<PAGE>
================================================================================
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
--------------------
FORM 10-Q
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
FOR THE QUARTERLY PERIOD ENDED JUNE 30, 1997
-- OR --
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934
--------------------
TEXAS UTILITIES COMPANY
(now known as Texas Energy Industries, Inc.)
A Texas Corporation I.R.S. Employer Identification
Commission File Number 1-3591 No. 75-0705930
ENERGY PLAZA, 1601 BRYAN STREET, DALLAS, TEXAS 75201-3411
(214) 812-4600
TEXAS UTILITIES ELECTRIC COMPANY
A Texas Corporation I.R.S. Employer Identification
Commission File Number 0-11442 No. 75-1837355
ENERGY PLAZA, 1601 BRYAN STREET, DALLAS, TEXAS 75201-3411
(214) 812-4600
--------------------
Indicate by check mark whether the registrants (1) have filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrants were required to file such reports), and (2) have been subject to
such filing requirements for the past 90 days.
Yes X No
--- ---
COMMON STOCK OUTSTANDING AT JULY 31, 1997:
Texas Utilities Company: 224,649,557 shares, without par value.
Texas Utilities Electric Company: 152,252,800 shares, without par value.
THIS COMBINED FORM 10-Q IS FILED SEPARATELY BY TEXAS UTILITIES COMPANY AND TEXAS
UTILITIES ELECTRIC COMPANY. INFORMATION CONTAINED HEREIN RELATING TO AN
INDIVIDUAL REGISTRANT IS FILED BY THAT REGISTRANT ON ITS OWN BEHALF EXCEPT THAT
THE INFORMATION WITH RESPECT TO TEXAS UTILITIES ELECTRIC COMPANY, OTHER THAN THE
CONDENSED CONSOLIDATED FINANCIAL STATEMENTS OF TEXAS UTILITIES ELECTRIC COMPANY,
IS FILED BY EACH OF TEXAS UTILITIES ELECTRIC COMPANY AND TEXAS UTILITIES
COMPANY. NEITHER TEXAS UTILITIES ELECTRIC COMPANY NOR TEXAS UTILITIES COMPANY
MAKES ANY REPRESENTATIONS AS TO INFORMATION FILED BY THE OTHER REGISTRANT.
================================================================================
<PAGE>
TABLE OF CONTENTS
PART I. FINANCIAL INFORMATION PAGE
----
Item 1. Financial Statements
TEXAS UTILITIES COMPANY AND SUBSIDIARIES
Condensed Statements of Consolidated Income
Three, Six and Twelve Months Ended June 30, 1997 and 1996... 3
Condensed Statements of Consolidated Cash Flows
Six Months Ended June 30, 1997 and 1996..................... 4
Condensed Consolidated Balance Sheets
June 30, 1997 and December 31, 1996......................... 5
TEXAS UTILITIES ELECTRIC COMPANY AND SUBSIDIARIES
Condensed Statements of Consolidated Income
Three, Six and Twelve Months Ended June 30, 1997 and 1996... 7
Condensed Statements of Consolidated Cash Flows
Six Months Ended June 30, 1997 and 1996..................... 8
Condensed Consolidated Balance Sheets
June 30, 1997 and December 31, 1996......................... 9
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS........... 11
INDEPENDENT ACCOUNTANTS' REPORTS............................... 17
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operation....................... 19
PART II. OTHER INFORMATION
Item 2. Changes in Securities.................................... 24
Item 4. Submission of Matters to a Vote of Security Holders...... 24
Item 5. Other Information........................................ 25
Item 6. Exhibits and Reports on Form 8-K......................... 25
SIGNATURES.................................................................. 26
2
<PAGE>
PART I. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS.
TEXAS UTILITIES COMPANY AND SUBSIDIARIES
CONDENSED STATEMENTS OF CONSOLIDATED INCOME
(UNAUDITED)
<TABLE>
<CAPTION>
THREE MONTHS ENDED SIX MONTHS ENDED TWELVE MONTHS ENDED
JUNE 30, JUNE 30, JUNE 30,
---------------------- ---------------------- ----------------------
1997 1996 1997 1996 1997 1996
---------- ---------- ---------- ---------- ---------- ----------
THOUSANDS OF DOLLARS
<S> <C> <C> <C> <C> <C> <C>
OPERATING REVENUES...................... $1,588,485 $1,691,313 $3,082,289 $3,155,213 $6,478,004 $6,195,638
---------- ---------- ---------- ---------- ---------- ----------
OPERATING EXPENSES
Fuel and purchased power............... 499,114 554,620 991,395 1,036,451 2,091,253 1,894,572
Operation and maintenance.............. 345,953 317,691 671,153 599,134 1,328,299 1,174,499
Depreciation and amortization.......... 158,581 154,444 316,791 307,753 629,543 593,414
Taxes other than income................ 124,908 129,511 261,214 261,890 534,168 529,190
---------- ---------- ---------- ---------- ---------- ----------
Total operating expenses.............. 1,128,556 1,156,266 2,240,553 2,205,228 4,583,263 4,191,675
---------- ---------- ---------- ---------- ---------- ----------
OPERATING INCOME........................ 459,929 535,047 841,736 949,985 1,894,741 2,003,963
OTHER INCOME AND (DEDUCTIONS) - NET..... (7,813) (4,382) (9,869) (792) (10,225) 14,716
---------- ---------- ---------- ---------- ---------- ----------
TOTAL INCOME............................ 452,116 530,665 831,867 949,193 1,884,516 2,018,679
---------- ---------- ---------- ---------- ---------- ----------
INTEREST AND OTHER CHARGES
Interest.............................. 182,007 217,249 363,691 416,824 744,760 769,389
Allowance for borrowed funds
used during construction............ (2,633) (2,581) (4,938) (6,537) (9,649) (12,051)
Impairment of assets.................. -- -- -- -- -- 1,233,320
Distributions on TU Electric
obligated, mandatorily
redeemable, preferred
securities of subsidiary trusts
holding solely debentures of
TU Electric......................... 18,293 8,250 33,296 16,499 49,798 18,299
Preferred stock dividends of
subsidiary.......................... 3,711 13,306 16,018 27,725 41,651 67,859
---------- ---------- ---------- ---------- ---------- ----------
Total interest and other charges...... 201,378 236,224 408,067 454,511 826,560 2,076,816
---------- ---------- ---------- ---------- ---------- ----------
INCOME (LOSS) BEFORE INCOME TAXES....... 250,738 294,441 423,800 494,682 1,057,956 (58,137)
INCOME TAX EXPENSE (BENEFIT)............ 89,992 91,484 148,255 165,651 357,837 (24,680)
---------- ---------- ---------- ---------- ---------- ----------
CONSOLIDATED NET INCOME (LOSS).......... $ 160,746 $ 202,957 $ 275,545 $ 329,031 $ 700,119 $ (33,457)
========== ========== ========== ========== ========== ==========
Average shares of common stock
outstanding (thousands)................ 224,616 225,593 224,609 225,717 224,606 225,779
Earnings (loss) and dividends
per share of common stock:
Earnings (loss) (on average
shares outstanding)................. $ 0.72 $ 0.90 $ 1.23 $ 1.46 $ 3.12 $ (0.15)
Dividends declared.................... $ 0.525 $ 0.50 $ 1.05 $ 1.00 $ 2.075 $ 2.27
</TABLE>
See Accompanying Notes to Condensed Consolidated Financial Statements.
3
<PAGE>
TEXAS UTILITIES COMPANY AND SUBSIDIARIES
CONDENSED STATEMENTS OF CONSOLIDATED CASH FLOWS
(Unaudited)
<TABLE>
<CAPTION>
SIX MONTHS ENDED
JUNE 30,
-----------------------
1997 1996
--------- ---------
THOUSANDS OF DOLLARS
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES
Consolidated net income................ $ 275,545 $ 329,031
Adjustments to reconcile consolidated
net income to cash provided by
operating activities:
Depreciation and amortization
(including amounts charged to fuel).. 391,116 382,311
Deferred income taxes -- net.......... 76,176 94,245
Federal investment tax credits -- net. (11,397) (11,501)
Allowance for equity funds used
during construction.................. (660) (912)
Changes in operating assets and
liabilities:
Accounts receivable.................. (137,633) (164,858)
Inventories.......................... 7,027 11,466
Accounts payable..................... 12,960 51,447
Interest and taxes accrued........... 35,772 26,736
Other working capital................ 44,356 (50)
Over/(under)-recovered fuel revenue
-- net of deferred taxes............ 6,467 (61,407)
Other -- net......................... 31,650 36,777
--------- ---------
Cash provided by operating
activities........................ 731,379 693,285
--------- ---------
CASH FLOWS FROM FINANCING ACTIVITIES
Issuances of securities:
First mortgage bonds.................. 106,350 133,010
Other long-term....................... -- 300,000
TU Electric obligated, mandatorily
redeemable, preferred securities of
subsidiary trusts holding solely
debentures of TU Electric........... 493,273 --
Retirements of securities:
First mortgage bonds.................. (367,165) (217,620)
Other long-term debt.................. (348,773) (4,092)
Preferred stock of subsidiary......... (543,148) (12,500)
Common stock.......................... -- (50,043)
Change in notes payable:
Commercial paper...................... 486,516 5,955
Banks................................. 7,546 (316,541)
Common stock dividends paid............ (235,833) (225,843)
Debt premium, discount, financing and
reacquisition expenses................ (27,924) (8,563)
--------- ---------
Cash used in financing activities.. (429,158) (396,237)
--------- ---------
CASH FLOWS FROM INVESTING ACTIVITIES
Construction expenditures.............. (226,902) (195,560)
Allowance for equity funds used during
construction (excluding amount for
nuclear fuel)......................... 404 535
Change in construction receivables/
payables -- net....................... (313) 249
Non-utility property -- net............ (22,146) (5,140)
Nuclear fuel (excluding allowance for
equity funds used during construction) (28,395) (42,581)
Other investments...................... (17,913) (65,522)
--------- ---------
Cash used in investing activities.. (295,265) (308,019)
--------- ---------
EFFECT OF EXCHANGE RATE CHANGES......... 530 48
--------- ---------
NET CHANGE IN CASH AND CASH EQUIVALENTS. 7,486 (10,923)
CASH AND CASH EQUIVALENTS -- BEGINNING
BALANCE................................ 15,845 24,853
--------- ---------
CASH AND CASH EQUIVALENTS -- ENDING
BALANCE................................ $ 23,331 $ 13,930
========= =========
</TABLE>
See Accompanying Notes to Condensed Consolidated Financial Statements.
