duly qualified and in good standing to do business in each jurisdiction in which
the nature of its business or the ownership or leasing of its assets and
properties makes such qualification necessary other than in such jurisdictions
where the failure to be so qualified and in good standing will not, when taken
together with all other such failures, have a material adverse effect on the
business, properties, financial condition, results of operations or prospects
(in the case of prospects, taking into account the effect of the Regulatory
Plans described below) of PGC and its subsidiaries and joint ventures, taken as
a whole or on the consummation of this Agreement (any such material adverse
effect being hereinafter referred to as a "PGC Material Adverse Effect"). As
used in this Agreement, references to a "subsidiary" of PGC means any
corporation or other entity (including partnerships and other business
associations) in which PGC directly or indirectly owns outstanding capital stock
or other voting securities having the power, under ordinary circumstances, to
elect a majority of the directors or similar members of the governing body of
such corporation or other entity, or otherwise to direct the management and
policies of such corporation or other entity.
Section 5.2 Subsidiaries. Section 5.2 of the PGC Disclosure Schedule
contains a description as of the date hereof of all subsidiaries and joint
ventures of PGC, including the name of each such entity, the state or
jurisdiction of its incorporation or organization and PGC's interest therein.
Except as disclosed in Section 5.2 of the PGC Disclosure Schedule, none of such
entities is a "public utility company", a "holding company", a "subsidiary
company" or an "affiliate" of any public utility company within the meaning of
Section 2(a)(5), 2(a)(7), 2(a)(8) or 2(a)(11) of the 1935 Act, respectively.
Except as disclosed in Section 5.2 of the PGC Disclosure Schedule, all of the
issued and outstanding shares of capital stock of each subsidiary of PGC are
validly issued, fully paid, nonassessable and free of preemptive rights and are
owned directly or indirectly by PGC free and clear of any liens, claims,
encumbrances, security interests, equities, charges and options of any nature
whatsoever, and there are no outstanding subscriptions, options, calls,
contracts, voting trusts, proxies or other commitments, understandings,
restrictions, arrangements, rights or warrants, including any right of
conversion or exchange under any outstanding security, instrument or other
agreement, obligating any such subsidiary to issue, deliver or sell, or cause to
be issued, delivered or sold, additional shares of its capital stock
A-13
<PAGE> 110
or obligating it to grant, extend or enter into any such agreement or
commitment. As used in this Agreement, references to a "joint venture" of PGC
means any corporation or other entity (including partnerships and other business
associations and joint ventures) in which PGC or one or more of its subsidiaries
owns an equity interest that is less than a majority of any class of the
outstanding voting securities but at least 10% of such voting securities.
Section 5.3 Capitalization. The authorized capital stock of PGC consists
of 100,000,000 shares of PGC Common Stock and 30,000,000 shares of preferred
stock. As of the close of business on June 30, 1996, 51,116,367 shares of PGC
Common Stock and no shares of preferred stock were issued and outstanding. All
of the issued and outstanding shares of the capital stock of PGC are validly
issued, fully paid, nonassessable and free of preemptive rights. Except as
disclosed in Section 5.3 of the PGC Disclosure Schedule, as of the date hereof
there are no outstanding subscriptions, options, calls, contracts, voting
trusts, proxies or other commitments, understandings, restrictions,
arrangements, rights or warrants, including any right of conversion or exchange
under any outstanding security, instrument or other agreement, obligating PGC or
any of its subsidiaries to issue, deliver or sell, or cause to be issued,
delivered or sold, additional shares of the capital stock or other voting
securities of PGC or obligating PGC or any of its subsidiaries to grant, extend
or enter into any such agreement or commitment.
Section 5.4 Authority; Non-Contravention; Statutory Approvals; Compliance.
(a) Authority. PGC has all requisite power and authority to enter into
this Agreement and, subject to the PGC Shareholders' Approval (as defined
in Section 5.13) and the PGC Required Statutory Approvals (as defined in
Section 5.4(c)), to consummate the transactions contemplated hereby. The
execution and delivery of this Agreement and the consummation by PGC of the
transactions contemplated hereby and thereby have been duly authorized by
all necessary corporate action on the part of PGC, subject to obtaining the
PGC Shareholders' Approval. This Agreement has been duly and validly
executed and delivered by PGC and, assuming the due authorization,
execution and delivery hereof by Enron and the Company, constitutes the
legal, valid and binding obligation of PGC enforceable against PGC in
accordance with its terms.
(b) Non-Contravention. Except as disclosed in Section 5.4(b) of the
PGC Disclosure Schedule, the execution and delivery of this Agreement by
PGC do not, and the consummation of the transactions contemplated hereby
will not, violate, conflict with or result in a breach of any provision of,
or constitute a default (with or without notice or lapse of time or both)
under, or result in the termination of, or accelerate the performance
required by, or result in a right of termination, cancellation or
acceleration of any obligation under, or result in the creation of any
lien, security interest, charge or encumbrance upon any of the properties
or assets of PGC or any of its subsidiaries, or, to PGC's knowledge, any of
its joint ventures (any such violation, conflict, breach, default, right of
termination, cancellation or acceleration, loss or creation, a "PGC
Violation") under any provisions of (i) the articles of incorporation,
bylaws or similar governing documents of PGC or any of its subsidiaries or
joint ventures, (ii) subject to obtaining the PGC Required Statutory
Approvals and the receipt of the PGC Shareholders' Approval, any statute,
law, ordinance, rule, regulation, judgment, decree, order, injunction,
writ, permit or license of any Governmental Authority applicable to PGC or
any of its subsidiaries or joint ventures or any of their respective
properties or assets, or (iii) subject to obtaining the third-party
consents or other approvals disclosed in Section 5.4(b) of the PGC
Disclosure Schedule (the "PGC Required Consents"), any note, bond,
mortgage, indenture, deed of trust, license, franchise, permit, concession,
contract, lease or other instrument, obligation or agreement of any kind to
which PGC or any of its subsidiaries or joint ventures is now a party or by
which any of them or any of their respective properties or assets may be
bound or affected, excluding from the foregoing clauses (ii) and (iii) such
PGC Violations as would not have, in the aggregate, a PGC Material Adverse
Effect.
(c) Statutory Approvals. Except as disclosed in Section 5.4(c) of the
PGC Disclosure Schedule, no declaration, filing or registration with, or
notice to or authorization, consent, finding by or approval of, any
Governmental Authority, is necessary for the execution and delivery of this
Agreement by PGC or the consummation by PGC of the transactions
contemplated hereby, the failure to obtain, make or give
A-14
<PAGE> 111
which would have, in the aggregate, a PGC Material Adverse Effect (the "PGC
Required Statutory Approvals"), it being understood that references in this
Agreement to "obtaining" such PGC Required Statutory Approvals shall mean
making such declarations, filings or registrations; giving such notice;
obtaining such consents or approvals; and having such waiting periods
expire as are necessary to avoid a violation of law.
(d) Compliance. Except as disclosed in Section 5.4(d) or 5.11 of the
PGC Disclosure Schedule or as disclosed in the PGC SEC Reports (as defined
in Section 5.5), neither PGC nor any of its subsidiaries nor, to the
knowledge of PGC, any of its joint ventures, is in violation of or under
investigation with respect to, or has been given notice or been charged
with any violation of, any law, statute, order, rule, regulation, ordinance
or judgment (including, without limitation, any applicable Environmental
Laws), of any Governmental Authority, except for violations that, in the
aggregate, do not have, and, to the knowledge of PGC, are not reasonably
likely to have, a PGC Material Adverse Effect. Except as disclosed in
Section 5.4(d) or 5.11 of the PGC Disclosure Schedule, PGC, its
subsidiaries and, to the knowledge of PGC, its joint ventures have all
Permits, except those which the failure to obtain would not, in the
aggregate, have a PGC Material Adverse Effect.
Section 5.5 Reports and Financial Statements. The filings required to be
made by PGC and its subsidiaries since January 1, 1991 under the Securities Act,
the 1935 Act, the Atomic Energy Act of 1954, as amended (the "Atomic Energy
Act"), the Exchange Act, applicable Oregon laws and regulations and the Federal
Power Act ("Power Act") have been filed with the SEC, the Oregon Public Utility
Commission, the FERC, or the Nuclear Regulatory Commission ("NRC") as the case
may be, and complied in all material respects with all applicable requirements
of the appropriate act and the rules and regulations thereunder. PGC has made
available to Enron a true and complete copy of each report, schedule,
registration statement and definitive proxy statement filed by PGC with the SEC
since January 1, 1991 and through the date hereof (as such documents have since
the time of their filing been amended, the "PGC SEC Reports"). The PGC SEC
Reports, including without limitation any financial statements or schedules
included therein, at the time filed did not, and any forms, reports or other
documents filed by PGC with the SEC after the date hereof will not, contain any
untrue statement of a material fact or omit to state a material fact required to
be stated therein or necessary to make the statements therein, in light of the
circumstances under which they were made, not misleading. The audited
consolidated financial statements and unaudited interim financial statements of
PGC included in the PGC SEC Reports (collectively, the "PGC Financial
Statements") that have been included in PGC SEC Reports have been prepared, and
the PGC Financial Statements to be included in any forms, reports or other
documents filed by PGC with the SEC after the date hereof will be prepared, in
accordance with GAAP (except as may be indicated therein or in the notes thereto
and except with respect to unaudited statements as permitted by Form 10-Q) and
fairly present the consolidated financial position of PGC as of the respective
dates thereof or the consolidated results of operations and cash flows for the
respective periods then ended, as the case may be, subject, in the case of the
unaudited interim financial statements, to normal, recurring audit adjustments.
True, accurate and complete copies of the articles of incorporation and bylaws
of PGC and each of its subsidiaries, as in effect on the date hereof, have been
delivered to Enron.
Section 5.6 Absence of Certain Changes or Events. Except as disclosed in
the PGC SEC Reports filed prior to the date hereof or as disclosed in Section
5.6 or 5.7 of the PGC Disclosure Schedule, since December 31, 1995 (i) each of
PGC and each of its subsidiaries has conducted its business only in the ordinary
course of business consistent with past practice and no event has occurred which
has had, and no fact or condition exists that would have or, to the knowledge of
PGC, is reasonably likely to have, a PGC Material Adverse Effect, and (ii) none
of PGC nor any of its subsidiaries has taken any action that would have been
prohibited by Article VI hereof had this Agreement been in effect at the time of
such action.
Section 5.7 Litigation. Except as disclosed in the PGC SEC Reports filed
prior to the date hereof or as disclosed in Sections 5.7, 5.9 or 5.11 of the PGC
Disclosure Schedule, (i) there are no claims, suits, actions or proceedings
pending or, to the knowledge of PGC, threatened, nor, to the knowledge of PGC,
are there any investigations or reviews pending or threatened against, relating
to or affecting PGC or any of its subsidiaries or any PGC Benefit Plan or PGC
Employee Arrangement, and (ii) there are no judgments, decrees,
A-15
<PAGE> 112
injunctions, rules or orders of any court, governmental department, commission,
agency, instrumentality or authority or any arbitrator applicable to PGC or any
of its subsidiaries, except for any of the foregoing under clauses (i) and (ii)
that individually or in the aggregate would not reasonably be expected to have a
PGC Material Adverse Effect.
Section 5.8 Registration Statement and Proxy Statement. None of the
information supplied or to be supplied by or on behalf of PGC that is included
or incorporated by reference in (i) the Registration Statement will, at the time
the Registration Statement becomes effective under the Securities Act, contain
any untrue statement of a material fact or omit to state any material fact
required to be stated therein or necessary to make the statements therein not
misleading and (ii) the Joint Proxy Statement will, at the date mailed to the
shareholders of PGC and Enron and, as the same may be amended or supplemented,
at the times of the meetings of such shareholders to be held in connection with
the Merger, contain any untrue statement of a material fact or omit to state any
material fact necessary in order to make the statements therein, in light of the
circumstances under which they are made, not misleading. All documents that PGC
is responsible for filing with the SEC in connection with the transactions
contemplated herein shall comply as to form in all material respects with the
applicable requirements of the Securities Act and the rules and regulations
thereunder and the Exchange Act and the rules and regulations thereunder.
Section 5.9 Tax Matters.
(a) Filing of Timely Tax Returns. Except as disclosed in Section
5.9(a) of the PGC Disclosure Schedule, PGC and each of its subsidiaries
have filed all Tax Returns required to be filed by each of them under
applicable law. All Tax Returns were (and, as to Tax Returns not filed as
of the date hereof, will be) in all material respects true, complete and
correct and filed on a timely basis.
(b) Payment of Taxes. PGC and each of its subsidiaries have, within
the time and in the manner prescribed by law, paid (and until the Closing
Date will pay within the time and in the manner prescribed by law) all
Taxes that are currently due and payable except for those contested in good
faith and for which adequate reserves have been taken.
(c) Tax Liens. There are no Tax liens upon the assets of PGC or any of
its subsidiaries except liens for Taxes not yet due.
(d) Withholding Taxes. PGC and each of its subsidiaries have complied
(and until the Closing Date will comply) in all material respects with the
provisions of the Code relating to the payment and withholding of Taxes,
including, without limitation, the withholding and reporting requirements
under Code sec.sec. 1441 through 1464, 3401 through 3606, and 6041 and
6049, as well as similar provisions under any other laws, and have, within
the time and in the manner prescribed by law, withheld from employee wages
and paid over to the proper governmental authorities all amounts required.
(e) Extensions of Time for Filing Tax Returns. Except as disclosed in
Section 5.9(e) of the PGC Disclosure Schedule, neither PGC nor any of its
subsidiaries has requested any extension of time within which to file any
Tax Return, which Tax Return has not since been filed.
(f) Waivers of Statute of Limitations. Except as disclosed in Section
5.9(f) of the PGC Disclosure Schedule, neither PGC nor any of its
subsidiaries has executed any outstanding waivers or comparable consents
regarding the application of the statute of limitations with respect to any
Taxes or Tax Returns.
(g) Availability of Tax Returns. PGC and its subsidiaries have made
available to Enron complete and accurate copies covering all years ending
on or after December 31, 1991, of (i) all Tax Returns, and any amendments
thereto, filed by PGC or any of its subsidiaries, (ii) all audit reports
received from any taxing authority relating to any Tax Return filed by PGC
or any of its subsidiaries and (iii) any closing agreements entered into by
PGC or any of its subsidiaries with any taxing authority.
(h) Intercompany Transactions. Section 5.9(h) of the PGC Disclosure
Schedule sets forth all intercompany transactions (within the meaning of
Treas. Reg. sec. 1.1502-13) between members of the affiliated group of
corporations of which PGC is the common parent corporation (the "PGC
Group") for which any income or gain will remain unrecognized as of the
close of the last taxable year prior to the
A-16
<PAGE> 113
date hereof, listing for each such transaction the selling member, the
buying member, and the amount of such income or gain. Except as set forth
on Schedule 5.9(h) of the PGC Disclosure Schedule, there have been no
material changes in amount of income or gain attributable to intercompany
transactions.
(i) Excess Loss Accounts. Section 5.9(i) of the PGC Disclosure
Schedule sets forth the amount of each excess loss account (within the
meaning of Treas. Reg. sec. 1.1502-19) of any member of the PGC Group in
the stock of any other member of the PGC Group as of the close of the last
taxable year prior to the date hereof. Except as set forth on Schedule
5.9(i) of the PGC Disclosure Schedule, there have been no material changes
in amount of such excess loss accounts.
Section 5.10 Employee Matters; ERISA.
(a) Benefit Plans. Section 5.10(a) of the PGC Disclosure Schedule
contains a true and complete list of: (i) each employee benefit plan,
program or arrangement covering employees, former employees or directors of
PGC (or any of its subsidiaries) or any of their dependents or
beneficiaries, or providing benefits to such persons in respect of services
provided to any such entity, including, but not limited to, any "employee
benefit plan" within the meaning of ERISA sec. 3(3) (whether or not
terminated, if PGC or any of its subsidiaries could have statutory or
contractual liability with respect thereto on or after the date hereof);
(ii) each management, employment, deferred compensation, severance
(including any payment, right or benefit resulting from a change in
control), bonus, contract for personal services, arrangement or agreement
with or covering any current officer, key employee or director or any
consulting contract with any person who prior to entering into such
contract was a director or officer of PGC or any of its subsidiaries
(whether or not terminated, if PGC or any of its subsidiaries could have
statutory or contractual liability with respect thereto on or after the
date hereof); (iii) each "employee pension benefit plan" (within the
meaning of ERISA sec. 3(2)) subject to Title IV of ERISA or the minimum
funding requirements of Code sec. 412 maintained or contributed to by PGC
or any entity required to be aggregated therewith pursuant to Code
sec. 414(b) or (c) (a "PGC ERISA Affiliate") at any time during the
seven-year period immediately preceding the date hereof (the plans,
programs and arrangements described in items (i), (ii) and (iii) above
being hereinafter referred to collectively as the "PGC Benefit Plans") and
(iv) with respect to each PGC Benefit Plan that is described in item (i) or
(ii) above and that is funded other than from general assets of PGC and its
affiliates, the source or sources of benefit payments under the plan
(including, where applicable, the identity of any trust (whether or not a
grantor trust), insurance contract, custodial account, agency agreement, or
other arrangement that holds the assets of, or serves as a funding vehicle
or source of benefits for, such PGC Benefit Plan).
(b) Contributions. Except as disclosed in Section 5.10(b) of the PGC
Disclosure Schedule, all material contributions and other payments required
to have been made by PGC or any of its subsidiaries pursuant to any PGC
Benefit Plan (or to any person pursuant to the terms thereof) have been
timely made or the amount of such payment or contribution obligation has
been reflected in the PGC Financial Statements.
(c) Qualification; Compliance. Except as disclosed in Section 5.10(c)
of the PGC Disclosure Schedule, each PGC Benefit Plan that is intended to
be "qualified" within the meaning of Code sec. 401(a) has been determined
by the IRS to be so qualified, and, to the knowledge of PGC, no event or
condition exists or has occurred that could reasonably be expected to
result in the revocation of any such determination. PGC and each of its
subsidiaries are in compliance with, and each PGC Benefit Plan is and has
been operated in compliance with, all applicable laws, rules and
regulations governing such plan, including, without limitation, ERISA and
the Code, except for violations that could not reasonably be expected to
have a PGC Material Adverse Effect. To the knowledge of PGC, no individual
or entity has engaged in any transaction with respect to any PGC Benefit
Plan as a result of which PGC or any of its subsidiaries could reasonably
expect to be subject to material liability pursuant to ERISA sec. 409 or
sec. 502, or subject to an excise tax pursuant to Code sec. 4975. To the
knowledge of PGC, (i) no PGC Benefit Plan is subject to any ongoing audit,
investigation, or other administrative proceeding of the Internal Revenue
Service, the Department of Labor, or any other federal, state, or local
governmental entity, and (ii) no PGC Benefit Plan is the subject of any
pending application for administrative relief under any voluntary
A-17
<PAGE> 114
compliance program of any governmental entity (including, without
limitation, the IRS's Voluntary Compliance Resolution Program or Walk-in
Closing Agreement Program, or the Department of Labor's Delinquent Filer
Voluntary Compliance Program).
(d) Liabilities. With respect to the PGC Benefit Plans described in
item (i) of Section 5.10(a), individually and in the aggregate, no
termination or partial termination of any PGC Benefit Plan or other event
has occurred and, to the knowledge of PGC, there does not exist any
condition or set of circumstances, that could subject PGC or any of its
subsidiaries to any liability arising under the Code, ERISA or any other
applicable law (including, without limitation, any liability to or under
any such plan or to the PBGC), whether directly or pursuant to an indemnity
agreement, excluding liabilities for benefit claims and funding obligations
payable in the ordinary course and liability for PBGC insurance premiums
payable in the ordinary course, which liability could reasonably be
expected to have a PGC Material Adverse Effect.
(e) Welfare Plans. Except as disclosed in Section 5.10(e) of the PGC
Disclosure Schedule, no PGC Benefit Plan that is a "welfare plan" (within
the meaning of ERISA sec. 3(1)) provides benefits for any retired or former
employees (other than as required pursuant to ERISA sec. 601).
(f) Documents Made Available. PGC has made available to Enron a true
and correct copy of each collective bargaining agreement to which PGC is a
party or under which PGC has obligations and, with respect to each PGC
Benefit Plan that is an "employee benefit plan" within the meaning of ERISA
sec. 3(3), as applicable (i) the current plan document (including all
amendments adopted since the most recent restatement) and its most recently
prepared summary plan description and all summaries of material
modifications prepared since the most recent summary plan description, (ii)
the most recently prepared annual report (IRS Form 5500 Series) including
financial statements, (iii) each related trust agreement, insurance
contract, service provider or investment management agreement (including
all amendments to each such document), (iv) the most recent IRS
determination letter with respect to the qualified status under Code
sec. 401(a) of such plan and a copy of any application of an IRS
determination letter filed since the most recent IRS determination letter
was issued, and (v) the most recent actuarial report or valuation.
(g) Payments Resulting from Merger. Other than as set forth in Section
7.11 or disclosed in Section 5.10(g) of the PGC Disclosure Schedule, the
consummation or announcement of any transaction contemplated by this
Agreement will not (either alone or upon the occurrence of any additional
or further acts or events) result in any (i) payment (whether of severance
pay or otherwise) becoming due from PGC or any of its subsidiaries under
any applicable PGC Benefit Plans to any officer, employee, former employee
or director thereof or to the trustee under any "rabbi trust" or similar
arrangement, or (ii) benefit under any PGC Benefit Plan being established
or becoming accelerated, vested or payable, except for a payment or benefit
that would have been payable under the same terms and conditions without
regard to the transactions contemplated by this Agreement.
(h) Funded Status of Plans. Except as disclosed in Section 5.10(h) of
the PGC Disclosure Schedule, each PGC Benefit Plan that is subject to
either or both of the minimum funding requirements of ERISA sec. 302 or to
Title IV of ERISA has assets that, as of the date of such plan's most
recently prepared actuarial valuation report, have a fair market value
equal to or exceeding the present value of the accrued benefit obligations
thereunder, based on the actuarial methods, tables and assumptions
theretofore utilized by such plan's actuary in preparing such report. No
PGC Benefit Plan subject to the minimum funding requirements of ERISA sec.
302 has incurred any "accumulated funding deficiency" (within the meaning
of ERISA sec. 302).
(i) Multiemployer Plans. No PGC Benefit Plan is or was a
"multiemployer plan" (within the meaning of ERISA sec. 4001(a)(3)), a
multiple employer plan described in Code sec. 413(c), or a "multiple
employer welfare arrangement" (within the meaning of ERISA sec. 3(40)); and
none of PGC, any subsidiary thereof or any PGC ERISA Affiliate has been
obligated to contribute to, or otherwise has or has had any liability with
respect to, any multiemployer plan, multiple employer plan, or multiple
employer welfare arrangement.
A-18
<PAGE> 115
(j) Reportable Events; Claims. Except as disclosed in Section 5.10(j)
of the PGC Disclosure Schedule, (i) no event constituting a "reportable
event" (within the meaning of ERISA sec. 4043(b)) for which the 30-day
notice requirement has not been waived by the PBGC has occurred with
respect to any PGC Benefit Plan and (ii) no liability, claim, action or
litigation has been made, commenced or, to the knowledge of PGC,
threatened, by or against PGC or any of its subsidiaries with respect to
any PGC Benefit Plan (other than for benefits or PBGC premiums payable in
the ordinary course) that could reasonably be expected to have a PGC
Material Adverse Effect.
(k) Labor Agreements. To the knowledge of PGC, as of the date hereof,
there is no current labor union representation issue involving employees of
PGC or any of its subsidiaries, nor does PGC or any of its subsidiaries
know of any activity or proceeding of any labor organization (or
representative thereof) or employee group (or representative thereof) to
organize any such employees. Except as disclosed in the PGC SEC Reports or
as disclosed in Section 5.10(k) of the PGC Disclosure Schedule: (i) neither
PGC nor any of its subsidiaries is a party to any collective bargaining
agreement or other labor agreement with any union or labor organization;
(ii) there is no unfair labor practice charge or grievance arising out of a
collective bargaining agreement or other grievance procedure against PGC or
any of its subsidiaries pending, or to the knowledge of PGC, threatened,
that has, or reasonably may be expected by PGC to have, a PGC Material
Adverse Effect; (iii) there is no complaint, lawsuit or proceeding in any
forum by or on behalf of any present or former employee, any applicant for
employment or classes of the foregoing alleging breach of any express or
implied contract of employment, any law or regulation governing employment
or the termination thereof or other discriminatory, wrongful or tortious
conduct in connection with the employment relationship against PGC or any
of its subsidiaries pending, or to the knowledge of PGC, threatened, that
has, or reasonably may be expected by PGC to have, a PGC Material Adverse
Effect; (iv) there is no strike, dispute, slowdown, work stoppage or
lockout pending, or to the knowledge of PGC, threatened, against or
involving PGC or any of its subsidiaries that has or, insofar as reasonably
can be foreseen, could have, a PGC Material Adverse Effect; (v) PGC and
each of its subsidiaries are in compliance with all applicable laws
respecting employment and employment practices, terms and conditions of
employment, wages, hours of work and occupational safety and health, except
for noncompliance that, in the aggregate, does not, and insofar as
reasonably can be foreseen, will not, have a PGC Material Adverse Effect;
and (vi) there is no proceeding, claim, suit, action or governmental
investigation pending or, to the knowledge of PGC, threatened in respect to
which any director, officer, employee or agent of PGC or any of its
subsidiaries is or may be entitled to claim indemnification from PGC or any
of its subsidiaries pursuant to their respective articles of incorporation
or bylaws or as provided in the indemnification agreements listed on
Section 5.10(k) of the PGC Disclosure Schedule.
Section 5.11 Environmental Protection.
(a) Compliance. Except as disclosed in Section 5.11(a) of the PGC
Disclosure Schedule or as disclosed in the PGC SEC Reports, PGC and each of
its subsidiaries is in compliance with all applicable Environmental Laws,
except where the failure to be so in compliance would not in the aggregate
have a PGC Material Adverse Effect. Except as disclosed in Section 5.11(a)
of the PGC Disclosure Schedule, neither PGC nor any of its subsidiaries has
received any written notice from any person or Governmental Authority that
alleges that PGC or any of its subsidiaries is not in compliance with
applicable Environmental Laws, except where the failure to be so in
compliance would not in the aggregate have a PGC Material Adverse Effect.
(b) Environmental Permits. Except as disclosed in Section 5.11(b) of
the PGC Disclosure Schedule or as disclosed in the PGC SEC Reports, each of
PGC and each of its subsidiaries has obtained or has applied for all
Environmental Permits necessary for the construction of their facilities
and the conduct of their operations, and all such Environmental Permits are
in good standing or, where applicable, a renewal application has been
timely filed and is pending agency approval, and PGC and its subsidiaries
are in compliance with all terms and conditions of all such Environmental
Permits and are not required to make any expenditures in connection with
any renewal application pending agency
A-19
<PAGE> 116
approval, except where the failure to obtain or be in such compliance and
the requirement to make such expenditures would not have in the aggregate a
PGC Material Adverse Effect.
(c) Environmental Claims. Except as disclosed in Section 5.11(c) of
the PGC Disclosure Schedule or as disclosed in the PGC SEC Reports, to the
knowledge of PGC, there is no Environmental Claim (as defined in Section
4.11(f)) pending, or to the knowledge of PGC, threatened (i) against PGC or
any of its subsidiaries or joint ventures, (ii) against any person or
entity whose liability for any Environmental Claim PGC or any of its
subsidiaries or joint ventures has or may have retained or assumed either
contractually or by operation of law or (iii) against any real or personal
property or operations that PGC or any of its subsidiaries or joint
ventures owns, leases or manages, in whole or in part, that, if adversely
determined, would have in the aggregate a PGC Material Adverse Effect.
(d) Releases. Except as disclosed in Section 5.11(c) or 5.11(d) of the
PGC Disclosure Schedule or as disclosed in the PGC SEC Reports, to the
knowledge of PGC, there has been no Release of any Hazardous Material that
would be reasonably likely to form the basis of any Environmental Claim
against PGC or any subsidiary or joint venture of PGC, or against any
person or entity whose liability for any Environmental Claim PGC or any
subsidiary or joint venture of PGC has or may have retained or assumed
either contractually or by operation of law, except for Releases of
Hazardous Materials the liability for which would not have in the aggregate
a PGC Material Adverse Effect.
(e) Predecessors. Except as disclosed in Section 5.11(e) of the PGC
Disclosure Schedule or as disclosed in the PGC SEC Reports, to the
knowledge of PGC, with respect to any predecessor of PGC or any subsidiary
or joint venture of PGC, there are no Environmental Claims pending or
threatened, or any Releases of Hazardous Materials that would be reasonably
likely to form the basis of any Environmental Claims that would have, or
that PGC reasonably believes would have, in the aggregate, a PGC Material
Adverse Effect.
Section 5.12 Regulation as a Utility. PGC is an electric utility holding
company and is the parent of Portland General Electric Company ("PGE"), a
regulated public utility in the State of Oregon and in no other state. Except as
disclosed in Section 5.12 of the PGC Disclosure Schedule, neither PGC nor any
subsidiary company or affiliate of PGC is subject to regulation as a public
utility or public service company (or similar designation) by any other state in
the United States, by the United States or any agency or instrumentality of the
United States or by any foreign country. PGC is a holding company exempt from
all provisions of the 1935 Act except Section 9(a)(2) of the 1935 Act pursuant
to Section 3(a)(1) of the 1935 Act.
Section 5.13 Vote Required. The approval of the PGC Merger by the holders
of a majority of the shares of outstanding PGC Common Stock (the "PGC
Shareholders' Approval") is the only vote of the holders of any class or series
of the capital stock of PGC required to approve this Agreement, the PGC Merger
and the other transactions contemplated hereby.
Section 5.14 Opinion of Financial Advisor. PGC has received the opinion of
Goldman, Sachs & Co. dated the date hereof, to the effect that, as of the date
hereof, the consideration to be received by the holders of PGC Common Stock in
the PGC Merger is fair from a financial point of view to the holders of PGC
Common Stock.
Section 5.15 Insurance. Except as disclosed in Section 5.15 of the PGC
Disclosure Schedule, each of PGC and each of its subsidiaries is, and has been
continuously since January 1, 1991, insured in such amounts and against such
risks and losses as are customary for companies conducting the respective
businesses conducted by PGC and its subsidiaries during such time period. Except
as disclosed in Section 5.15 of the PGC Disclosure Schedule, neither PGC nor any
of its subsidiaries has received any notice of cancellation or termination with
respect to any material insurance policy thereof. All material insurance
policies of PGC and its subsidiaries are valid and enforceable policies.
Section 5.16 Applicability of Certain Oregon Law Provision. None of the
transactions contemplated by this Agreement is subject to the control share
acquisition provisions of Section 60.801 et seq. of the OBCA,
A-20
<PAGE> 117
the business combination provisions of Section 60.825 of the OBCA or any similar
provisions of the articles of incorporation or bylaws of PGC.
Section 5.17 Status of PGC Nuclear Facility. Except as set forth in
Section 5.17 of the PGC Disclosure Schedule, the operation of the PGC Nuclear
Facility and the operations related to decommissioning of the PGC Nuclear
Facility have at all times been conducted in compliance with applicable health,
safety, regulatory and other legal requirements, except where the failure to be
so in compliance in the aggregate does not have, and cannot reasonably be
expected to have, a PGC Material Adverse Effect. Except as set forth in such
Schedule, neither the operations of the PGC Nuclear Facility nor the operations
related to decommissioning of the PGC Nuclear Facility are the subject of any
outstanding notices of violation or requests for information from the NRC or any
other agency with jurisdiction over such facility. PGC maintains, and is in
compliance with, an emergency plan designed to protect the health and safety of
the public in the event of an unplanned release of radioactive materials from
the PGC Nuclear Facility, and the NRC has determined that such plan is in
compliance with its requirements. Liability insurance to the full extent
required by law for non-operating nuclear facilities and consistent with PGC's
view of the risks inherent in the decommissioning of the PGC Nuclear Facility
remains in full force and effect regarding such facility, and the amount of such
liability insurance has been approved by the NRC. Plans for the decommissioning
of the PGC Nuclear Facility, and for the storage of spent nuclear fuel, conform
with the requirements of applicable law, and PGC has funded such plans to the
extent required by law. The PGC Decommissioning Plan as approved by the NRC on
April 15, 1996 (the "Decommissioning Plan"), has not been amended, and remains a
true and correct copy of the decommissioning plan approved by the NRC. Except as
disclosed in Section 5.17 of the PGC Disclosure Schedule, PGE has no intention
of varying its operations from those described in the Decommissioning Plan and
has no other material commitments (whether written or oral) to Governmental
Authorities with respect to the PGC Nuclear Facility.
ARTICLE VI
CONDUCT OF BUSINESS PENDING THE MERGER
After the date hereof and prior to the Effective Time or earlier
termination of this Agreement, each of Enron and PGC agrees as to itself and its
subsidiaries, except as expressly contemplated or permitted in this Agreement,
or to the extent the other party shall otherwise consent in writing, which
consent shall not be unreasonably withheld, as follows:
Section 6.1 Ordinary Course of Business. PGC shall, and shall cause its
subsidiaries to, carry on their respective businesses in all material respects
in the usual, regular and ordinary course, consistent with past practice, and
shall, and shall cause its subsidiaries to, use all reasonable efforts to (i)
preserve intact their present business organizations and goodwill, preserve the
goodwill and relationships with customers, suppliers and others having business
dealings with them, (ii) subject to prudent management of workforce needs and
ongoing or planned programs relating to downsizing, re-engineering and similar
matters, keep available the services of their present officers and employees as
a group, (iii) maintain and keep its material properties and assets in as good
repair and condition as at present, subject to ordinary wear and tear, and
maintain supplies and inventories in quantities consistent with past practice
and (iv) with respect to wholesale power and energy trading and transactions,
comply with prudent policies, practices and procedures with respect to risk
management and trading limitations, all to the end that their goodwill and
ongoing businesses shall not be impaired in any material respect at the
Effective Time.
Section 6.2 Dividends and Repurchases.
(a) PGC shall not and shall not permit any of its subsidiaries to: (i)
declare or pay any dividends on or make other distributions in respect of
any of their capital stock other than (A) dividends by a wholly-owned
subsidiary to PGC or another wholly-owned subsidiary, (B) dividends by a
less than wholly-owned subsidiary consistent with past practice, (C) stated
dividends on PGE Preferred Stock, or (D) regular dividends on PGC Common
Stock with usual record and payment dates that, in any fiscal year, do not
exceed 106% of the dividends for the prior fiscal year; (ii) split, combine
or reclassify any of its capital
A-21
<PAGE> 118
stock or the capital stock of any subsidiary or issue or authorize or
propose the issuance of any other securities in respect of, in lieu of, or
in substitution for, shares of its capital stock or the capital stock of
any subsidiary; or (iii) redeem, repurchase or otherwise acquire any shares
of its capital stock or the capital stock of any subsidiary other than (A)
redemptions, repurchases and other acquisitions of shares of capital stock
in connection with the administration of employee benefit and dividend
reinvestment plans as in effect on the date hereof in the ordinary course
of the operation of such plans consistent with past practice, or (B)
intercompany acquisitions of capital stock.
(b) Except as set forth on Section 6.2(b) of the Enron Disclosure
Schedule, Enron shall not, and shall not permit any subsidiary to, redeem,
repurchase or otherwise acquire any shares of its capital stock or the
capital stock of any subsidiary other than (i) redemptions, repurchases and
other acquisitions of shares of capital stock in connection with the
administration of employee benefit and dividend reinvestment plans as in
effect on the date hereof in the ordinary course of the operation of such
plans consistent with past practice or (ii) any market repurchase plans
consistent with Rule 10b-18 under the Exchange Act, or (iii) intercompany
acquisitions of capital stock.
(c) Enron shall not and shall not permit any of its subsidiaries to
directly or indirectly declare or pay any dividend on the Enron Common
Stock consisting of shares of capital stock of Enron Capital & Trade
Resources Corp. or effect a distribution, whether by dividend,
recapitalization, reclassification or otherwise, to the holders of Enron
Common Stock consisting of evidences of indebtedness, rights, options or
warrants to purchase securities (other than rights attached to the Enron
Common Stock).
(d) Enron shall not pay any cash dividends in any fiscal year on the
Enron Common Stock in excess of 110% of the dividends for the prior fiscal
year.
Section 6.3 Issuance of Securities. PGC shall not, nor shall it permit any
of its subsidiaries to, issue, deliver or sell, or authorize or propose the
issuance, delivery or sale of, any shares of its capital stock or the capital
stock of any subsidiary or any class or any securities convertible into or
exchangeable for, or any rights, warrants or options to acquire, any such shares
of capital stock, other than the issuance of common stock or stock appreciation
or similar rights, as the case may be, pursuant to PGC's existing Long Term
Incentive Master Plan, Retirement Savings Plan, Employee Stock Ownership Plan or
Outside Directors Stock Compensation Plan, consistent in kind and amount with
past practice and other than issuances by wholly-owned subsidiaries of PGC of
securities to other wholly-owned subsidiaries of PGC.
Section 6.4 Charter Documents. Except as disclosed in Section 6.4 of the
Enron Disclosure Schedule or the PGC Disclosure Schedule, none of Enron, the
Company or PGC shall amend or propose to amend its certificate or articles of
incorporation or by-laws, except as contemplated herein, in any way that would
adversely affect the consummation of the transactions contemplated by this
Agreement or that would alter the terms of the securities to be issued in the
PGC Merger.
Section 6.5 Acquisitions. Except as disclosed in Section 6.5 of the PGC
Disclosure Schedule, PGC shall not, nor shall it permit any of its subsidiaries
to, acquire or agree to acquire, by merging or consolidating with, or by
purchasing a substantial equity interest in or a substantial portion of the
assets of, or by any other manner, any business or any corporation, partnership,
association or other business organization or division thereof, or otherwise
acquire or agree to acquire any material amount of assets other than in the
ordinary course of business.
Section 6.6 No Dispositions. Except as disclosed in Section 6.6 of the PGC
Disclosure Schedule, and other than in the ordinary course of business
consistent with past practice, PGC shall not nor shall it permit any of its
subsidiaries to, sell, lease, license, encumber or otherwise dispose of, any of
its assets.
Section 6.7 Indebtedness. PGC shall not, nor shall it permit any of its
subsidiaries to, incur or guarantee any indebtedness (including any debt
borrowed or guaranteed or otherwise assumed, including, without limitation, the
issuance of debt securities or warrants or rights to acquire debt) other than
(a) short-term indebtedness in the ordinary course of business consistent with
past practice, (b) long-term indebtedness incurred by PGE in connection with the
refinancing of existing indebtedness either at its stated maturity or at
A-22
<PAGE> 119
a lower cost of funds, (c) up to $175 million in long-term indebtedness, and up
to $15 million in long-term indebtedness for pollution control bonds, in each
case incurred by PGE in the ordinary course of business consistent with past
practice, (d) up to $100 million in indebtedness having maturities not to exceed
5 years from its date of incurrence incurred by PGC or Portland General
Holdings, Inc. ("PGH"), provided that if such indebtedness has a maturity in
excess of one year from the date of its incurrence, such indebtedness shall be
incurred only after consultation with Enron, and (e) the securitization referred
to in item 2 of Section 6.6 of the PGC Disclosure Schedule. Notwithstanding the
foregoing, PGC shall not guarantee any indebtedness of PGE, but PGC and PGH
shall be permitted to guarantee obligations under commercial contracts in the
ordinary course of business that are not prohibited by this Agreement.
Section 6.8 Capital Expenditures. Except as disclosed in Section 6.8 of
the PGC Disclosure Schedule or as required by law, PGC shall not, nor shall it
permit any of its subsidiaries to, make any capital expenditures, other than
capital expenditures to repair or replace facilities destroyed or damaged due to
casualty or accident (whether or not covered by insurance).
Section 6.9 Compensation, Benefits. Except as disclosed in Section 6.9 of
the PGC Disclosure Schedule, PGC shall not, nor shall it permit any of its
subsidiaries to, (i) enter into, adopt or amend (except as may be required by
applicable law), or increase the amount or accelerate the payment or vesting of
any benefit or amount payable under, any employee benefit plan or other
contract, agreement, commitment, arrangement, plan or policy maintained by,
contributed to or entered into by PGC or any of its subsidiaries, or increase,
or enter into any contract, agreement, commitment or arrangement to increase in
any manner, the compensation or fringe benefits, or otherwise to extend, expand
or enhance the engagement, employment or any related rights, of any director,
officer or other employee of PGC or any of its subsidiaries, except pursuant to
binding legal commitments and except for normal (including incentive) increases,
extensions, expansions, enhancements, amendments or adoptions in the ordinary
course of business consistent with past practice that, in the aggregate, do not
result in a material increase in benefits or compensation expense to PGC and its
subsidiaries taken as a whole or (ii) enter into or amend any employment,
severance, special pay arrangement with respect to termination of employment or
other similar contract, agreement or arrangement with any director or officer of
PGC or any of its subsidiaries other than in the ordinary course of business
consistent with past practice. PGC shall take such action as shall be necessary
so that neither the execution of this Agreement nor the transactions
contemplated hereby shall constitute a "Change in Control" within the meaning of
the Portland General Corporation Retirement Savings Plan.
Section 6.10 Tax-Free Status. Neither Enron nor PGC shall, nor shall
either permit any of its subsidiaries to, take any actions that would, or would
be reasonably likely to, adversely affect the qualification of the Mergers as
reorganizations within the meaning of Section 368(a) of the Code.
Section 6.11 Discharge of Liabilities. PGC shall not pay, discharge or
satisfy any material claims, liabilities or obligations (absolute, accrued,
asserted or unasserted, contingent or otherwise), other than the payment,
discharge or satisfaction, in the ordinary course of business consistent with
past practice (which includes the payment of final and nonappealable judgments
and the refinancing of existing indebtedness for borrowed money either at its
stated maturity or at a lower cost of funds) or in accordance with their terms,
of liabilities reflected or reserved against in, or contemplated by, its most
recent consolidated financial statements (or the notes thereto) included in its
reports filed with the SEC, or incurred in the ordinary course of business
consistent with past practice or as disclosed in Section 6.11 of the PGC
Disclosure Schedule.
Section 6.12 Cooperation, Notification. Each of Enron and PGC shall: (a)
confer on a regular and frequent basis with one or more representatives of the
other to discuss the general status of its ongoing operations; (b) promptly
notify the other of any significant changes in its business, properties,
financial condition or results of operations; (c) advise the other of any change
or event that has had or, insofar as reasonably can be foreseen, is reasonably
likely to result in, an Enron Material Adverse Effect or a PGC Material Adverse
Effect, as the case may be; and (d) promptly provide the other with copies of
all filings made by it or any of its subsidiaries with any state or federal
court, administrative agency, commission or other Governmental Authority in
connection with this Agreement and the transactions contemplated hereby.
A-23
<PAGE> 120
Section 6.13 Conduct of Business by Enron. Prior to the Effective Time,
Enron will conduct its business, and will cause its subsidiaries to conduct
their respective businesses, so that the character of the business of Enron and
its subsidiaries taken as a whole will not be fundamentally altered.
Section 6.14 Third-Party Consents. Enron shall, and shall cause its
subsidiaries to, use all reasonable efforts to obtain all Enron Required
Consents. Enron shall promptly notify PGC of any failure or anticipated failure
to obtain any such consents and, if requested by PGC, shall provide copies of
all Enron Required Consents obtained by Enron to PGC. PGC shall, and shall cause
its subsidiaries to, use all reasonable efforts to obtain all PGC Required
Consents. PGC shall promptly notify Enron of any failure or anticipated failure
to obtain any such consents and, if requested by Enron, shall provide copies of
all PGC Required Consents obtained by PGC to Enron.
Section 6.15 No Breach, Etc. No party shall, nor shall any party permit
any of its subsidiaries to, take any action that would or is reasonably likely
to result in a material breach of any provision of this Agreement or in any of
its representations and warranties set forth in this Agreement being untrue on
and as of the Closing Date.
Section 6.16 Insurance. Each of Enron and PGC shall, and shall cause its
subsidiaries to, maintain with financially responsible insurance companies
insurance in such amounts and against such risks and losses as are customary for
companies engaged in their respective businesses.
Section 6.17 Permits. Each party shall, and shall cause its subsidiaries
to, use all reasonable efforts to maintain in effect all existing Permits (as
defined in Section 4.4) pursuant to which such party or such party's
subsidiaries operate.
Section 6.18 Nuclear Operations.
(a) PGC shall not (i) repudiate or breach any existing contract or
arrangement for the disposal or storage of spent nuclear fuel or components
of the PGC Nuclear Facility; or (ii) obligate itself to the payment of
decommissioning expenses for the PGC Nuclear Facility, or propose or adopt
a budget for such decommissioning expenses, which exceeds the budget for
decommissioning expenses set forth in Section 6.18 of the PGC Disclosure
Schedule, by an amount sufficient to produce a PGC Material Adverse Effect
when measured over the life of the payment obligation or budget for such
expenses. PGC shall not engage in, or enter into the business of
undertaking to engage in, the transportation, treatment or disposal of
radioactive waste generated by third parties. To the extent not prohibited
by applicable laws, regulations, facility licenses, permits and agreements
with third parties existing as of the date of this Agreement, at all times
prior to the Closing, PGC shall make available to Enron, upon its request,
any existing information relevant to the operation or decommissioning of
the PGC Nuclear Facility, and shall inform Enron promptly of any proposed
changes to the Decommissioning Plan. If PGC is prohibited by agreement with
a third party from providing information to Enron, PGC shall use reasonable
efforts (including taking into account Enron's willingness to execute
appropriate confidentiality agreements) to obtain the consent of such third
party to the release of such information. In addition, upon reasonable
notice, PGC shall allow access by two individuals designated by Enron to
all portions of the PGC Nuclear Facility, affording those persons the same
degree of access to facilities and information to the same extent afforded
the Director of Nuclear Decommissioning & Thermal Operations. Access by the
individuals selected by Enron shall be pursuant to existing procedures for
access to the PGC Nuclear Facility, including any security clearance and
training normally required of PGC nuclear personnel.
(b) Within fifteen days following the date of execution of this
Agreement, Enron and PGC shall create a Nuclear Oversight Committee (the
"Committee") consisting of two members appointed by Enron and two members
appointed by PGC. The Committee shall have no authority to control, manage,
operate or participate in the management of the PGC Nuclear Facility or the
decommissioning of such facility, but shall be advisory only. Each member
of the Committee shall have responsibility only to the entity that
appointed that member to the Committee. To the extent not prohibited by
applicable laws, regulations and facility licenses and permits, the
Committee and each member thereof shall have access to the PGC Nuclear
Facility to the same extent granted to senior nuclear personnel employed by
PGC,
A-24
<PAGE> 121
and PGC employees shall cooperate with members of the Committee in
obtaining such access and in promptly responding to all inquiries
concerning the PGC Nuclear Facility. Access by the individuals selected by
Enron shall be pursuant to existing procedures for access to the PGC
Nuclear Facility, including any security clearance and training normally
required of PGC nuclear personnel. The Committee shall consult with the
management of PGC and Enron at regular intervals (but not less frequently
than monthly) concerning the progress of decommissioning of the PGC Nuclear
Facility.
Section 6.19 Operations of Company. Prior to the First Effective Time, the
Company shall not, and Enron shall not permit the Company to, conduct any
activities or hold assets except as required in connection with the transactions
contemplated hereby.
Section 6.20 Agreements. No party or any of its subsidiaries shall agree
in writing to take any action prohibited by this Article VI.
ARTICLE VII
ADDITIONAL AGREEMENTS
Section 7.1 Access to Information. Upon reasonable notice and during
normal business hours, each party shall, and shall cause its subsidiaries to,
afford to the officers, directors, employees, accountants, counsel, investment
bankers, financial advisors and other representatives of the other party
(collectively, "Representatives") reasonable access, during normal business
hours throughout the period prior to the Effective Time, to all of its
properties, books, contracts, commitments and records (including, but not
limited to, Tax Returns) and, during such period, each party shall, and shall
cause its subsidiaries to, furnish promptly to the other (i) a copy of each
report, schedule and other document filed or received by it or any of its
subsidiaries pursuant to the requirements of federal or state securities laws or
filed with the SEC, the FERC, the NRC, the Department of Justice, the Federal
Trade Commission, the OPUC, the Oregon Department of Energy ("ODOE") or any
other federal or state regulatory agency or commission with respect to the
transactions contemplated hereby and (ii) all information concerning themselves,
their subsidiaries, directors, officers and shareholders and such matters as may
be reasonably requested by the other party in connection with any filings,
applications or approvals required or contemplated by this Agreement. All
documents and information furnished pursuant to this Section 7.1 shall be
subject to the Confidentiality Agreement between Enron and PGC dated as of March
11, 1996 (the "Confidentiality Agreement"). The party requesting copies of any
documents from any other party hereto shall be responsible for all out-of-pocket
expenses incurred by the party to whom such request is made in complying with
such request, including any cost of reproducing and delivering any required
information.
Section 7.2 Joint Proxy Statement and Registration Statement.
(a) Preparation and Filing. As promptly as reasonably practicable
after the date hereof, the parties shall prepare and file with the SEC the
Registration Statement and the Joint Proxy Statement (together the "Joint
Proxy/Registration Statement"). The parties shall take such actions as may
be reasonably required to cause the Registration Statement to be declared
effective under the Securities Act as promptly as practicable after such
filing. The parties shall also take such action as may be reasonably
required to cause the shares of Company Common Stock and Company Preferred
Stock issuable in connection with the Mergers to be registered under or to
obtain an exemption from registration under applicable state "blue sky" or
securities laws; provided, however, that none of the Company, PGC or Enron
shall be required to register or qualify as a foreign corporation or to
take any other action that would subject it to general service of process
in any jurisdiction in which the Company will not, following the Effective
Time, be so subject. Each of the parties shall furnish all information
concerning itself that is required or customary for inclusion in the Joint
Proxy/Registration Statement. If, at any time prior to the Effective Time,
Enron discovers any event or circumstance relating to Enron or any of its
subsidiaries, or its or their respective officers or directors, that should
be set forth in an amendment to the Registration Statement or a supplement
to the Joint Proxy Statement, Enron shall promptly inform PGC. If, at any
time prior to the Effective Time, PGC discovers any event or circumstance
relating to PGC or any of its
A-25
<PAGE> 122
subsidiaries, or its or their respective officers or directors that should
be set forth in an amendment to the Registration Statement or a supplement
to the Joint Proxy Statement, PGC shall promptly inform Enron. No
representation, covenant or agreement contained in this Agreement is made
by any party hereto with respect to information supplied by any other party
hereto for inclusion in the Joint Proxy/Registration Statement. The Joint
Proxy/Registration Statement shall comply as to form in all material
respects with the Securities Act and the rules and regulations thereunder.
(b) Letter of Enron's Accountants. Following receipt by Arthur
Andersen LLP, Enron's independent auditors, of an appropriate request from
PGC pursuant to SAS No. 72, Enron shall use best efforts to cause to be
delivered to the Company and PGC a letter of Arthur Andersen LLP, dated a
date within two business days before the effective date of the Registration
Statement, and addressed to the Company and PGC, in form and substance
reasonably satisfactory to the Company and PGC and customary in scope and
substance for "cold comfort" letters delivered by independent public
accountants in connection with registration statements and proxy statements
similar to the Joint Proxy/Registration Statement.
(c) Letter of PGC's Accountants. Following receipt by Arthur Andersen
LLP, PGC's independent auditors, of an appropriate request from Enron
pursuant to SAS No. 72, PGC shall use best efforts to cause to be delivered
to the Company and Enron a letter of Arthur Andersen LLP dated a date
within two business days before the effective date of the Registration
Statement, and addressed to the Company and Enron, in form and substance
satisfactory to the Company and Enron and customary in scope and substance
for "cold comfort" letters delivered by independent public accountants in
connection with registration statements and proxy statements similar to the
Joint Proxy/Registration Statement.
(d) Fairness Opinions. Prior to mailing the Joint Proxy Statement to
the shareholders of PGC and Enron (i) Enron shall have received an opinion
from Smith Barney Inc., dated the date of the Joint Proxy Statement, to the
effect that, as of the date thereof, the consideration to be issued to the
holders of PGC Common Stock in the PGC Merger is fair to the holders of
Enron Common Stock and Enron Convertible Preferred Stock from a financial
point of view, and (ii) PGC shall have received an opinion from Goldman,
Sachs & Co., dated the date of the Joint Proxy Statement, to the effect
that, as of the date thereof, the consideration to be received by holders
of PGC Common Stock pursuant to the PGC Merger is fair to such holders from
a financial point of view.
Section 7.3 Regulatory Matters.
(a) Regulatory Plans. Schedule 7.3(a) sets forth the material terms of
the federal and state regulatory plans (the "Regulatory Plans") to be
hereafter filed with the FERC and OPUC. The parties understand and agree
that implementing the Regulatory Plans is a collaborative process. As a
consequence, PGC and Enron shall cooperate in good faith, consult with each
other and obtain each other's consent and agreement (which shall not be
unreasonably withheld) on all components of, significant steps toward the
completion of, and significant amendments to, the Regulatory Plans and with
respect to filings, communications, agreements, arrangements or consents,
written or oral, formal or informal, with the OPUC, ODOE, FERC or the NRC
which are reasonably expected to have a significant effect on the
fulfillment of the Regulatory Plans.
(b) Other Regulatory Approvals. Each party hereto shall cooperate and
use all reasonable efforts to promptly prepare and file all necessary
documentation, to effect all necessary applications, notices, petitions,
filings and other documents, and to use all reasonable efforts to obtain
all necessary permits, consents, approvals and authorizations of all
Governmental Authorities and all other persons necessary or advisable to
consummate the transactions contemplated by this Agreement, including,
without limitation, the Enron Required Statutory Approvals, and the PGC
Required Statutory Approvals. Enron and PGC shall each consult with the
other with respect to the obtaining of all such necessary or advisable
permits, consents, approvals and authorizations of Governmental
Authorities. Further, the parties hereto shall cooperate and use all
reasonable efforts to seek appropriate authority to engage in transactions
between affiliates, including OPUC approval for transactions between
affiliated interests.
A-26
<PAGE> 123
(c) HSR Filings. Each party hereto shall file or cause to be filed
with the Federal Trade Commission and the Department of Justice any
notifications required to be filed by their respective "ultimate parent"
entities under the Hart-Scott-Rodino Antitrust Improvements Act of 1976, as
amended (the "HSR Act"), and the rules and regulations promulgated
thereunder with respect to the transactions contemplated hereby. Such
parties will use all reasonable efforts to make such filings on a timely
basis and shall respond promptly to any requests for additional information
made by either of such agencies.
Section 7.4 Shareholder Approvals.
(a) Approval of PGC Shareholders. PGC shall, as promptly as reasonably
practicable after the date hereof (i) take all steps reasonably necessary
to call, give notice of, convene and hold a special meeting of its
shareholders (the "PGC Special Meeting") for the purpose of securing the
PGC Shareholders' Approval, (ii) distribute to its shareholders the Joint
Proxy Statement in accordance with applicable federal and state law and
with its articles of incorporation and bylaws, which Joint Proxy Statement
shall contain the recommendation of the Board of Directors of PGC that its
shareholders approve the PGC Merger, this Agreement and the transactions
contemplated hereby, (iii) use all reasonable efforts to solicit from its
shareholders proxies in favor of the approval and adoption of the PGC
Merger, this Agreement and the transactions contemplated hereby and to
secure the PGC Shareholders' Approval, and (iv) cooperate and consult with
Enron with respect to each of the foregoing matters; provided, that nothing
contained in this Section 7.4(a) shall prohibit the PGC Board of Directors
from failing to make or from withdrawing or modifying its recommendation to
the PGC shareholders hereunder if the Board of Directors of PGC, after
consultation with and based upon the written advice of independent legal
counsel, determines in good faith that such action is necessary for such
Board of Directors to comply with its fiduciary duties to its shareholders
under applicable law.
(b) Approval of Enron Shareholders. Enron shall, as promptly as
reasonably practicable after the date hereof (i) take all steps reasonably
necessary to call, give notice of, convene and hold a special meeting of
its shareholders (the "Enron Special Meeting") for the purpose of securing
the Enron Shareholders' Approval, (ii) distribute to its shareholders the
Joint Proxy Statement in accordance with applicable federal and state law
and its articles of incorporation and bylaws, which Joint Proxy Statement
shall contain the recommendation of the Enron Board of Directors that its
shareholders approve the Reincorporation Merger, this Agreement and the
transactions contemplated hereby and (iii) use all reasonable efforts to
solicit from its shareholders proxies in favor of the approval and adoption
of the Reincorporation Merger, this Agreement and the transactions
contemplated hereby and to secure the Enron Shareholders' Approval, and
(iv) cooperate and consult with PGC with respect to each of the foregoing
matters; provided, that nothing contained in this Section 7.4(b) shall
prohibit the Enron Board of Directors from failing to make or from
withdrawing or modifying its recommendation to the Enron shareholders
hereunder if the Board of Directors of Enron, after consultation with and
based upon the written advice of independent legal counsel, determines in
good faith that such action is necessary for such Board of Directors to
comply with its fiduciary duties to its shareholders under applicable law.
(c) Meeting Date. The Enron Special Meeting and the PGC Special
Meeting shall be held on the same day unless otherwise agreed by Enron and
PGC.
Section 7.5 Directors' and Officers' Indemnification.
(a) Indemnification. To the extent, if any, not provided by an
existing right of indemnification or other agreement or policy, from and
after the Effective Time, the Company shall, to the fullest extent not
prohibited by applicable law, indemnify, defend and hold harmless the
present and former directors, officers and management employees of the
parties hereto and their respective subsidiaries (each an "Indemnified
Party" and, collectively, the "Indemnified Parties") against (i) all
losses, expenses (including reasonable attorneys' fees and expenses),
claims, damages, costs, liabilities, judgments or (subject to the proviso
of the next succeeding sentence) amounts that are paid in settlement of or
in connection with any claim, action, suit, proceeding or investigation
based in whole or in part on or arising
A-27
<PAGE> 124
in whole or in part out of the fact that such person is or was a director,
officer or management employee of such party or any subsidiary thereof,
whether pertaining to any matter existing or occurring at or prior to or
after the Effective Time and whether asserted or claimed prior to, at or
after the Effective Time and (ii) all liabilities based in whole or in part
on, or arising in whole or in part out of, or pertaining to this Agreement
or the transactions contemplated hereby. In the event of any such loss,
expense, claim, damage, cost, liability, judgment or settlement (whether or
not arising before the Effective Time), (x) the Company shall pay the
reasonable fees and expenses of counsel selected by the Indemnified
Parties, which counsel shall be reasonably satisfactory to the Company,
promptly after statements therefor are received, and otherwise advance to
the Indemnified Parties upon request reimbursement of documented expenses
reasonably incurred, in either case to the extent not prohibited by the
laws of the State of Oregon, (y) the Company shall cooperate in the defense
of any such matter and (z) any determination required to be made with
respect to whether an Indemnified Party's conduct complies with the
standards under applicable law or as set forth in the Company's articles of
incorporation or bylaws shall be made by independent counsel mutually
acceptable to the Company and the Indemnified Party; provided, however,
that the Company shall not be liable for any settlement effected without
its written consent (which consent shall not be unreasonably withheld or
delayed). The Indemnified Parties as a group may retain only one law firm
(other than local counsel) with respect to each related matter except to
the extent there is, in the sole opinion of counsel to an Indemnified
Party, under applicable standards of professional conduct, a conflict on
any significant issue between positions of any two or more Indemnified
Parties, in which case each Indemnified Party with a conflicting position
on a significant issue shall be entitled to separate counsel. In the event
any Indemnified Party is required to bring any action to enforce rights or
to collect moneys due under this Agreement and is successful in such
action, the Company shall reimburse such Indemnified Party for all of its
expenses in bringing and pursuing such action. Each Indemnified Party shall
be entitled to the advancement of expenses to the full extent contemplated
in this Section 7.5(a) in connection with any such action.
(b) Insurance. For a period of six (6) years after the Effective Time,
the Company shall cause to be maintained in effect the policies of
directors' and officers' liability insurance maintained by Enron and PGC;
provided that the Company may substitute therefor policies of at least the
same coverage containing terms that are no less advantageous with respect
to matters occurring at or prior to the Effective Time to the extent such
liability insurance can be maintained annually at a cost to the Company not
greater than 200 percent of the current annual premiums for the policies
currently maintained by Enron and PGC for their directors' and officers'
liability insurance; provided further, that if such insurance cannot be so
maintained or obtained at such cost, the Company shall maintain or obtain a
policy providing the best coverage available, as determined by the Board of
Directors of the Company, for a premium not exceeding 200 percent of the
respective current annual premiums of each of Enron and PGC for their
directors' and officers' liability insurance and other indemnity
agreements.
(c) Successors. In the event the Company or any of its successors or
assigns (i) consolidates with or merges into any other person and shall not
be the continuing or surviving corporation or entity of such consolidation
or merger or (ii) transfers all or substantially all of its properties and
assets to any person, then and in either such case, proper provision shall
be made so that the successors and assigns of the Company shall assume the
obligations set forth in this Section 7.5.
(d) Survival of Indemnification. To the fullest extent not prohibited
by law, from and after the Effective Time, all rights to indemnification
now existing in favor of the employees, agents, directors or officers of
Enron, PGC and their respective subsidiaries with respect to their
activities as such prior to or at the Effective Time, as provided in their
respective articles or certificate of incorporation or bylaws or
indemnification agreements in effect on the date of such activities or
otherwise in effect on the date hereof, shall survive the Mergers and shall
continue in full force and effect for a period of not less than six years
from the Effective Time, provided that, in the event any claim or claims
are asserted or made within such six year period, all such rights to
indemnification in respect of any claim or claims shall continue until
final disposition of such claim or claims.
A-28
<PAGE> 125
Section 7.6 Disclosure Schedules. On or before the date of this Agreement,
(i) PGC has delivered to Enron a schedule (the "PGC Disclosure Schedule")
accompanied by a certificate signed by the chief financial officer of PGC
stating that the Disclosure Schedule is being delivered pursuant to this Section
7.6(i) and (ii) Enron has delivered to PGC a schedule (the "Enron Disclosure
Schedule") accompanied by a certificate signed by an executive officer of Enron
stating that the Enron Disclosure Schedule is being delivered pursuant to this
Section 7.6(ii). The PGC Disclosure Schedule and the Enron Disclosure Schedule
are collectively referred to herein as the "Disclosure Schedules". The
Disclosure Schedules constitute an integral part of this Agreement and modify
the respective representations, warranties, covenants or agreements of the
parties hereto contained herein to the extent that such representations,
warranties, covenants or agreements expressly refer specifically to the
applicable section of the Disclosure Schedules. Any and all statements,
representations, warranties or disclosures set forth in the Disclosure Schedules
shall be deemed to have been made on and as of the date of this Agreement.
Section 7.7 Public Announcements. Enron and PGC shall cooperate with each
other in the development and distribution of all news releases and other public
information disclosures with respect to this Agreement or any of the
transactions contemplated hereby and, subject to each party's disclosure
obligations imposed by law or any applicable national securities exchange, (a)
shall consult with each other with respect to any public announcements or
statements and (b) shall not issue any public announcement or statement with
respect to the transactions contemplated by this Agreement that is inconsistent
with any public announcement or statement previously made by either party
without the consent of the other party.
Section 7.8 Rule 145 Affiliates. PGC shall identify in a letter to Enron
all persons who are, on the date hereof, "affiliates" of PGC, as such term is
used in Rule 145 under the Securities Act. PGC shall use all reasonable efforts
to cause its respective affiliates to deliver to Enron not later than 10 days
prior to the date of the PGC Special Meeting, a written agreement substantially
in the form attached as Exhibit A (an "Affiliate Agreement"), and shall use all
reasonable efforts to cause persons who become "affiliates" after such date but
prior to the Closing Date to execute and deliver agreements at least 5 days
prior to the Closing Date.
Section 7.9 Employee Agreements. Subject to Section 7.10 and Section 7.15,
the Company and its subsidiaries shall honor, all contracts, agreements,
collective bargaining agreements and commitments of the parties that apply to
any current or former employees or current or former directors of the parties
hereto; provided, however, that this undertaking is not intended to prevent the
Company from enforcing such contracts, agreements, collective bargaining
agreements and commitments in accordance with their terms or from exercising any
right (including any right resulting from mutual consent) to amend, modify,
suspend, revoke or terminate any such contract, agreement, collective bargaining
agreement or commitment.
Section 7.10 Employee Benefit Plans.
(a) Maintenance of Benefits. The Company or its subsidiaries shall
provide PGC Employees (as defined below) (other than represented
employees), for a period of not less than two years following the Effective
Time, with benefits that are not materially less favorable in the aggregate
than those provided to such individuals under the PGC Benefit Plans;
provided, that the foregoing shall not require the Company to maintain or
prevent the Company from amending, terminating, or merging any particular
PGC Benefit Plan. PGC Employees means (i) individuals who are, as of the
Effective Time, employees of PGC and its subsidiaries, except that such an
individual shall cease to be considered a "PGC Employee" and shall
thereafter be considered a "Transferred Employee" if and when he or she
transfers to the employment of Enron or an affiliate of Enron other than
PGC and its subsidiaries; and (ii) individuals who are, as of the Effective
Time, former employees of PGC and its subsidiaries entitled to benefits
according to the provisions of any PGC Benefit Plan as of the Effective
Time.
(b) Nonqualified Plans and Severance. In addition to, and without
limitation of the foregoing, for two years following the Effective Time:
(i) the Portland General Corporation Supplemental Executive Retirement Plan
and the Portland General Corporation Management Deferred Compensation Plan
(the "Nonqualified Plans") shall continue in effect without any amendment
that could adversely affect PGC Employees who are participants in such
plans as of the Effective Time ("Current Participants") (including without
any limitation an amendment that reduces the rate at which benefits are
accrued);
A-29
<PAGE> 126
(ii) the Portland General Electric Company Umbrella Trust for Management
shall continue in existence with assets sufficient to provide for all
benefits of Current Participants that have accrued through the Effective
Time (the "Accrued Benefits"), and such assets shall not be used for any
purposes other than the payment of the Accrued Benefits or to pay creditors
of PGC and its affiliates in the event of insolvency, until such time as
all Accrued Benefits have been paid; and (iii) PGC Employees and
Transferred Employees (other than represented employees) shall be entitled
to severance benefits in amounts and upon terms and conditions no less
favorable than those in effect under the Portland General Corporation
Involuntary Severance and Outplacement Plan, as in effect as of the
Effective Time.
(c) Continuity of Benefits. The Company and its subsidiaries shall (i)
for all purposes under all compensation and benefit plans and policies
applicable to employees of the Company and its subsidiaries, treat all
service by PGC Employees and Transferred Employees with PGC or any of its
affiliates before the Effective Time as service with the Company and its
subsidiaries, except to the extent such treatment would result in a
duplication of benefits, (ii) for purposes of any welfare or other employee
benefit plan maintained by them for the benefit of PGC Employees and/or
Transferred Employees or in which any PGC Employees and/or Transferred
Employees participate after the Effective Time, waive any waiting periods
and limitations regarding pre-existing conditions, and if any PGC Employee
or Transferred Employee transfers from one such plan to another such plan
during a plan year, cause the second plan to recognize any out-of-pocket
expenses incurred by such PGC Employee or Transferred Employee and his or
her eligible dependents during the portion of the plan year before such
transfer for purposes of determining their deductibles and out-of-pocket
maximums.
Section 7.11 Incentive, Stock and Other Plans.
(a) Existing PGC Stock Options. As of the Effective Time, each
outstanding option to purchase shares of PGC Common Stock (each, a "PGC
Stock Option") pursuant to the 1990 Portland General Corporation Long-Term
Incentive Master Plan (the "PGC Stock Plan") shall be amended to constitute
an option to acquire shares of Company Common Stock, on the same terms and
conditions as were applicable under such PGC Stock Option, based on the
same number of shares of the Company Common Stock as the holder of such PGC
Stock Option would have been entitled to receive pursuant to the Mergers in
accordance with Article II had such holder exercised such option in full
immediately prior to the Effective Time; provided, that the option price of
such option shall be adjusted as necessary to preserve both (A) the
aggregate gain (or loss) on the PGC Stock Option immediately prior to the
Effective Time and (B) the ratio of the exercise price per share subject to
the PGC Stock Option to the fair market value (determined immediately prior
to the Effective Time) per share subject to such option.
(b) Other Stock Compensation. Following the Effective Time until
December 31, 2000, PGC Employees shall be entitled to receive either (i) a
company matching contribution to a profit sharing plan, in the form of
Company Common Stock, on terms and conditions no less favorable than those
in effect under the Portland General Corporation Retirement Savings Plan
immediately before the Effective Time, or (ii) stock options under the
Enron All-Employee Stock Option Program on terms and conditions no less
favorable than similarly situated employees of Enron and its subsidiaries,
but pro-rated to reflect the time remaining between the time PGC Employees
begin to participate in such plan until December 31, 2000.
(c) Annual Incentive Plan. For the year in which the Effective Time
occurs (the "Transition Year"), the Portland General Corporation Annual
Incentive Master Plan shall remain in effect and shall be administered by
the individuals who constitute the Compensation Committee of PGC
immediately before the Effective Time, with only such amendments as such
individuals and Enron shall jointly determine to be appropriate. For the
two years following the Transition Year, the employees of PGC shall
participate in an annual incentive plan administered by the Chief Executive
Officer of PGC or his designees; provided, however, that the funding levels
for such plan shall be determined by the Compensation Committee of Enron
following the Effective Time.
A-30
<PAGE> 127
(d) Company Action. With respect to each PGC Benefit Plan and each
other plan referred to above under which the delivery of PGC Common Stock
or Company Common Stock is required upon payment of benefits, grant of
awards or exercise of options (the "Stock Plans"), the Company shall take
all corporate action necessary or appropriate to (i) provide for the
issuance or purchase in the open market of Company Common Stock rather than
PGC Common Stock pursuant thereto, and otherwise to amend the Stock Plans
to reflect this Agreement and the Mergers, (ii) obtain shareholder approval
with respect to such Stock Plan to the extent such approval is required for
purposes of the Code or other applicable law, or to enable such Stock Plan
to comply with Rule 16b-3 promulgated under the Exchange Act, (iii) reserve
for issuance under such plan or otherwise provide a sufficient number of
shares of Company Common Stock for delivery upon payment of benefits, grant
of awards or exercise of options under such Stock Plan and (iv) as soon as
practicable after the Effective Time, file registration statements on Form
S-3 or Form S-8 or amendments on such forms to the Form S-4 Registration
Statement, as the case may be (or any successor or other appropriate
forms), with respect to the shares of Company Common Stock subject to such
Stock Plan to the extent such registration statement is required under
applicable law, and the Company shall use its best efforts to maintain the
current status of the prospectuses contained therein) for so long as such
benefits and grants remain payable and such options remain outstanding.