4
<PAGE>
TEXAS UTILITIES COMPANY AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
ASSETS
<TABLE>
<CAPTION>
JUNE 30,
1997 DECEMBER 31,
(UNAUDITED) 1996
----------- -----------
THOUSANDS OF DOLLARS
<S> <C> <C>
UTILITY PLANT
In service:
Production........................................................... $16,279,919 $16,277,151
Transmission......................................................... 1,652,229 1,607,925
Distribution......................................................... 5,723,863 5,655,677
General.............................................................. 505,665 503,688
----------- -----------
Total.............................................................. 24,161,676 24,044,441
Less accumulated depreciation........................................ 6,420,371 6,127,610
----------- -----------
Utility plant in service, less accumulated depreciation............ 17,741,305 17,916,831
Construction work in progress......................................... 260,632 240,612
Nuclear fuel (net of accumulated amortization: 1997 -- $414,678,000;
1996 -- $369,114,000)............................................... 235,676 252,589
Held for future use................................................... 23,966 24,483
----------- -----------
Utility plant, less accumulated depreciation and amortization....... 18,261,579 18,434,515
Less reserve for regulatory disallowances............................. 836,005 836,005
----------- -----------
Net utility plant................................................... 17,425,574 17,598,510
----------- -----------
INVESTMENTS............................................................ 1,167,616 1,158,223
----------- -----------
CURRENT ASSETS
Cash in banks......................................................... 23,331 15,845
Special deposits...................................................... 2,932 805
Accounts receivable:
Customers............................................................ 425,108 290,111
Other................................................................ 42,243 44,032
Allowance for uncollectible accounts................................. (5,714) (6,262)
Inventories -- at average cost:
Materials and supplies............................................... 199,049 200,601
Fuel stock........................................................... 115,911 121,699
Prepayments........................................................... 74,482 56,324
Deferred income taxes................................................. 54,338 40,021
Other current assets.................................................. 19,009 13,279
----------- -----------
Total current assets............................................... 950,689 776,455
----------- -----------
DEFERRED DEBITS
Unamortized regulatory assets......................................... 1,864,773 1,753,418
Other deferred debits................................................. 101,205 89,101
----------- -----------
Total deferred debits.............................................. 1,965,978 1,842,519
----------- -----------
Total......................................................... $21,509,857 $21,375,707
=========== ===========
</TABLE>
See Accompanying Notes to Condensed Consolidated Financial Statements.
5
<PAGE>
TEXAS UTILITIES COMPANY AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
CAPITALIZATION AND LIABILITIES
<TABLE>
<CAPTION>
JUNE 30,
1997 DECEMBER 31,
(UNAUDITED) 1996
----------- -----------
THOUSANDS OF DOLLARS
<S> <C> <C>
CAPITALIZATION
Common stock without par value -- net:
Authorized shares -- 500,000,000
Outstanding shares: 1997 - 224,649,557; 1996 - 224,602,557.............................. $ 4,791,193 $ 4,787,047
Retained earnings......................................................................... 1,244,057 1,202,390
Cumulative currency translation adjustment................................................ 8,253 43,476
----------- -----------
Total common stock equity............................................................. 6,043,503 6,032,913
Preferred stock of subsidiary:
Not subject to mandatory redemption..................................................... 139,140 464,427
Subject to mandatory redemption......................................................... 20,593 238,391
TU Electric obligated, mandatorily redeemable, preferred securities of subsidiary trusts
holding solely debentures of TU Electric................................................ 874,865 381,311
Long-term debt, less amounts due currently................................................ 8,303,859 8,668,111
----------- -----------
Total capitalization.................................................................. 15,381,960 15,785,153
----------- -----------
CURRENT LIABILITIES
Notes payable:
Commercial paper........................................................................ 439,667 253,151
Banks................................................................................... 73,835 69,788
Long-term debt due currently.............................................................. 371,377 356,076
Accounts payable.......................................................................... 346,895 336,391
Dividends declared........................................................................ 120,656 129,879
Customers' deposits....................................................................... 84,827 80,390
Taxes accrued............................................................................. 166,258 143,424
Interest accrued.......................................................................... 169,249 156,758
Over-recovered fuel revenue............................................................... 52,934 42,984
Other current liabilities................................................................. 164,501 90,485
----------- -----------
Total current liabilities............................................................. 1,990,199 1,659,326
----------- -----------
DEFERRED CREDITS AND OTHER NONCURRENT LIABILITIES
Accumulated deferred income taxes......................................................... 3,008,886 2,801,626
Unamortized federal investment tax credits................................................ 578,316 589,713
Other deferred credits and noncurrent liabilities......................................... 550,496 539,889
----------- -----------
Total deferred credits and other noncurrent liabilities............................... 4,137,698 3,931,228
COMMITMENTS AND CONTINGENCIES
----------- -----------
Total............................................................................ $21,509,857 $21,375,707
=========== ===========
</TABLE>
See Accompanying Notes to Condensed Consolidated Financial Statements.
6
<PAGE>
TEXAS UTILITIES ELECTRIC COMPANY AND SUBSIDIARIES
CONDENSED STATEMENTS OF CONSOLIDATED INCOME
(UNAUDITED)
<TABLE>
<CAPTION>
THREE MONTHS ENDED SIX MONTHS ENDED TWELVE MONTHS ENDED
JUNE 30, JUNE 30, JUNE 30,
---------------------- ---------------------- ----------------------
1997 1996 1997 1996 1997 1996
---------- ---------- ---------- ---------- ---------- ----------
THOUSANDS OF DOLLARS
<S> <C> <C> <C> <C> <C> <C>
OPERATING REVENUES............... $1,451,541 $1,558,778 $2,817,000 $2,907,108 $5,939,503 $5,892,553
---------- ---------- ---------- ---------- ---------- ----------
OPERATING EXPENSES
Fuel and purchased power........ 451,854 507,472 902,062 957,293 1,910,525 1,837,554
Operation and maintenance....... 310,397 278,965 603,887 529,357 1,186,442 1,069,689
Depreciation and amortization... 143,139 139,733 285,745 278,797 568,850 554,980
Income taxes.................... 98,449 119,022 176,141 197,831 399,322 445,123
Taxes other than income......... 117,831 122,567 247,427 247,754 506,105 502,777
---------- ---------- ---------- ---------- ---------- ----------
Total operating expenses...... 1,121,670 1,167,759 2,215,262 2,211,032 4,571,244 4,410,123
---------- ---------- ---------- ---------- ---------- ----------
OPERATING INCOME................. 329,871 391,019 601,738 696,076 1,368,259 1,482,430
---------- ---------- ---------- ---------- ---------- ----------
OTHER INCOME (LOSS)
Allowance for equity funds used
during construction............ 341 359 647 899 1,298 7,615
Impairment of assets............ -- -- -- -- -- (486,350)
Other income and (deductions)
-- net......................... (638) (4,682) (275) (4,910) 5,138 (1,327)
Income tax benefit (expense).... (1,354) 17,307 14,158 17,419 12,252 188,373
---------- ---------- ---------- ---------- ---------- ----------
Total other income (loss)..... (1,651) 12,984 14,530 13,408 18,688 (291,689)
---------- ---------- ---------- ---------- ---------- ----------
TOTAL INCOME..................... 328,220 404,003 616,268 709,484 1,386,947 1,190,741
---------- ---------- ---------- ---------- ---------- ----------
INTEREST AND OTHER CHARGES
Interest on mortgage bonds...... 112,548 121,511 227,237 247,477 466,552 502,307
Interest on other long-
term debt...................... 3,569 8,357 7,143 16,653 16,945 39,302
Other interest.................. 13,281 40,593 27,262 54,733 54,988 85,566
Distribution on TU
Electric obligated,
mandatorily redeemable,
preferred securities of
subsidiary trusts holding
solely debentures of TU
Electric....................... 18,293 8,250 33,296 16,499 49,798 18,299
Allowance for borrowed
funds used during
construction................... (2,458) (2,577) (4,668) (6,532) (9,375) (12,042)
---------- ---------- ---------- ---------- ---------- ----------
Total interest and other
charges..................... 145,233 176,134 290,270 328,830 578,908 633,432
---------- ---------- ---------- ---------- ---------- ----------
CONSOLIDATED NET INCOME.......... 182,987 227,869 325,998 380,654 808,039 557,309
PREFERRED STOCK DIVIDENDS........ 7,102 13,306 19,562 27,725 45,195 67,859
---------- ---------- ---------- ---------- ---------- ----------
CONSOLIDATED NET INCOME
AVAILABLE FOR COMMON
STOCK........................... $ 175,885 $ 214,563 $ 306,436 $ 352,929 $ 762,844 $ 489,450
========== ========== ========== ========== ========== ==========
</TABLE>
See Accompanying Notes to Condensed Consolidated Financial Statements.