With respect to those individuals who subsequent to the Mergers will be
subject to the reporting requirements under Section 16(a) of the Exchange
Act, the Company shall administer the Stock Plans, where applicable, in a
manner that complies with Rule 16b-3 promulgated under the Exchange Act.
Section 7.12 No Solicitations.
(a) From the date of this Agreement until the Effective Time or until
this Agreement is terminated in accordance with Article IX hereof, PGC
shall not initiate, solicit or encourage (including by way of furnishing
information or assistance), or take any other action to facilitate, any
inquiries or the making of any proposal relating to, or that may reasonably
be expected to lead to, any PGC Competing Transaction (as defined below),
or enter into discussions or negotiate with any person or entity in
furtherance of such inquiries or to obtain a PGC Competing Transaction, or
agree to or endorse any PGC Competing Transaction, or authorize or permit
any of the officers, directors or employees of PGC or any of its
subsidiaries or any investment banker, financial advisor, attorney,
accountant or other representative retained by PGC or any of PGC's
subsidiaries to take any such action, and PGC shall promptly notify Enron
of all relevant terms (including the identities of the parties involved) of
any such inquiries and proposals received by PGC or any of its subsidiaries
or by any such officer, director, investment banker, financial advisor,
attorney, accountant or other representative relating to any of such
matters and if such inquiry or proposal is in writing, PGC shall promptly
deliver or cause to be delivered to Enron a copy of such inquiry or
proposal; provided, however, that, prior to receipt of the PGC
Shareholders' Approval at the PGC Special Meeting, nothing contained in
this Section 7.12 shall prohibit the Board of Directors of PGC from (i)
furnishing information to, or entering into discussions or negotiations
with, any person or entity in connection with an unsolicited bona fide
offer in writing by such person or entity to acquire PGC pursuant to a
merger, consolidation, share exchange, business combination or other
similar transaction or to acquire a substantial portion of the assets of
PGC or any of its subsidiaries, to the extent and only to the extent that
(A) the Board of Directors of PGC, after consultation with and based upon
the written advice of independent legal counsel, determines in good faith
that such action is necessary for such Board of Directors to comply with
its fiduciary duties to its shareholders under applicable law and (B) prior
to furnishing such information to, or entering into discussions or
negotiations with, such person or entity PGC (x) provides written notice to
Enron to the effect that it is furnishing information to, or entering into
discussions or negotiations with, such person or entity and (y) enters into
a confidentiality agreement with such person or entity reasonably
calculated under the circumstances, in the reasonable judgment of PGC, to
protect the confidentiality of PGC's proprietary data; or (ii) complying
with Rule 14e-2 promulgated under the Exchange Act with regard to a PGC
Competing Transaction. For purposes of this Agreement, "PGC Competing
Transaction" shall mean any of the following (other than the transactions
contemplated by this Agreement) involving PGC or any of its subsidiaries:
(i) any merger, consolidation,
A-31
<PAGE> 128
share exchange, business combination or similar transaction; (ii) any sale,
lease, exchange, mortgage, pledge, transfer or other disposition of 20% or
more of the assets of PGC and its subsidiaries, taken as a whole, (iii) any
tender offer or exchange offer for 20% or more of the outstanding shares of
capital stock of PGC; (iv) any person acquiring beneficial ownership of, or
any group (as such term is defined under Section 13(d) of the Exchange Act
and the rules and regulations promulgated thereunder) being formed which
beneficially owns or has the right to acquire beneficial ownership of, 20%
or more of the outstanding shares of capital stock of PGC; or (v) any
public announcement of a proposal, plan or intention to do any of the
foregoing or any agreement to engage in any of the foregoing.
(b) From the date of this Agreement until the Effective Time or until
this Agreement is terminated in accordance with Article IX hereof, Enron
shall not initiate, solicit or encourage (including by way of furnishing
information or assistance), or take any other action to facilitate, any
inquiries or the making of any proposal relating to, or that may reasonably
be expected to lead to, any Enron Competing Transaction (as defined below),
or enter into discussions or negotiate with any person or entity in
furtherance of such inquiries or to obtain an Enron Competing Transaction,
or agree to or endorse any Enron Competing Transaction, or authorize or
permit any of the officers, directors or employees of Enron or any of its
subsidiaries or any investment banker, financial advisor, attorney,
accountant or other representative retained by Enron or any of Enron's
subsidiaries to take any such action, and Enron shall promptly notify PGC
of all relevant terms (including the identities of the parties involved) of
any such inquiries and proposals received by Enron or any of its
subsidiaries or by any such officer, director, investment banker, financial
advisor, attorney, accountant or other representative relating to any of
such matters and if such inquiry or proposal is in writing, Enron shall
promptly deliver or cause to be delivered to PGC a copy of such inquiry or
proposal; provided, however, that prior to receipt of the Enron
Shareholders' Approval at the Enron Special Meeting, nothing contained in
this Section 7.12(b) shall prohibit the Board of Directors of Enron from
(i) furnishing information to, or entering into discussions or negotiations
with, any person or entity in connection with an unsolicited bona fide
offer in writing by such person or entity to acquire Enron pursuant to a
merger, consolidation, share exchange, business combination or other
similar transaction or to acquire a substantial portion of the assets of
Enron or any of its subsidiaries, to the extent and only to the extent that
(A) the Board of Directors of Enron, after consultation with and based upon
the written advice of independent legal counsel, determines in good faith
that such action is necessary for such Board of Directors to comply with
its fiduciary duties to its shareholders under applicable law and (B) prior
to furnishing such information to, or entering into discussions or
negotiations with, such person or entity Enron (x) provides written notice
to PGC to the effect that it is furnishing information to, or entering into
discussions or negotiations with, such person or entity and (y) enters into
a confidentiality agreement with such person or entity comparable to those
customarily used by Enron to protect the confidentiality of Enron's
proprietary data; or (ii) complying with Rule 14e-2 promulgated under the
Exchange Act with regard to an Enron Competing Transaction. For purposes of
this Agreement, a "Enron Competing Transaction" shall mean any of the
following (other than the transactions contemplated by this Agreement)
involving Enron or any of its subsidiaries: (i) any merger, consolidation,
share exchange, business combination or similar transaction pursuant to
which holders of Enron Common Stock prior to such transaction would own in
the aggregate less than 50% of the voting power of the entity surviving or
resulting from such transaction (or the ultimate parent entity thereof);
(ii) any sale, lease, exchange, mortgage, pledge, transfer or other
disposition of 50% or more of the assets of Enron and its subsidiaries,
taken as a whole, (iii) any tender offer or exchange offer for 30% or more
of the outstanding shares of capital stock of Enron; (iv) any person
acquiring beneficial ownership of, or any group (as such term is defined
under Section 13(d) of the Exchange Act and the rules and regulations
promulgated thereunder) being formed which beneficially owns or has the
right to acquire beneficial ownership of, 30% or more of the outstanding
shares of capital stock of Enron; or (v) any public announcement of a
proposal, plan or intention to do any of the foregoing or any agreement to
engage in any of the foregoing; provided, that notwithstanding anything
herein to the contrary, none of the foregoing shall be deemed an Enron
Competing Transaction unless such transaction by its terms would prevent
the consummation of the transactions contemplated by this Agreement or be
conditioned upon the termination of this Agreement.
A-32
<PAGE> 129
Section 7.13 Company Board of Directors. The parties hereto will take such
action as may be necessary to cause the number of directors comprising the full
Board of Directors of the Company at the Effective Time to be not more than 16
persons, of whom three shall be designated by PGC and reasonably acceptable to
Enron and of whom one shall be Ken L. Harrison; provided, however, that if,
prior to the Effective Time, any of such designees shall decline or be unable to
serve, PGC shall designate another person to serve in such person's stead
reasonably acceptable to Enron.
Section 7.14 Company Officers. At the Effective Time, pursuant to the
terms hereof and the employment contract referred to in Section 7.15, Ken L.
Harrison shall hold the positions of Vice Chairman of the Board of the Company
and Chairman of the Board and Chief Executive Officer of PGE and Joseph M. Hirko
shall hold the position of Senior Vice President of the Company.
Section 7.15 Employment Contracts. Concurrently with the execution and
delivery of this Agreement, the Company has entered into employment contracts
with Messrs. Harrison and Hirko, respectively. Such employment agreements shall
become effective immediately at the Effective Time in accordance with their
terms.
Section 7.16 Post-Merger Operations. Following the Effective Time, the
Company shall conduct its operations in accordance with the following:
(a) Principal Corporate Offices. PGE shall maintain its principal
corporate offices in the city of Portland in the State of Oregon.
(b) Corporate Officers of PGE. The corporate officers of PGE shall be
entitled to maintain their current titles and responsibilities as officers
of PGE, except to the extent modified by the forms of employment contracts
set forth pursuant to Section 7.15, and unless and until otherwise
determined by the Board of Directors of the Company. Following the
Effective Time, Enron shall designate a number of directors of PGE
consisting of directors of Enron and/or employees of Enron or any
subsidiary thereof, including Ken L. Harrison and Joseph M. Hirko.
Furthermore, PGC shall have the right to designate no more than seven
non-voting advisory directors for PGE.
(c) Charities. Immediately prior to the Effective Time, each of Enron
and PGC shall cause contributions of $10 million to be made to the assets
of the PGE Foundation (the "Foundation"), and the assets of the Foundation
shall be used for charitable purposes in accordance with the constituent
documents of the Foundation in the service area of PGE. The current
directors of the Foundation, or persons nominated by a majority of such
directors or nominated by their successors in accordance with this
provision, shall be the directors of the Foundation.
Section 7.17 NYSE Listing. The parties shall take such action as may be
reasonably required to cause the shares of Company Common Stock to be issued in
the Mergers and any Company Preferred Stock issued in exchange for shares of
Enron Convertible Preferred Stock to be approved for listing on the NYSE and the
exchanges on which the Enron Common Stock or Enron Convertible Preferred Stock
was listed, each subject to official notice of issuance.
Section 7.18 Expenses. Subject to Section 7.1 and Section 9.3, all costs
and expenses incurred in connection with this Agreement and the transactions
contemplated hereby and thereby shall be paid by the party incurring such
expenses, except that those expenses incurred in connection with printing the
Joint Proxy/Registration Statement, as well as the filing fee relating thereto,
shall be shared equally by Enron, on the one hand, and PGC, on the other hand.
Section 7.19 Further Assurances.
(a) Each of PGC and Enron shall, and shall cause their respective
subsidiaries to, execute such further documents and instruments and take
such further actions as may reasonably be requested by the other in order
to consummate the Mergers and the transactions contemplated hereby, and to
use its reasonable efforts to take or cause to be taken all actions, and to
do or cause to be done all things, necessary, proper or advisable under
applicable laws and regulations to consummate and make effective
A-33
<PAGE> 130
the Mergers and the other transactions contemplated hereby, including fully
cooperating with the other in obtaining the PGC Required Statutory
Approvals, the Enron Required Statutory Approvals and all other approvals
and authorizations of any Governmental Authorities necessary or advisable
to consummate the transactions contemplated hereby.
(b) Enron and PGC acknowledge that the Reincorporation Merger is
intended solely to enable the Company to qualify after the PGC Merger as an
intrastate holding company that is exempt from the registration
requirements of the 1935 Act. If, prior to the Effective Time, the 1935 Act
is repealed or amended in a manner that would make it possible for PGC to
merge directly with and into Enron in the manner set forth on Exhibit B
hereto without having Enron, directly or indirectly, become subject to the
registration requirements of the 1935 Act as a result thereof, then the
form of the transactions contemplated by this Agreement will be revised to
eliminate the Reincorporation Merger in the manner set forth in Exhibit B;
provided that it shall be a condition to such revised transaction structure
that (i) the economic benefits to Enron and PGC contemplated by this
Agreement shall be preserved, and (ii) such revised transaction structure
shall not have an adverse effect on any material third party or
Governmental Authority declarations, filings, registrations, notices,
authorizations, consents or approvals previously obtained.
ARTICLE VIII
CONDITIONS
Section 8.1 Conditions to Each Party's Obligation to Effect the Mergers.
The respective obligations of each party to effect the Mergers shall be subject
to the satisfaction prior to the Closing Date of the following conditions,
except to the extent such condition is waived by the parties in writing pursuant
to Section 9.5:
(a) Shareholder Approvals. The PGC Shareholders' Approval and the
Enron Shareholders' Approval shall have been obtained.
(b) No Injunction. No temporary restraining order or preliminary or
permanent injunction or other judgment, decree, ruling or order by any
court of competent jurisdiction preventing consummation of either of the
Mergers shall have been issued and continuing in effect, and the Mergers
and the other transactions contemplated hereby shall not have been
prohibited under any applicable federal or state law or regulation.
(c) Registration Statement. The Registration Statement shall have
become effective in accordance with the provisions of the Securities Act,
and no stop order suspending such effectiveness shall have been issued and
remain in effect.
(d) Listing of Shares. The shares of Company Common Stock issuable in
the Mergers pursuant to Article II shall have been approved for listing on
the NYSE upon official notice of issuance.
(e) Statutory Approvals. The Enron Required Statutory Approvals and
the PGC Required Statutory Approvals shall have been obtained at or prior
to the Effective Time, such approvals shall have become Final Orders (as
hereinafter defined) and no Final Order shall impose terms or conditions
that would have, or would be reasonably likely to have, an Enron Material
Adverse Effect or a PGC Material Adverse Effect. A "Final Order" means
action by the relevant regulatory authority that has not been reversed,
stayed, enjoined, set aside, annulled or suspended, with respect to which
any waiting period prescribed by law before the transactions contemplated
hereby may be consummated has expired, and as to which all conditions to
the consummation of such transactions prescribed by law, regulation or
order have been satisfied.
Section 8.2 Conditions to Obligation of Enron and the Company to Effect
the Mergers. The obligation of Enron and the Company to effect the
Reincorporation Merger and of the Company to effect the PGC
A-34
<PAGE> 131
Merger shall be further subject to the satisfaction, on or prior to the Closing
Date, of the following conditions, except as may be waived by Enron in writing
pursuant to Section 9.5:
(a) Performance of Obligations of PGC. PGC shall have performed in all
material respects its agreements and covenants contained in or contemplated
by this Agreement required to be performed by it at or prior to the
Effective Time; provided, however, that with respect to the agreements and
covenants set forth in Sections 6.11, 6.17 and 6.18 (and Section 6.20 to
the extent related to any of the foregoing) and Article VII (other than
Sections 7.3 and 7.12), this condition shall be deemed to be satisfied if
(without giving effect for purposes of this Section 8.2(a) to the
individual materiality standards otherwise contained in such sections)
there was no failure to comply that, individually or in the aggregate,
could reasonably be expected to have a PGC Material Adverse Effect.
(b) Representations and Warranties. Except as otherwise contemplated
by this Agreement, the representations and warranties of PGC set forth in
this Agreement shall be true and correct as of the date hereof and as of
the Closing Date as if made on and as of the Closing Date, in each case
except for such failures to be so true and correct (without giving effect
for purposes of this Section 8.2(b) to the individual materiality standards
otherwise contained in Article V hereof) which would not, individually or
in the aggregate, reasonably be expected to have a PGC Material Adverse
Effect; provided, that to the extent that such representations and
warranties are made specifically as of the date hereof or as of an earlier
date, such representations and warranties must be satisfied only as of the
date hereof or such earlier date, as the case may be.
(c) Closing Certificates. Enron shall have received a certificate
signed by the Chief Executive Officer and Chief Financial Officer of PGC,
dated the Closing Date, to the effect that, to the best of each such
officer's knowledge, the conditions set forth in Section 8.2(a) and Section
8.2(b) have been satisfied.
(d) Tax Opinion. Enron shall have received an opinion of counsel from
Vinson & Elkins L.L.P., in form and substance satisfactory to Enron, dated
the Closing Date, which opinion may be based on appropriate representations
of Enron, PGC and the Company that are in form and substance reasonably
satisfactory to such counsel, to the effect that the Mergers will be
treated as reorganizations within the meaning of Section 368(a) of the Code
and that no gain or loss will be recognized to Enron or the holders of
capital stock of Enron as a result thereof.
(e) PGC Required Consents. The PGC Required Consents shall have been
obtained, except for such PGC Required Consents the failure of which to
obtain would not have a PGC Material Adverse Effect.
(f) Approval of Regulatory Plans. The regulatory approval process for
approving the Regulatory Plans shall have resulted in Final Orders that
confirm the matters set forth in paragraphs 2, 3 and 4 of Schedule 7.3(a)
without any condition or qualification that would adversely affect the
Company's or its subsidiaries' ability to compete following the Effective
Time on comparable terms and conditions in the markets for their products
and services. Furthermore, the Regulatory Plans shall otherwise have been
approved without imposition or threatened imposition of changes to the
Regulatory Plans during the period covered thereby that individually or in
the aggregate (and taken together with any failure of any representations
and warranties of PGC set forth in this Agreement to be true and correct,
without giving effect for purposes of this Section 8.2(f) to the individual
materiality standards otherwise contained in Article V hereof) have or
could reasonably be expected to have a PGC Material Adverse Effect. For
purposes of this Section 8.2(f), the term "threatened imposition" shall
mean a formal or informal expression of intent by any Governmental
Authority.
(g) Satisfaction of PGC Conditions. PGC shall have delivered a written
representation to Enron to the effect that no conditions to its obligations
to consummate the PGC Merger remain to be satisfied, and that upon
consummation of the Reincorporation Merger, PGC will consummate the PGC
Merger.
(h) Market-Based Rates. Enron Power Marketing, Inc. shall not have
been subjected to a loss, in whole or in significant part, of its FERC
authority to sell power (other than sales to Enron's affiliates
A-35
<PAGE> 132
(including PGE)) at market-based rates as a consequence of the execution of
this Agreement, the performance of the transactions contemplated by this
Agreement or affiliation with PGC or PGE.
Section 8.3 Conditions to Obligation of PGC to Effect the PGC Merger. The
obligation of PGC to effect the PGC Merger shall be further subject to the
satisfaction, on or prior to the Closing Date, of the following conditions,
except as may be waived by PGC in writing pursuant to Section 9.5:
(a) Performance of Obligations of Enron. Enron shall have performed in
all material respects its agreements and covenants contained in or
contemplated by this Agreement required to be performed by it at or prior
to the Effective Time; provided, however, that with respect to the
agreements and covenants set forth in Article VII (other than Section 7.3
and 7.12), this condition shall be deemed to be satisfied if (without
giving effect for purposes of this Section 8.3(a) to the individual
materiality standards otherwise contained in such sections) there was no
failure to comply that, individually or in the aggregate, could reasonably
be expected to have an Enron Material Adverse Effect.
(b) Representations and Warranties. Except as otherwise contemplated
by this Agreement, the representations and warranties of Enron set forth in
this Agreement shall be true and correct as of the date hereof and as of
the Closing Date as if made on and as of the Closing Date, in each case
except for such failures to be so true and correct (without giving effect
for purposes of this Section 8.3(b) to the individual materiality standards
otherwise contained in Article IV hereof) which would not, individually or
in the aggregate, reasonably be expected to have an Enron Material Adverse
Effect; provided, that to the extent that such representations and
warranties are made specifically as of the date hereof or as of an earlier
date, such representations and warranties must be satisfied only as of the
date hereof or such earlier date, as the case may be.
(c) Closing Certificates. PGC shall have received a certificate signed
by the President or any Vice President and the Treasurer of Enron, dated
the Closing Date, to the effect that, to the best of each such officer's
knowledge, the conditions set forth in Section 8.3(a) and Section 8.3(b)
have been satisfied.
(d) Tax Opinion. PGC shall have received an opinion of counsel from
Wachtell, Lipton, Rosen & Katz, in form and substance satisfactory to PGC,
dated the Closing Date, which opinion may be based on appropriate
representations of Enron, PGC and the Company that are in form and
substance reasonably satisfactory to such counsel, to the effect that the
Mergers will be treated as "reorganizations" within the meaning of Section
368(a) of the Code and that no gain or loss will be recognized to PGC or
the holders of PGC Common Stock except with respect to cash received in
lieu of fractional share interests.
(e) Enron Required Consents. The Enron Required Consents shall have
been obtained, except for such Enron Required Consents the failure of which
to obtain would not have an Enron Material Adverse Effect.
(f) Consummation of the Reincorporation Merger. The Reincorporation
Merger shall have become effective, except as otherwise contemplated by
Section 7.19(b).
ARTICLE IX
TERMINATION, AMENDMENT AND WAIVER
Section 9.1 Termination. This Agreement may be terminated at any time
prior to the Closing Date, whether before or after approval by the shareholders
of the respective parties hereto contemplated by this Agreement:
(a) by mutual written consent of Enron and PGC, duly authorized by
their respective Boards of Directors;
(b) by Enron or PGC, by written notice to the other, if the Effective
Time shall not have occurred on or before the first anniversary of the date
hereof (the "Termination Date"); provided, however, that either party may
extend the Termination Date for an additional six months from such
anniversary if
A-36
<PAGE> 133
(i) all the conditions to consummation of the Mergers set forth in Article
VIII hereof have either been satisfied or are then capable of being
satisfied by such date, other than the condition set forth in Section
8.2(f) and (ii) such party believes that there is a reasonable probability
that such condition will be satisfied by or before such extended
Termination Date; and provided further, that the right to terminate this
Agreement under this Section 9.1(b) shall not be available to any party
whose failure to fulfill any obligation under this Agreement has been the
cause of, or resulted in, the failure of the Effective Time to occur on or
before the termination date;
(c) by Enron or PGC, by written notice to the other party, if the
Enron Shareholders' Approval shall not have been obtained at the Enron
Special Meeting, including any adjournments thereof, or the PGC
Shareholders' Approval shall not have been obtained at the PGC Special
Meeting, including any adjournments thereof;
(d) by Enron or PGC, if any state or federal law, order, rule or
regulation is adopted or issued, that has the effect, as supported by the
written, reasoned opinion of outside counsel for such party, of prohibiting
either of the Mergers or causing an Enron Material Adverse Effect or PGC
Material Adverse Effect, or by any party hereto, if any court or
administrative agency of competent jurisdiction in the United States or any
State shall have issued an order, judgment or decree permanently
restraining, enjoining or otherwise prohibiting either of the Mergers or
causing an Enron Material Adverse Effect or PGC Material Adverse Effect,
and such order, judgment or decree shall have become final and
nonappealable;
(e) by Enron if (i) the Board of Directors of PGC fails to make or
withdraws, modifies or changes its recommendation of this Agreement or the
PGC Merger in a manner adverse to Enron or shall have resolved to do any of
the foregoing, in each case other than under circumstances in which an
Enron Material Adverse Effect has occurred; (ii) the Board of Directors of
PGC shall have recommended to the shareholders of PGC any PGC Competing
Transaction or entered into an agreement with respect to a PGC Competing
Transaction or shall have resolved to do so; or (iii) a tender offer or
exchange offer for 20% or more of the outstanding shares of capital stock
of PGC is commenced, and the Board of Directors of PGC does not recommend,
within the time period specified under Rule 14e-2 under the Exchange Act,
that shareholders not tender their shares into such tender or exchange
offer;
(f) prior to receipt of the PGC Shareholders' Approval at the PGC
Special Meeting, by PGC, upon two days' prior notice to Enron, if, as a
result of a bona fide written offer or proposal (including a tender offer)
by a party other than Enron or any of its affiliates relating to a PGC
Competing Transaction, the Board of Directors of PGC, after consultation
with and based upon the written advice of independent legal counsel,
determines in good faith that its fiduciary duties to its shareholders
under applicable law require that such other written offer or proposal be
accepted; provided, however, that prior to any such termination, PGC shall
use its reasonable efforts to, and shall use reasonable efforts to cause
its respective financial and legal advisors to, negotiate in good faith
with Enron to make such adjustments in the terms and conditions of this
Agreement as would enable PGC to proceed with the transactions contemplated
herein;
(g) by PGC if (i) the Board of Directors of Enron fails to make or
withdraws, modifies or changes its recommendation of this Agreement or the
Reincorporation Merger in a manner adverse to PGC or shall have resolved to
do any of the foregoing, in each case other than in circumstances in which
a PGC Material Adverse Effect has occurred; (ii) the Board of Directors of
Enron shall have recommended to the shareholders of Enron any Enron
Competing Transaction or entered into an agreement with respect to an Enron
Competing Transaction or shall have resolved to do so, or (iii) a tender
offer or exchange is commenced that, if consummated, would constitute an
Enron Competing Transaction, and the Board of Directors of Enron does not
recommend, within the time period specified under Rule 14e-2 under the
Exchange Act, that shareholders not tender their shares into such tender or
exchange offer;
(h) prior to receipt of the Enron Shareholders' Approval at the Enron
Special Meeting by Enron, upon two days' prior notice to PGC, if, as a
result of a bona fide written offer or proposal (including a tender offer)
by a party other than PGC or any of its affiliates relating to an Enron
Competing
A-37
<PAGE> 134
Transaction, the Board of Directors of Enron, after consultation with and
based upon the written advice of independent legal counsel, determines in
good faith that its fiduciary duties to its shareholders under applicable
law require that such other written offer or proposal be accepted;
(i) by Enron, if there shall exist a breach of any representation,
warranty, covenant or agreement on the part of PGC set forth in this
Agreement, which breach is not cured within 20 business days after receipt
by PGC of a written notice of such breach from Enron specifying the breach
and requesting that it be cured, and the effect of such breach is that the
conditions set forth in Section 8.2(a) or Section 8.2(b) would not be
satisfied;
(j) by PGC, if there shall exist a breach of any representation,
warranty, covenant or agreement on the part of Enron set forth in this
Agreement, which breach is not cured within 20 business days after receipt
by Enron of a written notice of such breach from PGC specifying the breach
and requesting that it be cured, and the effect of such breach is that the
conditions set forth in Section 8.3(a) or Section 8.3(b) would not be
satisfied;
(k) by PGC, if Enron adopts a plan of complete or partial liquidation
or dissolution or if Enron enters into an agreement for, or there is
consummated, (i) a merger, consolidation, share exchange, business
combination or similar transaction pursuant to which the holders of Enron
capital stock prior to such transaction would own less than 50% of the
voting power attributable to the capital stock of the entity surviving or
resulting from such transaction (or the ultimate parent entity thereof),
(ii) a sale, lease, exchange, mortgage, pledge, transfer or other
disposition of 50% or more of the assets of Enron and its subsidiaries,
taken as a whole, or (iii) a transaction pursuant to which a person or
"group" (within the meaning of Rule 13d-1 under the Exchange Act) acquires
or would acquire "beneficial ownership" (within the meaning of Rule 13d-3
under the Exchange Act) of at least 30% of the Enron Common Stock;
(l) prior to the PGC Special Meeting, by PGC, if the Enron Transaction
Price (as defined in Section 9.1(m)) is less than $36.25 (the "Floor
Price"); and
(m) prior to the Enron Special Meeting, by Enron, if the Enron
Transaction Price is greater than $47.25 (the "Ceiling Price"). For the
purposes of paragraphs (l) and (m) hereof, the term "Enron Transaction
Price" shall mean the average of the Closing Prices on the 20 consecutive
Trading Day period ending five Trading Days prior to the date of the PGC
Special Meeting.
Section 9.2 Effect of Termination. In the event of termination of this
Agreement by either Enron or PGC pursuant to Section 9.1, there shall be no
liability on the part of either Enron or PGC or their respective officers or
directors hereunder, except as provided in Section 9.3 and that the agreement
contained in the second to the last sentence of Section 7.1 shall survive any
such termination, and except that nothing herein or pursuant hereto (including
the making of any payment pursuant to Section 9.3) shall relieve a party of any
liability for (i) breach of the covenants or agreements set forth in this
Agreement, or (ii) breach of any representation or warranty under this
Agreement.
Section 9.3 Termination Fees.
(a) PGC agrees that if this Agreement is terminated pursuant to:
(i) Section 9.1(b), Section 9.1(c) as a result of the failure of
PGC to receive the PGC Shareholders Approval at the PGC Special Meeting,
or Section 9.1(i) as a result of a wilful breach of any representation,
warranty, covenant or agreement of PGC contained herein, and at the time
of the event giving rise to any such termination, there shall exist a
proposal or offer from a third party relating to a PGC Competing
Transaction and within twelve months after the date of termination of
this Agreement a PGC Business Combination (as defined in Section 9.3(c))
shall have occurred or PGC shall have entered into a definitive
agreement providing for a PGC Business Combination in either case
involving the party (or an affiliate thereof) proposing the PGC
Competing Transaction referred to above; or
A-38
<PAGE> 135
(ii) Section 9.1(e) or Section 9.1(f);
then PGC shall pay to Enron promptly (but not later than five business days
after receipt of notice of the amount due from Enron) an amount in cash
equal to $60 million.
(b) Enron agrees that if this Agreement is terminated pursuant to:
(i) Section 9.1(b), Section 9.1(c) as a result of the failure of
Enron to receive the Enron Shareholders Approval at the Enron Special
Meeting, Section 9.1(j) as a result of a wilful breach of any
representation, warranty, covenant or agreement of Enron contained
herein, and at the time of the event giving rise to any such
termination, there shall exist a proposal or offer from a third party
relating to Enron Competing Transaction and within twelve months after
the date of termination of this Agreement an Enron Business Combination
(as defined in Section 9.3(c)) shall have occurred or Enron shall have
entered into a definitive agreement providing for an Enron Business
Combination in either case involving the party (or an affiliate thereof)
proposing the Enron Competing Transaction referred to above; or
(ii) Section 9.1(g), Section 9.1(h) or Section 9.1(k);
then Enron shall pay to PGC promptly (but not later than five business days
after receipt of notice of the amount due from PGC) an amount in cash equal
to $150 million.
(c) For purposes of this Section 9.3, the term "PGC Business
Combination" means (i) a merger, consolidation, share exchange, business
combination or similar transaction involving PGC, (ii) a sale, lease,
exchange, transfer or other disposition of 20% or more of the assets of PGC
and its subsidiaries, taken as a whole, in a single transaction or a series
of transactions, or (iii) the acquisition, by a person (other than Enron or
any affiliate thereof) or group (as such term is defined under Section
13(d) of the Exchange Act and the rules and regulations thereunder) of
beneficial ownership (as defined in Rule 13d-3 under the Exchange Act) of
20% or more of the PGC Common Stock whether by tender or exchange offer or
otherwise, and the term "Enron Business Combination" means (i) a merger,
consolidation, share exchange, business combination or similar transaction
involving Enron as a result of which the shareholders of Enron prior to
such transaction in the aggregate cease to own at least a majority of the
voting securities of the entity surviving or resulting from such
transaction (or the ultimate parent entity thereof), (ii) a sale, lease,
exchange, transfer or other disposition of more than 50% of the assets of
Enron and its subsidiaries, taken as a whole, in a single transaction or a
series of transactions, or (iii) the acquisition, by a person (other than
PGC or any affiliate thereof) or group (as such term is defined under
Section 13(d) of the Exchange Act and the rules and regulations thereunder)
of beneficial ownership (as defined in Rule 13d-3 under the Exchange Act)
of more than 30% of the Enron Common Stock whether by tender or exchange
offer or otherwise.
Section 9.4 Amendment. This Agreement may be amended by the parties hereto
pursuant to action of the respective Boards of Directors of each of Enron and
PGC, at any time before or after approval hereof by the shareholders of Enron
and PGC and prior to the Effective Time, but after such approvals, no such
amendment shall (a) alter or change the amount or kind of shares, rights or any
of the proceedings of the exchange and/or conversion under Article II, (b) alter
or change any of the terms and conditions of this Agreement if any of the
alterations or changes, alone or in the aggregate, would materially and
adversely affect the rights of holders of Enron Common Stock or PGC Common Stock
or (c) alter or change any term of the articles of incorporation of the Company,
except for alterations or changes that could otherwise be adopted by the Board
of Directors of the Company, without the further approval of such shareholders,
as applicable. This Agreement may not be amended except by an instrument in
writing signed on behalf of each of the parties hereto.
Section 9.5 Waiver. At any time prior to the Effective Time, the parties
hereto may (a) extend the time for the performance of any of the obligations or
other acts of the other parties hereto, (b) waive any inaccuracies in the
representations and warranties contained herein or in any document delivered
pursuant
A-39
<PAGE> 136
hereto and (c) waive compliance with any of the agreements or conditions
contained herein. Any agreement to any such extension or waiver shall be valid
only if set forth in an instrument in writing signed by a duly authorized
officer of each party.
ARTICLE X
GENERAL PROVISIONS
Section 10.1 Non-Survival of Representations, Warranties, Covenants and
Agreements. No representation, warranty, covenant or agreement in this Agreement
shall survive the Effective Time, except the covenants and agreements contained
in this Section 10.1 and in Article II (Treatment of Shares), the second to the
last sentence of Section 7.1 (Access to Information), Section 7.5 (Directors'
and Officers' Indemnification), Section 7.9 (Employee Agreements), Section 7.10
(Employee Benefit Plans), Section 7.11 (Incentive, Stock and Other Plans),
Section 7.13 (Company Board of Directors), Section 7.14 (Company Officers),
Section 7.16 (Expenses), Section 10.2 (Brokers) and Section 10.7 (Parties in
Interest), each of which shall survive in accordance with its terms.
Section 10.2 Brokers. Enron represents and warrants that, except for Smith
Barney Inc., its investment banking firm, no broker, finder or investment banker
is entitled to any brokerage, finder's or other fee or commission in connection
with the transactions contemplated by this Agreement based upon arrangements
made by or on behalf of Enron. PGC represents and warrants that, except for
Goldman, Sachs & Co., its investment banking firm, no broker, finder or
investment banker is entitled to any brokerage, finder's or other fee or
commission in connection with the transactions contemplated by this Agreement
based upon arrangements made by or on behalf of PGC.
Section 10.3 Notices. All notices and other communications hereunder shall
be in writing and shall be deemed given (a) if delivered personally, or (b) if
sent by overnight courier service (receipt confirmed in writing), or (c) if
delivered by facsimile transmission (with receipt confirmed), or (d) three days
after being mailed by registered or certified mall (return receipt requested) to
the parties, in each case to the following addresses (or at such other address
for a party as shall be specified by like notice):
(i) If to PGC, to:
Alvin Alexanderson
Senior Vice President, General
Counsel and Secretary
121 SW Salmon Street
Portland, Oregon 97204
Fax: (503) 464-2087
with a copy to:
Seth A. Kaplan
Wachtell, Lipton, Rosen & Katz
51 West 52nd Street
New York, NY 10019
Fax: (212) 403-2000
(ii) If to Enron or the Company, to:
James V. Derrick
Robert D. Eickenroht
1400 Smith Street
Houston, Texas 77002
Fax: (713) 646-3393
A-40
<PAGE> 137
with a copy to:
J. Mark Metts
Vinson & Elkins L.L.P.
2300 First City Tower
1001 Fannin
Houston, Texas 77002
Fax: (713) 758-2346
Douglas W. Hawes
Steven H. Davis
LeBoeuf, Lamb, Greene & MacRae L.L.P.
125 West 55th Street
New York, NY 10019
Fax: (212) 424-8500
Section 10.4 Miscellaneous. This Agreement (including the documents and
instruments referred to herein): (a) constitutes the entire agreement and
supersedes all other prior agreements and understandings, both written and oral,
among the parties, or any of them, with respect to the subject matter hereof
other than the Confidentiality Agreement; and (b) shall not be assigned by
operation of law or otherwise. This Agreement shall be governed by and construed
in accordance with the laws of the State of Delaware applicable to contracts
executed in and to be fully performed in such State, without giving effect to
its conflicts of laws statutes, rules or principles. The invalidity or
unenforceability of any provision 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. The parties hereto shall negotiate in good
faith to replace any provision of this Agreement so held invalid or
unenforceable with a valid provision that is as similar as possible in substance
to the invalid or unenforceable provision.
Section 10.5 Interpretation. When reference is made in this Agreement to
Articles, Sections or Exhibits, such reference shall be to an Article, Section
or Exhibit of this Agreement, as the case may be, unless otherwise indicated.
The table of contents and headings contained in this Agreement are for reference
purposes and shall not affect in any way the meaning or interpretation of this
Agreement. Whenever the words "include", "includes", or "including" are used in
this Agreement, they shall be deemed to be followed by the words "without
limitation." Whenever "or" is used in this Agreement it shall be construed in
the nonexclusive sense. Whenever reference is made to the "knowledge" of any
person or entity in this Agreement or to information "known" to any person or
entity in this Agreement, such terms shall refer to information actually known
to the person, in a case of an individual, or in the case of a corporation or
other entity, information actually known to an executive officer of such
corporation or entity, as well as information which the individual or executive
officer involved should reasonably be expected to have obtained as a result of
undertaking an investigation of such a scope and extent as a reasonably prudent
man would undertake concerning the particular subject matter.
Section 10.6 Counterparts; Effect. This Agreement may be executed in one
or more counterparts, each of which shall be deemed to be an original, but all
of which shall constitute one and the same agreement.
Section 10.7 Parties in Interest. This Agreement shall be binding upon and
inure solely to the benefit of each party hereto and, except for rights of
Indemnified Parties as set forth in Section 7.5 (Directors' and Officers'
Indemnification), nothing in this Agreement, express or implied, is intended to
confer upon any other person any rights or remedies of any nature whatsoever
under or by reason of this Agreement.
Section 10.8 Specific Performance. The parties hereto agree that
irreparable damage would occur in the event that any of the provisions of this
Agreement were not performed in accordance with their specific terms or were
otherwise breached. It is accordingly agreed that the parties hereto shall be
entitled to an injunction or injunctions to prevent breaches of this Agreement
and to enforce specifically the terms and provisions hereof
A-41
<PAGE> 138
in any court of the United States or any state having jurisdiction, this being
in addition to any other remedy to which they are entitled at law or in equity.
Section 10.9 Waiver of Jury Trial. EACH PARTY ACKNOWLEDGES AND AGREES THAT
ANY CONTROVERSY THAT MAY ARISE UNDER THIS AGREEMENT IS LIKELY TO INVOLVE
COMPLICATED AND DIFFICULT ISSUES AND THEREFORE EACH SUCH PARTY HEREBY
IRREVOCABLY AND UNCONDITIONALLY WAIVES ANY RIGHT SUCH PARTY MAY HAVE TO A TRIAL
BY JURY IN RESPECT OF ANY LITIGATION DIRECTLY OR INDIRECTLY ARISING OUT OF OR
RELATING TO THIS AGREEMENT OR THE TRANSACTIONS CONTEMPLATED HEREBY. EACH PARTY
CERTIFIES AND ACKNOWLEDGES THAT (i) NO REPRESENTATIVE, AGENT OR ATTORNEY OF ANY
OTHER PARTY HAS REPRESENTED, EXPRESSLY OR OTHERWISE, THAT SUCH OTHER PARTY WOULD
NOT, IN THE EVENT OF LITIGATION, SEEK TO ENFORCE THE FOREGOING WAIVER, (ii) EACH
SUCH PARTY UNDERSTANDS AND HAS CONSIDERED THE IMPLICATIONS OF THIS WAIVER, (iii)
EACH SUCH PARTY MAKES THIS WAIVER VOLUNTARILY, AND (iv) EACH SUCH PARTY HAS BEEN
INDUCED TO ENTER INTO THIS AGREEMENT BY, AMONG OTHER THINGS, THE MUTUAL WAIVERS
AND CERTIFICATIONS IN THIS SECTION 10.9.
IN WITNESS WHEREOF, Enron, PGC and the Company have caused this Agreement
to be signed by their respective officers thereunto duly authorized as of the
date first above written.
ENRON CORP.
By: /s/ Edmund P. Segner III
Name: EDMUND P. SEGNER III
Title: Executive Vice President
and Chief of Staff
PORTLAND GENERAL CORPORATION
By: /s/ Ken L. Harrison
Name: KEN L. HARRISON
Title: Chairman of the Board,
Chief Executive Officer
and President
ENRON OREGON CORP.
By: /s/ Edmund P. Segner III
Name: EDMUND P. SEGNER III
Title: President
A-42
<PAGE> 139
EXHIBIT A
[Form of Affiliate Agreement]
Enron Corp.
1400 Smith Street
Houston, Texas 77002
Gentlemen:
Reference is made to the Amended and Restated Agreement and Plan of Merger
(the "Merger Agreement") dated as of July 20, 1996 and amended and restated as
of September 24, 1996, by and among Enron Corp., a Delaware corporation
("Enron"), Portland General Corporation, an Oregon corporation, and Enron Oregon
Corp., an Oregon corporation (the "Company"), pursuant to which both Enron and
PGC will be merged with and into the Company. Pursuant to the terms and
conditions of the Merger Agreement, upon consummation of the transactions
contemplated thereby, each share of Common Stock, par value $3.75 per share, of
PGC owned by the undersigned as of the Effective Time (as defined in the Merger
Agreement) will be converted into and exchangeable for certain shares of the
common stock, without par value, of the Company (the "Company Common Stock").
The undersigned understands that the he may be deemed to be an "affiliate"
of PGC for purposes of Rule 145 promulgated under the Securities Act of 1933, as
amended (the "Act"). The undersigned is delivering this letter of undertaking
and commitment pursuant to Section 7.8 of the Merger Agreement.
With respect to such shares of the Company Common Stock as may be received
by the undersigned pursuant to the Merger Agreement (the "Shares"), the
undersigned represents to and agrees with Enron and the Company that:
A. The undersigned will not make any offer to sell or any sale or
other disposition of all or any part of the Shares in violation of the Act
or the rules and regulations thereunder, including without limitation Rule
145, and will hold all the Shares subject to all applicable provisions of
the Act and the rules and regulations thereunder.
B. The undersigned has been advised that the offering, sale and
delivery of the Shares to the undersigned pursuant to the Merger Agreement
will be registered under the Act on a Registration Statement on Form S-4.
The undersigned has also been advised, however, that, since the undersigned
may be deemed an "affiliate" of PGC, any public reoffering or resale by the
undersigned of any of the Shares will, under current law, require either
(i) the further registration under the Act of the Shares to be sold, (ii)
compliance with Rule 145 promulgated under the Act (permitting limited
sales under certain circumstances) or (iii) the availability of another
exemption from registration under the Act.
C. The undersigned understands that the Company will be under no
obligation to register the offering, sale and delivery of the Shares under
the Act in connection with any sale, transfer, or other disposition by the
undersigned or on behalf of the undersigned or to take any other action
necessary in order to make compliance with an exemption from registration
under the Act available.
D. The undersigned also understands that, if the Company should deem
it necessary to comply with the requirements of the Act, stop transfer
instructions will be given to its transfer agents with respect to the
Shares and that there will be placed on the certificates for the Shares, or
any substitutions therefor, a legend stating in substance:
A-43
<PAGE> 140
"The securities represented by this certificate were
issued in a transaction under Rule 145 promulgated under the
Securities Act of 1933, as amended (the "Act"), and may be
sold, transferred or otherwise disposed of only upon receipt
by the Corporation of an opinion of counsel acceptable to it
that the securities are being sold in compliance with the
limitations of Rule 145 or that some other exemption from
registration under the Act is available, or pursuant to a
registration statement under the Act."
Very truly yours,
--------------------------------------
Signature
--------------------------------------
Name
--------------------------------------
Date
A-44
<PAGE> 141
EXHIBIT B
ALTERNATIVE TRANSACTION STRUCTURE
If the structure of the transactions contemplated by the Agreement is
modified to eliminate the Reincorporation Merger in accordance with Section
7.19(b) thereof, then the Agreement shall be interpreted in the following
manner: (i) the Reincorporation Merger (and the actions referred to in Sections
2.1 and 2.3 of the Agreement with respect thereto) will not occur, (ii) all
references to the Reincorporation Merger will be disregarded, whether for the
purposes of any conditions to the closing of the transactions contemplated by
the Agreement or otherwise, (iii) all references to the "Mergers" shall be
deemed to refer to the PGC Merger only, (iv) all references to the "First
Effective Time" or the "Second Effective Time" shall refer to the Effective
Time, as defined in revised Section 1.2 below, (v) unless the context requires
otherwise, all references to the "Company" shall be deemed to refer to "Enron,"
(vi) unless the context requires otherwise, all references to "Company Common
Stock" shall be deemed to refer to Enron Common Stock, and (vii) Article I of
the Agreement shall be superseded in its entirety by the following:
ARTICLE I
THE MERGER
Section 1.1 The PGC Merger. Upon the terms and subject to the conditions
of this Agreement, at the Effective Time (as defined in Section 1.2):
(a) Effect. PGC shall be merged with and into Enron (the "PGC Merger")
in accordance with the applicable provisions of the laws of the States of
Delaware and Oregon, as a result of which the separate corporate existence
of PGC shall cease, and Enron shall be the surviving corporation (sometimes
referred to herein as the "Surviving Corporation") and shall continue its
corporate existence under the laws of the State of Delaware. The effects
and consequences of the PGC Merger shall be as set forth in Section 252 of
the Delaware General Corporation Law ("DGCL") and Section 60.497 of the
Oregon Business Corporation Act (the "OBCA").
(b) Certificate of Incorporation. At the Effective Time, the
certificate of incorporation of Enron shall be the certificate of
incorporation of the Surviving Corporation and thereafter shall continue to
be its certificate of incorporation until amended as provided therein and
pursuant to the applicable provisions of the DGCL.
(c) Bylaws. The bylaws of Enron shall be the bylaws of the Surviving
Corporation and thereafter shall continue to be its bylaws until amended as
provided therein and pursuant to the applicable provisions of the DGCL.
(d) Officers and Directors. Subject to Section 7.13, the directors of
Enron immediately prior to the Effective Time shall be the directors of the
Surviving Corporation, each to hold office in accordance with the
certificate of incorporation and bylaws of the Surviving Corporation, and,
subject to Section 7.14, the officers of Enron immediately prior to the
Effective Time shall be the officers of the Surviving Corporation, each to
hold office in accordance with the bylaws of the Surviving Corporation.
Section 1.2 Effective Time of the PGC Merger. On the Closing Date (as
defined in Section 3.1), articles of merger in proper form under Section 60.494
of the OBCA, and a certificate of merger in proper form under Section 252 the
DGCL, each relating to the PGC Merger, will be duly executed and filed by the
parties to the PGC Merger with the Office of the Department of State of the
State of Oregon (the "Oregon Department of State") and the Office of the
Secretary of State of the State of Delaware in accordance with the applicable
provisions of the OBCA and the DGCL, respectively. The PGC Merger shall become
effective upon the later of the filing of such articles of merger with the
Oregon Department of State or the filing of such certificate of incorporation
with the Secretary of State of Delaware, or at such later time as may be
mutually agreed to by the parties hereto and specified in such articles of
merger or certificate of merger (the time the PGC Merger becomes effective being
herein called the "Effective Time").
A-45
<PAGE> 142
[SMITH BARNEY LETTERHEAD]
ANNEX B
October , 1996
The Board of Directors
Enron Corp.
1400 Smith Street
Houston, TX 77002-7369
Members of the Board:
You have requested our opinion as to the fairness, from a financial
point of view, to Enron Corp., a Delaware corporation ("Enron"), and its
shareholders of the consideration to be issued to the shareholders of Portland
General Corporation, an Oregon Corporation ("Portland General"), pursuant to
the terms of the Agreement and Plan of Merger, dated as of July 20, 1996 and
amended and restated as of September 24, 1996 (the "Merger Agreement"), between
Enron, Portland General, and Enron Oregon Corp., an Oregon corporation and
wholly owned subsidiary of Enron (the "Company"). As more fully described in the
Merger Agreement, and subject to the terms and conditions thereof, (i) Enron
will be reincorporated as an Oregon corporation through a merger of Enron into
the Company (the "Reincorporation Merger"), with the effect that (A) the Company
will be the surviving corporation of the Reincorporation Merger, (B) each
outstanding share of common stock, no par value, of the Company (the "Company
Common Stock") will be canceled and (C) each outstanding share of common stock,
par value $.10 per share, of Enron (the "Enron Common Stock") will be converted
into one share of Company Common Stock, and (D) each outstanding share of
Cumulative Second Preferred Convertible Stock, par value $1.00 per share, and
9.142% Perpetual Second Preferred Stock, par value $1.00 per share, of Enron,
and each share of any class or series of preferred stock, second preferred stock
or preference stock of Enron issued after the date of the Merger Agreement
(collectively, the "Enron Preferred Stock"), will be converted into one share of
equivalent series of preferred stock of the Company ("Company Preferred Stock")
and (ii) following the consummation of the Reincorporation Merger, Portland
General will be merged with and into the Company (the "Merger"), with the effect
that (A) the Company will be the surviving corporation of the Merger, (B) each
outstanding share of Company Common Stock and Company Preferred Stock will
remain outstanding and (C) each outstanding share of common stock, par value
$3.75 per share, of Portland General (the "Portland General Common Stock") will
be converted into one share of Company Common Stock (the "Exchange Ratio").
In arriving at our opinion, we reviewed the Merger Agreement and held
discussions with certain senior officers, directors and other representatives
and advisors of Enron and certain senior officers and other representatives of
Portland General concerning the business, operations and prospects of Enron and
Portland General. We examined certain publicly available business and
financial information relating to Enron and Portland General as well as certain
financial forecasts and other data for Enron and Portland General, which were
provided to or otherwise discussed
B-1
<PAGE> 143
The Board of Directors
Enron Corp.
October __, 1996
Page 2
with us by the respective managements of Enron and Portland General, including
information relating to certain strategic implications and operational benefits
anticipated from the Merger. We reviewed the financial terms of the Merger as
set forth in the Merger Agreement in relation to, among other things: current
and historical market prices and trading volumes of the Enron Common Stock and
Portland General Common Stock; the respective companies' historical and
projected earnings; and the capitalization and financial condition of Enron and
Portland General. We considered, to the extent publicly available, the
financial terms of certain other similar transactions recently effected which
we considered comparable to the Merger and analyzed certain financial, stock
market and other publicly available information relating to the businesses of
other companies whose operations we considered relevant in evaluating those of
Enron and Portland General. We also evaluated the potential pro forma financial
impact of the Merger on Enron. In addition to the foregoing, we conducted such
other analyses and examinations and considered such other financial, economic
and market criteria as we deemed necessary to arrive at our opinion.
In rendering our opinion, we have assumed and relied, without independent
verification, upon the accuracy and completeness of all financial and other
information publicly available or furnished to or otherwise discussed with us
and we have not attempted or undertaken any obligation to verify the same. With
respect to financial forecasts and other information provided to or otherwise
reviewed by or discussed with us, we have been advised by the managements of
Enron and Portland General, and have assumed, that such forecasts and other
information were reasonably prepared on bases reflecting the best currently
available estimates and judgments of the respective managements of Enron and
Portland General as to the expected future financial performance of Enron and
Portland General and the strategic implications and operational benefits
anticipated from the Merger. We also assumed that the merger will be treated as
a tax-free reorganization for federal income tax purposes. Our opinion, as set
forth herein, relates to the relative values of Enron and Portland General. We
are not expressing any opinion as to what the value of the Company Common Stock
actually will be when issued to Portland General stockholders pursuant to the
Merger or the price at which Company Common Stock will trade subsequent to the
Merger. We have not made or been provided with an independent evaluation or
appraisal of the assets or liabilities (contingent or otherwise) of Enron and
Portland General nor have we made any physical inspection of the properties or
assets of Enron or Portland General. We have not been asked to consider, and
our opinion does not address, the relative merits of the Merger as compared to
any alternative business strategies that might exist for Enron or the effect of
any other transaction in which Enron might engage. Our opinion is necessarily
based upon information available to us, and financial, stock market and other
conditions and circumstances existing and disclosed to us, as of the date
hereof.
Smith Barney has been engaged to render financial advisory services to Enron in
connection with the Merger and will receive a fee for our services, a
significant portion of which is contingent upon the consummation of the Merger.
We also will receive a fee upon the delivery of this opinion. In the ordinary
course of our business, we may hold or actively trade the equity and debt
securities of Enron and Portland General for our own account or for the account
of our customers and, accordingly, may at any time hold a long or short
position in such securities. In
B-2
<PAGE> 144
The Board of Directors
Enron Corp.
October __, 1996
Page 3
addition, we and our affiliates (including The Travelers Group, Inc. and its
affiliates) may maintain business relationships with Enron and Portland General.
Our advisory services and the opinion expressed herein are provided for the
information of the Board of Directors of Enron in its evaluation of the
proposed Merger, and our opinion is not intended to be and does not constitute
a recommendation to any stockholder as to how such stockholder should vote on
the proposed Merger. Our opinion may not be published or otherwise used or
referred to, nor shall any public reference to Smith Barney be made, without
our prior written consent.
Based upon and subject to the foregoing, our experience as investment bankers,
our work as described above and other factors we deemed relevant, we are of the
opinion that, as of the date hereof, the consideration to be issued to the
shareholders of Portland General in the Merger is fair, from a financial point
of view, to Enron and its shareholders.
Very truly yours,
SMITH BARNEY INC.
B-3
<PAGE> 145
- --------------------------------------------------------------------------------
Goldman, Sachs & Co. 85 Broad Street New York, New York 10004
Tel: 212-902-1000
ANNEX C
GOLDMAN,
SACHS & CO. LOGO
- --------------------------------------------------------------------------------
CONFIDENTIAL
October 10, 1996
Board of Directors
Portland General Corporation
121 S.W. Salmon Street
World Trade Center
Portland, OR 97204
Gentlemen and Mesdames:
You have requested our opinion as to the fairness to the holders (other
than Enron Corp. ("Enron") or any of its subsidiaries) of the outstanding shares
of Common Stock, par value $3.75 per share (the "Shares"), of Portland General
Corporation ("PGC") of the exchange ratio to be used in connection with the
proposed combination of PGC and Enron pursuant to the Agreement and Plan of
Merger dated as of July 20, 1996 and amended and restated as of September 24,
1996 (the "Merger Agreement") by and among Enron, PGC and Enron Oregon Corp.
("New Enron"), a wholly-owned subsidiary of Enron. Pursuant to the Merger
Agreement, unless the transaction is restructured in accordance with the terms
thereof to provide for a merger of PGC directly into Enron (in connection with
which an identical Exchange Ratio (as defined below) would be used), (i) Enron
will be merged with and into New Enron (the "Reincorporation Merger"), with New
Enron as the surviving corporation, pursuant to which each existing share of
Common Stock, no par value, of New Enron ("New Enron Common Stock") will be
canceled and each share of Common Stock, par value $.10 per share, of Enron
("Enron Common Stock") will be converted into one share of New Enron Common
Stock, and (ii) after the Reincorporation Merger, the Company will be merged
with and into New Enron (the "Merger"), with New Enron as the surviving
corporation, pursuant to which each Share (other than Shares owned by the
Company or any of its subsidiaries or by Enron, New Enron or any of their
respective subsidiaries) will be converted into one share of New Enron Common
Stock (the "Exchange Ratio").
Goldman, Sachs & Co. ("Goldman Sachs"), as part of its investment banking
business, is continually engaged in the valuation of businesses and their
securities in connection with mergers and acquisitions, negotiated underwriting,
competitive biddings, secondary distributions of listed and unlisted securities,
private placements and valuations for estate, corporate and other purposes. We
are familiar with PGC having provided certain investment banking services to PGC
and certain of its subsidiaries from time to time, including having acted as
managing underwriter of public offerings of $37 million of PGC Common Stock in
February 1994 and $75 million principal amount of 8 1/4% Quarterly Income Debt
Securities of PGC due 2035 in October 1995 and having acted as its financial
advisor in connection with, and having participated in certain of the
negotiations leading to, the Merger Agreement. We have also provided certain
investment banking services to Enron and certain of its subsidiaries from time
to time, including having acted as managing underwriter of public offerings by
Enron of $675 million to Common Stock of Enron Oil & Gas Company in December
1995 and $228 million principal amount of 6 1/4% Exchangeable Notes due 1998 in
December 1995.
We may provide investment banking services to Enron, New Enron or certain
of their respective subsidiaries in the future.
New York London Tokyo Boston Chicago Dallas Frankfurt Hong Kong Houston Los
Angeles
Memphis Miami Montreal Osaka Paris Philadelphia San Francisco Singapore Sydney
Toronto Zurich
C-1
<PAGE> 146
In the ordinary course of the trading activities of Goldman Sachs, the Firm
actively trades the debt and equity securities of PGC and Enron for its own
account and for the accounts of customers of Goldman Sachs and may, therefore,
at any time hold a long or short position in such securities.
In connection with our opinion, we reviewed, among other things, the Merger
Agreement; the Registration Statement on Form S-4, including the Joint Proxy
Statement/Prospectus relating to the Special Meeting of Shareholders of PGC and
the Special Meeting of Stockholders of Enron to be held in connection with the
Merger Agreement; Annual Reports to Shareholders and Annual Reports on Form 10-K
of PGC and Enron for the five years ended December 31, 1995; certain interim
reports to shareholders and Quarterly Reports on Form 10-Q of PGC and Enron;
certain FERC Forms 1 of PGC and FERC Forms 2 of Enron; certain other
communications from PGC and Enron to their respective shareholders; and certain
internal financial analyses and forecasts for PGC and Enron prepared by their
respective managements. We also held discussions with members of the senior
managements of PGC and Enron regarding the past and current business operations,
financial condition and future prospects of their respective companies and the
future prospects of New Enron. In addition, we reviewed the reported price and
trading activity for the Shares and for the Enron Common Stock, compared certain
financial and stock market information for PGC and Enron with similar
information for certain other companies the securities of which are publicly
traded, reviewed the financial terms of certain recent business combinations in
the electric utility industry specifically and in other industries generally and
performed such other studies and analyses as we considered appropriate.
We relied without independent verification upon the accuracy and
completeness of all of the financial and other information reviewed by us for
purposes of our opinion, as well as upon assessments by each of PGC and Enron of
their respective contingent obligations. With respect to financial forecasts and
projections provided by the respective managements of PGC and Enron, we assumed,
with your consent, that such financial forecasts and projections were reasonably
prepared on bases reflecting the best available estimates and judgments as to
the future financial and other performance of PGC and Enron, as applicable. We
further assumed, with your consent, that obtaining any necessary regulatory or
third-party approvals for the transactions contemplated by the Merger Agreement
will not have an adverse effect on PGC or Enron, as applicable. We did not make
an independent evaluation or appraisal of the assets and liabilities of PGC or
Enron or any of their respective subsidiaries and we were not furnished with any
such evaluation or appraisal. Our advisory services and our opinion were
provided for the information and assistance of the Board of Directors of PGC in
connection with its consideration of the Merger.
Based upon and subject to the foregoing and based upon such other matters
as we considered relevant, it is our opinion that as of the date hereof the
Exchange Ratio pursuant to the Merger Agreement is fair to the holders of Shares
(other than Enron or any of its subsidiaries).
Very truly yours,
/s/ GOLDMAN, SACHS & CO.
- ----------------------------------------
(Goldman, Sachs & Co.)
C-2
<PAGE> 147
ANNEX D
EMPLOYMENT AGREEMENT
This Employment Agreement ("Agreement") entered into the 20th day of July,
1996, and to become effective upon the consummation of the Mergers (as defined
in the Agreement and Plan of Merger dated as of July 20, 1996 (the "Merger
Agreement") by and between Enron Corp. (the "Company"), Portland General
Corporation ("PGC") and New Falcon Corp. ("Surviving Co.")) by and between the
Company and Ken L. Harrison ("Employee"), an individual currently residing in
Portland, Oregon.
WITNESSETH:
WHEREAS, upon the consummation of the Mergers Company desires to employ
Employee in an executive capacity and Employee desires to enter Company's
employ:
NOW, THEREFORE, for and in consideration of the mutual promises, covenants,
and obligations contained herein, Company and Employee agree as follows:
ARTICLE 1: EMPLOYMENT AND DUTIES
1.1 Company agrees to employ Employee and Employee agrees to be employed
by Company beginning as of the Effective Date of this Agreement, subject to the
terms and conditions of this Agreement. The Effective Date of this Agreement
shall be the Effective Time under the Merger Agreement. At the Effective Date,
this Agreement shall supercede, rescind and replace Employee's existing
Employment Agreement with Portland General Corporation. Upon the merger of
Company with and into Surviving Co., this Agreement shall become the obligation
of Surviving Co. If the Merger Agreement is terminated, then this Agreement
shall have no further force or effect and shall be deemed terminated.
1.2 Employee agrees to serve as Vice Chairman of Company and Chairman,
President and Chief Executive Officer of Portland General Electric Company
("PGE"), and to perform diligently and to the best of Employee's abilities, the
duties and services appertaining to such position as reasonably directed by
Company.
1.3 Employee shall, during the period of his employment by Company, devote
his entire business time, energy and best efforts to the business and affairs of
Company and not engage, directly or indirectly, in any other business or
businesses to the extent such activity would be contrary to the interests of
Company or any Affiliate of Company or would detract from Employee's ability to
perform his duties under this Agreement.
1.4 Employee shall be subject to policies and procedures adopted,
established or amended by Company from time to time which are applicable to all
employees generally.
ARTICLE 2: TERM OF EMPLOYMENT
Unless sooner terminated pursuant to other provisions hereof, Employee's
period of employment under this Agreement shall be a period of five (5) years
beginning on the Effective Date of this Agreement ("Initial Term"), and
thereafter for such period, if any, as may be agreed upon in writing by Employee
and Company.
ARTICLE 3: COMPENSATION AND BENEFITS
3.1 Base Salary. During the Initial Term, Employee's annual base salary
shall not be less than Five Hundred and Twenty Five Thousand Dollars
($525,000.00), which shall be earned and paid in equal semimonthly installments
in accordance with Company's standard payroll practice.
3.2 Incentive Compensation Programs. While Employee is actively employed
under this Agreement, Employee shall be entitled to participate in the Executive
Compensation Program maintained by Company for its senior executives on the same
basis (except as otherwise specifically provided herein) as other senior
executives of Company.
D-1
<PAGE> 148
3.3 Other Employee Benefits. While Employee is actively employed under
this Agreement, Employee shall be allowed to participate on the same basis
generally as other employees of Company, in all benefit plans and programs,
including improvements or modifications of the same, which are now, or may
hereafter be, available to such employees. Such benefits, plans and programs may
include, without limitation, health insurance or health care plan, life
insurance, disability insurance, and pension plans. Upon termination of
employment with the Company for any reason, Employee shall be entitled to
receive office space and secretarial support on the same basis as that currently
provided under the Retired Chairman's Program at PGC.
3.4 Changes Permitted. Company shall not, however, by reason of paragraphs
3.2 and 3.3 be obligated to institute, maintain, or refrain from changing,
amending or discontinuing, any such benefit plan or program, so long as such
changes are similarly applicable to covered employees generally.
3.5 Stock Option. (a) On the Effective Date, Employee shall receive a
grant of an Option (which shall not constitute an Incentive Stock Option) under
and pursuant to the terms and provisions of the Enron Corp. 1991 Stock Plan to
purchase One Hundred and Twenty Thousand (120,000) shares of common stock of
Company. Such grant shall be made in the form of a Non-Qualified Stock Option
Agreement as reflected in Exhibit A to this Agreement. The per share option
price of such Option shall be set at the fair market value of a share of Company
common stock as of the Effective Date, shall have a term of 10 years and shall
vest 20% on the date of grant and 20% on each of the four succeeding
anniversaries of the Effective Date. If Employee voluntarily terminates
employment other than during a Window Period (as hereinafter defined), Employee
may exercise vested options within one month of voluntary termination of
employment. In the event of Involuntary Termination (including voluntary
termination of employment by the Employee during a Window Period), death,
disability or retirement, Employee may exercise vested options within three
years of the date of termination.
(b) Notwithstanding any other provision in the Enron Corp. 1991 Stock Plan
or in the grant of said Option reflected in Exhibit A, the vesting provision
described in paragraph (a) above shall be the sole and exclusive method of
vesting, except said Option shall immediately and fully vest:
(i) upon a Change of Control of Company or PGE, or
(ii) in the event of Employee's Involuntary Termination (other than a
voluntary termination of employment by Employee during a Window Period).
3.6 Annual Incentive Plan. Employee's bonus under Company's Annual
Incentive Plan shall be not less than $525,000. Twenty percent (20%) of such
bonus shall be paid to Employee in the form of Options and eighty percent (80%)
shall be paid to Employee in the form of cash. For purposes of this paragraph
3.6, Options shall be valued in the same manner as options are valued for all
other participants in the Enron Executive Compensation Program by the
Compensation Committee. Options granted under this paragraph 3.6 shall vest
immediately upon grant. In the event of a termination of employment, all options
granted under this paragraph 3.6 shall be exercisable at any time within three
years of the date of termination. Until such time as Employee becomes the
Beneficial Owner of shares of Company common stock having a fair market value
equal to not less than two times Employee's base salary as set forth in
paragraph 3.1, one-third of the cash amount which would be paid to Employee as a
bonus under the Company's Annual Incentive Plan shall be paid to Employee in the
form of unrestricted Company common stock.
3.7 Restricted Stock Grant. On the Effective Date Employee will be granted
shares of Enron Restricted Stock having a fair market value equal to Employee's
base salary (as specified in paragraph 3.1). Such grant will vest in 20%
increments on each of the first five anniversaries of the date of grant.
Unvested Restricted Stock will not vest upon a termination of employment of
Employee and will be forfeited upon such termination.
3.8 Supplemental Pension Benefit. Following termination of Employee's
employment for any reason, Employee or Employee's surviving spouse shall be
provided an immediate supplemental nonqualified retirement benefit to the extent
necessary so that (A) the sum of (i) the aggregate pension benefits actually
D-2
<PAGE> 149
received by him or her from the Portland General Corporation Pension Plan (the
"Pension Plan"), the Portland General Corporation Supplemental Executive
Retirement Plan (the "SERP") and any defined benefit qualified or nonqualified
pension plans of the Company and (ii) the Supplemental Retirement Benefit are
not less than (B) the aggregate benefits he or she would have received pursuant
to the Pension Plan and the SERP, in each case as in effect on the Effective
Date of this Agreement, if Employee had retired on the Effective Date of this
Agreement having attained the "Unreduced Benefit Date" (as defined in the SERP)
and 25 years of service, and if Employee's "Final Average Earnings" (as defined
in the SERP) had equalled his "Earnings" (as defined in the SERP) for the
calendar year 1996.
ARTICLE 4: TERMINATION PRIOR TO EXPIRATION OF TERM
4.1 Effect On Compensation And Benefits. If Employee's employment
hereunder shall be terminated by Company or by Employee, upon such termination,
regardless of the reason therefor, all compensation and all benefits to Employee
under this Agreement shall terminate contemporaneously with the termination of
such employment, except that (i) Employee shall be entitled to the Supplemental
Retirement Benefit set forth in Section 3.8, and (ii) if Employee's employment
is Involuntarily Terminated (as defined herein) prior to expiration of the
Initial Term of employment established under Article 2, Employee shall be
entitled to receive the following benefits ("Severance Remuneration"):
(a) If Employee's employment is Involuntarily Terminated other than as
a result of a voluntary termination of employment by Employee during a
Window Period, all payments of the annual base salary under paragraph 3.1
(at the level set forth therein) and bonus payments under paragraph 3.6 (at
the level set forth therein) at such time and in such manner as if
Employee's employment had continued for a two year period following the
Involuntary Termination Date, and, if the Initial Term of the Agreement
would have continued beyond the second anniversary of the Involuntary
Termination Date, then Company shall pay to Executive a lump-sum amount on
such second anniversary equal to the amount which would have been paid to
Employee during the balance of the Initial Term if Employee's employment
had continued during such period. If Employee's employment is terminated as
a result of a voluntary termination of employment by Employee during a
Window Period, then Executive shall be entitled to receive all payments of
base salary under paragraph 3.1 (at the level set forth therein) and bonus
payments under paragraph 3.6 (at the level set forth therein) at such time
and in such manner as if Employee's employment had continued for the
balance of the Initial Term, provided that, if the Initial Term would have
continued beyond the second anniversary of the Involuntary Termination
Date, then Company shall pay to Executive a lump-sum amount on such second
anniversary equal to the amount which would have been paid to Employee
during the balance of the Initial Term if Employee's employment had
continued during such period.
(b) Employee shall be provided coverage essentially equivalent to that
under Company's Contributory and Non-Contributory Life Insurance, Health
and long-term disability plans for active employees (using Employee's
annual base salary pursuant to paragraph 4.1(a) as the compensation base
where relevant).
The Company reserves the right to provide the benefits and payments
referred to in paragraphs 4.1(b) and 4.1(c) by making substantially equivalent
payments to or purchasing substantially equivalent benefits for Employee under
arrangements other than the plans referred to in said paragraphs if, in
Company's sole discretion, the tax or compliance status of such plans may
otherwise be jeopardized. Such equivalent payments shall be a liability of
Company, shall be paid exclusively from the general assets of Company, and shall
be an unfunded and unsecured promise to pay money in the future, unless Company
elects to otherwise fund or secure such payments.
D-3
<PAGE> 150
4.2 Involuntary Termination. As used in this Agreement, "Involuntary
Termination" or "Involuntarily Terminated" shall mean termination of Employee's
employment with Company if such termination results from:
(a) termination by Company on any grounds whatsoever except (i)
"Termination for Cause" as defined below, or (ii) termination upon
Employee's death or Permanent Disability;
(b) termination by Employee within 60 days of and in connection with
or based upon any of the following:
(i) an assignment to Employee of duties and responsibilities
inappropriate to a senior officer of the Company or PGE;
(ii) (A) a reduction in Employee's annual base salary as
established in paragraph 3.1, (B) a reduction in Employee's incentive
compensation pursuant to paragraph 3.2 or paragraph 3.6, or (C) the
failure to continue Employee's participation in any employee benefit
plan or program (except a benefit plan or program that is substantially
comparable to an existing benefit plan or program) in which Employee is
participating or is eligible to participate prior to such reduction
(other than as a result of the expiration of such plan or program),
other than such failures which are a part of a general program to reduce
employee benefits on a proportional basis relative to other employees of
Company;
(iii) a relocation required by the Company of Employee from
Portland, Oregon; or
(iv) a Change of Control of Company or PGE.
In addition, if Employee voluntarily terminates his employment during a
Window Period, such termination shall be treated as an Involuntary Termination
for all purposes of this Agreement (except as otherwise specified herein). The
Window Periods for purposes of this Agreement shall be the thirty-day periods
beginning on the second, third and fourth anniversaries of the Effective Date.