7
<PAGE>
TEXAS UTILITIES ELECTRIC COMPANY AND SUBSIDIARIES
CONDENSED STATEMENTS OF CONSOLIDATED CASH FLOWS
(UNAUDITED)
<TABLE>
<CAPTION>
SIX MONTHS ENDED
JUNE 30,
--------------------------------
1997 1996
--------- ---------
THOUSANDS OF DOLLARS
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES
Consolidated net income................................................................ $ 325,998 $ 380,654
Adjustments to reconcile net income to cash provided by operating activities:
Depreciation and amortization (including amounts charged to fuel)..................... 356,763 337,978
Deferred income taxes -- net.......................................................... 69,288 91,500
Federal investment tax credits -- net................................................. (10,611) (10,714)
Allowance for equity funds used during construction................................... (647) (899)
Changes in operating assets and liabilities:
Accounts receivable.................................................................. (122,082) (147,168)
Inventories.......................................................................... 899 7,273
Accounts payable..................................................................... 23,188 43,798
Interest and taxes accrued........................................................... 50,011 46,108
Other working capital................................................................ 52,620 (14,485)
Over/(under)-recovered fuel revenue -- net of deferred taxes......................... 6,467 (61,407)
Other -- net......................................................................... 42,261 2,976
--------- ---------
Cash provided by operating activities............................................... 794,155 675,614
--------- ---------
CASH FLOWS FROM FINANCING ACTIVITIES
Issuances of securities:
First mortgage bonds.................................................................. 106,350 133,010
TU Electric obligated, mandatorily redeemable, preferred securities of subsidiary
trusts holding solely debentures of TU Electric...................................... 493,273 --
Retirements of securities:
First mortgage bonds.................................................................. (367,150) (217,605)
Other long-term debt.................................................................. (600) (542)
Preferred stock....................................................................... (543,148) (12,500)
Change in notes payable:
Parent................................................................................ 306,607 --
Commercial paper...................................................................... (253,151) (30,990)
Change in notes receivable............................................................. 35,515 (34,724)
Preferred stock dividends paid......................................................... (28,724) (19,982)
Common stock dividends paid............................................................ (272,832) (244,608)
Debt premium, discount, financing and reacquisition expenses........................... (23,247) (6,562)
--------- ---------
Cash used in financing activities................................................... (547,107) (434,503)
--------- ---------
CASH FLOWS FROM INVESTING ACTIVITIES
Construction expenditures.............................................................. (200,155) (175,100)
Allowance for equity funds used during construction (excluding amount for nuclear fuel) 391 522
Change in construction receivables/payables -- net..................................... (313) (249)
Non-utility property -- net............................................................ 263 --
Nuclear fuel (excluding allowance for equity funds used during construction)........... (28,395) (42,581)
Other investments...................................................................... (10,488) (34,472)
--------- ---------
Cash used in investing activities................................................... (238,697) (251,880)
--------- ---------
NET CHANGE IN CASH AND CASH EQUIVALENTS................................................. 8,351 (10,769)
CASH AND CASH EQUIVALENTS -- BEGINNING BALANCE.......................................... 13,005 22,633
--------- ---------
CASH AND CASH EQUIVALENTS -- ENDING BALANCE............................................. $ 21,356 $ 11,864
========= =========
</TABLE>
See Accompanying Notes to Condensed Consolidated Financial Statements.
8
<PAGE>
TEXAS UTILITIES ELECTRIC COMPANY AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
ASSETS
<TABLE>
<CAPTION>
JUNE 30,
1997 DECEMBER 31,
(UNAUDITED) 1996
----------- -----------
THOUSANDS OF DOLLARS
<S> <C> <C>
ELECTRIC PLANT
In service:
Production............................................................ $15,334,275 $15,330,974
Transmission.......................................................... 1,645,845 1,601,628
Distribution.......................................................... 4,556,633 4,442,547
General............................................................... 433,819 432,178
----------- -----------
Total................................................................ 21,970,572 21,807,327
Less accumulated depreciation......................................... 5,855,752 5,594,363
----------- -----------
Electric plant in service, less accumulated depreciation............. 16,114,820 16,212,964
Construction work in progress.......................................... 221,194 210,573
Nuclear fuel (net of accumulated amortization: 1997 -- $414,678,000;
1996 -- $369,114,000)................................................ 235,676 252,589
Held for future use.................................................... 23,966 24,483
----------- -----------
Electric plant, less accumulated depreciation and amortization....... 16,595,656 16,700,609
Less reserve for regulatory disallowances.............................. 836,005 836,005
----------- -----------
Net electric plant................................................... 15,759,651 15,864,604
----------- -----------
INVESTMENTS............................................................. 522,768 508,437
----------- -----------
CURRENT ASSETS
Cash in banks.......................................................... 21,356 13,005
Special deposits....................................................... 552 552
Notes receivable -- affiliates......................................... -- 35,515
Accounts receivable:
Customers............................................................. 345,243 215,706
Other................................................................. 15,288 23,282
Allowance for uncollectible accounts.................................. (4,482) (5,021)
Inventories -- at average cost:
Materials and supplies................................................ 181,569 181,405
Fuel stock............................................................ 76,056 77,119
Prepayments............................................................ 43,449 31,758
Deferred income taxes.................................................. 66,019 50,882
Other current assets................................................... 1,307 2,694
----------- -----------
Total current assets................................................ 746,357 626,897
----------- -----------
DEFERRED DEBITS
Unamortized regulatory assets.......................................... 1,850,413 1,735,306
Other deferred debits.................................................. 64,815 59,695
----------- -----------
Total deferred debits............................................... 1,915,228 1,795,001
----------- -----------
Total............................................................. $18,944,004 $18,794,939
=========== ===========
</TABLE>
See Accompanying Notes to Condensed Consolidated Financial Statements.
9
<PAGE>
TEXAS UTILITIES ELECTRIC COMPANY AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
CAPITALIZATION AND LIABILITIES
<TABLE>
<CAPTION>
JUNE 30,
1997 DECEMBER 31,
(UNAUDITED) 1996
----------- -----------
THOUSANDS OF DOLLARS
<S> <C> <C>
CAPITALIZATION
Common stock without par value:
Authorized shares -- 180,000,000
Outstanding shares: 1997 - 152,252,800; 1996 - 156,800,000............................... $ 4,595,889 $ 4,732,305
Retained earnings......................................................................... 1,543,623 1,373,602
----------- -----------
Total common stock equity.............................................................. 6,139,512 6,105,907
Preferred stock:
Not subject to mandatory redemption...................................................... 139,140 464,427
Subject to mandatory redemption.......................................................... 20,593 238,391
TU Electric obligated, mandatorily redeemable, preferred securities of subsidiary trusts
holding solely debentures of TU Electric................................................ 874,865 381,311
Long-term debt, less amounts due currently................................................ 6,040,031 6,310,594
----------- -----------
Total capitalization................................................................... 13,214,141 13,500,630
----------- -----------
CURRENT LIABILITIES
Notes payable:
Parent................................................................................... 306,607 --
Commercial paper......................................................................... -- 253,151
Long-term debt due currently.............................................................. 352,464 338,213
Accounts payable:
Affiliates............................................................................... 275,826 126,143
Other.................................................................................... 146,009 136,401
Dividends declared........................................................................ 2,739 148,379
Customers' deposits....................................................................... 72,712 70,141
Taxes accrued............................................................................. 173,275 132,514
Interest accrued.......................................................................... 142,197 132,947
Over-recovered fuel revenue............................................................... 52,934 42,984
Other current liabilities................................................................. 118,033 57,681
----------- -----------
Total current liabilities.............................................................. 1,642,796 1,438,554
----------- -----------
DEFERRED CREDITS AND OTHER NONCURRENT LIABILITIES
Accumulated deferred income taxes......................................................... 3,189,698 2,989,612
Unamortized federal investment tax credits................................................ 567,354 577,965
Other deferred credits and noncurrent liabilities......................................... 330,015 288,178
----------- -----------
Total deferred credits and other noncurrent liabilities................................ 4,087,067 3,855,755
----------- -----------
COMMITMENTS AND CONTINGENCIES
Total................................................................................ $18,944,004 $18,794,939
=========== ===========
</TABLE>
See Accompany Notes to Condensed Consolidated Financial Statements.
10
<PAGE>
TEXAS UTILITIES COMPANY AND SUBSIDIARIES
TEXAS UTILITIES ELECTRIC COMPANY AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
1. SIGNIFICANT ACCOUNTING POLICIES
THE COMPANY AND TU ELECTRIC
- ---------------------------
Basis of Presentation -- The condensed consolidated financial statements of
Texas Utilities Company (Company) and its subsidiaries and Texas Utilities
Electric Company and its subsidiaries (TU Electric) have been prepared on the
same basis as those in the 1996 Annual Reports of the Company and TU Electric on
Form 10-K and, in the opinion of the Company or TU Electric, as the case may be,
all adjustments (constituting only normal recurring accruals) necessary to a
fair presentation of the results of operation and financial position have been
included therein. The statements are presented pursuant to the rules and
regulations of the Securities and Exchange Commission (SEC). Certain
information and footnote disclosures normally included in annual consolidated
financial statements prepared in accordance with generally accepted accounting
principles have been omitted pursuant to such rules and regulations.