4.3 Termination for Cause. As used in this Agreement, "Termination for
Cause" shall mean termination by action of Company's Board of Directors because
of Employee's (i) conviction of a felony (which, through lapse of time or
otherwise, is not subject to appeal); or (ii) willful refusal without proper
legal cause to perform Employee's duties and responsibilities; or (iii)
willfully engaging in conduct which Employee has or should have reason to know
may be materially injurious to Company. Such termination shall be effected by
notice thereof delivered by Company to Employee and shall be effective as of the
date of such notice; provided, however, that if (A) such termination is because
of Employee's willful refusal without proper legal cause to perform any one or
more of Employee's duties and responsibilities and (B) within seven days
following the date of such notice Employee shall cease such refusal and shall
use Employee's best efforts to perform such duties and responsibilities, then
the termination shall not be effective, and, provided further, that Company
shall consult in good faith with Employee and provide a reasonable opportunity
for Employee to be heard prior to effecting any termination under (i), (ii) or
(iii) of this paragraph.
4.4 In the Event of Excess Parachute Payments. In the event that the
Severance Remuneration payable under this Agreement, or any other payment or
distribution to or for the benefit of Employee by the Company, PGC or any of
their respective Affiliates, shall constitute "excess parachute payments" within
the meaning of Section 280G of the Internal Revenue Code of 1986, as amended,
and any regulations thereunder, and Employee becomes liable for any excise tax
on "excess parachute payments" and/or interest or penalties thereon (such excise
tax, interest and penalties, collectively, the "Tax Penalties"), Company shall
make a cash payment (the "Additional Payment") to Employee in an amount equal to
the Tax Penalties. In addition, Company shall make an additional cash payment to
Employee in an amount rounded to the nearest One Hundred Dollars which is
sufficient to pay Employee an amount equal to any additional income, excise and
other taxes (using the individual tax rates applicable to Employee for the year
for which such Tax Penalties are owed) for which Employee will be liable as a
result of Employee's receipt of the Additional Payment. In addition, Employee
shall be grossed up on such gross ups until the amount of last gross up is less
than One Hundred Dollars.
D-4
<PAGE> 151
ARTICLE 5: DEFINITIONS FOR AGREEMENT
For purposes of this Agreement the following terms shall have the meanings
ascribed to them below:
(a) "Affiliate" is used to indicate a relationship to a specified
person or entity and shall mean a person or entity who directly, or
indirectly through one or more intermediaries, controls, or is controlled
by, or is under common control with, such specified person or entity.
Affiliate shall include Affiliates of Company.
(b) "Beneficial Owner" shall be defined by reference to Rule 13(d)-3
under the Securities Exchange Act of 1934, as in effect on July 20, 1996,
provided, however, and without limitation, any individual, corporation,
partnership, group, association or other person or entity which has the
right to acquire any Voting Stock at any time in the future, whether such
right is contingent or absolute, pursuant to any agreement, arrangement or
understanding or upon exercise of conversion rights, warrants or options,
or otherwise, shall be the Beneficial Owner of such Voting Stock.
(c) "Change of Control" of Company or PGE shall mean after the
Effective Time (i) Company or PGE merges or consolidates with any other
corporation (other than Company or one of Company's wholly owned
subsidiaries) and is not the surviving corporation (or survives only as the
subsidiary of another corporation), or (ii) Company or PGE sells all or
substantially all of its assets to any other person or entity (other than
to Company or one of Company's wholly owned subsidiaries), or (iii) Company
or PGE is dissolved, or (iv) any third person or entity (other than, in the
case of PGE, Company or any wholly owned subsidiary of Company, or in the
case of PGE or Company, the trustee or committee of any qualified employee
benefit plan of Company) together with its affiliates and associates shall
become, directly or indirectly, the Beneficial Owner of at least thirty
percent (30%) of the Voting Stock of Company or PGE or (v) the individuals
who constitute the members of Company's Board of Directors ("Incumbent
Board") cease for any reason to constitute at least a majority thereof,
provided that any person becoming a director whose election or nomination
for election by Company stockholders was approved by a vote of at least
eighty percent (80%) 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 (v),
considered as though such person were a member of the Incumbent Board.
(d) "Change of Control Date" shall mean the day on which a Change of
Control becomes effective.
(e) "Involuntary Termination Date" shall mean Employee's last date of
employment by reason of an Involuntary Termination.
(f) "Permanent Disability" or "Permanently Disabled" shall mean such
permanent disability that qualifies Employee for benefits beyond twenty
four months of disability under Company's Long-Term Disability Plan.
(g) "Voting Stock" shall mean all outstanding shares of capital stock
entitled to vote generally in elections for directors, considered as one
class; provided, however, that if there are shares of Voting Stock entitled
to more or less than one vote for any such share, each reference to a
proportion of shares of Voting Stock shall be deemed to refer to such
proportion of the votes entitled to be cast by such shares.
ARTICLE 6: DEATH, DISABILITY OR RETIREMENT
In the event of Employee's death or Permanent Disability following
Employee's Involuntary Termination Date, Employee or Employee's legal
representatives shall be entitled to receive the balance of any unpaid amounts
payable under Article 4.
In no event will Employee or Employee's legal representatives receive
payments under Article 4 of this Agreement if Employee dies, retires, or becomes
Permanently Disabled prior to his Involuntary Termination.
D-5
<PAGE> 152
ARTICLE 7: CONFIDENTIAL INFORMATION
7.1 Company Information. Employee acknowledges that Company's business is
highly competitive and that Company's books, records and documents, Company's
technical information concerning its products, equipment, services and
processes, procurement procedures and pricing techniques, the names of and other
information (such as credit and financial data) concerning Company's customers
and business Affiliates, all comprise confidential business information and
trade secrets of Company which are valuable, special, and unique assets of
Company, which Company uses in its business to obtain a competitive advantage
over Company's competitors which do not know or use this information. Employee
further acknowledges that protection of Company's confidential business
information and trade secrets against unauthorized disclosure and use, is of
critical importance to Company in maintaining its competitive position.
Accordingly, Employee hereby agrees that he will not, at any time during or
after his employment by Company, make any unauthorized disclosure of any
confidential business information or trade secrets of Company, or make any use
thereof, except for the benefit of, and on behalf of Company. For the purposes
of this paragraph, the term "Company" shall also include Affiliates of Company.
ARTICLE 8: MISCELLANEOUS
8.1 Notices. For purposes of this Agreement, notices and all other
communications provided for herein shall be in writing and shall be deemed to
have been duly given when personally delivered or when mailed by United States
registered or certified mail, return receipt requested, postage prepaid,
addressed as follows:
If to Company to: Enron Corp.
1400 Smith Street
Houston, Texas 77002
Attention: Corporate Secretary
If to Employee to: or to such other address as either party may
furnish to the other in writing in accordance
herewith, except that notices of changes of
address shall be effective only upon receipt.
8.2 Applicable Law. This contract is entered into under, and shall be
governed for all purposes by, the laws of the State of Texas, without giving
effect to the principles of conflict of laws.
8.3 No Duty to Seek Employment. Employee shall not be under any duty or
obligation to seek or accept other employment following termination and no
amount, payment or benefit due Employee hereunder or otherwise shall be reduced
or suspended if Employee accepts subsequent employment.
8.4 No Waiver. No failure by either party hereto at any time to give
notice of any breach by the other party of, or to require compliance with, any
condition or provision of this Agreement shall be deemed a waiver of similar or
dissimilar provisions or conditions at the same or at any prior or subsequent
time.
8.5 Remedy for Breach of Contract. (a) The parties agree that in the event
there is any breach or asserted breach of the terms, covenants or conditions of
this Agreement, the remedy of Company shall be in law and in equity and
injunctive relief also shall lie for the enforcement of or relief from any
provisions of this Agreement.
(b) The sole and exclusive remedy of Employee shall be limited to the
enforcement of the provisions of this Agreement. Employee agrees that he will
receive sufficiently higher consideration under this Agreement than he would
otherwise receive if he did not agree to this provision. Employee understands
the effect of the provisions of this Section 8.5, he has had reasonable time to
consider the effect thereof, and he was encouraged and had an opportunity to
consult an attorney with respect thereto.
(c) If any eligible remedy or relief is sought and obtained by either party
pursuant to this Section 8.5, the other party shall, in addition to the remedy
of relief so obtained, be liable for the expenses incurred by the successful
party in obtaining such remedy or relief, including costs of court and the fees
and expenses of the successful party's counsel.
D-6
<PAGE> 153
8.6 Severability. It is a desire and intent of the parties that the terms,
provisions, covenants and remedies contained in this Agreement shall be
enforceable to the fullest extent permitted by Law. If any such term, provision,
covenant or remedy of this Agreement or the application thereof to any person or
circumstances shall to any extent, be construed to be invalid or unenforceable
in whole or in part, then such term, provision, covenant or remedy shall be
construed in a manner so as to permit its enforceability under the applicable
law to the fullest extent permitted by law. In any case, the remaining
provisions of this Agreement or the application thereof to any person or
circumstances other than those to which they have been held invalid or
unenforceable, shall remain in full force and effect.
8.7 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 Agreement.
8.8 Withholding of Taxes. Company may withhold, from any benefits payable
under this Agreement all federal, state, city or other taxes as may be required
pursuant to any law or governmental regulation or ruling.
8.9 Headings. The paragraph headings have been inserted for purposes of
convenience and shall not be used for interpretive purposes.
8.10 Successors and Assignment. This Agreement automatically shall be
binding upon any corporation or other entity which may hereafter acquire or
succeed to all or substantially all of the business or assets of Company by any
means whether direct or indirect, by purchase, merger, consolidation or
otherwise. As used in this paragraph 8.10, "Company" shall mean Company as
defined in the preamble to this agreement and any successor to its business or
assets by operation of law or otherwise. With respect to employee's rights and
obligations, Employee's rights and obligations hereunder are personal and
neither this Agreement, nor any right, benefit or obligation of Employee, shall
be subject to voluntary or involuntary assignment, alienation or transfer,
whether by operation of law or otherwise, without the prior written consent of
Company. This Agreement shall inure to the benefit of and be enforceable by
Employee's personal or legal representatives, executors, administrators,
successors, heirs, distributees, devisees and legatees.
8.11 Entire Agreement; Modification. This Agreement constitutes the entire
agreement of the parties with regard to the subject matter hereof, supersedes
any and all prior agreements with respect to Employee's employment by Company or
an Affiliate except as provided in this Agreement, and contains all of the
covenants, promises, representations, warranties and agreements between the
parties with respect to employment of Employee by Company. Each party to this
Agreement acknowledges that no representation, inducement, promise or agreement,
oral or written, has been made by either party, which is not embodied herein,
and that no agreement, statement, or promise relating to the employment of
Employee by Company, which is not contained in this Agreement shall be valid or
binding. Any modification of this Agreement will be effective only if it is in
writing and signed by both parties. This Agreement does not revoke or cancel any
employee benefits or compensation earned or accrued by or vested in Employee as
of the effective date of this Agreement and which are attributable to Employee's
prior employment by Company or an Affiliate.
8.12 Non-competition. As part of the consideration for the compensation to
be paid to Employee hereunder, and as an additional incentive for Company to
enter into this Agreement, Company and Employee agree to the non-competitive
provisions of this Section 8.12. Upon termination of employment for any reason,
Employee agrees that until the first to occur of (x) the date upon which the
Initial Term of this Agreement would have ended had employment of Employee not
terminated and (y) the second anniversary of the date of termination of
employment, Employee will not, directly or indirectly for himself or for others,
in any state of the United States or in any foreign country where Company or any
of its Affiliates is then conducting any business, or has, during the previous
twelve (12) months, conducted any business:
(i) engage in any business similar or related to or competitive with
the business conducted by PGC or any Affiliate of PGC immediately before
the Effective Time, or any other area of the business of Company or any
Affiliate with which Employee has material involvement during the two-year
period immediately before the termination of his employment (the "Core
Business");
D-7
<PAGE> 154
(ii) render advice or services to, or otherwise assist, any other
person or entity who is engaged, directly or indirectly, in any business
similar or related to, or competitive with, the Core Business conducted by
Company or any Affiliate;
(iii) transact any business in any manner pertaining to suppliers or
customers in Company or any Affiliate which, in any manner, would have, or
is likely to have, an adverse effect upon Company or any Affiliate; or
(iv) induce any employee of Company or any Affiliate to terminate his
or her employment with Company or such Affiliate.
Employee understands that the foregoing restrictions may limit Employee's
ability to engage in a business similar to Company's Core Business anywhere in
the world during the period provided for above, but acknowledges that Employee
will receive sufficiently higher remuneration and other benefits from Company
hereunder than he would otherwise receive, to justify such restriction. Employee
understands the effect of the provisions of this Section 8.12, he has had
reasonable time to consider the effect thereof, and he was encouraged and had an
opportunity to consult an attorney with respect thereto. Company shall be
entitled to enforce the provisions of this Section 8.12 by terminating any
payments then owing to Employee under this Agreement and by resorting to
appropriate legal and equitable action.
It is expressly understood and agreed that Company and Employee consider
the restrictions contained in this Section 8.12 to be reasonable and necessary.
Nevertheless, if any of the aforesaid restrictions are found by a court having
jurisdiction to be unreasonable, or over broad as to geographic area or time, or
otherwise unenforceable, the parties intend for the restrictions herein set
forth to be modified by such court so as to be reasonable and enforceable and,
as so modified by the court, to be fully enforced.
IN WITNESS WHEREOF, the parties have duly executed this Agreement as of the
date first above written.
ENRON CORP.
By: /s/ EDMUND P. SEGNER III
------------------------------------
Edmund P. Segner III
Title: Executive Vice President
and Chief of Staff
KEN L. HARRISON
/s/ KEN L. HARRISON
------------------------------------
Ken L. Harrison
D-8
<PAGE> 155
ANNEX E
EMPLOYMENT AGREEMENT
This Employment Agreement ("Agreement") entered into the 20th day of July,
1996, and to become effective upon the consummation of the Mergers (as defined
in the Agreement and Plan of Merger dated as of July 20, 1996 (the "Merger
Agreement") by and between Enron Corp. (the "Company"), Portland General
Corporation ("PGC") and New Falcon Corp. ("Surviving Co.")) by and between the
Company and Joseph M. Hirko ("Employee"), an individual currently residing in
Portland, Oregon.
WITNESSETH:
WHEREAS, upon the consummation of the Mergers Company desires to employ
Employee in an executive capacity and Employee desires to enter Company's
employ:
NOW, THEREFORE, for and in consideration of the mutual promises, covenants,
and obligations contained herein, Company and Employee agree as follows:
ARTICLE 1: EMPLOYMENT AND DUTIES
1.1 Company agrees to employ Employee and Employee agrees to be employed
by Company beginning as of the Effective Date of this Agreement, subject to the
terms and conditions of this Agreement. The Effective Date of this Agreement
shall be the Effective Time under the Merger Agreement. At the Effective Date,
this Agreement shall supercede, rescind and replace Employee's existing
Employment Agreement with Portland General Corporation. Upon the merger of
Company with and into Surviving Co., this Agreement shall become the obligation
of Surviving Co. If the Merger Agreement is terminated, then this Agreement
shall have no further force or effect and shall be deemed terminated.
1.2 Employee agrees to serve as Senior Vice President of Company and as a
senior executive officer of Portland General Electric Company ("PGE"), and to
perform diligently and to the best of Employee's abilities, the duties and
services appertaining to such position as reasonably directed by Company.
1.3 Employee shall, during the period of his employment by Company, devote
his entire business time, energy and best efforts to the business and affairs of
Company and not engage, directly or indirectly, in any other business or
businesses to the extent such activity would be contrary to the interests of
Company or any Affiliate of Company or would detract from Employee's ability to
perform his duties under this Agreement.
1.4 Employee shall be subject to policies and procedures adopted,
established or amended by Company from time to time which are applicable to all
employees generally.
ARTICLE 2: TERM OF EMPLOYMENT
Unless sooner terminated pursuant to other provisions hereof, Employee's
period of employment under this Agreement shall be a period of five (5) years
beginning on the Effective Date of this Agreement ("Initial Term"), and
thereafter for such period, if any, as may be agreed upon in writing by Employee
and Company.
ARTICLE 3: COMPENSATION AND BENEFITS
3.1 Base Salary. During the Initial Term, Employee's annual base salary
shall not be less than Two Hundred and Fifty Thousand Dollars ($250,000.00),
which shall be earned and paid in equal semimonthly installments in accordance
with Company's standard payroll practice.
3.2 Incentive Compensation Programs. While Employee is actively employed
under this Agreement, Employee shall be entitled to participate in the Executive
Compensation Program maintained by Company for its senior executives on the same
basis (except as otherwise specifically provided herein) as other senior
executives of Company.
E-1
<PAGE> 156
3.3 Other Employee Benefits. While Employee is actively employed under
this Agreement, Employee shall be allowed to participate on the same basis
generally as other employees of Company, in all benefit plans and programs,
including improvements or modifications of the same, which are now, or may
hereafter be, available to such employees. Such benefits, plans and programs may
include, without limitation, health insurance or health care plan, life
insurance, disability insurance, and pension plans.
3.4 Changes Permitted. Company shall not, however, by reason of paragraphs
3.2 and 3.3 be obligated to institute, maintain, or refrain from changing,
amending or discontinuing, any such benefit plan or program, so long as such
changes are similarly applicable to covered employees generally.
3.5 Stock Option. (a) On the Effective Date, Employee shall receive a
grant of an Option (which shall not constitute an Incentive Stock Option) under
and pursuant to the terms and provisions of the Enron Corp. 1991 Stock Plan to
purchase Fifty Thousand (50,000) shares of common stock of Company. Such grant
shall be made in the form of a Non-Qualified Stock Option Agreement as reflected
in Exhibit A to this Agreement. The per share option price of such Option shall
be set at the fair market value of a share of Company common stock as of the
Effective Date, shall have a term of 10 years and shall vest 20% on the date of
grant and 20% on each of the four succeeding anniversaries of the Effective
Date. If Employee voluntarily terminates employment other than during a Window
Period (as hereinafter defined), Employee may exercise vested options within one
month of voluntary termination of employment. In the event of Involuntary
Termination (including voluntary termination of employment by the Employee
during a Window Period), death, disability or retirement, Employee may exercise
vested options within three years of the date of termination.
(b) Notwithstanding any other provision in the Enron Corp. 1991 Stock Plan
or in the grant of said Option reflected in Exhibit A, the vesting provision
described in paragraph (a) above shall be the sole and exclusive method of
vesting, except said Option shall immediately and fully vest:
(i) upon a Change of Control of Company or PGE, or
(ii) in the event of Employee's Involuntary Termination (other than a
voluntary termination of employment by Employee during a Window Period).
3.6 Annual Incentive Plan. Employee's bonus under Company's Annual
Incentive Plan shall be not less than $250,000. Twenty percent (20%) of such
bonus shall be paid to Employee in the form of Options and eighty percent (80%)
shall be paid to Employee in the form of cash. For purposes of this paragraph
3.6, Options shall be valued in the same manner as options are valued for all
other participants in the Enron Executive Compensation Program by the
Compensation Committee. Options granted under this paragraph 3.6 shall vest
immediately upon grant. In the event of a termination of employment, all options
granted under this paragraph 3.6 shall be exercisable at any time within three
years of the date of termination. Until such time as Employee becomes the
Beneficial Owner of shares of Company common stock having a fair market value
equal to not less than two times Employee's base salary as set forth in
paragraph 3.1, one-third of the cash amount which would be paid to Employee as a
bonus under the Company's Annual Incentive Plan shall be paid to Employee in the
form of unrestricted Company common stock.
3.7 Restricted Stock Grant. On the Effective Date Employee will be granted
shares of Enron Restricted Stock having a fair market value equal to Employee's
base salary (as specified in paragraph 3.1). Such grant will vest in 20%
increments on each of the first five anniversaries of the date of grant.
Unvested Restricted Stock will not vest upon a termination of employment of
Employee and will be forfeited upon such termination.
3.8 Supplemental Pension Benefit. Following termination of Employee's
employment for any reason, Employee or Employee's surviving spouse shall be
provided a supplemental nonqualified retirement benefit (the "Supplemental
Retirement Benefit") to the extent necessary so that (A) the sum of (i) the
aggregate pension benefits actually received by him or her from the Portland
General Corporation Pension Plan (the "Pension Plan"), the Portland General
Corporation Supplemental Executive Retirement Plan (the "SERP") and any defined
benefit qualified or nonqualified pension plans of the Company and (ii) the
Supplemental
E-2
<PAGE> 157
Retirement Benefit are not less than (B) the aggregate benefits he or she would
have received pursuant to the Pension Plan and the SERP, in each case as in
effect on the Effective Date of this Agreement, if Employee had continued to
participate in the Pension Plan and the SERP, in each case as in effect on the
Effective Date of this Agreement, through the date of such termination of
employment.
ARTICLE 4: TERMINATION PRIOR TO EXPIRATION OF TERM
4.1 Effect On Compensation And Benefits. If Employee's employment
hereunder shall be terminated by Company or by Employee, upon such termination,
regardless of the reason therefor, all compensation and all benefits to Employee
under this Agreement shall terminate contemporaneously with the termination of
such employment, except that (i) Employee shall be entitled to the Supplemental
Retirement Benefit set forth in Section 3.8, and (ii) if Employee's employment
is Involuntarily Terminated (as defined herein) prior to expiration of the
Initial Term of employment established under Article 2, Employee shall be
entitled to receive the following benefits ("Severance Remuneration"):
(a) If Employee's employment is Involuntarily Terminated other than as
a result of a voluntary termination of employment by Employee during a
Window Period, all payments of the annual base salary under paragraph 3.1
(at the level set forth therein) and bonus payments under paragraph 3.6 (at
the level set forth therein) at such time and in such manner as if
Employee's employment had continued for a two year period following the
Involuntary Termination Date, and, if the Initial Term of the Agreement
would have continued beyond the second anniversary of the Involuntary
Termination Date, then Company shall pay to Executive a lump-sum amount on
such second anniversary equal to the amount which would have been paid to
Employee during the balance of the Initial Term if Employee's employment
had continued during such period. If Employee's employment is terminated as
a result of a voluntary termination of employment by Employee during a
Window Period, then Executive shall be entitled to receive all payments of
base salary under paragraph 3.1 (at the level set forth therein) and bonus
payments under paragraph 3.6 (at the level set forth therein) at such time
and in such manner as if Employee's employment had continued for the
balance of the Initial Term, provided that, if the Initial Term would have
continued beyond the second anniversary of the Involuntary Termination
Date, then Company shall pay to Executive a lump-sum amount on such second
anniversary equal to the amount which would have been paid to Employee
during the balance of the Initial Term if Employee's employment had
continued during such period.
(b) Employee shall be provided coverage essentially equivalent to that
under Company's Contributory and Non-Contributory Life Insurance, Health
and long-term disability plans for active employees (using Employee's
annual base salary pursuant to paragraph 4.1(a) as the compensation base
where relevant).
(c) Employee shall be paid, within 10 days after the date of such
termination, a cash amount equal to the single sum actuarial equivalent of
the incremental amount that would be paid as the Supplemental Retirement
Benefit pursuant to Section 3.8 if the amount described in clause (B) of
Section 3.8 were computed by assuming that Employee had attained an
additional three years of age and an additional three years of service
under the SERP.
The Company reserves the right to provide the benefits and payments
referred to in paragraphs 4.1(b) and 4.1(c) by making substantially equivalent
payments to or purchasing substantially equivalent benefits for Employee under
arrangements other than the plans referred to in said paragraphs if, in
Company's sole discretion, the tax or compliance status of such plans may
otherwise be jeopardized. Such equivalent payments shall be a liability of
Company, shall be paid exclusively from the general assets of Company, and shall
be an unfunded and unsecured promise to pay money in the future, unless Company
elects to otherwise fund or secure such payments.
E-3
<PAGE> 158
4.2 Involuntary Termination. As used in this Agreement, "Involuntary
Termination" or "Involuntarily Terminated" shall mean termination of Employee's
employment with Company if such termination results from:
(a) termination by Company on any grounds whatsoever except (i)
"Termination for Cause" as defined below, or (ii) termination upon
Employee's death or Permanent Disability;
(b) termination by Employee within 60 days of and in connection with
or based upon any of the following:
(i) an assignment to Employee of duties and responsibilities
inappropriate to a senior officer of the Company or PGE;
(ii) (A) a reduction in Employee's annual base salary as
established in paragraph 3.1, (B) a reduction in Employee's incentive
compensation pursuant to paragraph 3.2 or paragraph 3.6, or (C) the
failure to continue Employee's participation in any employee benefit
plan or program (except a benefit plan or program that is substantially
comparable to an existing benefit plan or program) in which Employee is
participating or is eligible to participate prior to such reduction
(other than as a result of the expiration of such plan or program),
other than such failures which are a part of a general program to reduce
employee benefits on a proportional basis relative to other employees of
Company;
(iii) a relocation required by the Company of Employee from
Portland, Oregon; or
(iv) a Change of Control of Company or PGE.
In addition, if Employee voluntarily terminates his employment during a
Window Period, such termination shall be treated as an Involuntary Termination
for all purposes of this Agreement (except as otherwise specified herein). The
Window Periods for purposes of this Agreement shall be the thirty-day periods
beginning on the second, third and fourth anniversaries of the Effective Date.
4.3 Termination for Cause. As used in this Agreement, "Termination for
Cause" shall mean termination by action of Company's Board of Directors because
of Employee's (i) conviction of a felony (which, through lapse of time or
otherwise, is not subject to appeal); or (ii) willful refusal without proper
legal cause to perform Employee's duties and responsibilities; or (iii)
willfully engaging in conduct which Employee has or should have reason to know
may be materially injurious to Company. Such termination shall be effected by
notice thereof delivered by Company to Employee and shall be effective as of the
date of such notice; provided, however, that if (A) such termination is because
of Employee's willful refusal without proper legal cause to perform any one or
more of Employee's duties and responsibilities and (B) within seven days
following the date of such notice Employee shall cease such refusal and shall
use Employee's best efforts to perform such duties and responsibilities, then
the termination shall not be effective, and, provided further, that Company
shall consult in good faith with Employee and provide a reasonable opportunity
for Employee to be heard prior to effecting any termination under (i), (ii) or
(iii) of this paragraph.
4.4 In the Event of Excess Parachute Payments. In the event that the
Severance Remuneration payable under this Agreement, or any other payment or
distribution to or for the benefit of Employee by the Company, PGC or any of
their respective Affiliates, shall constitute "excess parachute payments" within
the meaning of Section 280G of the Internal Revenue Code of 1986, as amended,
and any regulations thereunder, and Employee becomes liable for any excise tax
on "excess parachute payments" and/or interest or penalties thereon (such excise
tax, interest and penalties, collectively, the "Tax Penalties"), Company shall
make a cash payment (the "Additional Payment") to Employee in an amount equal to
the Tax Penalties. In addition, Company shall make an additional cash payment to
Employee in an amount rounded to the nearest One Hundred Dollars which is
sufficient to pay Employee an amount equal to any additional income, excise and
other taxes (using the individual tax rates applicable to Employee for the year
for which such Tax Penalties are owed) for which Employee will be liable as a
result of Employee's receipt of the Additional Payment. In addition, Employee
shall be grossed up on such gross ups until the amount of last gross up is less
than One Hundred Dollars.
E-4
<PAGE> 159
ARTICLE 5: DEFINITIONS FOR AGREEMENT
For purposes of this Agreement the following terms shall have the meanings
ascribed to them below:
(a) "Affiliate" is used to indicate a relationship to a specified
person or entity and shall mean a person or entity who directly, or
indirectly through one or more intermediaries, controls, or is controlled
by, or is under common control with, such specified person or entity.
Affiliate shall include Affiliates of Company.
(b) "Beneficial Owner" shall be defined by reference to Rule 13(d)-3
under the Securities Exchange Act of 1934, as in effect on July 20, 1996,
provided, however, and without limitation, any individual, corporation,
partnership, group, association or other person or entity which has the
right to acquire any Voting Stock at any time in the future, whether such
right is contingent or absolute, pursuant to any agreement, arrangement or
understanding or upon exercise of conversion rights, warrants or options,
or otherwise, shall be the Beneficial Owner of such Voting Stock.
(c) "Change of Control" of Company or PGE shall mean after the
Effective Time (i) Company or PGE merges or consolidates with any other
corporation (other than Company or one of Company's wholly owned
subsidiaries) and is not the surviving corporation (or survives only as the
subsidiary of another corporation), or (ii) Company or PGE sells all or
substantially all of its assets to any other person or entity (other than
to Company or one of Company's wholly owned subsidiaries), or (iii) Company
or PGE is dissolved, or (iv) any third person or entity (other than, in the
case of PGE, Company or any wholly owned subsidiary of Company, or in the
case of PGE or Company, the trustee or committee of any qualified employee
benefit plan of Company) together with its affiliates and associates shall
become, directly or indirectly, the Beneficial Owner of at least thirty
percent (30%) of the Voting Stock of Company or PGE or (v) the individuals
who constitute the members of Company's Board of Directors ("Incumbent
Board") cease for any reason to constitute at least a majority thereof,
provided that any person becoming a director whose election or nomination
for election by Company stockholders was approved by a vote of at least
eighty percent (80%) 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 (v),
considered as though such person were a member of the Incumbent Board.
(d) "Change of Control Date" shall mean the day on which a Change of
Control becomes effective.
(e) "Involuntary Termination Date" shall mean Employee's last date of
employment by reason of an Involuntary Termination.
(f) "Permanent Disability" or "Permanently Disabled" shall mean such
permanent disability that qualifies Employee for benefits beyond twenty
four months of disability under Company's Long-Term Disability Plan.
(g) "Voting Stock" shall mean all outstanding shares of capital stock
entitled to vote generally in elections for directors, considered as one
class; provided, however, that if there are shares of Voting Stock entitled
to more or less than one vote for any such share, each reference to a
proportion of shares of Voting Stock shall be deemed to refer to such
proportion of the votes entitled to be cast by such shares.
ARTICLE 6: DEATH, DISABILITY OR RETIREMENT
In the event of Employee's death or Permanent Disability following
Employee's Involuntary Termination Date, Employee or Employee's legal
representatives shall be entitled to receive the balance of any unpaid amounts
payable under Article 4.
In no event will Employee or Employee's legal representatives receive
payments under Article 4 of this Agreement if Employee dies, retires, or becomes
Permanently Disabled prior to his Involuntary Termination.
E-5
<PAGE> 160
ARTICLE 7: CONFIDENTIAL INFORMATION
7.1 Company Information. Employee acknowledges that Company's business is
highly competitive and that Company's books, records and documents, Company's
technical information concerning its products, equipment, services and
processes, procurement procedures and pricing techniques, the names of and other
information (such as credit and financial data) concerning Company's customers
and business Affiliates, all comprise confidential business information and
trade secrets of Company which are valuable, special, and unique assets of
Company, which Company uses in its business to obtain a competitive advantage
over Company's competitors which do not know or use this information. Employee
further acknowledges that protection of Company's confidential business
information and trade secrets against unauthorized disclosure and use, is of
critical importance to Company in maintaining its competitive position.
Accordingly, Employee hereby agrees that he will not, at any time during or
after his employment by Company, make any unauthorized disclosure of any
confidential business information or trade secrets of Company, or make any use
thereof, except for the benefit of, and on behalf of Company. For the purposes
of this paragraph, the term "Company" shall also include Affiliates of Company.
ARTICLE 8: MISCELLANEOUS
8.1 Notices. For purposes of this Agreement, notices and all other
communications provided for herein shall be in writing and shall be deemed to
have been duly given when personally delivered or when mailed by United States
registered or certified mail, return receipt requested, postage prepaid,
addressed as follows:
If to Company to: Enron Corp.
1400 Smith Street
Houston, Texas 77002
Attention: Corporate Secretary
If to Employee to: or to such other address as either party may
furnish to the other in writing in accordance
herewith, except that notices of changes of
address shall be effective only upon receipt.
8.2 Applicable Law. This contract is entered into under, and shall be
governed for all purposes by, the laws of the State of Texas, without giving
effect to the principles of conflict of laws.
8.3 No Duty to Seek Employment. Employee shall not be under any duty or
obligation to seek or accept other employment following termination and no
amount, payment or benefit due Employee hereunder or otherwise shall be reduced
or suspended if Employee accepts subsequent employment.
8.4 No Waiver. No failure by either party hereto at any time to give
notice of any breach by the other party of, or to require compliance with, any
condition or provision of this Agreement shall be deemed a waiver of similar or
dissimilar provisions or conditions at the same or at any prior or subsequent
time.
8.5 Remedy for Breach of Contract. (a) The parties agree that in the event
there is any breach or asserted breach of the terms, covenants or conditions of
this Agreement, the remedy of Company shall be in law and in equity and
injunctive relief also shall lie for the enforcement of or relief from any
provisions of this Agreement.
(b) The sole and exclusive remedy of Employee shall be limited to the
enforcement of the provisions of this Agreement. Employee agrees that he will
receive sufficiently higher consideration under this Agreement than he would
otherwise receive if he did not agree to this provision. Employee understands
the effect of the provisions of this Section 8.5, he has had reasonable time to
consider the effect thereof, and he was encouraged and had an opportunity to
consult an attorney with respect thereto.
(c) If any eligible remedy or relief is sought and obtained by either party
pursuant to this Section 8.5, the other party shall, in addition to the remedy
of relief so obtained, be liable for the expenses incurred by the
E-6
<PAGE> 161
successful party in obtaining such remedy or relief, including costs of court
and the fees and expenses of the successful party's counsel.
8.6 Severability. It is a desire and intent of the parties that the terms,
provisions, covenants and remedies contained in this Agreement shall be
enforceable to the fullest extent permitted by Law. If any such term, provision,
covenant or remedy of this Agreement or the application thereof to any person or
circumstances shall to any extent, be construed to be invalid or unenforceable
in whole or in part, then such term, provision, covenant or remedy shall be
construed in a manner so as to permit its enforceability under the applicable
law to the fullest extent permitted by law. In any case, the remaining
provisions of this Agreement or the application thereof to any person or
circumstances other than those to which they have been held invalid or
unenforceable, shall remain in full force and effect.
8.7 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 Agreement.
8.8 Withholding of Taxes. Company may withhold, from any benefits payable
under this Agreement all federal, state, city or other taxes as may be required
pursuant to any law or governmental regulation or ruling.
8.9 Headings. The paragraph headings have been inserted for purposes of
convenience and shall not be used for interpretive purposes.
8.10 Successors and Assignment. This Agreement automatically shall be
binding upon any corporation or other entity which may hereafter acquire or
succeed to all or substantially all of the business or assets of Company by any
means whether direct or indirect, by purchase, merger, consolidation or
otherwise. As used in this paragraph 8.10, "Company" shall mean Company as
defined in the preamble to this agreement and any successor to its business or
assets by operation of law or otherwise. With respect to employee's rights and
obligations, Employee's rights and obligations hereunder are personal and
neither this Agreement, nor any right, benefit or obligation of Employee, shall
be subject to voluntary or involuntary assignment, alienation or transfer,
whether by operation of law or otherwise, without the prior written consent of
Company. This Agreement shall inure to the benefit of and be enforceable by
Employee's personal or legal representatives, executors, administrators,
successors, heirs, distributees, devisees and legatees.
8.11 Entire Agreement; Modification. This Agreement constitutes the entire
agreement of the parties with regard to the subject matter hereof, supersedes
any and all prior agreements with respect to Employee's employment by Company or
an Affiliate except as provided in this Agreement, and contains all of the
covenants, promises, representations, warranties and agreements between the
parties with respect to employment of Employee by Company. Each party to this
Agreement acknowledges that no representation, inducement, promise or agreement,
oral or written, has been made by either party, which is not embodied herein,
and that no agreement, statement, or promise relating to the employment of
Employee by Company, which is not contained in this Agreement shall be valid or
binding. Any modification of this Agreement will be effective only if it is in
writing and signed by both parties. This Agreement does not revoke or cancel any
employee benefits or compensation earned or accrued by or vested in Employee as
of the effective date of this Agreement and which are attributable to Employee's
prior employment by Company or an Affiliate.
8.12 Non-competition. As part of the consideration for the compensation to
be paid to Employee hereunder, and as an additional incentive for Company to
enter into this Agreement, Company and Employee agree to the non-competitive
provisions of this Section 8.12. Upon termination of employment for any reason,
Employee agrees that until the first to occur of (x) the date upon which the
Initial Term of this Agreement would have ended had employment of Employee not
terminated and (y) the second anniversary of the date of termination of
employment, Employee will not, directly or indirectly for himself or for others,
in any state of the United States or in any foreign country where Company or any
of its Affiliates is then conducting any business, or has, during the previous
twelve (12) months, conducted any business:
(i) engage in any business similar or related to or competitive with
the business conducted by PGC or any Affiliate of PGC immediately before
the Effective Time, or any other area of business of Company
E-7
<PAGE> 162
or any Affiliate with which Employee has material involvement during the
two-year period immediately before the termination of his employment (the
"Core Business");
(ii) render advice or services to, or otherwise assist, any other
person or entity who is engaged, directly or indirectly, in any business
similar or related to, or competitive with, the Core Business conducted by
Company or any Affiliate;
(iii) transact any business in any manner pertaining to suppliers or
customers in Company or any Affiliate which, in any manner, would have, or
is likely to have, an adverse effect upon Company or any Affiliate; or
(iv) induce any employee of Company or any Affiliate to terminate his
or her employment with Company or such Affiliate.
Employee understands that the foregoing restrictions may limit Employee's
ability to engage in a business similar to Company's Core Business anywhere in
the world during the period provided for above, but acknowledges that Employee
will receive sufficiently higher remuneration and other benefits from Company
hereunder than he would otherwise receive, to justify such restriction. Employee
understands the effect of the provisions of this Section 8.12, he has had
reasonable time to consider the effect thereof, and he was encouraged and had an
opportunity to consult an attorney with respect thereto. Company shall be
entitled to enforce the provisions of this Section 8.12 by terminating any
payments then owing to Employee under this Agreement and by resorting to
appropriate legal and equitable action.
It is expressly understood and agreed that Company and Employee consider
the restrictions contained in this Section 8.12 to be reasonable and necessary.
Nevertheless, if any of the aforesaid restrictions are found by a court having
jurisdiction to be unreasonable, or over broad as to geographic area or time, or
otherwise unenforceable, the parties intend for the restrictions herein set
forth to be modified by such court so as to be reasonable and enforceable and,
as so modified by the court, to be fully enforced.
IN WITNESS WHEREOF, the parties have duly executed this Agreement as of the
date first above written.
ENRON CORP.
By: /s/ EDMUND P. SEGNER III
------------------------------------
Edmund P. Segner III
Title: Executive Vice President
and Chief of Staff
JOSEPH M. HIRKO
/s/ JOSEPH M. HIRKO
--------------------------------------
Joseph M. Hirko
E-8
<PAGE> 163
ANNEX F
AMENDED AND RESTATED
ARTICLES OF INCORPORATION
OF
ENRON OREGON CORP.
---------------------
ARTICLE I
The name of this corporation is Enron Oregon Corp. (herein, the
"Corporation").
ARTICLE II
The address of the registered office of this Corporation in the State of
Oregon is 520 S.W. Yamhill, Suite 800, Portland, Oregon 97204, and the name of
its resident agent at such address is CT Corporation System. The mailing address
of this Corporation at which notices may be delivered pursuant to the Oregon
Business Corporation Act is c/o CT Corporation System, 520 S.W. Yamhill, Suite
800, Portland, Oregon 97204.
ARTICLE III
The nature of the business or purposes to be transacted, promoted or
carried on by this Corporation is to engage in any lawful business or activity
for which corporations may lawfully be organized under the laws of the State of
Oregon.
ARTICLE IV
The total number of shares of all classes of stock which this Corporation
shall have authority to issue is 616,500,000 shares of capital stock, of which
16,500,000 shares are Preferred Stock (the "Preferred Stock"), and 600,000,000
shares are Common Stock (the "Common Stock").
The following is a statement fixing certain of the preferences, limitations
and relative rights of the Preferred Stock and the Common Stock, and the
authority with respect thereto expressly granted to the Board of Directors of
the Corporation to fix any such provisions not fixed by these Articles of
Incorporation:
A. PREFERRED STOCK
The Preferred Stock may be issued from time to time in one or more series.
The Board of Directors of the Corporation (or, to the extent permitted by law, a
duly authorized committee thereof) is hereby expressly vested with the
authority, without shareholder approval, to adopt from time to time an amendment
or amendments to these Articles of Incorporation to establish, in the manner
provided by and to the fullest extent now or hereafter permitted by the Oregon
Business Corporation Act, series of the Preferred Stock and to determine, in the
sole discretion of the Board of Directors, the preferences, limitations and
relative rights of each such series, including without limitation the following:
(1) The distinctive designation of such series and the number of
shares which shall constitute such series, which number may be increased
(except as otherwise provided by the Board of Directors in creating such
series) or decreased (but not below the number of shares thereof then
outstanding) from time to time by like action of the Board of Directors;
F-1
<PAGE> 164
(2) The dividend rate on the shares of that series, whether such
dividends, if any, shall be cumulative, and, if so, the date or dates from
which dividends payable on such shares shall accumulate, and the relative
rights of priority, if any, of payment of dividends on shares of that
series;
(3) Whether that series shall have voting rights, in addition to the
voting rights provided by law, and, if so, the terms of such voting rights;
(4) Whether that series shall have conversion privileges with respect
to shares of any other class or classes of stock or of any other series of
any class of stock, and, if so, the terms and conditions of such
conversion, including provision for adjustment of the conversion rate upon
occurrence of such events as the Board of Directors shall determine;
(5) Whether the shares of that series shall be redeemable, and, if so,
the terms and conditions of such redemption, including their relative
rights of priority, if any, of redemption, the date or dates upon or after
which they shall be redeemable, provisions regarding redemption notices,
and the amount per share payable in case of redemption, which amount may
vary under different conditions and at different redemption dates;
(6) Whether that series shall have a sinking fund for the redemption
or purchase of shares of that series, and, if so, the terms and amount of
such sinking fund;
(7) The rights of the shares of that series in the event of voluntary
or involuntary liquidation, dissolution, or winding up of the Corporation,
and the relative rights of priority, if any, of payment of shares of that
series;
(8) The conditions or restrictions upon the creation of indebtedness
of the Corporation or upon the issuance of additional Preferred Stock or
other capital stock ranking on a parity therewith, or prior thereto, with
respect to dividends or distribution of assets upon liquidation;
(9) The conditions or restrictions with respect to the issuance of,
payment of dividends upon, or the making of other distributions to, or the
acquisition or redemption of, shares ranking junior to the Preferred Stock
or to any series thereof with respect to dividends or distribution of
assets upon liquidation; and
(10) Any other designations, powers, preferences, and rights,
including, without limitation, any qualifications, limitations, or
restrictions thereof.
Except as shall be determined by the Board of Directors or its committee as
permitted hereby in establishing the terms of a series of Preferred Stock, all
shares of Preferred Stock shall be of equal rank and shall be identical. All
shares of any particular series of Preferred Stock so designated by the Board of
Directors shall be alike in every particular, except that shares of any
particular series issued at different times may differ as to the dates from
which dividends thereon shall be cumulative.
B. COMMON STOCK
Subject to the terms of any Preferred Stock, the Board of Directors may, in
its discretion, out of funds legally available for the payment of dividends and
at such times and in such manner as determined by the Board of Directors,
declare and pay dividends on the Common Stock. No dividend (other than a
dividend in capital stock ranking on a parity with the Common Stock with respect
to the payment of dividends or cash in lieu of fractional shares with respect to
such stock dividend) shall be declared or paid on any share or shares of any
class of stock or series thereof ranking on a parity with the Common Stock in
respect of payment of dividends for any dividend period unless there shall have
been declared, for the same dividend period, like proportionate dividends on all
shares of Common Stock then outstanding.
In the event of any liquidation, dissolution or winding up of the
Corporation, whether voluntary or involuntary, after payment or provision for
payment of the debts and other liabilities of the Corporation and payment or
setting aside for payment of any preferential amount due to the holders of any
other class or series
F-2
<PAGE> 165
of stock, the holders of the Common Stock shall be entitled to receive ratably
any or all assets remaining to be paid or distributed.
Subject to any special voting rights of any Preferred Stock, the holders of
the Common Stock of the Corporation shall be entitled to one vote for each share
of such stock held by them on all matters submitted to a vote or consent of the
shareholders.
C. NO PREEMPTIVE RIGHTS
No holder of shares of stock of the Corporation shall have any preemptive
or other rights to acquire the Corporation's unissued shares, except as such
rights are expressly provided by contract or in the terms of any series of
Preferred Stock established hereunder.
D. SHAREHOLDER ACTION BY WRITTEN CONSENT
If the Corporation's shareholders are permitted by law to take any action
required or permitted to be taken at a shareholders' meeting without a meeting,
such action must be evidenced by one or more written consents describing the
action taken, signed by all the shareholders entitled to vote on the action and
delivered to the Corporation for inclusion in the minutes or filing with the
corporate records.
ARTICLE V
A. BUSINESS TRANSACTIONS WITH RELATED PERSONS
In addition to the requirements of the provisions of any series of
Preferred Stock which may be outstanding, and whether or not a vote of the
shareholders is otherwise required, the affirmative vote of the holders of not
less than eighty percent (80%) of the Voting Stock shall be required for the
approval or authorization of any Business Transaction with a Related Person, or
any Business Transaction in which a Related Person has an interest (except
proportionately as a shareholder); provided, however, that the eighty percent
(80%) voting requirement shall not be applicable if either (i) the Continuing
Directors, who at the time constitute at least a majority of the entire Board of
Directors of the Corporation, have expressly approved the Business Transaction
by at least an eighty percent (80%) vote of such Continuing Directors, (ii) the
Business Transaction occurs more than five years after the last acquisition of
Voting Stock by the Related Person, or (iii) all of the following conditions are
satisfied:
(1) The Business Transaction is a merger or consolidation or sale of
substantially all of the assets of the Corporation, and the cash or fair
market value of the property, securities or other consideration to be
received per share by holders of Common Stock of the Corporation (other
than such Related Person) in the Business Transaction is at least equal in
value to such Related Person's Highest Purchase Price; provided, however,
that if such Business Transaction is effected more than nine months after
the last date upon which such Related Person paid the Highest Purchase
Price, the consideration to be received per share by holders of Common
Stock of the Corporation (other than such Related Person) in such Business
Transaction shall be at least equal in value to such Related Person's
Adjusted Purchase Price;
(2) After such Related Person has become the Beneficial Owner of not
less than ten percent (10%) of the Voting Stock of the Corporation and
prior to the consummation of such Business Transaction, such Related Person
shall not have become the Beneficial Owner of any additional shares of
Voting Stock or securities convertible into Voting Stock, except (i) as a
part of the transaction which resulted in such Related Person becoming the
Beneficial Owner of not less than ten percent (10%) of the Voting Stock or
(ii) as a result of a pro rata stock dividend or stock split; and
(3) Prior to the consummation of such Business Transaction, such
Related Person shall not have, directly or indirectly, (i) received the
benefit (except proportionately as a shareholder) of any loans, advances,
guarantees, pledges or other financial assistance or tax credits provided
by the Corporation or any of its subsidiaries, or (ii) caused any material
change in the Corporation's business or equity capital structure,
including, without limitation, the issuance of shares of capital stock of
the Corporation.
F-3
<PAGE> 166
B. DEFINITIONS
For the purpose of this Article V:
(1) The term "Business Transaction" shall mean (a) any merger or
consolidation involving the Corporation or a subsidiary of the Corporation,
(b) any sale, lease, exchange, transfer or other disposition (in one
transaction or a series of transactions), including without limitation a
mortgage or any other security device, of all or any Substantial Part of
the assets either of the Corporation or of a subsidiary of the Corporation,
(c) any sale, lease, exchange, transfer or other disposition of all or any
Substantial Part of the assets of an entity to the Corporation or a
subsidiary of the Corporation, (d) the issuance, sale, exchange, transfer
or other disposition by the Corporation or a subsidiary of the Corporation
of any securities of the Corporation or any subsidiary of the Corporation,
(e) any recapitalization or reclassification of the Corporation's
securities (including without limitation, any reverse stock split) or other
transaction that would have the effect of increasing the voting power of a
Related Person, (f) any liquidation, spinoff, splitoff, splitup or
dissolution of the Corporation, and (g) any agreement, contract or other
arrangement providing for any of the transactions described in this
definition of Business Transaction.
(2) The term "Related Person" shall mean and include (a) any
individual, corporation, partnership, group, association or other person or
entity which, together with its Affiliates and Associates, is the
Beneficial Owner of not less than ten percent (10%) of the Voting Stock of
the Corporation or was the Beneficial Owner of not less than ten percent
(10%) of the Voting Stock of the Corporation (i) at the time the definitive
agreement providing for the Business Transaction (including any amendment
thereof) was entered into, (ii) at the time a resolution approving the
Business Transaction was adopted by the Board of Directors of the
Corporation, or (iii) as of the record date for the determination of
shareholders entitled to notice of and to vote on, or consent to, the
Business Transaction, and (b) any Affiliate or Associate of any such
individual, corporation, partnership, group, association or other person or
entity; provided, however, and notwithstanding anything in the foregoing to
the contrary, the term "Related Person" shall not include the Corporation,
a wholly owned subsidiary of the Corporation, any employee stock ownership
or other employee benefit plan of the Corporation or any wholly owned
subsidiary of the Corporation, or any trustee of, or fiduciary with respect
to, any such plan when acting in such capacity.
(3) The term "Beneficial Owner" shall be defined by reference to Rule
13d-3 under the Securities Exchange Act of 1934, as in effect on February
1, 1984; provided, however, and without limitation, any individual,
corporation, partnership, group, association or other person or entity
which has the right to acquire any Voting Stock at any time in the future,
whether such right is contingent or absolute, pursuant to any agreement,
arrangement or understanding or upon exercise of conversion rights,
warrants or options, or otherwise, shall be the Beneficial Owner of such
Voting Stock.
(4) The term "Highest Purchase Price" shall mean the highest amount of
consideration paid by such Related Person for a share of Common Stock of
the Corporation (including any brokerage commissions, transfer taxes and
soliciting leaders' fees) in the transaction which resulted in such Related
Person becoming a Related Person or within one year prior to the date such
Related Person became a Related Person; provided, however, that the Highest
Purchase Price shall be appropriately adjusted to reflect the occurrence of
any reclassification, recapitalization, stock split, reverse stock split,
withholding of dividends or other readjustments in the number of
outstanding shares of Common Stock of the Corporation, or the declaration
of a stock dividend thereon, between the last date upon which such Related
Person paid the Highest Purchase Price to the effective date of the merger
or consolidation or the date of distribution to shareholders of the
Corporation of the proceeds from the sale of substantially all of the
assets of the Corporation referred to in Section A (1) of this Article V
during the Relevant Period.
(5) The term "Relevant Period" shall mean the period which runs from
the last date upon which such Related Person paid the Highest Purchase
Price for a share of Common Stock of the Corporation to the effective date
of the merger or consolidation or the date of distribution of shareholders
of the Corporation of the proceeds from the sale of substantially all the
assets of the Corporation referred to in Section A (1) of this Article V.
F-4
<PAGE> 167
(6) The term "Adjusted Purchase Price" shall mean that amount which
would result from increasing such Related Person's Highest Purchase Price
during the Relevant Period at an annual rate equal to one-hundred ten
percent (110%) of the arithmetic average of the weekly per annum market
discount rates for three-month U.S. Treasury bills during such Relevant
Period, as published by the Board of Governors of the Federal Reserve
System; provided, however, that in respect of any portion of the Relevant
Period during which the Corporation cannot determine the annual rate of
increase in the foregoing manner, the annual rate of increase shall be
deemed to be ten percent (10%); and provided further that the amount of the
increase in such Related Person's Highest Purchase Price which would occur
as a result of the foregoing provision shall be reduced by the aggregate of
the regular quarterly cash dividends paid per share of Common Stock during
the Relevant Period.
(7) The term "Substantial Part" shall mean more than twenty percent
(20%) of the fair market value of the total assets of the entity in
question, as reflected on the most recent consolidated balance sheet of
such entity existing at the time the shareholders of the Corporation would
be required to approve or authorize the Business Transaction involving the
assets constituting any such Substantial Part.
(8) In the event of a merger in which the Corporation is the surviving
corporation, for the purpose of Section A (1) of this Article V, the phrase
"property, securities or other consideration to be received" shall include,
without limitation, Common Stock of the Corporation retained by its
existing shareholders (other than such Related Person).
(9) The term "Voting Stock" shall mean all outstanding shares of
capital stock of the Corporation entitled to vote generally in the election
of directors, considered for the purpose of this Article V as one class;
provided, however, that if the Corporation has shares of Voting Stock
entitled to more or less than one vote for any such share, each reference
in this Article V to a proportion of shares of Voting Stock shall be deemed
to refer to such proportion of the votes entitled to be cast by such
shares.
(10) The term "Continuing Director" shall mean a director who either
was a member of the Board of Directors of the Corporation prior to the time
such Related Person became a Related Person or who subsequently became a
director of the Corporation and whose election, or nomination for election
by the Corporation's shareholders, was approved by a vote of at least
eighty percent (80%) of the Continuing Directors then on the Board, either
by a specific vote or by approval of the proxy statement issued by the
Corporation on behalf of the Board of Directors in which such person is
named as nominee for director, without an objection to such nomination;
provided, however, that in no event shall a director be considered a
"Continuing Director" if such director is a Related Person and the Business
Transaction to be voted upon is with such Related Person or is one in which
such Related Person otherwise has an interest (except proportionately as a
shareholder of the Corporation).
(11) The term "Affiliate," used to indicate a relationship to a
specified person, shall mean a person that directly, or indirectly through
one or more intermediaries, controls, or is controlled by, or is under
common control with, such specified person.
(12) The term "Associate," used to indicate a relationship with a
specified person, shall mean (a) any corporation, partnership or other
organization of which such specified person is an officer or partner or is,
directly or indirectly, the Beneficial Owner of ten percent (10%) or more
of any class of equity securities, (b) any trust or other estate in which
such specified person has a substantial beneficial interest or as to which
such specified person serves as trustee or in a similar fiduciary capacity,
(c) any relative or spouse of such specified person, or any relative of
such spouse, who has the same home as such specified person or who is a
director or officer of the Corporation or any of its parents or
subsidiaries, and (d) any person who is a director or officer of such
specified person or any of its parents or subsidiaries (other than the
Corporation or any wholly owned subsidiary of the Corporation).
C. DETERMINATION BY BOARD OF DIRECTORS
For the purpose of this Article V, if the Continuing Directors constitute
at least a majority of the entire Board of Directors, then eighty percent (80%)
of such Continuing Directors shall have the power to make a
F-5
<PAGE> 168
good faith determination, on the basis of information known to them, of: (i) the
number of shares of Voting Stock of which any person is the Beneficial Owner,
(ii) whether a person is an Affiliate or Associate of another, (iii) whether a
person has an agreement, arrangement or understanding with another as to the
matters referred to in the definition of Beneficial Owner herein, (iv) whether
the assets subject to any Business Transaction constitute a Substantial Part,
(v) whether any Business Transaction is one in which a Related Person has an
interest (except proportionately as a shareholder), (vi) whether a Related
Person has, directly or indirectly, received the benefits or caused any of the
changes referred to in Section A (3) of this Article V, and (vii) such other
matters with respect to which a determination is required under this Article V.
D. FIDUCIARY DUTIES
Nothing contained in this Article V shall be construed to relieve any
Related Person from any fiduciary obligation imposed by law.
E. AMENDMENT
Notwithstanding any other provisions of these Articles of Incorporation or
the Bylaws of the Corporation (and notwithstanding that a lesser percentage may
be specified by law, these Articles of Incorporation or the Bylaws of the
Corporation), the provisions of this Article V may not be repealed or amended in
any respect, nor may any provision be adopted inconsistent with this Article V,
unless such action is approved by the affirmative vote of the holders of not
less than eighty percent (80%) of the Voting Stock.
ARTICLE VI
The number of directors of the Corporation shall be determined as specified
in the Bylaws of the Corporation. No shareholder of the Corporation shall have
any right to cumulate votes in the election of directors.
ARTICLE VII
A. PERSONAL LIABILITY OF DIRECTORS
A director of the Corporation shall not be personally liable to the
Corporation or its shareholders for monetary damages for conduct as a director,
except for liability (i) for any breach of the director's duty of loyalty to the
Corporation or its shareholders, (ii) for acts or omissions not in good faith or
which involve intentional misconduct or a knowing violation of law, (iii) for
any unlawful distribution under Oregon Revised Statutes Section 60.367, or (iv)
for any transaction from which the director derived an improper personal
benefit. Any repeal or amendment of this provision by the shareholders of the
Corporation shall be prospective only and shall not adversely affect any
limitation on the liability of a director of the Corporation existing at the
time of such repeal or amendment. In addition to the circumstances in which a
director of the Corporation is not liable as set forth in the foregoing
provisions, a director shall not be liable to the fullest extent permitted by
any provisions of the statutes of Oregon hereafter enacted that further limits
the liability of a director.
B. INDEMNIFICATION
(1) Each person who was or is made a party to, or is threatened to be
made a party to, or is involved in any action, suit or proceeding, whether
civil, criminal, administrative or investigative (hereinafter a
"Proceeding"), by reason of the fact that he or she, or a person of which
he or she is the legal representative, is or was a director or officer, of
the Corporation or is or was serving at the request of the Corporation as a
director, officer, partner, trustee, employee or agent of another
corporation or of a partnership, joint venture, trust or other enterprise,
including service with respect to employee benefit plans, whether the basis
of such proceeding is alleged action in an official capacity as a director,
officer, partner, trustee, employee or agent or in any other capacity while
serving as a director, officer, partner, trustee, employee or agent, shall
be indemnified and held harmless by the Corporation to the fullest
F-6
<PAGE> 169
extent authorized by the Oregon Business Corporation Act, as the same
exists or may hereafter be amended (but, in the case of any such
amendments, only to the extent that such amendment permits the Corporation
to provide broader indemnification rights than said law permitted the
Corporation to provide prior to such amendment), against all expense,
liability and loss (including attorneys' fees, judgments, fines, ERISA
excise taxes or penalties and amounts paid or to be paid in settlement)
reasonably incurred or suffered by such person in connection therewith, and
such indemnification shall continue as to a person who has ceased to serve
in a capacity to which the above indemnification applies and shall inure to
the benefit of his or her heirs, executors and administrators; provided,
however, that, except as provided in paragraph (2) hereof, the Corporation
shall indemnify any such person seeking indemnification in connection with
a proceeding (or part thereof) initiated by such person only if such
proceeding (or part thereof) was authorized by the Board of Directors of
the Corporation. The right to indemnification conferred in this Section
shall be a contract right and shall include the right to be paid by the
Corporation for expenses incurred in defending any such proceeding in
advance of its final disposition; provided, however, that, if the Oregon
Business Corporation Act requires, the payment of such expenses incurred by
a director or officer in his or her capacity as a director or officer (and
not in any other capacity in which service was or is rendered by such
person while a director or officer, including, without limitation, service
to an employee benefit plan) in advance of the final disposition of the
proceeding, shall be made only upon delivery to the Corporation of a
written affirmation of the director or officer's good faith belief that
such director has met the standard of conduct described in Oregon Revised
Statutes Section 60.391 and of an undertaking, by or on behalf of such
director or officer, to repay all amounts so advanced if it shall
ultimately to be determined that such director or officer is not entitled
to be indemnified under this Section or otherwise. The Corporation may, by
action of its Board of Directors, provide indemnification to employees and
agents of the Corporation not covered by the foregoing with the same scope
and effect as the foregoing indemnification of directors and officers.
(2) If a claim under paragraph B (1) of this Article VII is not paid
in full by the Corporation within thirty days after a written claim has
been received by the Corporation, the claimant may at any time thereafter
bring suit against the Corporation to recover the unpaid amount of the
claim and, if successful in whole or in part, the claimant shall be
entitled to be paid also the expense of prosecuting such claim. It shall be
a defense to any such action (other than an action brought to enforce a
claim for expenses incurred in defending any proceeding in advance of its
final disposition where the required undertaking, if any is required, has
been tendered to the Corporation) that the claimant has not met the
standards of conduct which make it permissible under the Oregon Business
Corporation Act for the Corporation to indemnify the claimant for the
amount claimed, but the burden of proving such defense shall be on the
Corporation. Neither the failure of the Corporation (including its Board of
Directors, independent legal counsel, or its shareholders) to have made a
determination prior to the commencement of such action that indemnification
of the claimant is proper in the circumstances because he or she has met
the applicable standard of conduct set forth in the Oregon Business
Corporation Act, nor an actual determination by the Corporation (including
its Board of Directors, independent legal counsel, or its shareholders)
that the claimant has not met such applicable standard of conduct, shall be
a defense to the action or create a presumption that the claimant has not
met the applicable standard of conduct.
(3) The right to indemnification and the payment of expenses incurred
in defending a proceeding in advance of its final disposition conferred in
this Section shall not be exclusive of any other right which any person may
have or hereafter acquire under any statute, provision of the Articles of
Incorporation, bylaw, agreement, vote of shareholders or disinterested
directors or otherwise.
(4) The Corporation may maintain insurance, at its expense, to protect
itself and any director, officer, employee or agent of the Corporation or
another corporation, partnership, joint venture, trust or other enterprise
against any such expense, liability or loss, whether or not the Corporation
would have the power to indemnify such person against such expense,
liability or loss under the Oregon Business Corporation Act.
F-7
<PAGE> 170
ARTICLE VIII
The provisions of the Oregon Control Share Act (Oregon Revised Statutes
Sections 60.801-60.816) shall not be applicable to acquisitions of voting shares
of the Corporation.
ARTICLE IX
The Corporation shall have the right, subject to any express provisions or
restrictions contained in the Articles of Incorporation or Bylaws of the
Corporation, from time to time, to amend the Articles of Incorporation or any
provision thereof in any manner now or hereafter provided by law, and all rights
and powers of any kind conferred upon a shareholder of the Corporation by the
Articles of Incorporation or any amendment thereof are conferred subject to such
right.
F-8
<PAGE> 171
ANNEX G
FORM OF
STATEMENT OF RESOLUTIONS ESTABLISHING
A SERIES OF PREFERRED STOCK OF
ENRON OREGON CORP.
---------------------
CUMULATIVE SECOND PREFERRED CONVERTIBLE STOCK
---------------------
Pursuant to Oregon Revised Statutes Section 60.134 and Article IV of the
Articles of Incorporation, as amended, of Enron Oregon Corp. (the
"Corporation"), the Board of Directors of the Corporation has duly adopted the
following resolutions on , 199 , establishing a series of Preferred
Stock of the Corporation:
RESOLVED, that there is hereby established a series of the Preferred Stock
of the Corporation designated the Cumulative Second Preferred Convertible Stock
(herein referred to as the "Convertible Preferred Stock"). The designation and
number of shares of such series and the powers, preferences and relative,
participating, optional or other special rights, and the qualifications,
limitations and restrictions thereof (in addition to those set forth in the
Articles of Incorporation, as amended, that may be applicable to such series)
are as follows:
A. Definitions. Capitalized terms used but not defined herein shall have
the meaning ascribed thereto in the Corporation's Articles of Incorporation, as
amended. In addition, the following terms shall have the following meanings when
used herein:
(1) The term "accrued dividends" for a share shall mean an amount
computed at the annual dividend rate on such share from the date on which
dividends on such share become cumulative to and including the date to
which such dividends are to be accrued, less the aggregate amount of all
dividends theretofore paid thereon.
(2) The term "junior stock" shall mean, with respect to paragraphs C
and G, the Common Stock and any other class or series of stock of the
Corporation not entitled to receive any dividends unless all dividends
required to have been paid or declared and set apart for payment on the
Convertible Preferred Stock shall have been so paid or declared and set
apart for payment and, with respect to paragraphs D and G, any class or
series of stock of the Corporation not entitled to receive any assets upon
the liquidation, dissolution or winding up of the affairs of the
Corporation until the Convertible Preferred Stock shall have received the
entire amount to which such stock is entitled upon such liquidation,
dissolution or winding up.
(3) The term "parity stock" (and references to shares ranking "on a
parity with" the Convertible Preferred Stock) shall refer to, with respect
to paragraphs C and G, any class or series of stock of the Corporation
entitled to receive payment of dividends on a parity with the Convertible
Preferred Stock and, with respect to paragraphs D and G, any class or
series of stock of the Corporation entitled to receive assets upon the
liquidation, dissolution or winding up of the affairs of the Corporation on
a parity with the Convertible Preferred Stock. The Corporation's 9.142%
Perpetual Second Preferred Stock shall be parity stock with respect to the
Convertible Preferred Stock.
(4) The term "senior stock" (and references to shares ranking "senior
to" or "prior to" the Convertible Preferred Stock) shall refer to, with
respect to paragraph C, any class or series of stock of the Corporation
ranking senior to the Convertible Preferred Stock in respect of the right
to receive dividends
G-1
<PAGE> 172
and, with respect to paragraph D, any class or series of stock of the
Corporation ranking senior to the Convertible Preferred Stock with respect
to the right to receive assets upon the liquidation, dissolution or winding
up of the affairs of the Corporation.
(5) The term "sinking fund" shall mean any fund or requirement for the
periodic retirement of shares.
B. Designation. The distinctive designation of the series shall be the
"Cumulative Second Preferred Convertible Stock." The number of shares that shall
constitute such series shall be [1,371,879](1) shares, which number shall not
be increased.
C. Dividends.
(1) The holders of the Convertible Preferred Stock, in preference to
the rights of holders of any junior stock but subject to the rights of any
senior stock, shall be entitled to receive, as and when declared by the
Board of Directors out of any funds legally available therefor, cash
dividends, at an annual rate equal to a variable amount equal to the higher
of (a) $10.50 per share and (b) the equivalent dividend that would be paid
if shares of the Convertible Preferred Stock were converted to Common
Stock, and no more, payable quarterly on the first days of January, April,
July and October, respectively, in each year, with respect to the quarterly
period ending on the day preceding each such respective payment date,
except that the first dividend after the issuance of shares of Convertible
Preferred Stock pursuant to the merger of Enron Corp., a Delaware
corporation ("Old Enron"), with and into the Corporation, shall be paid in
respect of the period from the end of the last quarterly dividend period on
shares of the Cumulative Second Preferred Convertible Stock of Old Enron
for which dividends were paid in full (the "Initial Dividend Period"). Such
dividends shall be cumulative from and shall accrue on all shares of the
Convertible Preferred Stock from the beginning of the Initial Dividend
Period.
(2) No dividend shall be paid upon, or declared or set apart for, any
share of Convertible Preferred Stock or shares ranking on parity with the
Convertible Preferred Stock for any quarterly dividend period unless at the
same time a like proportionate dividend for the same quarterly dividend
period, ratably in proportion to the respective annual dividend rates fixed
therefor, shall be paid upon, or declared and set apart for, all shares of
Convertible Preferred Stock and any Preferred Stock ranking on parity with
the Convertible Preferred Stock that are entitled to such dividends.
(3) In no event, so long as any shares of Convertible Preferred Stock
shall be outstanding, shall any dividend, whether in cash or property, be
paid or declared, nor shall any distribution be made, on any junior stock,
nor shall any shares of any junior stock be purchased, redeemed or
otherwise acquired for value by the Corporation, nor shall the Corporation
permit any distribution to be made or shares purchased, redeemed or
otherwise acquired by any subsidiary, unless all dividends on the
Convertible Preferred Stock for all past quarterly dividend periods and for
the then current quarterly period shall have been paid or declared and a
sum sufficient for the payment thereof set apart. The foregoing provisions
of this subparagraph (3) shall not, however, apply to a dividend payable in
any junior stock, or to the acquisition of shares of any junior stock in
exchange for, or through application of the proceeds of the sale of, shares
of any other junior stock.
D. Liquidation Preference.
In the event of any voluntary or involuntary liquidation, dissolution or
winding up of the affairs of the Corporation, then, before any distribution or
payments shall be made to the holders of any junior stock, but subject to the
rights of any senior stock or parity stock, the holders of the Convertible
Preferred Stock shall be entitled to be paid in full the amount of $100 per
share, together with accrued dividends to the date of such distribution or
payment, whether or not earned or declared. If such payment shall have been made
in full to the holders of the Convertible Preferred Stock (and senior and parity
stock), the remaining assets and funds of
- ---------------
(1) To be revised to reflect the appropriate number of shares at the time of
filing.
G-2
<PAGE> 173
the Corporation shall be distributed among the holders of the junior stock,
according to their respective rights and preferences and in each case according
to their respective shares. If, upon any liquidation, dissolution or winding up
of the affairs of the Corporation, the amounts so payable are not paid in full
to the holders of all outstanding shares of Convertible Preferred Stock and
parity stock, the holders of the Convertible Preferred Stock, together with
holders of parity stock, shall share ratably in any distribution of assets in
proportion to the full amounts to which they would otherwise be respectively
entitled. Neither the consolidation or merger of the Corporation, nor the sale,
lease or conveyance of all or a part of its assets, shall be deemed a
liquidation, dissolution or winding up of the affairs of the Corporation within
the meaning of the foregoing provisions of this paragraph D or paragraph G
hereof.
E. Redemption.
(1) Subject to the provisions of subparagraph G(2)(a)(iv), the
Corporation shall have the right to redeem any and all of the Convertible
Preferred Stock at any time at the redemption price of $100 per share,
together with accrued dividends to the date of distribution or payment,
whether or not earned or declared; provided, however, that the Corporation
shall not have the right to redeem any shares of the Convertible Preferred
Stock pursuant to this paragraph E unless the current market price per
Common Share (as defined in subparagraph F(4) below) has been for at least
30 consecutive Trading Days (as defined in subparagraph F(4) below) at
least 150% of the amount calculated by dividing $100 by the number of
Common Shares into which one share of the Convertible Preferred Stock is
then convertible pursuant to the provisions of paragraph F below.
(2) If less than all the outstanding shares of Convertible Preferred
Stock are to be redeemed, the shares to be redeemed shall be determined by
lot or pro rata in such manner as the Board of Directors may prescribe.
(3) Notice of every redemption of Convertible Preferred Stock shall be
mailed, addressed to the holders of record of the shares to be redeemed at
their respective addresses as they shall appear on the stock books of the
Corporation (but no failure to mail such notice or any defect therein or in
the mailing thereof shall affect the validity of the proceedings for such
redemption) and notice shall also be published at least once in one daily
newspaper printed in the English language and published and of general
circulation in the Borough of Manhattan, The City of New York, the first
publication and such mailing to be at least thirty days and not more than
sixty days prior to the date fixed for redemption.