These condensed consolidated financial statements, and notes thereto, should
be considered in conjunction with the consolidated financial statements, and the
notes thereto, of the Company and TU Electric included in the 1996 Annual
Reports of the Company and TU Electric on Form 10-K, and the information under
Management's Discussion and Analysis of Financial Condition and Results of
Operation herein. The Company and TU Electric each believes that its respective
disclosures are adequate to make the information presented not misleading.
Certain previously reported amounts have been reclassified to conform to current
classifications.
Use of Estimates -- The preparation of the Company's and TU Electric's
condensed consolidated financial statements, in conformity with generally
accepted accounting principles, requires management to make estimates and
assumptions about future events that affect the reporting and disclosure of
assets and liabilities at the balance sheet dates and the reported amounts of
revenue and expense during the periods covered by the condensed consolidated
financial statements. In the event estimates and/or assumptions prove to be
different from actual amounts, adjustments are made in subsequent periods to
reflect more current information. No material adjustments were made to previous
estimates during the current period.
THE COMPANY
- -----------
Consolidation -- The condensed consolidated financial statements include the
Company and all of its majority-owned subsidiaries:
<TABLE>
<S> <C>
TU Electric Texas Utilities Services Inc. (TU Services)
Texas Utilities Australia Pty. Ltd. (TU Australia) Texas Utilities Properties Inc. (TU Properties)
Southwestern Electric Service Company (SESCO) Texas Utilities Communications Inc. (TU Communications)
Texas Utilities Fuel Company (Fuel Company) Basic Resources Inc. (Basic)
Texas Utilities Mining Company (Mining Company) Chaco Energy Company (Chaco)
</TABLE>
All significant intercompany items and transactions have been eliminated in
consolidation. Investments in significant unconsolidated affiliates are
accounted for by the equity method.
TU ELECTRIC
- -----------
Consolidation -- The condensed consolidated financial statements of TU
Electric include its subsidiaries, all of which are business trusts. All
significant intercompany items and transactions have been eliminated in
consolidation.
Income Taxes -- Effective January 1, 1997, TU Electric's state franchise tax
status changed from taxes based on net taxable capital to taxes based on net
taxable earned surplus. Net taxable earned surplus is based on the federal
income tax return. TU Electric has determined that a portion of the taxes
calculated under the new tax status method is, in effect, a state income tax.
As a result, TU Electric recorded an accumulated deferred tax liability,
partially offset by a corresponding regulatory asset.
11
<PAGE>
TEXAS UTILITIES COMPANY AND SUBSIDIARIES
TEXAS UTILITIES ELECTRIC COMPANY AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
2. SHORT-TERM FINANCING
THE COMPANY AND TU ELECTRIC
- ---------------------------
In April 1997, the Company, TU Electric and TUC Holding Company (TUC), the new
holding company resulting from the completion of the merger transactions
involving the Company and ENSERCH Corporation (ENSERCH) (see Note 7), entered
into new credit agreements (Credit Agreements) with a group of commercial banks.
The Credit Agreements replaced prior lines of credit with two new facilities.
Facility A provides for short-term borrowings aggregating up to $570,000,000
outstanding at any one time at variable interest rates and terminates April 23,
1998. Facility B provides for short-term borrowings aggregating up to
$1,330,000,000 outstanding at any one time at variable interest rates and
terminates April 24, 2002. Prior to the effective date of the merger
transactions involving the Company and ENSERCH, the Company's and TU Electric's
borrowings under Facilities A and B were limited to an aggregate of up to
$1,500,000,000 outstanding at any one time. Upon completion of the merger
transactions involving the Company and ENSERCH: (i) TUC will replace the
Company as a borrower, (ii) ENSERCH is expected to become a party to the Credit
Agreements with ENSERCH borrowings under both facilities limited to an aggregate
of up to $650,000,000 outstanding at any one time, and (iii) TUC's, TU
Electric's and ENSERCH's borrowings under both facilities will be limited to an
aggregate of up to $1,900,000,000 outstanding at any one time. Borrowings under
these facilities will be used for working capital and other corporate purposes,
including commercial paper backup. The total of short-term borrowings authorized
by the Board of Directors of the Company at June 30, 1997 from banks or other
lenders, was $2,150,000,000.
3. CAPITALIZATION
THE COMPANY
- -----------
COMMON STOCK
The Company has purchased from a third party a note that was issued by the
Company's Employee Thrift Plan (Thrift Plan) to finance the purchase of shares
of common stock (LESOP Shares). The purchase of the note was recorded by the
Company as a reduction to common stock equity. LESOP Shares are outstanding
shares, but are held by the Thrift Plan trustee until allocated to accounts of
participants, at which time increases to common stock equity are recorded.
Allocations to participants' accounts during the six months ended June 30, 1997,
increased common stock equity by $4,047,000.
In June 1997, the Company sold 47,000 shares of its authorized but unissued
common stock to the Long-Term Incentive Compensation Plan of Texas Utilities
Company System as approved at the Company's Annual Meeting of Shareholders held
on May 23, 1997.
PREFERRED STOCK
In March 1997, the Company completed its tender offer for any and all shares
of 20 series of TU Electric's preferred stock and depositary shares. The
Company funded the purchase of 3,989,640 shares of such stock at a total cost of
approximately $404,000,000 primarily through the issuance of commercial paper.
In May and June 1997, the Company sold such shares to TU Electric for
approximately $408,000,000. (See TU Electric -- Preferred Stock below.)
TU ELECTRIC
- -----------
COMMON STOCK
In June 1997, TU Electric purchased from the Company and retired 4,547,200
shares of its issued and outstanding common stock.
PREFERRED STOCK
At June 30, 1997 and December 31, 1996, TU Electric had 17,000,000 shares of
preferred stock authorized by its articles of incorporation of which 1,624,240
and 7,101,879 shares were issued and outstanding, respectively.
12
<PAGE>
TEXAS UTILITIES COMPANY AND SUBSIDIARIES
TEXAS UTILITIES ELECTRIC COMPANY AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
During the six months ended June 30, 1997, TU Electric redeemed or purchased
5,477,639 shares of its preferred stock (including the 3,989,640 shares
tendered to the Company and subsequently sold to TU Electric) with annual
dividend rates ranging from 4.00% to 9.64%.
TU ELECTRIC OBLIGATED, MANDATORILY REDEEMABLE, PREFERRED SECURITIES OF
SUBSIDIARY TRUSTS HOLDING SOLELY DEBENTURES OF TU ELECTRIC
Three statutory business trusts, TU Electric Capital I, TU Electric Capital II
and TU Electric Capital III (each a TU Electric Trust) were established in 1995
as financing subsidiaries of TU Electric for the purposes, in each case, of
issuing common and preferred trust securities, with a liquidation preference of
$25 per unit, and holding Junior Subordinated Debentures issued by TU Electric
(Debentures). In January 1997, two additional TU Electric Trusts, TU Electric
Capital IV and TU Electric Capital V, were established for the purposes, in each
case, of issuing common and preferred trust securities, with a liquidation
preference of $1,000 per unit, and holding Debentures. The Debentures held
by each TU Electric Trust are its only assets. Each TU Electric Trust will use
interest payments received on the Debentures it holds to make cash distributions
on the trust securities it has issued.
At June 30, 1997 and December 31, 1996, preferred and common trust securities
of each TU Electric Capital Trust were outstanding as follows:
<TABLE>
<CAPTION>
UNITS OUTSTANDING AMOUNT
---------------------------------- --------------------------------
COMPANY JUNE 30, 1997 DECEMBER 31, 1996 JUNE 30, 1997 DECEMBER 31, 1996
------- ------------- ----------------- ------------- -----------------
THOUSANDS OF DOLLARS
<S> <C> <C> <C> <C>
TU Electric Capital I (a) 5,871,044 5,871,044 $140,761 $140,671
TU Electric Capital II (b)... 1,991,253 1,991,253 47,338 47,301
TU Electric Capital III (c).. 8,000,000 8,000,000 193,425 193,339
TU Electric Capital IV (d)... 100,000 -- 97,554 --
TU Electric Capital V (e).... 400,000 -- 395,787 --
---------- ---------- -------- --------
Total 16,362,297 15,862,297 $874,865 $381,311
========== ========== ======== ========
</TABLE>
_______________________
(a) Trust assets are $154,869,150 principal amount, Junior Subordinated
Debentures Series A, 8.25% due 9/30/30.
(b) Trust assets are $51,418,575 principal amount, Junior Subordinated
Debentures Series B, 9.00% due 9/30/30.
(c) Trust assets are $206,185,575 principal amount, Junior Subordinated
Debentures Series C, 8.00% due 12/31/35.
(d) Trust assets are $103,093,000 principal amount, Junior Subordinated
Debentures Series D, Floating Interest Rate due 1/30/37.
(e) Trust assets are $412,372,000 principal amount, Junior Subordinated
Debentures Series E, 8.175% due 1/30/37.