(4) If notice of redemption shall have been duly published as may be
required herein and if, on or before the redemption date specified in the
notice, the redemption price, together with accrued dividends to the date
fixed for redemption, whether or not earned or declared, shall have been
set aside by the Corporation, separate and apart from its other funds, in
trust for the pro rata benefit of the holders of the shares so called for
redemption, so as to be and continue to be available therefor, then, from
and after the date of redemption so designated, notwithstanding that any
certificate for shares of Convertible Preferred Stock so called for
redemption shall not have been surrendered for cancellation, the shares
represented thereby shall no longer be deemed outstanding, the dividends
thereon shall cease to accumulate, and all rights with respect to the
shares of Convertible Preferred Stock so called for redemption shall
forthwith on the redemption date cease and terminate, except only the right
of the holders thereof to receive the redemption price of the shares so
redeemed, including accrued dividends to the redemption date, but without
interest.
(5) The Corporation may also, at any time prior to the redemption
date, deposit in trust, for the account of the holders of the Convertible
Preferred Stock to be redeemed, with a bank or trust company in good
standing, organized under the laws of the United States of America or of
the State of New York doing business in the Borough of Manhattan, The City
of New York having capital, surplus and undivided profits aggregating at
least Five Million Dollars ($5,000,000), designated in the notice of
redemption, the redemption price, together with accrued dividends to the
date fixed for redemption, whether or not earned or declared, and, unless
the notice of redemption herein provided for has previously been duly
mailed and published, deliver irrevocable written instructions directing
such bank or trust company, on behalf and at the expense of the
Corporation, to cause notice of redemption specifying the
G-3
<PAGE> 174
date of redemption to be duly mailed and publication of the notice to be
made as herein provided promptly upon receipt of such irrevocable
instructions. Upon such deposit in trust, either after due mailing and
publication of the notice of redemption or accompanied by irrevocable
instructions as provided above, notwithstanding that any certificate for
shares of Convertible Preferred Stock so called for redemption shall not
have been surrendered for cancellation, all shares of Convertible Preferred
Stock with respect to which the deposit shall have been made shall no
longer be deemed to be outstanding, and all rights with respect to such
shares of Convertible Preferred Stock shall forthwith cease and terminate
except only the right of the holders thereof to receive from such bank or
trust company, at any time after the time of the deposit, the redemption
price, including accrued dividends to the redemption date, whether or not
earned or declared, but without interest, of the shares so to be redeemed,
and the right to exercise, on or before the date fixed for redemption,
privileges of conversion or exchange, if any, not theretofore expiring.
(6) Any moneys deposited by the Corporation pursuant to this paragraph
E which shall not be required for the redemption because of the exercise of
any such right of conversion or exchange subsequent to the date of the
deposit shall be repaid to the Corporation forthwith. Any other moneys
deposited by the Corporation pursuant to this paragraph E and unclaimed at
the end of six years from the date fixed for redemption shall be repaid to
the Corporation upon its request expressed in a resolution of its Board of
Directors, after which repayment the holders of the shares so called for
redemption shall look only to the Corporation for the payment thereof.
F. Conversion Rights.
(1) Each share of the Convertible Preferred Stock shall be convertible
at any time at the option of the holder thereof into fully paid and
non-assessable shares of Common Stock (the "Common Shares") of the
Corporation at the conversion rate, determined as hereinafter provided, in
effect at the time of conversion. The rate at which Common Shares shall be
delivered upon conversion of shares of the Convertible Preferred Stock
(herein called the "Conversion Rate") shall be initially [13.652](2) Common
Shares for each share of Convertible Preferred Stock. The Conversion Rate
shall be subject to adjustment as provided for below. Upon conversion no
allowance or adjustment shall be made for dividends on either class of
stock.
(2) In order to convert shares of the Convertible Preferred Stock into
Common Shares, the holder thereof shall surrender at the office of any
transfer agent for the Convertible Preferred Stock the certificate or
certificates therefor, duly endorsed to the Corporation or in blank or
accompanied by appropriate instruments of transfer to the Corporation or in
blank, and give written notice to the Corporation at said office that he
elects to convert such shares. Shares of the Convertible Preferred Stock
shall be deemed to have been converted immediately prior to the close of
business on the date of surrender of such shares for conversion in
accordance with the foregoing provisions (the "Conversion Date"), and the
person or persons entitled to receive the Common Shares issuable upon such
conversion shall be treated for all purposes as the record holder or
holders of such Common Shares at such time. As promptly as practicable
after the Conversion Date, the Corporation shall issue and deliver at said
office the certificate or certificates for the number of full Common Shares
issuable upon such conversion, together with a cash payment in lieu of any
fraction of a Common Shares, as hereinafter provided, to the person or
persons entitled to receive the same or to the nominee or nominees of such
person or persons. In case shares of the Convertible Preferred Stock are
called for redemption pursuant to paragraph E, the right to convert such
shares shall cease and terminate at the close of business on the date fixed
for redemption unless default shall be made in the payment of the
redemption price.
(3) The Conversion Rate shall be adjusted from time to time as
follows:
(a) In case the Corporation shall (i) pay a dividend on its Common
Shares in other Common Shares, (ii) subdivide its outstanding Common
Shares, (iii) combine its outstanding Common
- ---------------
(2) To be updated to reflect the appropriate conversion rate at the time of
filing.
G-4
<PAGE> 175
shares into a smaller number of Common Shares, or (iv) issue by
reclassification of its Common Shares any other shares of the
Corporation (including in connection with a merger in which the
Corporation is a surviving corporation), the Conversion Rate in effect
at the time of the record date for such dividend or the effective date
of such subdivision, combination or reclassification shall be
proportionately adjusted so that the holder of each share of the
Convertible Preferred Stock converted after such time shall be entitled
to receive the aggregate number and kind of shares which, if such share
of the Convertible Preferred Stock had been converted immediately prior
to such time, the holder would have owned upon such conversion and been
entitled to receive by virtue of such dividend, subdivision, combination
or reclassification. Such adjustment shall be made successively whenever
any of the events listed above shall occur.
(b) In case the Corporation shall issue rights or warrants to the
holders of its Common Shares as such entitling them (for a period
expiring within 45 days after the record date for determination of the
shareholders entitled to receive such rights or warrants) to subscribe
for or purchase Common Shares at a price per share less than the current
market price per share (as defined in subparagraph F(4) below) on such
record date, then in each such case the Conversion Rate shall be
adjusted by multiplying the Conversion Rate in effect immediately prior
to such record date by a fraction, of which the numerator shall be the
number of Common Shares outstanding on the date of issuance of such
rights or warrants plus the number of additional Common Shares offered
for subscription or purchase, and of which the denominator shall be the
number of Common Shares outstanding on the date of issuance of such
rights or warrants plus the number of Common Shares which the aggregate
offering price of the total number of shares so offered would purchase
at such current market price. For the purposes of this clause (b), the
issuance of rights or warrants to subscribe for or purchase securities
convertible into Common Shares shall be deemed to be the issuance of
rights or warrants to purchase the Common Shares into which such
securities are convertible at an aggregate offering price equal to the
aggregate offering price of such securities plus the minimum aggregate
amount (if any) payable upon conversion of such securities into Common
Shares. Such adjustment shall be made whenever any such rights or
warrants are issued, and shall become effective retroactively with
respect to conversions made subsequent to the record date for the
determination of shareholders entitled to receive such rights or
warrants.
(c) In case the Corporation shall distribute to holders of its
Common Shares (including any such distribution made pursuant to a merger
or consolidation in which the Corporation is the surviving corporation)
any assets (excluding cash distributions after the Effective Time of the
Merger, as such terms are defined in the Agreement and Plan of Merger,
dated as of April 12, 1983 among Old Enron, I N Holdings, Inc. and Belco
Petroleum Corporation (the "Effective Time") not exceeding (i) the
aggregate net earning of the Corporation and its subsidiaries on a
consolidated basis after such date determined in accordance with sound
accounting principles less (ii) dividends paid after such date on shares
other than Common Shares), rights to subscribe or warrants (excluding
those referred to in clause (b) above), evidences of its indebtedness or
other securities of the Corporation (other than Common Shares) then in
each such case the Conversion Rate shall be adjusted by multiplying the
Conversion Rate in effect immediately prior to the record date for
determination of shareholders entitled to receive such distribution by a
fraction, of which the numerator shall be the current market price per
Common Share (as defined in subparagraph F(4) below) on such record
date, and of which the denominator shall be such current market price
per Common Share less the fair value (as determined by a resolution of
the Board of Directors of the Corporation, after consultation with its
investment bankers, filed with each transfer agent for the Convertible
Preferred Stock, which determination shall be conclusive), of the
portion of the assets, rights to subscribe or warrants, evidences of its
indebtedness or other securities so to be distributed applicable to one
Common Share. Such adjustment shall be made whenever any such
distribution is made, and shall become effective retroactively with
respect to conversions made subsequent to the record date for the
determination of shareholders entitled to receive such distribution.
G-5
<PAGE> 176
(4) For the purpose of any computation under subparagraph (3) above,
the current market price per Common Share on any date shall be deemed to be
the average of the daily Closing Prices for 30 consecutive Trading Days
selected by the Corporation commencing not more than 45 Trading Days before
the date in question. The term "Closing Price" on any day shall mean the
reported last sale price per Common Share regular way on such day or, in
case no such sale takes place on such date, the average of the reported
closing bid and asked prices regular way, in each case on the Composite
Tape, or, if the Common Shares are not listed or admitted to trading on the
New York Stock Exchange, on the American Stock Exchange, or, if the Common
Shares are not listed or admitted to trading on the American Stock
Exchange, on the principal national securities exchange on which the Common
Shares are listed or admitted to trading, or, if the Common Shares are not
listed or admitted to trading on any national securities exchange, the
average of the closing bid and asked prices in the over-the-counter market
as reported by the National Association of Securities Dealers' Automated
Quotation system, or, if not so reported, as reported by the National
Quotation Bureau, Incorporated, or any successor thereof, or, if not so
reported, the average of the closing bid and asked prices as furnished by
any member of the National Association of Securities Dealers, Inc. selected
from time to time by the Corporation for that purpose; and the term
"Trading Day" shall mean a day on which the principal national securities
exchange on which the Common Shares are listed or admitted to trading is
open for the transaction of business or, if the Common Shares are not
listed or admitted to trading on any national securities exchange, a
Monday, Tuesday, Wednesday, Thursday or Friday on which banking
institutions in the Borough of Manhattan, City and State of New York are
not authorized or obligated by law or executive order to close.
(5) No adjustment in the Conversion Rate shall be required unless such
adjustment (plus any adjustments not previously made by reason of this
subparagraph (5)) would require an increase or decrease of at least 1% in
the number of Common Shares into which each share of the Convertible
Preferred Stock is then convertible; provided, however, that any
adjustments which by reason of this subparagraph (5) are not required to be
made shall be carried forward and taken into account in any subsequent
adjustment. All calculations under this paragraph F shall be made to the
nearest one-thousandth of a share.
(6) The Board of Directors may make such adjustments in the Conversion
Rate, in addition to those required by this paragraph F, as shall be
determined by the Board, as evidenced by a Board resolution, to be
advisable in order to avoid taxation so far as practicable of any dividend
of stock or stock rights or any event treated as such for Federal income
tax purposes to the recipients. The Board shall have the power to resolve
any ambiguity or correct any error in this paragraph F and its action in so
doing, as evidenced by the Board resolution, shall be final and conclusive.
(7) In any case of any reclassification of Common Shares (other than a
reclassification of the Common Shares referred to in subparagraph 3(a)
hereof), any consolidation or merger of the Corporation with or into
another corporation or any sale or conveyance to another corporation (other
than a wholly-owned subsidiary of the Corporation) of all or substantially
all of the property of the Corporation, the holder of a share of the
Convertible Preferred Stock shall have the right thereafter to convert such
share into the kind and amount of shares of stock and other securities and
property receivable upon such consolidation, merger, sale or conveyance by
a holder of the number of Common Shares into which such share of the
Convertible Preferred Stock might have been converted immediately prior to
such consolidation, merger, sale or conveyance and shall have no other
conversion rights with regard to such share of Convertible Preferred Stock.
In the event of such a reclassification, consolidation, merger, sale or
conveyance, effective provision shall be made in the certificate of
incorporation of the resulting or surviving corporation or otherwise so
that the conversion rate applicable to any stock or other securities or
property into which the shares of the Convertible Preferred Stock shall
then be convertible shall be subject to adjustment from time to time in a
manner and on terms as nearly equivalent as practicable to the provisions
with respect to the Common Shares contained in clauses (a) to (c) of
subparagraph (3) inclusive, above, and the other provisions of this
paragraph F with respect to the
G-6
<PAGE> 177
Common Shares shall apply on terms as nearly equivalent as practicable to
any such other shares of stock and other securities and property
deliverable upon conversion of shares of Convertible Preferred Stock.
(8) In the event that any time, as a result of any adjustment made
pursuant to clause (a) of subparagraph (3) above, the holder of any shares
of the Convertible Preferred Stock thereafter surrendered for conversion
shall become entitled to receive any shares of capital stock of the
Corporation other than Common Shares, thereafter the number of such other
shares so receivable upon conversion of such shares of Convertible
Preferred Stock shall be subject to adjustment from time to time in a
manner and on terms as nearly equivalent as practicable to the provisions
with respect to the Common Shares contained in clauses (a) to (c) of
subparagraph (3) inclusive, above, and the other provisions of this
paragraph F with respect to the Common Shares shall apply on like terms to
any such other shares.
(9) Whenever any adjustments is required in the Common Shares into
which each share of Convertible Preferred Stock is convertible, the
Corporation shall forthwith (a) file with each transfer agent of the
Convertible Preferred Stock a statement describing in reasonable detail the
adjustment and the method of calculation used and (b) cause a copy of such
statement to be mailed to the holder of record of the Convertible Preferred
Stock as of the effective date of such adjustment.
(10) In Case:
(a) the Corporation shall declare a dividend (or any other
distribution) on its Common Shares other than a cash dividend or
distribution not exceeding (i) the aggregate net earnings of the
corporation and its subsidiaries on a consolidated basis after the
Effective Time determined in accordance with sound accounting principles
less (ii) dividends paid after such date on shares other than Common
Shares; or
(b) the Corporation shall authorize the granting to the holders of
its Common Shares of rights to subscribe for or purchase any shares of
capital stock of any class or of any other rights; or
(c) of any reclassification of the capital stock of the Corporation
(other than a subdivision or combination of its outstanding shares of
Common Shares), or of any consolidation or merger to which the
Corporation is a party and for which approval of any shareholders of the
Corporation is required, or of the sale or transfer of all or
substantially all of the assets of the Corporation, or of the voluntary
or involuntary dissolution, liquidation or winding up of the
Corporation; or
(d) the Corporation proposes to take any other action that would
require an adjustment of the Conversion Rate;
then the Corporation shall cause to be mailed to each transfer agent for
the Convertible Preferred Stock and to the holders of record of the
outstanding shares of the Convertible Preferred Stock, at least 20 days (or
10 days in any case specified in clauses (a) or (b) above) prior to the
applicable record date hereinafter specified, a notice stating (x) the date
on which a record is to be taken for the purposes of such dividend,
distribution or rights, or, if a record is not to be taken, the date as of
which the holders of Common Shares of record to be entitled to such
dividend, distribution or rights are to be determined, or (y) the date on
which such reclassification, consolidation, merger, sale, transfer,
dissolution, liquidation, winding up or other action is expected to become
effective, and the date as of which it is expected that holders of Common
Shares of record shall be entitled to exchange their shares of Common
Shares for securities or other property deliverable upon such
reclassification, consolidation, merger, sale, transfer, dissolution,
liquidation, winding up or other action.
(11) The Corporation shall at all times reserve and keep available out
of its authorized but unissued Common Shares, for the purpose of issuance
upon conversion of the Convertible Preferred Stock, the full number of
Common Shares then issuable upon the conversion of all shares of the
Convertible Preferred Stock then outstanding.
(12) The Corporation will pay any and all taxes that may be payable in
respect of the issuance or delivery of Common Shares on conversion of
shares of the Convertible Preferred Stock pursuant hereto. The Corporation
shall not, however, be required to pay any tax which may be payable in
respect of any
G-7
<PAGE> 178
transfer involving issue and delivery of Common Shares in the name other
than that in which the shares of Convertible Preferred Stock so converted
were registered and no such issue and delivery shall be made unless and
until the person requesting such issue has paid to the Corporation the
amount of any such tax, or has established, to the satisfaction of the
Corporation, that such tax has been paid.
(13) For the purpose of this paragraph F, the term "Common Shares"
shall include any shares of the Corporation of any class or series which
has no preference or priority in the payment of dividends or in the
distribution of assets upon any voluntary or involuntary liquidation,
dissolution or winding up of the Corporation and which is not subject to
redemption by the Corporation. However, Common Shares issuable upon
conversion of the Convertible Preferred Stock shall include only shares of
the class designated as Common Shares as of the original date of issuance
of the Convertible Preferred Stock, or shares of the Corporation of any
classes or series resulting from any reclassification or reclassifications
thereof and which have no preference or priority in the payment of
dividends or in the distribution of assets upon any voluntary or
involuntary liquidation, dissolution or winding up of the Corporation and
which are not subject to redemption by the Corporation, provided that if at
any time there shall be more than one such resulting class or series, the
shares of such class and series then so issuable shall be substantially in
the proportion which the total number of shares of such class and series
resulting from all such reclassifications bears to the total number of
shares of all such classes and series resulting from all such
reclassifications.
(14) No fractional shares or scrip representing fractional shares
shall be issued upon the conversion of the Convertible Preferred Stock. If
any such conversion would otherwise require the issuance of a fractional
share, an amount equal to such fraction multiplied by the Closing Price
(determined as provided in subparagraph F(4) above) of the Common Shares on
the date of conversion shall be paid to the holder in cash by the
Corporation. If on such date there is no Closing Price, the fair value of a
Common Share on such date, as determined by the Board of Directors, shall
be used.
(15) The certificate of any independent firm of public accountants of
recognized standing selected by the Board of Directors shall be presumptive
evidence of the correctness of any computation made under this paragraph F.
(16) All shares of the Convertible Preferred Stock purchased or
otherwise acquired by the Corporation (including shares surrendered for
conversion) shall be canceled and thereupon restored to the status of
authorized by unissued shares of Preferred Stock undesignated as to series.
G. Voting Rights. The holders of Convertible Preferred Stock shall have no
right to vote except as otherwise specifically provided herein, in the Articles
of Incorporation, as amended, of the Corporation, or by statute:
(1) In addition to the voting rights set forth below, the holders of
shares of Convertible Preferred Stock shall vote together with the holders
of the Common Shares (and of any other securities which may similarly be
entitled to vote with the holders of the Common Shares) as a single class
upon all matters upon which shareholders are entitled to vote and, when so
voting, shall be entitled to a number of votes per share equal to the
Conversion Rate in effect on the record date of the determination of
shareholders entitled to notice of, and to vote at, such meeting.
(2) So long as any shares of Convertible Preferred Stock are
outstanding, in addition to any other vote or consent of shareholders
required in the Articles of Incorporation or by law:
(a) The consent of the holders of at least two-thirds of the
Convertible Preferred Stock and all other shares of parity stock at the
time outstanding that would be affected similarly by the action
described in clauses (i)-(iv) below and that are entitled to vote on
such matter, given in person or by proxy, either in writing without a
meeting (if permitted by law) or by vote at any meeting called for the
purpose, shall be necessary for effecting or validating:
(i) any amendment, alteration or repeal of any of the provisions
of the Articles of Incorporation or the Bylaws of the Corporation,
which affects adversely the voting powers,
G-8
<PAGE> 179
rights or preferences of the holders of the Convertible Preferred
Stock or reduces the time for any notice to which the holders of the
Convertible Preferred Stock may be entitled; provided, that the
amendment of the provisions of the Articles of Incorporation so as to
authorize or create, or to increase the authorized amount of any
junior stock shall not be deemed to affect adversely the voting
powers, rights or preferences of the holders of the Convertible
Preferred Stock;
(ii) the authorization, creation or issuance of, or the increase
in the authorized amount of, any stock of any class or series or any
security convertible into stock of any class or series, ranking prior
to the Convertible Preferred Stock;
(iii) the voluntary dissolution, liquidation or winding up of
the affairs of the Corporation, or the sale, lease or conveyance by
the Corporation of all or substantially all of its property or
assets; or
(iv) the purchase or redemption (for sinking fund purposes or
otherwise) of less than all of the Convertible Preferred Stock and
other parity stock at the time outstanding unless the full dividends
on all shares of Convertible Preferred Stock then outstanding shall
have been paid or declared and a sum sufficient for payment thereof
set apart.
(b) The consent of the holders of at least a majority of the
Convertible Preferred Stock and all other shares of parity stock at the
time outstanding that would be affected similarly by the action
described in clauses (i) or (ii) below and that are entitled to vote on
such matter, given in person or by proxy, either in writing without a
meeting (if permitted by law) or by vote at any meeting called for the
purpose, shall be necessary for effecting or validating:
(i) the authorization, creation or issuance of, or the increase
in the authorized amount of, any stock of any class or series or any
security convertible into stock of any class or series, ranking on a
parity with the Convertible Preferred Stock; provided that no such
consent shall be required for the authorization, creation or issuance
by the Corporation of up to a number of shares of one or more series
of Preferred Stock ranking on parity with the Convertible Preferred
Stock that, when added to the number of shares of Convertible
Preferred Stock and other Preferred Stock ranking on parity with the
Convertible Preferred Stock then outstanding, equals 5,000,000; or
(ii) the merger or consolidation of the Corporation with or into
any other corporation, unless the corporation resulting from such
merger or consolidation will have after such merger or consolidation
no class of stock and no other securities either authorized or
outstanding ranking prior to or on a parity with the Convertible
Preferred Stock, except the same number of shares of stock and the
same amount of other securities with the same rights and preferences
as the stock and securities of the Corporation respectively
authorized and outstanding immediately preceding such merger or
consolidation, and each holder of Convertible Preferred Stock
immediately preceding such merger or consolidation shall receive the
same number of shares, with the same rights and preferences, of the
resulting corporation.
(c) Notwithstanding the provisions of subparagraphs (a) or (b)
above, no such consent of the holders of the Convertible Preferred Stock
shall be required if, at or prior to the time when such amendment,
alteration or repeal is to take effect or when the issuance of any such
prior or parity stock or convertible security is to be made, or when
such consolidation or merger, voluntary liquidation, dissolution or
winding up, sale, lease, conveyance, purchase or redemption is to take
effect, as the case may be, provision is to be made for the redemption
of all shares of Convertible Preferred Stock at the time outstanding.
(3) (a) If, at any time, dividends payable on the Convertible
Preferred Stock shall be in default in an amount equivalent to six full
quarterly dividends, then the holders of the Convertible Preferred Stock,
voting separately as a class together with the holders of all other parity
stock having the then present right to elect one or more directors as a
result of a dividend arrearage (herein referred to as "Class Voting
G-9
<PAGE> 180
Stock"), shall be entitled to elect two directors of the Corporation. When
all such dividends in default shall have been so paid or funds sufficient
therefor deposited in trust (and such dividends in default shall be so paid
as soon as lawful and reasonably practicable out of any assets of the
Corporation available therefor), the holders of the Convertible Preferred
Stock shall be divested of such voting rights, but subject always to the
same provisions for the vesting of such voting rights in the holders of the
Convertible Preferred Stock in the case of any future such dividend default
or defaults.
(b) The foregoing right of the holders of the Convertible Preferred
Stock with respect to the election of directors of the Corporation may
be exercised at any annual meeting of shareholders or, within the
limitations hereinafter provided, at a special meeting of shareholders
held for such purpose. If the date upon which such right of the holders
of the Convertible Preferred Stock shall become vested shall be more
than ninety days preceding the date of the next ensuing annual meeting
of shareholders as fixed by the Bylaws of the Corporation, the President
of the Corporation shall, within ten days after delivery to the
Corporation at its principal office of a request to such effect signed
by the holders of at least five percent (5%) of the Convertible
Preferred Stock then outstanding, call a special meeting of shareholders
to be held within forty days after the delivery of such request for the
purpose of electing a new Board of Directors to serve until the next
annual meeting and until their successors shall be elected and shall
qualify. Notice of such meeting shall be mailed to each shareholder
entitled to vote thereat not less than ten days prior to the date of
such meeting. The term of office of all directors of the Corporation
shall terminate at the time of any such meeting held for the purpose of
electing a new Board of Directors, notwithstanding that the term for
which such directors had been elected shall not then have expired. In
the event that at any such meeting at which holders of the Convertible
Preferred Stock (and other Class Voting Stock) shall be entitled to
elect two directors, a quorum of the holders of such Class Voting Stock
shall not be present in person or by proxy, the holders of the Common
Stock, if a quorum thereof be present, may temporarily elect the
directors whom the holders of the Class Voting Stock were entitled but
failed to elect, such directors to be designated as having been so
elected and their term of office to expire at such time thereafter as
their successors shall be elected by the holders of the Class Voting
Stock as herein provided.
(c) Whenever the holders of Convertible Preferred Stock (and any
Class Voting Stock) shall be entitled to elect two directors, any holder
of such Convertible Preferred Stock shall have the right, during regular
business hours, in person or by duly authorized representative, to
examine and to make transcripts of the stock records of the Corporation
for the Convertible Preferred Stock for the purpose of communicating
with other holders of such Convertible Preferred Stock with respect to
the exercise of such right of election.
(d) Whenever the holders of Convertible Preferred Stock (and other
Class Voting Stock) shall be divested of any voting right pursuant to
this paragraph G(3), the President of the Corporation shall, within ten
days after delivery to the Corporation at its principal office of a
request to such effect signed by any holder of Common Stock, call a
special meeting of the holders of shares of stock entitled to vote at
such meeting to be held within forty days after the delivery of such
request for the purpose of electing a new Board of Directors to serve
until the next annual meeting or until their respective successors shall
be elected and shall qualify. If, at any such special meeting, any
director shall not be reelected, his term of office shall terminate upon
the election and qualification of his successor, notwithstanding that
the term for which such director was originally elected shall not then
have expired.
(e) At any annual or special meeting of shareholders held for the
purpose of electing directors when the holders of the Convertible
Preferred Stock (and Class Voting Stock) shall be entitled to elect two
directors, the presence in person or by proxy of the holders of
one-third of the outstanding shares of the Convertible Preferred Stock
and Class Voting Stock shall be required to constitute a quorum for the
election by such class of such two directors, and the presence in person
or by proxy of the holders of a majority of the outstanding shares of
the Common Stock shall be required to constitute a quorum for the
election by such class of the directors which that class is entitled to
elect
G-10
<PAGE> 181
or for the election temporarily by such class as herein provided of the
members of the Board of Directors whom the holders of the Convertible
Preferred Stock (and other Class Voting Stock) cannot at the time for
the want of a quorum elect; provided, however, that the majority of the
holders of either such class of stock who are present in person or by
proxy shall have power to adjourn such meeting for the election of
directors by such class from time to time without notice other than
announcement at the meeting. No delay or failure by the holders of any
class of stock to elect the members of the Board of Directors whom such
holders are entitled to elect shall invalidate the election of the
remaining members of the Board of Directors by the holders of any class
of stock. At any such election of directors by the holders of shares of
Convertible Preferred Stock and any other Class Voting Stock, each such
holder shall have one vote for each share of such stock standing in his
name on the books of the Corporation on any record date fixed for such
purpose or, if no such date be fixed, on the date on which the election
is held.
(f) If, during any interval between annual meetings of shareholders
for the election of directors and while the holders of the Convertible
Preferred Stock (and any other Class Voting Stock) shall be entitled to
elect two directors, the numbers of directors in office who have been
elected by the holders of shares of such class of stock shall, by reason
of resignation, death or removal, be less than the total number of
directors subject to election by the holders of shares of such class,
(i) the vacancy or vacancies in the directors elected by the holders of
shares of that class shall be filled by a majority vote of the remaining
directors then in office who were elected by such class or succeeded to
directors so elected, although such majority be less than a quorum, or,
if there shall be only one such remaining director, shall be filled by
the directors then in office upon nomination of the remaining director
elected by the holders of the shares of that class or his successor and
(ii) if not so filled within forty days after the creation thereof, the
President of the Corporation shall call a special meeting of the holders
of shares of such class and such vacancy or vacancies shall be filled at
such special meeting.
(g) Any director elected by the holders of Convertible Preferred
Stock and other Class Voting Stock may be removed from office by vote of
the holders of a majority of the shares of the class of stock by which
his successor would be elected. A special meeting of the holders of
shares of such class 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 Corporation shall, in
any event, within ten days after delivery to the Corporation at its
principal office of a request to such effect signed by the holders of at
least five percent (5%) of the outstanding shares of such class, call a
special meeting for such purpose to be held within forty days after the
delivery of such request.
(4) Holders of Convertible Preferred Stock shall not be entitled to
receive notice of any meeting of shareholders at which they are not
entitled to vote or consent.
H. Retired Shares. All shares of Convertible Preferred Stock purchased or
otherwise acquired by the Corporation shall be canceled and thereupon restored
to the status of authorized but unissued shares of Preferred Stock, undesignated
as to series.
I. Other Rights. Shares of Convertible Preferred Stock shall not have any
relative, participating, optional or other special rights or powers other than
as set forth herein or in the Articles of Incorporation, as amended.
G-11
<PAGE> 182
ANNEX H
FORM OF
STATEMENT OF RESOLUTIONS ESTABLISHING
A SERIES OF PREFERRED STOCK OF
ENRON OREGON CORP.
---------------------
9.142% PERPETUAL SECOND PREFERRED STOCK
---------------------
Pursuant to Oregon Revised Statutes Section 60.134 and Article IV of the
Articles of Incorporation, as amended, of Enron Oregon Corp. (the
"Corporation"), the Board of Directors of the Corporation has duly adopted the
following resolutions on , 199 , establishing a series of
Preferred Stock of the Corporation:
RESOLVED, that there is hereby established a series of the Preferred Stock
of the Corporation designated the 9.142% Perpetual Second Preferred Stock
(herein referred to as the "9.142% Preferred Stock"). The designation and number
of shares of such series and the powers, preferences and relative,
participating, optional or other special rights, and the qualifications,
limitations and restrictions thereof (in addition to those set forth in the
Articles of Incorporation, as amended, that may be applicable to such series)
are as follows:
A. Definitions. Capitalized terms used but not defined herein shall have
the meaning ascribed thereto in the Corporation's Articles of Incorporation, as
amended. In addition, the following terms shall have the following meanings when
used herein:
(1) The term "accrued dividends" for a share shall mean an amount
computed at the annual dividend rate on such share from the date on which
dividends on such share become cumulative to and including the date to
which such dividends are to be accrued, less the aggregate amount of all
dividends theretofore paid thereon.
(2) The term "junior stock" shall mean, with respect to paragraphs C
and F, the Common Stock and any other class or series of stock of the
Corporation not entitled to receive any dividends unless all dividends
required to have been paid or declared and set apart for payment on the
9.142% Preferred Stock shall have been so paid or declared and set apart
for payment and, with respect to paragraphs D and F, any class or series of
stock of the Corporation not entitled to receive any assets upon the
liquidation, dissolution or winding up of the affairs of the Corporation
until the 9.142% Preferred Stock shall have received the entire amount to
which such stock is entitled upon such liquidation, dissolution or winding
up.
(3) The term "parity stock" (and references to shares ranking "on a
parity with" the 9.142% Preferred Stock) shall refer to, with respect to
paragraphs C and F, any class or series of stock of the Corporation
entitled to receive payment of dividends on a parity with the 9.142%
Preferred Stock and, with respect to paragraphs D and F, any class or
series of stock of the Corporation entitled to receive assets upon the
liquidation, dissolution or winding up of the affairs of the Corporation on
a parity with the 9.142% Preferred Stock. The Corporation's Cumulative
Second Preferred Convertible Stock shall be parity stock with respect to
the 9.142% Preferred Stock.
(4) The term "senior stock" (and references to shares ranking "senior
to" or "prior to" the 9.142% Preferred Stock) shall refer to, with respect
to paragraph C, any class or series of stock of the Corporation ranking
senior to the 9.142% Preferred Stock in respect of the right to receive
dividends and, with respect to paragraph D, any class or series of stock of
the Corporation ranking senior to the 9.142% Preferred Stock with respect
to the right to receive assets upon the liquidation, dissolution or winding
up of the affairs of the Corporation.
H-1
<PAGE> 183
(5) The term "sinking fund" shall mean any fund or requirement for the
periodic retirement of shares.
B. Designation. The distinctive designation of the series shall be the
"9.142% Perpetual Second Preferred Stock." The number of shares that shall
constitute such series shall be [35.568509](1) shares, which number shall not be
increased.
C. Dividends.
(1) The holders of the 9.142% Preferred Stock, in preference to the
rights of holders of any junior stock but subject to the rights of any
senior stock, shall be entitled to receive, as and when declared by the
Board of Directors out of any funds legally available therefor, cash
dividends, at an annual rate of $91,420 per share, and no more, payable
quarterly on the first days of January, April, July and October,
respectively, in each year, with respect to the quarterly period ending on
the day preceding each such respective payment date, except that the first
dividend after the issuance of shares of 9.142% Preferred Stock pursuant to
the merger of Enron Corp., a Delaware corporation ("Old Enron"), with and
into the Corporation, shall be paid in respect of the period from the end
of the last quarterly dividend period on shares of the 9.142% Perpetual
Second Preferred Stock of Old Enron for which dividends were paid in full
(the "Initial Dividend Period"). Such dividends shall be cumulative from
and shall accrue on all shares of the 9.142% Preferred Stock from the
beginning of the Initial Dividend Period.
(2) No dividend shall be paid upon, or declared or set apart for, any
share of 9.142% Preferred Stock or shares ranking on parity with the 9.142%
Preferred Stock for any quarterly dividend period unless at the same time a
like proportionate dividend for the same quarterly dividend period, ratably
in proportion to the respective annual dividend rates fixed therefor, shall
be paid upon, or declared and set apart for, all shares of 9.142% Preferred
Stock and any Preferred Stock ranking on parity with the 9.142% Preferred
Stock that are entitled to such dividends.
(3) In no event, so long as any shares of 9.142% Preferred Stock shall
be outstanding, shall any dividend, whether in cash or property, be paid or
declared, nor shall any distribution be made, on any junior stock, nor
shall any shares of any junior stock be purchased, redeemed or otherwise
acquired for value by the Corporation, nor shall the Corporation permit any
distribution to be made or shares purchased, redeemed or otherwise acquired
by any subsidiary, unless all dividends on the Convertible Preferred Stock
for all past quarterly dividend periods and for the then current quarterly
period shall have been paid or declared and a sum sufficient for the
payment thereof set apart. The foregoing provisions of this subparagraph
(3) shall not, however, apply to a dividend payable in any junior stock, or
to the acquisition of shares of any junior stock in exchange for, or
through application of the proceeds of the sale of, shares of any other
junior stock.
D. Liquidation Preference.
In the event of any voluntary or involuntary liquidation, dissolution or
winding up of the affairs of the Corporation, then, before any distribution or
payments shall be made to the holders of any junior stock, but subject to the
rights of any senior stock or parity stock, the holders of the 9.142% Preferred
Stock shall be entitled to be paid in full the amount of $1,000,000 per share,
together with accrued dividends to the date of such distribution or payment,
whether or not earned or declared. If such payment shall have been made in full
to the holders of the 9.142% Preferred Stock (and senior and parity stock), the
remaining assets and funds of the Corporation shall be distributed among the
holders of the junior stock, according to their respective rights and
preferences and in each case according to their respective shares. If, upon any
liquidation, dissolution or winding up of the affairs of the Corporation, the
amounts so payable are not paid in full to the holders of all outstanding shares
of 9.142% Preferred Stock and parity stock, the holders of the 9.142% Preferred
Stock, together with holders of parity stock, shall share ratably in any
distribution of assets in proportion to the full amounts to which they would
otherwise be respectively entitled. Neither the consolidation or merger of the
- ---------------
(1) To be revised to reflect the appropriate number of shares at the time of the
filing.
H-2
<PAGE> 184
Corporation, nor the sale, lease or conveyance of all or a part of its assets,
shall be deemed a liquidation, dissolution or winding up of the affairs of the
Corporation within the meaning of the foregoing provisions of this paragraph D
or paragraph F hereof.
E. Redemption.
The 9.142% Preferred Stock shall not be redeemable by the Corporation.
F. Voting Rights. The holders of 9.142% Preferred Stock shall have no right
to vote except as otherwise specifically provided herein, in the Articles of
Incorporation, as amended, of the Corporation, or by statute:
(1) So long as any shares of 9.142% Preferred Stock are outstanding,
in addition to any other vote or consent of shareholders required in the
Articles of Incorporation or by law:
(a) The consent of the holders of at least two-thirds of the 9.142%
Preferred Stock and all other shares of parity stock at the time
outstanding that would be affected similarly by the action described in
clauses (i)-(iv) below and that are entitled to vote on such matter,
given in person or by proxy, either in writing without a meeting (if
permitted by law) or by vote at any meeting called for the purpose,
shall be necessary for effecting or validating:
(i) any amendment, alteration or repeal of any of the provisions
of the Articles of Incorporation or the Bylaws of the Corporation,
which affects adversely the voting powers, rights or preferences of
the holders of the 9.142% Preferred Stock or reduces the time for any
notice to which the holders of the 9.142% Preferred Stock may be
entitled; provided, that the amendment of the provisions of the
Articles of Incorporation so as to authorize or create, or to
increase the authorized amount of any junior stock shall not be
deemed to affect adversely the voting powers, rights or preferences
of the holders of the 9.142% Preferred Stock;
(ii) the authorization, creation or issuance of, or the increase
in the authorized amount of, any stock of any class or series or any
security convertible into stock of any class or series, ranking prior
to the 9.142% Preferred Stock;
(iii) the voluntary dissolution, liquidation or winding up of
the affairs of the Corporation, or the sale, lease or conveyance by
the Corporation of all or substantially all of its property or
assets; or
(iv) the purchase or redemption (for sinking fund purposes or
otherwise) of less than all of the 9.142% Preferred Stock and other
parity stock at the time outstanding unless the full dividends on all
shares of 9.142% Preferred Stock then outstanding shall have been
paid or declared and a sum sufficient for payment thereof set apart.
(b) The consent of the holders of at least a majority of the 9.142%
Preferred Stock and all other shares of parity stock at the time
outstanding that would be affected similarly by the action described in
clauses (i) or (ii) below and that are entitled to vote on such matter,
given in person or by proxy, either in writing without a meeting (if
permitted by law) or by vote at any meeting called for the purpose,
shall be necessary for effecting or validating:
(i) the authorization, creation or issuance of, or the increase
in the authorized amount of, any stock of any class or series or any
security convertible into stock of any class or series, ranking on a
parity with the 9.142% Preferred Stock; provided that no such consent
shall be required for the authorization, creation or issuance by the
Corporation of up to a number of shares of one or more series of
Preferred Stock ranking on parity with the 9.142% Preferred Stock
that, when added to the number of shares of 9.142% Preferred Stock
and other Preferred Stock ranking on parity with the 9.142% Preferred
Stock then outstanding equals 5,000,000; or
(ii) the merger or consolidation of the Corporation with or into
any other corporation, unless the corporation resulting from such
merger or consolidation will have after such merger or consolidation
no class of stock and no other securities either authorized or
outstanding
H-3
<PAGE> 185
ranking prior to or on a parity with the 9.142% Preferred Stock,
except the same number of shares of stock and the same amount of
other securities with the same rights and preferences as the stock
and securities of the Corporation respectively authorized and
outstanding immediately preceding such merger or consolidation, and
each holder of 9.142% Preferred Stock immediately preceding such
merger or consolidation shall receive the same number of shares, with
the same rights and preferences, of the resulting corporation.
(c) Notwithstanding the provisions of subparagraphs (a) or (b)
above, no such consent of the holders of the 9.142% Preferred Stock
shall be required if, at or prior to the time when such amendment,
alteration or repeal is to take effect or when the issuance of any such
prior or parity stock or convertible security is to be made, or when
such consolidation or merger, voluntary liquidation, dissolution or
winding up, sale, lease, conveyance, purchase or redemption is to take
effect, as the case may be, provision is to be made for the redemption
of all shares of 9.142% Preferred Stock at the time outstanding.
(2) (a) If, at any time, dividends payable on the 9.142% Preferred
Stock shall be in default in an amount equivalent to six full quarterly
dividends, then the holders of the 9.142% Preferred Stock, voting
separately as a class together with the holders of all other parity stock
having the then present right to elect one or more directors as a result of
a dividend arrearage (herein referred to as "Class Voting Stock"), shall be
entitled to elect two directors of the Corporation. When all such dividends
in default shall have been so paid or funds sufficient therefor deposited
in trust (and such dividends in default shall be so paid as soon as lawful
and reasonably practicable out of any assets of the Corporation available
therefor), the holders of the 9.142% Preferred Stock shall be divested of
such voting rights, but subject always to the same provisions for the
vesting of such voting rights in the holders of the 9.142% Preferred Stock
in the case of any future such dividend default or defaults.
(b) The foregoing right of the holders of the 9.142% Preferred
Stock with respect to the election of directors of the Corporation may
be exercised at any annual meeting of shareholders or, within the
limitations hereinafter provided, at a special meeting of shareholders
held for such purpose. If the date upon which such right of the holders
of the 9.142% Preferred Stock shall become vested shall be more than
ninety days preceding the date of the next ensuing annual meeting of
shareholders as fixed by the Bylaws of the Corporation, the President of
the Corporation shall, within ten days after delivery to the Corporation
at its principal office of a request to such effect signed by the
holders of at least five percent (5%) of the 9.142% Preferred Stock then
outstanding, call a special meeting of shareholders to be held within
forty days after the delivery of such request for the purpose of
electing a new Board of Directors to serve until the next annual meeting
and until their successors shall be elected and shall qualify. Notice of
such meeting shall be mailed to each shareholder entitled to vote
thereat not less than ten days prior to the date of such meeting. The
term of office of all directors of the Corporation shall terminate at
the time of any such meeting held for the purpose of electing a new
Board of Directors, notwithstanding that the term for which such
directors had been elected shall not then have expired. In the event
that at any such meeting at which holders of the 9.142% Preferred Stock
(and other Class Voting Stock) shall be entitled to elect two directors,
a quorum of the holders of such Class Voting Stock shall not be present
in person or by proxy, the holders of the Common Stock, if a quorum
thereof be present, may temporarily elect the directors whom the holders
of the Class Voting Stock were entitled but failed to elect, such
directors to be designated as having been so elected and their term of
office to expire at such time thereafter as their successors shall be
elected by the holders of the Class Voting Stock as herein provided.
(c) Whenever the holders of 9.142% Preferred Stock (and any Class
Voting Stock) shall be entitled to elect two directors, any holder of
such 9.142% Preferred Stock shall have the right, during regular
business hours, in person or by duly authorized representative, to
examine and to make transcripts of the stock records of the Corporation
for the 9.142% Preferred Stock for the purpose of communicating with
other holders of such 9.142% Preferred Stock with respect to the
exercise of such right of election.
H-4
<PAGE> 186
(d) Whenever the holders of 9.142% Preferred Stock (and other Class
Voting Stock) shall be divested of any voting right pursuant to this
paragraph F(2), the President of the Corporation shall, within ten days
after delivery to the Corporation at its principal office of a request
to such effect signed by any holder of Common Stock, call a special
meeting of the holders of shares of stock entitled to vote at such
meeting to be held within forty days after the delivery of such request
for the purpose of electing a new Board of Directors to serve until the
next annual meeting or until their respective successors shall be
elected and shall qualify. If, at any such special meeting, any director
shall not be reelected, his term of office shall terminate upon the
election and qualification of his successor, notwithstanding that the
term for which such director was originally elected shall not then have
expired.
(e) At any annual or special meeting of shareholders held for the
purpose of electing directors when the holders of the 9.142% Preferred
Stock (and Class Voting Stock) shall be entitled to elect two directors,
the presence in person or by proxy of the holders of one-third of the
outstanding shares of the 9.142% Preferred Stock and Class Voting Stock
shall be required to constitute a quorum for the election by such class
of such two directors, and the presence in person or by proxy of the
holders of a majority of the outstanding shares of the Common Stock
shall be required to constitute a quorum for the election by such class
of the directors which that class is entitled to elect or for the
election temporarily by such class as herein provided of the members of
the Board of Directors whom the holders of the 9.142% Preferred Stock
(and other Class Voting Stock) cannot at the time for the want of a
quorum elect; provided, however, that the majority of the holders of
either such class of stock who are present in person or by proxy shall
have power to adjourn such meeting for the election of directors by such
class from time to time without notice other than announcement at the
meeting. No delay or failure by the holders of any class of stock to
elect the members of the Board of Directors whom such holders are
entitled to elect shall invalidate the election of the remaining members
of the Board of Directors by the holders of any class of stock. At any
such election of directors by the holders of shares of 9.142% Preferred
Stock and any other Class Voting Stock, each such holder shall have one
vote for each share of such stock standing in his name on the books of
the Corporation on any record date fixed for such purpose or, if no such
date be fixed, on the date on which the election is held.
(f) If, during any interval between annual meetings of shareholders
for the election of directors and while the holders of the 9.142%
Preferred Stock (and any other Class Voting Stock) shall be entitled to
elect two directors, the numbers of directors in office who have been
elected by the holders of shares of such class of stock shall, by reason
of resignation, death or removal, be less than the total number of
directors subject to election by the holders of shares of such class,
(i) the vacancy or vacancies in the directors elected by the holders of
shares of that class shall be filled by a majority vote of the remaining
directors then in office who were elected by such class or succeeded to
directors so elected, although such majority be less than a quorum, or,
if there shall be only one such remaining director, shall be filled by
the directors then in office upon nomination of the remaining director
elected by the holders of the shares of that class or his successor and
(ii) if not so filled within forty days after the creation thereof, the
President of the Corporation shall call a special meeting of the holders
of shares of such class and such vacancy or vacancies shall be filled at
such special meeting.
(g) Any director elected by the holders of 9.142% Preferred Stock
and other Class Voting Stock may be removed from office by vote of the
holders of a majority of the shares of the class of stock by which his
successor would be elected. A special meeting of the holders of shares
of such class 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 Corporation shall, in any event,
within ten days after delivery to the Corporation at its principal
office of a request to such effect signed by the holders of at least
five percent (5%) of the outstanding shares of such class, call a
special meeting for such purpose to be held within forty days after the
delivery of such request.
H-5
<PAGE> 187
(3) Holders of 9.142% Preferred Stock shall not be entitled to receive
notice of any meeting of shareholders at which they are not entitled to
vote or consent.
G. Retired Shares. All shares of 9.142% Preferred Stock purchased or
otherwise acquired by the Corporation shall be canceled and thereupon restored
to the status of authorized but unissued shares of Preferred Stock, undesignated
as to series.
H. Other Rights. Shares of 9.142% Preferred Stock shall not have any
relative, participating, optional or other special rights or powers other than
as set forth herein or in the Articles of Incorporation, as amended.
H-6
<PAGE> 188
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 20. INDEMNIFICATION OF DIRECTORS AND OFFICERS
The New Enron Charter contains provisions under which New Enron will
indemnify, to the fullest extent permitted by law, persons who are made a party
to an action or proceeding by virtue of the fact that the individual is or was a
director, officer, or, in certain circumstances, an employee or agent, of New
Enron or another corporation at New Enron's request. The OBCA generally permits
such indemnification to the extent that the individual acted in good faith and
in a manner which he reasonably believed to be in the best interest of or not
opposed to the corporation or, with respect to criminal matters, if the
individual had no reasonable cause to believe his or her conduct was unlawful.
In addition, the New Enron Charter contains a provision that eliminates the
personal liability of a director to the corporation or its shareholders for
monetary damages for conduct as a director, except for liability of a director
(i) for breach of the duty of loyalty, (ii) for actions or omissions not in good
faith or which involve intentional misconduct or a knowing violation of law,
(iii) for the payment of improper dividends or redemptions, or (iv) for any
transaction from which the director derived an improper personal benefit.
The Enron Charter contains provisions under which Enron will indemnify, to
the fullest extent permitted by law, persons who are made a party to an action
or proceeding by virtue of the fact that the individual is or was a director,
officer, or, in certain circumstances, an employee or agent of Enron or another
corporation at Enron's request. The DGCL generally permits such indemnification
to the extent that the individual acted in good faith and in a manner which he
reasonably believed to be in the best interest of or not opposed to the
corporation or, with respect to criminal matters, if the individual had no
reasonable cause to believe his or her conduct was unlawful. In addition, the
Enron Charter contains a provision that eliminates the personal liability of a
director to the corporation or its shareholders for monetary damages for breach
of fiduciary's duty as a director, except for liability of a director (i) for
breach of the duty of loyalty, (ii) for actions or omissions not in good faith
or which involve intentional misconduct or a knowing violation of law, (iii) for
payment of improper dividends or redemptions, or (iv) for any transaction from
which the director derived an improper personal benefit.
ITEM 21. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION OF EXHIBITS
- -------------------- ------------------------------------------------------------------------
<C> <S>
2.1 -- Amended and Restated Agreement and Plan of Merger dated as of July
20, 1996 and amended and restated as of September 24, 1996 among
Enron, New Enron and PGC (included as Annex A to the Joint Proxy
Statement/Prospectus included herein).
3.1 -- Restated Articles of Incorporation of New Enron (included as Annex E
to the Joint Proxy Statement/Prospectus included herein).
3.2* -- Form of Bylaws of New Enron.
3.3 -- Form of Series Designation for the New Enron Convertible Preferred
Stock (included as Annex G to the Joint Proxy Statement/Prospectus
included herein).
3.4 -- Form of Series Designation for the New Enron 9.142% Preferred Stock
(included as Annex H to the Joint Proxy Statement/Prospectus included
herein).
3.5 -- Restated Certificate of Incorporation of Enron Corp., as amended
(incorporated by reference to Exhibit 3.01 to Enron's Form 10-K for
the year ended December 31, 1994).
</TABLE>
II-1
<PAGE> 189
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION OF EXHIBITS
- -------------------- ------------------------------------------------------------------------
<S> <C>
3.6 -- Bylaws of Enron Corp. (incorporated by reference to Exhibit 3.02 to
Enron's Form 10-K for the year ended December 31, 1995).
4.1 -- Indenture dated as of November 1, 1985, between Enron and Harris
Trust and Savings Bank, as supplemented and amended by the First
Supplemental Indenture dated as of December 1, 1995 (incorporated by
reference to Form T-3 Application for Qualification of Indentures
under the Trust Indenture Act of 1939, File No. 22-14390, filed
October 24, 1985; Exhibit 4(b) to Enron's Form S-3 Registration
Statement No. 33-64057 filed on November 8, 1995). There have not
been filed as exhibits to this registration statement other debt
instruments defining the rights of holders of long-term debt of
Enron, none of which relates to authorized indebtedness that exceeds
10% of the consolidated assets of Enron and its subsidiaries. Enron
hereby agrees to furnish a copy of any such instrument to the
Commission upon request.
4.2 -- Form of Amended and Restated Agreement of Limited Partnership of
Enron Capital Resources, L.P. (incorporated by reference to Exhibit
3.1 to Enron's Form 8-K dated August 2, 1994).
4.3 -- Form of Payment and Guarantee Agreement dated as of August 3, 1994,
executed by Enron Corp. for the benefit of the holders of Enron
Capital Resources, L.P. 9% Cumulative Preferred Securities, Series A
(incorporated by reference to Exhibit 4.1 to Enron's Form 8-K dated
August 2, 1994).
4.4 -- Form of Loan Agreement, dated as of August 3, 1994, between Enron
Corp. and Enron Capital Resources, L.P. (incorporated by reference to
Exhibit 4.2 to Enron's Form 8-K dated August 2, 1994).
4.5 -- Articles of Association of Enron Capital LLC (incorporated by
reference to Exhibit 9 to Enron's Form 8-K dated November 12, 1993).
4.6 -- Form of Payment and Guarantee Agreement of Enron Corp., dated as of
November 15, 1993, in favor of the holders of Enron Capital LLC 8%
Cumulative Guaranteed Monthly Income Preferred Shares (incorporated
by reference to Exhibit 2 to Enron's Form 8-K dated November 12,
1993).
4.7 -- Form of Loan Agreement, dated as of November 15, 1993, between Enron
Corp. and Enron Capital LLC (incorporated by reference to Exhibit 3
to Enron's Form 8-K dated November 12, 1993).
5.1 -- Opinion of James V. Derrick, Jr. as to the legality of the
securities.
8.1* -- Opinion of Vinson & Elkins L.L.P regarding tax matters.
8.2* -- Opinion of Wachtell, Lipton, Rosen & Katz regarding tax matters.
10.1 -- Employment Agreement dated July 20, 1996 between Enron and Ken L.
Harrison (included as Annex D to the Joint Proxy Statement/Prospectus
included herein).
10.2 -- Employment Agreement dated July 20, 1996 between Enron and Joseph M.
Hirko (included as Annex E to the Joint Proxy Statement/Prospectus
included herein).
</TABLE>
II-2
<PAGE> 190
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION OF EXHIBITS
- -------------------- ------------------------------------------------------------------------
<C> <S>
23.1 -- Consent of James V. Derrick, Jr. (included in Exhibit 5.1).
23.2* -- Consent of Vinson & Elkins L.L.P. (set forth in Exhibit 8.1).
23.3* -- Consent of Wachtell, Lipton, Rosen & Katz (set forth in Exhibit 8.2).
23.4* -- Consent of Arthur Andersen LLP (Enron).
23.5* -- Consent of Arthur Andersen LLP (PGC).
23.6* -- Consent of DeGolyer and MacNaughton.
23.7* -- Consents of persons named as about to become directors of New Enron.
24.1* -- Powers of attorney of certain directors and officers of Enron.
99.1* -- Form of Enron Proxy Card.
99.2* -- Form of PGC Proxy Card.
99.3* -- Consent of Smith Barney Inc.
99.4* -- Consent of Goldman, Sachs & Co.
</TABLE>
- ---------------
* Previously filed.
Financial Statement Schedules:
Not Applicable
ITEM 22. UNDERTAKINGS.
The undersigned Registrants hereby undertakes:
(1) To file, during any period in which offers or sales are being made, a
post-effective amendment to this Registration Statement:
(i) To include any prospectus required by Section 10(a)(3) of the
Securities Act of 1933;
(ii) To reflect in the prospectus any facts or events arising after
the effective date of the Registration Statement (or the most recent
post-effective amendment thereof) which, individually or in the aggregate,
represent a fundamental change in the information set forth in the
Registration Statement;
(iii) To include any material information with respect to the plan of
distribution not previously disclosed in the Registration Statement or any
material change to such information in the Registration Statement;
provided, however, that paragraphs (1)(i) and (1)(ii) do not apply if the
information required to be included in a post-effective amendment by those
paragraphs is contained in periodic reports filed by the Registrants pursuant to
section 13 or section 15(d) of the Securities Exchange Act of 1934 that are
incorporated by reference in the Registration Statement;
(2) That, for the purpose of determining any liability under the Securities
Act of 1933, each such post-effective amendment shall be deemed to be a new
registration statement relating to the securities offered therein, and the
offering of such securities at that time shall be deemed to be the initial bona
fide offering thereof;
(3) To remove from registration by means of a post-effective amendment any
of the securities being registered which remain unsold at the termination of the
offering;
(4) That, for purposes of determining any liability under the Securities
Act of 1933, each filing of the Registrant's annual report pursuant to section
13(a) or section 15(d) of the Securities Exchange Act of 1934 that is
incorporated by reference in the Registration Statement shall be deemed to be a
new registration statement relating to the securities offered therein, and the
offering of such securities at that time shall be deemed to be the initial bona
fide offering thereof;
II-3
<PAGE> 191
(5) To respond to requests for information that is incorporated by
reference into the prospectus pursuant to Items 4, 10(b), 11 or 13 of this Form,
within one business day of receipt of such request, and to send the incorporated
documents by first class mail or other equally prompt means. This includes
information contained in documents filed subsequent to the effective date of the
Registration Statement through the date of responding to the request;
(6) That, prior to any public reoffering of the securities registered
hereunder through use of a prospectus which is a part of this Registration
Statement, by any person or party who is deemed to be an underwriter within the
meaning of Rule 145(c), the issuer undertakes that such reoffering prospectus
will contain the information called for by the applicable registration form with
respect to reofferings by persons who may be deemed underwriters, in addition to
the information called for by the other Items of the applicable form;
(7) That every prospectus (i) that is filed pursuant to paragraph (6)
immediately preceding, or (ii) that purports to meet the requirements of section
10(a)(3) of the Securities Act and is used in connection with an offering of
securities subject to Rule 415, will be filed as a part of an amendment to the
registration statement and will not be used until such amendment is effective,
and that, for purposes of determining any liability under the Securities Act,
each such post-effective amendment shall be deemed to be a new registration
statement relating to the securities offered therein, and the offering of such
securities at that time shall be deemed to be the initial bona fide offering
thereof; and
(8) To supply by means of a post-effective amendment all information
concerning a transaction, and the company being acquired involved therein, that
was not the subject of and included in the Registration Statement when it became
effective.
Insofar as indemnification for liabilities arising under the Securities Act
of 1933 may be permitted to directors, officers and controlling persons of the
Registrants pursuant to the provisions described under Item 20 above, or
otherwise, the Registrants have been advised that in the opinion of the
Securities and Exchange Commission such indemnification is against public policy
as expressed in the Act and is, therefore, unenforceable. In the event that a
claim for indemnification against such liabilities (other than the payment by
the Registrants of expenses incurred or paid by a director, officer or
controlling person of the Registrants in the successful defense of any action,
suit or proceeding) is asserted by such director, officer or controlling person
in connection with the securities being registered, the Registrants will, unless
in the opinion of its counsel the matter has been settled by controlling
precedent, submit to a court of appropriate jurisdiction the question whether
such indemnification by it is against public policy as expressed in the Act and
will be governed by the final adjudication of such issue.
II-4
<PAGE> 192
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, Enron Oregon
Corp. has duly caused this Registration Statement to be signed on its behalf by
the undersigned, thereunto duly authorized, in the City of Houston, State of
Texas, on the 10th day of October, 1996.
ENRON OREGON CORP.
By: /s/ EDMUND P. SEGNER, III
-------------------------------
Edmund P. Segner, III
President
Pursuant to the requirements of the Securities Act of 1933, this
Registration Statement has been signed by the following person in the capacities
indicated on the dates indicated.
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
- --------------------------------------------- ---------------------------- -----------------
<C> <S> <C>
/s/ EDMUND P. SEGNER, III Director and President October 10, 1996
- --------------------------------------------- (Principal Executive,
(Edmund P. Segner, III) Financial and Accounting
Officer)
</TABLE>
Pursuant to the requirements of the Securities Act of 1933, Enron Corp. has
duly caused this Registration Statement to be signed on its behalf by the
undersigned, thereunto duly authorized, in the City of Houston, State of Texas,
on the 10th day of October, 1996.
ENRON CORP.
By: /s/ JACK I. TOMPKINS
--------------------------------
Jack I. Tompkins
Senior Vice President and Chief
Information, Administrative and
Accounting Officer
Pursuant to the requirements of the Securities Act of 1933, this
Registration Statement has been signed by the following persons in the
capacities indicated on the dates indicated.
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
- --------------------------------------------- ---------------------------- -----------------
<S> <C> <C>
/s/ KENNETH L. LAY Chairman of the Board, Chief October 10, 1996
- --------------------------------------------- Executive Officer and
(Kenneth L. Lay) Director (Principal
Executive Officer)
/s/ JACK I. TOMPKINS Senior Vice President and October 10, 1996
- --------------------------------------------- Chief Information,
(Jack I. Tompkins) Administrative and
Accounting Officer
(Principal Accounting
Officer)
/s/ WILLIAM D. GATHMANN Vice President, Finance and October 10, 1996
- --------------------------------------------- Treasurer (Principal
(William D. Gathmann) Financial Officer)
/s/ ROBERT A. BELFER* Director October 10, 1996
- ---------------------------------------------
(Robert A. Belfer)
</TABLE>
II-5
<PAGE> 193
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
- --------------------------------------------- ---------------------------- -----------------
<C> <S> <C>
/s/ NORMAN P. BLAKE, JR.* Director October 10, 1996
- ---------------------------------------------
(Norman P. Blake, Jr.)
/s/ RONNIE C. CHAN* Director October 10, 1996
- ---------------------------------------------
(Ronnie C. Chan)
/s/ JOHN H. DUNCAN* Director October 10, 1996
- ---------------------------------------------
(John H. Duncan)
/s/ JOE H. FOY* Director October 10, 1996
- ---------------------------------------------
(Joe H. Foy)
/s/ WENDY L. GRAMM* Director October 10, 1996
- ---------------------------------------------
(Wendy L. Gramm)
/s/ ROBERT K. JAEDICKE* Director October 10, 1996
- ---------------------------------------------
(Robert K. Jaedicke)
/s/ RICHARD D. KINDER* Director and President and October 10, 1996
- --------------------------------------------- Chief Operating Officer
(Richard D. Kinder)
/s/ CHARLES A. LEMAISTRE* Director October 10, 1996
- ---------------------------------------------
(Charles A. Lemaistre)
/s/ JOHN A. URQUHART* Director October 10, 1996
- ---------------------------------------------
(John A. Urquhart)
/s/ JOHN WAKEHAM* Director October 10, 1996
- ---------------------------------------------
(John Wakeham)
/s/ CHARLS E. WALKER* Director October 10, 1996
- ---------------------------------------------
(Charls E. Walker)
/s/ HERBERT S. WINOKUR, JR.* Director October 10, 1996
- ---------------------------------------------
(Herbert S. Winokur, Jr.)
*By: /s/ PEGGY B. MENCHACA October 10, 1996
- ---------------------------------------------
Peggy B. Menchaca
(Attorney-in-fact for persons indicated)
</TABLE>
II-6
<PAGE> 194
INDEX TO EXHIBITS
<TABLE>
<CAPTION>
EXHIBIT
NUMBER
- --------------------
<S> <C>
2.1 -- Amended and Restated Agreement and Plan of Merger dated as of
July 20, 1996 and amended and restated as of September 24,
1996 among Enron, New Enron and PGC (included as Annex A to
the Joint Proxy Statement/Prospectus included herein).
3.1 -- Restated Articles of Incorporation of New Enron (included as
Annex E to the Joint Proxy Statement/Prospectus included
herein).
3.2* -- Form of Bylaws of New Enron.
3.3 -- Form of Series Designation for the New Enron Convertible
Preferred Stock (included as Annex G to the Joint Proxy
Statement/Prospectus included herein).
3.4 -- Form of Series Designation for the New Enron 9.142% Preferred
Stock (included as Annex H to the Joint Proxy
Statement/Prospectus included herein).
3.5 -- Restated Certificate of Incorporation of Enron Corp., as
amended (incorporated by reference to Exhibit 3.01 to Enron's
Form 10-K for the year ended December 31, 1994).
3.6 -- Bylaws of Enron Corp. (incorporated by reference to Exhibit
3.02 to Enron's Form 10-K for the year ended December 31,
1995).
4.1 -- Indenture dated as of November 1, 1985, between Enron and
Harris Trust and Savings Bank, as supplemented and amended by
the First Supplemental Indenture dated as of December 1, 1995
(incorporated by reference to Form T-3 Application for
Qualification of Indentures under the Trust Indenture Act of
1939, File No. 22-14390, filed October 24, 1985; Exhibit 4(b)
to Enron's Form S-3 Registration Statement No. 33-64057 filed
on November 8, 1995). There have not been filed as exhibits
to this registration statement other debt instruments
defining the rights of holders of long-term debt of Enron,
none of which relates to authorized indebtedness that exceeds
10% of the consolidated assets of Enron and its subsidiaries.
Enron hereby agrees to furnish a copy of any such instrument
to the Commission upon request.
4.2 -- Form of Amended and Restated Agreement of Limited Partnership
of Enron Capital Resources, L.P. (incorporated by reference
to Exhibit 3.1 to Enron's Form 8-K dated August 2, 1994).
4.3 -- Form of Payment and Guarantee Agreement dated as of August 3,
1994, executed by Enron Corp. for the benefit of the holders
of Enron Capital Resources, L.P. 9% Cumulative Preferred
Securities, Series A (incorporated by reference to Exhibit
4.1 to Enron's Form 8-K dated August 2, 1994).
4.4 -- Form of Loan Agreement, dated as of August 3, 1994, between
Enron Corp. and Enron Capital Resources, L.P. (incorporated
by reference to Exhibit 4.2 to Enron's Form 8-K dated August
2, 1994).
4.5 -- Articles of Association of Enron Capital LLC (incorporated by
reference to Exhibit 9 to Enron's Form 8-K dated November 12,
1993).
</TABLE>
<PAGE> 195
<TABLE>
<CAPTION>
EXHIBIT
NUMBER
- --------------------
<S> <C>
4.6 -- Form of Payment and Guarantee Agreement of Enron Corp., dated
as of November 15, 1993, in favor of the holders of Enron
Capital LLC 8% Cumulative Guaranteed Monthly Income Preferred
Shares (incorporated by reference to Exhibit 2 to Enron's
Form 8-K dated November 12, 1993).
4.7 -- Form of Loan Agreement, dated as of November 15, 1993,
between Enron Corp. and Enron Capital LLC (incorporated by
reference to Exhibit 3 to Enron's Form 8-K dated November 12,
1993).
5.1 -- Opinion of James V. Derrick, Jr. as to the legality of the
securities.
8.1* -- Opinion of Vinson & Elkins L.L.P regarding tax matters.
8.2* -- Opinion of Wachtell, Lipton, Rosen & Katz regarding tax
matters.
10.1 -- Employment Agreement dated July 20, 1996 between Enron and
Ken L. Harrison (included as Annex D to the Joint Proxy
Statement/ Prospectus included herein).
10.2 -- Employment Agreement dated July 20, 1996 between Enron and
Joseph M. Hirko (included as Annex E to the Joint Proxy
Statement/ Prospectus included herein).
23.1 -- Consent of James V. Derrick, Jr. (included in Exhibit 5.1).
23.2* -- Consent of Vinson & Elkins L.L.P. (set forth in Exhibit 8.1).
23.3* -- Consent of Wachtell, Lipton, Rosen & Katz (set forth in
Exhibit 8.2).
23.4* -- Consent of Arthur Andersen LLP (Enron).
23.5* -- Consent of Arthur Andersen LLP (PGC).
23.6* -- Consent of DeGolyer and MacNaughton.
23.7* -- Consents of persons named as about to become directors of New
Enron.
24.1* -- Powers of attorney of certain directors and officers of
Enron.
99.1* -- Form of Enron Proxy Card.
99.2* -- Form of PGC Proxy Card.
99.3* -- Consent of Smith Barney Inc.
99.4* -- Consent of Goldman, Sachs & Co.
</TABLE>
- ---------------
* Previously filed.
Financial Statement Schedules:
Not Applicable
<PAGE> 1
October 10, 1996
Enron Corp.
1400 Smith Street
Houston, Texas 77002
Enron Oregon Corp.
1400 Smith Street
Houston, Texas 77002
Ladies and Gentlemen:
As Senior Vice President and General Counsel of Enron Corp., a Delaware
corporation ("Enron"), I am familiar with the registration of certain shares of
Common Stock, no par value, of Enron Oregon Corp., an Oregon corporation and a
wholly owned subsidiary of Enron ("Enron Oregon"), and the registration of
certain shares of Common Stock of Enron, $.10 par value (the "Enron Common
Stock"), and the registration of certain shares of Cumulative Second Preferred
Convertible Stock of Enron Oregon ("Enron Oregon Preferred Stock"), pursuant to
a registration statement on Form S-4 (the "Registration Statement") filed with
the Securities and Exchange Commission under the Securities Act of 1933, as
amended (the "Act"), relating to the (i) reincorporation of Enron as an Oregon
corporation (the "Reincorporation Merger") and (ii) the proposed merger (the
"Merger") of Enron Oregon with Portland General Corporation, an Oregon
corporation ("Portland General"), as set forth in that certain Amended and
Restated Agreement and Plan of Merger, dated as of July 20, 1996 and amended and
restated as of September 24, 1996, among Enron, Enron Oregon and Portland
General (the "Merger Agreement"), included in the Registration Statement (the
Reincorporation Merger and the Merger collectively referred to herein as the
"Mergers").
As described in the Registration Statement, under certain
circumstances the Reincorporation Merger will not be effected, in which case
each outstanding share of Portland General Common Stock (other than shares held
directly or indirectly by Enron, Enron Oregon or Portland General, which will
be cancelled) will be converted into one share of Enron Common Stock (subject
to adjustment in certain circumstances as described in the Registration
Statement). In no event will both Enron Oregon Common Stock and Enron Common
Stock be issued under the Registration Statement.
<PAGE> 2
Enron Corp.
Enron Oregon Corp.
October 10, 1996
Page 2
In connection herewith, I have examined the Restated Certificate of
Incorporation and the Bylaws of Enron and Enron Oregon, each as amended to the
date hereof, the records of certain corporate proceedings which have occurred
prior to the date hereof, the Registration Statement, the Merger Agreement, and
such other agreements, communications, instruments and documents, and have made
such other investigations, as I considered necessary for the purposes of this
opinion. Capitalized terms used but not defined herein are used as defined in
the Registration Statement.
Based upon the foregoing, I am of the opinion that when the conditions
to the Mergers set forth in the Merger Agreement have been satisfied (including
that the Registration Statement has become effective under the Act) and the
Mergers have been effected in accordance therewith, the shares of Enron Oregon
Common Stock (or Enron Common Stock, as appropriate) and Enron Oregon Preferred
Stock (if any) issued in the Mergers will be validly issued, fully paid and
nonassessable. With respect to matters of Oregon law relevant to this opinion,
I have relied upon the advice of Oregon counsel.
I hereby consent to the filing of this opinion as an exhibit to the
Registration Statement and to the reference to me under the caption "Legal
Matters" in the Joint Proxy Statement/Prospectus forming a part of the
Registration Statement. In giving this consent, I do not thereby admit that I
am within the category of persons whose consent is required under Section 7 of
the Act and the rules and regulations thereunder.
Very truly yours,
/s/ JAMES V. DERRICK, JR.
-------------------------------------
James V. Derrick, Jr.
Senior Vice President and
General Counsel