LONG-TERM DEBT
In July 1997, the Brazos River Authority, the Sabine River Authority of Texas
and the Trinity River Authority of Texas issued $92,290,000 aggregate principal
amount of Pollution Control Revenue Refunding Bonds due July 1, 2002
collateralized by TU Electric's First Mortgage Bonds. In February 1997, the
Brazos River Authority issued $106,350,000 aggregate principal amount of
Pollution Control Revenue Refunding Bonds due February 1, 2032 collateralized by
TU Electric's First Mortgage Bonds. All such bonds have variable interest rates
and are subject to mandatory tender and remarketing from time to time. The
remarketing of the bonds is supported by standby bond purchase agreements.
Scheduled payments of interest and of principal at maturity or on mandatory
redemption, upon the occurrence of certain events, are supported by insurance
policies. Interest rates on all the bonds are determined daily. At June 30,
1997, such rates ranged from 4.10% to 4.25%.
During the six months ended June 30, 1997, TU Electric redeemed or reacquired
the following long-term debt:
<TABLE>
<CAPTION>
PRINCIPAL
DESCRIPTION AMOUNT INTEREST RATE MATURITY
----------- ------------ --------------- ----------
<S> <C> <C> <C>
First mortgage bonds......................... $100,000,000 9.00% 2022
Pollution control revenue bonds.............. 106,350,000 5.41% to 7-7/8% 2017-2021
------------
Total...................................... $206,350,000
============
</TABLE>
13
<PAGE>
TEXAS UTILITIES COMPANY AND SUBSIDIARIES
TEXAS UTILITIES ELECTRIC COMPANY AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
4. DERIVATIVE INSTRUMENTS
THE COMPANY AND TU ELECTRIC
- ---------------------------
The Company's and TU Electric's operations involve managing market risks
related to changes in interest rates and, for the Company, foreign exchange and
commodity price exposures. Derivative instruments including swaps and forward
contracts are used to reduce and manage a portion of those risks. The Company's
and TU Electric's participations in derivative transactions have been designed
for hedging purposes and are not held or issued for trading purposes.
INTEREST RATE RISK MANAGEMENT
At June 30, 1997, Eastern Energy Limited (Eastern Energy) had interest rate
swaps outstanding with respect to certain of its debt with an aggregate notional
amount of $868,452,000. These swap agreements establish a mix of fixed and
variable interest rates on the outstanding debt and have remaining terms between
5 and 20 years.
In February 1997, TU Electric entered into an interest rate swap agreement
with respect to preferred securities of TU Electric Capital IV, with a notional
principal amount of $100,000,000 expiring 2002 and a fixed interest rate of
7.183% per annum.
FOREIGN EXCHANGE RISK MANAGEMENT
The Company's foreign exchange exposures result from transactions denominated
in currencies other than the local currency of its foreign subsidiary. At June
30, 1997, Eastern Energy had cross-currency swap agreements outstanding with an
aggregate notional amount of $325,716,000 expiring on various dates through
2016.
ELECTRICITY PRICE RISK MANAGEMENT
Eastern Energy and the other distribution companies in Victoria purchase their
power from a competitive power pool operated by a statutory, independent
corporation. Eastern Energy purchases about 95% of its energy from this pool,
the cost of which is based on spot market price. Eastern Energy has entered
into wholesale market contracts to cover a substantial majority of its
forecasted load through the end of 2000. These contracts fix the price of
energy within a certain range for the purpose of hedging or protecting against
fluctuations in the spot market price. Eastern Energy's contracts related to
its forecasted contestable and franchise load cover a notional volume of
approximately 18 million MWh's for 1997 through 2000. Under these contracts,
payments are made between Eastern Energy and the generators representing the
difference between the wholesale electricity market price and the contract
price. The net payable or receivable is recognized in earnings as adjustments
to purchased power expense in the period the related transactions are completed.
CREDIT RISK
Credit risk relates to the risk of loss that the Company and TU Electric would
incur as a result of nonperformance by counterparties to their respective
derivative instruments. The Company and TU Electric believe the risk of
nonperformance by counterparties is minimal.
5. REGULATION AND RATES
TU ELECTRIC
- -----------
In late 1996, as part of its regular earnings monitoring process, the Public
Utility Commission of Texas (PUC) staff, after reviewing the 1995 Electric
Investor-Owned Utilities Earnings Report of TU Electric, advised the PUC that it
believed TU Electric was earning in excess of a reasonable rate of return, and
the PUC and TU Electric subsequently began discussions concerning possible
remedies. It was decided to limit negotiations to a resolution of issues
concerning TU Electric's earnings through 1997, and discussion of a long-term
resolution was deferred until it could be determined whether the 1997 Texas
legislature, then in session, would enact applicable legislation.
14
<PAGE>
TEXAS UTILITIES COMPANY AND SUBSIDIARIES
TEXAS UTILITIES ELECTRIC COMPANY AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
In July 1997, the PUC issued its final written order approving TU Electric's
proposal to make a one-time $80 million refund to its customers in August 1997
billings and to leave rates unchanged during the remainder of 1997. TU Electric
recorded the charge in July 1997. The proposal was the result of a joint
stipulation in which TU Electric was joined by the PUC General Counsel, on
behalf of the PUC Staff and the public interest, the Office of Public Utility
Counsel, the state agency charged with representing the interests of residential
and small commercial customers, and the Coalition of Cities served by TU
Electric. TU Electric is continuing its negotiations with respect to a longer-
term settlement of the issues, including a resolution of the appeals of TU
Electric's last two general rate cases. TU Electric is unable to predict the
outcome of any of these negotiations.
Also in July 1997, the PUC ruled on TU Electric's petition seeking final
reconciliation of all eligible fuel and purchased power expenses incurred during
the reconciliation period of July 1, 1992 through June 30, 1995 (approximately
$4.7 billion). In the ruling, the PUC disallowed approximately $69 million of
eligible fuel related costs incurred during the reconciliation period. The
majority of the disallowance (approximately $67 million) is related to
replacement fuel costs as a result of the November 1993 collapse of the
emissions chimney serving Unit 3 of the Monticello lignite-fueled generating
station. In addition, the PUC ruled that approximately $10 million from the
gain on sale of sulfur dioxide allowances should be deferred and reconsidered at
a future date. TU Electric is still reviewing the ruling, but strongly
disagrees with the disallowance and will continue to vigorously defend its
position. It is anticipated that TU Electric will file a motion for rehearing.
A final written order from the PUC is expected in the near future, the terms of
which could vary from the ruling. TU Electric will record the charge upon
receipt of a final written order from the PUC.
TU Electric, in July 1997, petitioned the PUC for and received interim
approval of a fuel refund to customers of approximately $67 million, including
interest, in over-collected fuel costs for the period October 1995 through May
1997. Such over-collection was primarily due to TU Electric's ability to use
less expensive nuclear fuel and purchased power to offset a higher-priced
natural gas market during the period. Refunds will be included in August 1997
billings.
6. COMMITMENTS AND CONTINGENCIES
TU ELECTRIC
- -----------
COOLING WATER CONTRACTS
TU Electric has entered into contracts with public agencies to purchase
cooling water for use in the generation of electric energy. In connection with
certain contracts, TU Electric has agreed, in effect, to guarantee the
principal, $32,365,000 at June 30, 1997, and interest on bonds issued to finance
the reservoirs from which the water is supplied. The bonds mature at various
dates through 2011 and have interest rates ranging from 5-1/2% to 7%. TU
Electric is required to make periodic payments equal to such principal and
interest, including amounts assumed by a third party and reimbursed to TU
Electric. In addition, TU Electric is obligated to pay certain variable costs
of operating and maintaining the reservoirs. TU Electric has assigned to a
municipality all contract rights and obligations of TU Electric in connection
with $74,780,000 remaining principal amount of bonds at June 30, 1997, issued
for similar purposes which had previously been guaranteed by TU Electric. TU
Electric is, however, contingently liable in the unlikely event of default by
the municipality.
NUCLEAR DECOMMISSIONING AND DISPOSAL OF SPENT FUEL
TU Electric has established a reserve, charged to depreciation expense and
included in accumulated depreciation, for the decommissioning of Comanche Peak
nuclear generating station (Comanche Peak), whereby decommissioning costs are
being recovered from customers over the life of the plant and deposited in an
external trust fund (included in other investments). At June 30, 1997, such
reserve totaled $108,659,000 which includes an accrual of $9,089,000 and
$18,179,000 for the six and twelve months ended June 30, 1997, respectively. As
of June 30, 1997, the market value of assets in the external trust fund for
decommissioning of Comanche Peak was $139,360,000. Any difference between the
market value of the external trust fund and the decommissioning reserve that
represents unrealized gains or losses of the trust fund is treated as a
regulatory liability or a regulatory asset. Realized earnings on funds
deposited in the external trust are recognized in the reserve. Based on a site-
specific study during 1992 using the prompt dismantlement method and then-
current dollars, decommissioning costs for Comanche Peak Unit 1, and Unit 2 and
common facilities were estimated to be $255,000,000 and $344,000,000,
respectively. Decommissioning activities are projected to begin in 2030 and 2033
for
15
<PAGE>
TEXAS UTILITIES COMPANY AND SUBSIDIARIES
TEXAS UTILITIES ELECTRIC COMPANY AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
Comanche Peak Unit 1, and Unit 2 and common facilities, respectively. TU
Electric is recovering such costs based upon the 1992 study through rates placed
in effect under its January 1993 rate increase request. An updated site-specific
study will be performed and completed by the end of 1997. Actual
decommissioning costs are expected to differ from estimates due to changes in
the assumed dates of decommissioning activities, regulatory requirements,
technology and costs of labor, materials and equipment.
THE COMPANY AND TU ELECTRIC
- ---------------------------
GENERAL
In addition to the above, the Company and TU Electric are involved in various
legal and administrative proceedings which, in the opinion of the management of
each, should not have a material effect upon its financial position, results of
operation or cash flows.
7. SUBSEQUENT EVENT
THE COMPANY
- -----------
On August 5, 1997, the merger transactions (Merger) provided for in a
previously announced agreement between the Company and ENSERCH were completed.
At the effective time of the Merger: (i) the Company and ENSERCH merged into
wholly owned subsidiaries of TUC, which, as a result, now owns all the common
stock of the Company and of ENSERCH, (ii) TUC changed its name to Texas
Utilities Company, (iii) the Company changed its name to Texas Energy
Industries, Inc., (iv) each share of the Company's common stock was
automatically converted into one share of common stock of TUC, and (v) each
share of common stock of ENSERCH was automatically converted into 0.225 share of
common stock of TUC with cash issued in lieu of fractional shares. The share
conversions were tax-free transactions.
Under the terms of the Merger, TUC acquired Lone Star Gas Company (Lone Star
Gas) and Lone Star Pipeline Company (Lone Star Pipeline), the local distribution
and pipeline divisions of ENSERCH and other ENSERCH businesses, excluding
Enserch Exploration Inc. Lone Star Gas is one of the largest gas distribution
companies in the United States and the largest in Texas, serving over 1.3
million customers and providing service through over 23,500 miles of
distribution mains. Lone Star Pipeline has one of the largest pipelines in the
United States, consisting of 9,200 miles of gathering and transmission pipelines
in Texas. Also included in the acquisition are ENSERCH's subsidiaries engaged
in natural gas processing, natural gas marketing and independent power
production.
In the Merger, approximately 15,861,000 shares of TUC common stock, with a
market value of approximately $550 million at the time of the Merger, were
issued to former holders of ENSERCH common stock. Approximately $1.3 billion of
ENSERCH's debt and preferred stock will remain outstanding. The acquisition of
ENSERCH will be accounted for as a purchase business combination.
16
<PAGE>
INDEPENDENT ACCOUNTANTS' REPORT
Texas Utilities Company:
We have reviewed the accompanying condensed consolidated balance sheet of Texas
Utilities Company and subsidiaries (the Company) as of June 30, 1997, and the
related condensed statements of consolidated income for the three-month, six-
month and twelve-month periods ended June 30, 1997 and 1996, and of consolidated
cash flows for the six-month periods ended June 30, 1997 and 1996. These
financial statements are the responsibility of the Company's management.
We conducted our review in accordance with standards established by the American
Institute of Certified Public Accountants. A review of interim financial
information consists principally of applying analytical procedures to financial
data and making inquiries of persons responsible for financial accounting
matters. It is substantially less in scope than an audit in accordance with
generally accepted auditing standards, the objective of which is the expression
of an opinion regarding the financial statements taken as a whole. Accordingly,
we do not express such an opinion.
Based on our review, we are not aware of any material modifications that should
be made to such condensed consolidated financial statements for them to be in
conformity with generally accepted accounting principles.
We have previously audited, in accordance with generally accepted auditing
standards, the consolidated balance sheet of the Company as of December 31,
1996, and the related consolidated statements of income, retained earnings and
cash flows for the year then ended (not presented herein); and in our report
dated March 12, 1997, we expressed an unqualified opinion on those consolidated
financial statements, which opinion included an explanatory paragraph concerning
the Company's change in accounting for the impairment of long-lived assets and
long-lived assets to be disposed of. In our opinion, the information set forth
in the accompanying condensed consolidated balance sheet as of December 31,
1996, is fairly stated in all material respects in relation to the consolidated
balance sheet from which it has been derived.
Deloitte & Touche LLP
Dallas, Texas
August 11, 1997
17
<PAGE>
INDEPENDENT ACCOUNTANTS' REPORT
Texas Utilities Electric Company:
We have reviewed the accompanying condensed consolidated balance sheet of
Texas Utilities Electric Company and subsidiaries (TU Electric) as of June 30,
1997, and the related condensed statements of consolidated income for the three-
month, six-month and twelve-month periods ended June 30, 1997 and 1996, and of
consolidated cash flows for the six-month periods ended June 30, 1997 and 1996.
These financial statements are the responsibility of TU Electric's management.
We conducted our review in accordance with standards established by the American
Institute of Certified Public Accountants. A review of interim financial
information consists principally of applying analytical procedures to financial
data and making inquiries of persons responsible for financial accounting
matters. It is substantially less in scope than an audit in accordance with
generally accepted auditing standards, the objective of which is the expression
of an opinion regarding the financial statements taken as a whole. Accordingly,
we do not express such an opinion.
Based on our review, we are not aware of any material modifications that should
be made to such condensed consolidated financial statements for them to be in
conformity with generally accepted accounting principles.
We have previously audited, in accordance with generally accepted auditing
standards, the consolidated balance sheet of TU Electric and subsidiaries as of
December 31, 1996, and the related consolidated statements of income, retained
earnings and cash flows for the year then ended (not presented herein); and in
our report dated March 12, 1997, we expressed an unqualified opinion on those
consolidated financial statements, which opinion included an explanatory
paragraph concerning TU Electric's change in accounting for the impairment of
long-lived assets and long-lived assets to be disposed of. In our opinion, the
information set forth in the accompanying condensed consolidated balance sheet
as of December 31, 1996, is fairly stated in all material respects in relation
to the consolidated balance sheet from which it has been derived.
Deloitte & Touche LLP
Dallas, Texas
August 11, 1997
18
<PAGE>
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATION
FORWARD-LOOKING STATEMENTS
This report and other presentations made by Texas Utilities Company (Company)
and its subsidiaries or Texas Utilities Electric Company and its subsidiaries
(TU Electric) contain forward-looking statements within the meaning of Section
21E of the Securities Exchange Act of 1934, as amended. Although the Company
and TU Electric each believes that in making any such statement its expectations
are based on reasonable assumptions, any such statement involves uncertainties
and is qualified in its entirety by reference to the following important factors
that could cause the actual results of the Company or TU Electric to differ
materially from those projected in such forward-looking statement: (i)
prevailing governmental policies and regulatory actions, including those of the
Federal Energy Regulatory Commission, the Public Utility Commission of Texas
(PUC), the Nuclear Regulatory Commission, and, in the case of the Company, the
Office of the Regulator General of Victoria, Australia, with respect to allowed
rates of return, industry and rate structure, purchased power and investment
recovery, operations of nuclear generating facilities, acquisitions and disposal
of assets and facilities, operation and construction of plant facilities,
decommissioning costs, present or prospective wholesale and retail competition,
changes in tax laws and policies and changes in and compliance with
environmental and safety laws and policies, (ii) weather conditions and other
natural phenomena, (iii) unanticipated population growth or decline, and changes
in market demand and demographic patterns, (iv) competition for retail and
wholesale customers, (v) pricing and transportation of crude oil, natural gas
and other commodities, (vi) unanticipated changes in interest rates, rates of
inflation or in foreign exchange rates, (vii) unanticipated changes in operating
expenses and capital expenditures, (viii) capital market conditions, (ix)
competition for new energy development opportunities, and (x) legal and
administrative proceedings and settlements.
Any forward-looking statement speaks only as of the date on which such
statement is made, and neither the Company nor TU Electric undertakes any
obligation to update any forward-looking statement to reflect events or
circumstances after the date on which such statement is made or to reflect the
occurrence of unanticipated events. New factors emerge from time to time and it
is not possible for the Company or TU Electric to predict all of such factors,
nor can they assess the impact of each such factor or the extent to which any
factor, or combination of factors, may cause results to differ materially from
those contained in any forward-looking statement.
GENERAL
Certain comparisons in this Quarterly Report on Form 10-Q have been affected
by the December 1995 acquisition of Eastern Energy Limited (Eastern Energy) by
Texas Utilities Australia Pty. Ltd. (TU Australia), a wholly-owned subsidiary of
the Company. The results of operation of Eastern Energy are included only for
the periods subsequent to acquisition.
FINANCIAL CONDITION
THE COMPANY AND TU ELECTRIC
- ---------------------------
LIQUIDITY AND CAPITAL RESOURCES
For information concerning liquidity and capital resources, see Item 7.
Management's Discussion and Analysis of Financial Condition and Results of
Operation in the Company and TU Electric Annual Reports on Form 10-K for the
year 1996 (1996 Form 10-K). Quarterly results presented herein are not
necessarily indicative of expectations for a full year's operations because of
seasonal and other factors, including variations in maintenance and other
operating expense patterns. No significant changes or events which might affect
the financial condition of the Company and its subsidiaries (System Companies)
have occurred subsequent to year-end other than as disclosed in other reports of
the Company and TU Electric or included herein.
External funds of a permanent or long-term nature are obtained through the
issuance of common stock, preferred stock, preferred securities and long-term
debt by the System Companies. The capitalization ratios of the Company and its
subsidiaries at June 30, 1997 consisted of approximately 54% long-term debt, 6%
preferred securities of trusts, 1% preferred stock and 39% common stock equity.
The capitalization ratios of TU Electric at June 30, 1997 consisted of
approximately 46% long-term debt, 7% preferred securities of trusts, 1%
preferred stock and 46% common stock equity.
19
<PAGE>
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATION
In July 1997, the Brazos River Authority, the Sabine River Authority of Texas
and the Trinity River Authority of Texas issued $92,290,000 aggregate principal
amount of Pollution Control Revenue Refunding Bonds due July 1, 2002
collateralized by TU Electric's First Mortgage Bonds. In February 1997, the
Brazos River Authority issued $106,350,000 aggregate principal amount of
Pollution Control Revenue Refunding Bonds due February 1, 2032 collateralized by
TU Electric's First Mortgage Bonds. All such bonds have variable interest rates
and are subject to mandatory tender and remarketing from time to time. The
remarketing of the bonds is supported by standby bond purchase agreements.
Scheduled payments of interest and of principal at maturity or on mandatory
redemption, upon the occurrence of certain events, are supported by insurance
policies. Interest rates on all the bonds are determined daily. Currently, such
rates range from 3.40% to 3.55%.
To date in 1997, the System Companies have redeemed, reacquired or made
principal payments of $1,191,699,000 (including $1,188,134,000 for TU Electric)
on long-term debt and preferred stock. In July 1997, TU Electric completed its
purchase of 4,547,200 shares ($316,416,000) of its issued and outstanding common
stock from the Company.
In March 1997, the Company completed its tender offer for any and all shares
of 20 series of TU Electric's preferred stock and depositary shares. The
Company funded the purchase of 3,989,640 shares of such stock at a total cost of
approximately $404,000,000 primarily through the issuance of commercial paper.
In May and June 1997, the Company sold such shares to TU Electric for
approximately $408,000,000. Upon purchase by TU Electric, the shares were
retired. TU Electric's purchase of the shares was funded with excess proceeds
from the sale of capital securities in early 1997.
In April 1997, the Company, TU Electric and TUC Holding Company (TUC), the new
holding company resulting from the completion of the merger transactions
involving the Company and ENSERCH Corporation (ENSERCH) (see Note 7 to Condensed
Consolidated Financial Statements), entered into new credit agreements (Credit
Agreements) with a group of commercial banks. The Credit Agreements replaced
prior lines of credit with two new facilities. Facility A provides for short-
term borrowings aggregating up to $570,000,000 outstanding at any one time at
variable interest rates and terminates April 23, 1998. Facility B provides for
short-term borrowings aggregating up to $1,330,000,000 outstanding at any one
time at variable interest rates and terminates April 24, 2002. Prior to the
effective date of the merger transactions involving the Company and ENSERCH, the
Company's and TU Electric's borrowings under Facilities A and B were limited to
an aggregate of up to $1,500,000,000 outstanding at any one time. Upon
completion of the merger transactions involving the Company and ENSERCH: (i) TUC
will replace the Company as a borrower, (ii) ENSERCH is expected to become a
party to the Credit Agreements with ENSERCH borrowings under both facilities
limited to an aggregate of up to $650,000,000 outstanding at any one time, and
(iii) TUC's, TU Electric's and ENSERCH's borrowings under both facilities will
be limited to an aggregate of up to $1,900,000,000 outstanding at any one time.
Borrowings under these facilities will be used for working capital and other
corporate purposes, including commercial paper backup. The total of short-term
borrowings authorized by the Board of Directors of the Company at June 30, 1997
from banks or other lenders, was $2,150,000,000.
The System Companies expect to issue additional debt and equity securities as
needed, including (i) the possible future sale by TU Electric of up to
$448,850,000 principal amount of First Mortgage Bonds and debt securities, or a
combination thereof, currently registered with the Securities and Exchange
Commission (SEC) for offering pursuant to Rule 415 under the Securities Act of
1933 and (ii) the possible future sale by TU Electric of up to 250,000 shares of
Cumulative Preferred Stock ($100 liquidation value) similarly registered.
The Company's and TU Electric's operations involve managing market risks
related to changes in interest rates and, for the Company, foreign exchange and
commodity price exposures. Derivative instruments including swaps and forward
contracts are used to reduce and manage a portion of those risks. The Company's
and TU Electric's participations in derivative transactions have been designed
for hedging purposes and are not held or issued for trading purposes. The
Company's foreign exchange exposures result from transactions denominated in
currencies other than the local currency of its foreign subsidiary. As of June
30, 1997, the aggregate notional amount of such exposure was $325,716,000. The
Company enters into currency swaps to reduce foreign exchange exposure. As of
June 30, 1997, net deferred gains and losses associated with the currency swaps
were not material. Credit risk relates to the risk of loss that the Company and
TU Electric would incur as a result of nonperformance by counterparties to their
respective derivative instruments. The Company and TU Electric believe the risk
of nonperformance by counterparties is minimal. For other information regarding
Derivative Instruments, see Note 4 to Condensed Consolidated Financial
Statements.
20
<PAGE>
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATION
REGULATION, RATES AND COMPETITION
Under the current regulatory environment, TU Electric and Southwestern
Electric Service Company (SESCO) are subject to the provisions of Statement of
Financial Accounting Standards No. 71, "Accounting for the Effects of Certain
Types of Regulation" (SFAS 71). In the event the companies no longer meet the
criteria for application of SFAS 71 due to significant changes in regulation or
competition, the companies would discontinue the application of SFAS 71. If a
portion of either company's operations continues to meet the criteria for
application of SFAS 71, only that portion would be subject to SFAS 71 treatment.
Should significant changes in regulation or competition occur, TU Electric and
SESCO would be required to assess the recoverability of other assets, including
plant, and, if impaired, to write down the assets to reflect their fair market
value. Neither TU Electric nor SESCO can predict whether or to what extent
changes in the business environment may occur requiring the partial or complete
discontinuation of SFAS 71 application.
In late 1996, as part of its regular earnings monitoring process, the PUC
staff, after reviewing the 1995 Electric Investor-Owned Utilities Earnings
Report of TU Electric, advised the PUC that it believed TU Electric was earning
in excess of a reasonable rate of return, and the PUC and TU Electric
subsequently began discussions concerning possible remedies. It was decided to
limit negotiations to a resolution of issues concerning TU Electric's earnings
through 1997, and discussion of a long-term resolution was deferred until it
could be determined whether the 1997 Texas legislature, then in session, would
enact applicable legislation.
In July 1997, the PUC issued its final written order approving TU Electric's
proposal to make a one-time $80 million refund to its customers in August 1997
billings and to leave rates unchanged during the remainder of 1997. TU Electric
recorded the charge in July 1997. The proposal was the result of a joint
stipulation in which TU Electric was joined by the PUC General Counsel, on
behalf of the PUC Staff and the public interest, the Office of Public Utility
Counsel, the state agency charged with representing the interests of residential
and small commercial customers, and the Coalition of Cities served by TU
Electric. TU Electric is continuing its negotiations with respect to a longer-
term settlement of the issues, including a resolution of the appeals of TU
Electric's last two general rate cases. TU Electric is unable to predict the
outcome of any of these negotiations.
Also in July 1997, the PUC ruled on TU Electric's petition seeking final
reconciliation of all eligible fuel and purchased power expenses incurred during
the reconciliation period of July 1, 1992 through June 30, 1995 (approximately
$4.7 billion). In the ruling, the PUC disallowed approximately $69 million of
eligible fuel related costs incurred during the reconciliation period. The
majority of the disallowance (approximately $67 million) is related to
replacement fuel costs as a result of the November 1993 collapse of the
emissions chimney serving Unit 3 of the Monticello lignite-fueled generating
station. In addition, the PUC ruled that approximately $10 million from the
gain on sale of sulfur dioxide allowances should be deferred and reconsidered at
a future date. TU Electric is still reviewing the ruling, but strongly
disagrees with the disallowance and will continue to vigorously defend its
position. It is anticipated that TU Electric will file a motion for rehearing.
A final written order from the PUC is expected in the near future, the terms of
which could vary from the ruling. TU Electric will record the charge upon
receipt of a final written order from the PUC.
TU Electric, in July 1997, petitioned the PUC for and received interim
approval of a fuel refund to customers of approximately $67 million, including
interest, in over-collected fuel costs for the period October 1995 through May
1997. Such over-collection was primarily due to TU Electric's ability to use
less expensive nuclear fuel and purchased power to offset a higher-priced
natural gas market during the period. Refunds will be included in August 1997
billings.
In order to remain competitive, the Company and TU Electric are aggressively
managing their operating costs and capital expenditures through streamlined
business processes and are developing and implementing strategies to address an
increasingly competitive environment. These strategies include initiatives to
improve their return on corporate assets and to maximize shareholder value
through new marketing programs, creative rate design, and new business
opportunities. Additional initiatives under consideration include the potential
disposition or alternative utilization of existing assets and the restructuring
of strategic business units.
21
<PAGE>
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATION
While TU Electric and SESCO have experienced competitive pressures in the
wholesale market resulting in a small loss of load for TU Electric since the
beginning of 1993, wholesale sales represented a relatively low percentage of TU
Electric's consolidated operating revenues for the three-, six- and twelve-month
periods ended June 30, 1997. TU Electric and SESCO are unable to predict the
extent of future competitive developments in either the wholesale or retail
markets or what impact, if any, such developments may have on their operations.
CAPITAL EXPENDITURES
The re-evaluation of growth expectations, the effects of inflation,
additional regulatory requirements and the availability of fuel, labor,
materials and capital may result in changes to the estimated construction costs
and dates of completion in the Company's and TU Electric's construction programs
(see Item 2. Properties -- Capital Expenditures in the 1996 Form 10-K).
Commitments in connection with the construction program are generally revocable
subject to reimbursement to manufacturers for expenditures incurred or other
cancellation penalties.
The Company and TU Electric each plans to seek new investment opportunities
from time to time when it concludes that such investments are consistent with
its business strategies and will likely enhance the long-term returns to
shareholders. The timing and amounts of any specific new business investment
opportunities are presently undetermined.
THE COMPANY
- -----------
BUSINESS MERGERS AND ACQUISITIONS
On August 5, 1997, the merger transactions (Merger) provided for in a
previously announced agreement between the Company and ENSERCH were completed.
At the effective time of the Merger: (i) the Company and ENSERCH merged into
wholly owned subsidiaries of TUC, which, as a result, now owns all the common
stock of the Company and of ENSERCH, (ii) TUC changed its name to Texas
Utilities Company, (iii) the Company changed its name to Texas Energy
Industries, Inc., (iv) each share of the Company's common stock was
automatically converted into one share of common stock of TUC, and (v) each
share of common stock of ENSERCH was automatically converted into 0.225 share of
common stock of TUC with cash issued in lieu of fractional shares. The share
conversions were tax-free transactions.
Under the terms of the Merger, TUC acquired Lone Star Gas Company (Lone Star
Gas) and Lone Star Pipeline Company (Lone Star Pipeline), the local distribution
and pipeline divisions of ENSERCH and other ENSERCH businesses, excluding
Enserch Exploration Inc. Lone Star Gas is one of the largest gas distribution
companies in the United States and the largest in Texas, serving over 1.3
million customers and providing service through over 23,500 miles of
distribution mains. Lone Star Pipeline has one of the largest pipelines in the
United States, consisting of 9,200 miles of gathering and transmission pipelines
in Texas. Also included in the acquisition are ENSERCH's subsidiaries engaged
in natural gas processing, natural gas marketing and independent power
production.
In the Merger, approximately 15,861,000 shares of TUC common stock, with a
market value of approximately $550 million at the time of the Merger, were
issued to former holders of ENSERCH common stock. Approximately $1.3 billion of
ENSERCH's debt and preferred stock will remain outstanding. The acquisition of
ENSERCH will be accounted for as a purchase business combination.
RESULTS OF OPERATION
THE COMPANY
- -----------
For the three-, six- and twelve-month periods ended June 30, 1997, the
Company's consolidated net income, excluding the after-tax effect of the 1995
asset impairment representing approximately $802 million ($316 million for TU
Electric), decreased approximately 21%, 16% and 9% as compared to the respective
periods ended June 30, 1996. For the Company and TU Electric, from which most
of the Company's consolidated earnings is derived, the major factor affecting
earnings for all current periods was milder weather conditions as compared to
the respective prior periods.
The Company's condensed statement of consolidated income for the twelve months
ended June 30, 1997, is affected by a full twelve month's results of operation
of Eastern Energy, which was acquired by TU Australia in December 1995.
22
<PAGE>
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATION
For the twelve months ended June 30, 1997, the Company's condensed statement
of consolidated income includes operating revenues of $496 million, operating
expenses of $401 million and interest expense of $82 million, which represent TU
Australia's results of operation.
TU ELECTRIC
- -----------
For the three- and six-month periods, operating revenues decreased
approximately 7% and 3%, respectively. Operating revenues increased
approximately 1% for the twelve-month period. The following table details the
factors contributing to these changes:
<TABLE>
<CAPTION>
INCREASE (DECREASE)
---------------------------------------------------------
THREE MONTHS ENDED SIX MONTHS ENDED TWELVE MONTHS ENDED
------------------ ---------------- -------------------
FACTORS THOUSANDS OF DOLLARS
-------
<S> <C> <C> <C>
Base rate revenue (including unbilled)............... $ (76,321) $ (83,643) $ (74,881)
Fuel revenue and power cost recovery factor revenue.. (52,719) (50,891) 74,893
Transmission service revenue......................... 27,952 56,488 56,488
Other revenue........................................ (6,149) (12,062) (9,550)
----------- ----------- -------------
Total............................................... $ (107,237) $ (90,108) $ 46,950
=========== =========== =============
</TABLE>
Total energy sales (including unbilled energy sales) for the three-month and
six-month periods decreased by approximately 7% and 4% respectively, primarily
as a result of milder weather conditions. Total energy sales (including
unbilled energy sales) did not change significantly for the twelve-month period.
The decrease in base rate revenue for all periods is due primarily to milder
weather conditions. The increase in transmission service revenue for the three-,
six- and twelve-month periods is due to the recognition of revenues from
implementing the PUC's Open Access Transmission Rule.
Fuel revenue for the three-month and six-month periods decreased as a result
of decreases in energy sales. The increase in fuel revenue for the twelve-month
period was primarily due to increases in spot market gas prices.
Fuel and purchased power expense for the three-month and six-month periods
decreased 11% and 6%, respectively, and increased 4% for the twelve-month
period. The decrease in the three-month and six-month periods was primarily due
to decreased energy sales. The increase in the twelve-month period was
primarily due to increased spot market gas prices as compared to the prior
period.
Other income and (deductions) -- net was affected for the three-, six- and
twelve-month periods by decreases in non-utility property expenses.
Income tax benefits related to other income (loss) decreased for the three-
month and six-month periods primarily due to an IRS audit adjustment reflected
in the respective prior periods. The decrease for the six-month period was
partially offset by the initial effect of the implementation of a change in TU
Electric's state franchise tax status effective January 1, 1997 (see Note 1 to
Condensed Consolidated Financial Statements). The resulting increase in TU
Electric's effective income tax rate increased the value of its deferred tax
assets.
Interest on mortgage bonds decreased as compared to the prior periods due to
reduced interest requirements resulting from TU Electric's refinancing efforts.
Decreases in interest on other long-term debt for the three-, six- and twelve-
month periods were affected by the prepayment in August and September 1996 of TU
Electric's borrowings under a term credit agreement. The decrease in interest
on other long-term debt for the twelve-month period was also affected by the
prepayment of TU Electric's promissory note to Brazos Electric Power Cooperative
in October 1995. Other interest decreased for the three-, six-, and twelve-month
periods due primarily to an interest payment related to a settlement with the
Internal Revenue Service in June 1996. Preferred securities of trusts
distributions resulted from the issuance, in December 1995 and January 1997, of
TU Electric obligated, mandatorily redeemable, preferred securities of trusts.
For the three-, six- and twelve-month periods, preferred stock dividends
decreased due primarily to the redemption of significant portions of TU
Electric's preferred stock.
23
<PAGE>
PART II. OTHER INFORMATION
TEXAS UTILITIES COMPANY AND SUBSIDIARIES
TEXAS UTILITIES ELECTRIC COMPANY AND SUBSIDIARIES
ITEM 2. CHANGES IN SECURITIES
TU ELECTRIC
- -----------
At a special meeting of the shareholders of Texas Utilities Electric Company
(TU Electric) held May 20, 1997, amendments to the Restated Articles of
Incorporation of TU Electric were approved. (See Item 4. Submission of Matters
to a Vote of Security Holders.) The amendments included: (i) elimination of
certain restrictions on the issuance of unsecured indebtedness, (ii) elimination
of certain restrictions on the repurchase of common stock junior to the
preferred stock, (iii) clarification and condensation of the restrictions on the
issuance of additional shares of preferred stock, (iv) changing from four to six
the number of quarterly dividends that must be in arrears before holders of
preferred stock are entitled to certain voting rights, and (v) changing from
two-thirds to a majority the number of shares of preferred stock of which
consent is required for certain corporate actions.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
The Company
Texas Utilities Company (Company) held its Annual Meeting of Shareholders on
May 23, 1997. The following items were presented to the shareholders with the
following results:
<TABLE>
<CAPTION>
VOTES
WITHHELD OR
VOTES FOR AGAINST ABSTENTIONS
----------- ---------- -----------
<S> <C> <C> <C>
ELECTION OF DIRECTORS
- ---------------------
J. S. Farrington 193,200,015 1,508,390 None
Bayard H. Friedman 193,111,831 1,596,574 None
William M. Griffin 193,123,540 1,584,865 None
Kerney Laday 193,168,353 1,540,052 None
Margaret N. Maxey 193,131,419 1,576,986 None
James A. Middleton 193,229,049 1,479,356 None
Erle Nye 193,215,805 1,492,600 None
J. E. Oesterreicher 193,198,611 1,509,794 None
Charles R. Perry 193,162,154 1,540,251 None
Herbert H. Richardson 193,167,564 1,540,841 None
SELECTION OF DELOITTE & TOUCHE LLP AS INDEPENDENT ACCOUNTANTS 192,777,074 991,155 940,176
- -------------------------------------------------------------
APPROVAL OF LONG-TERM INCENTIVE PLAN 173,573,904 18,646,416 2,488,085
- ------------------------------------
A comprehensive, stock-based incentive compensation plan
of the Company to assist the Company in attracting, retaining
and motivating executive officers and other key employees.
The Plan will be administered entirely by outside directors.
</TABLE>
TU ELECTRIC
- -----------
Certain amendments to TU Electric's Restated Articles of Incorporation were
approved by shareholders of TU Electric at a special meeting of shareholders of
TU Electric held on May 20, 1997. (See Item 2. Changes in Securities.)
Approval of the amendments required the affirmative vote of (i) two-thirds of
the outstanding shares of common stock entitled to vote and (ii) with respect to
those amendments which affected the rights of holders of preferred stock, two-
thirds of the outstanding shares of preferred stock, voting together as a class.
At the time of the meeting, the Company owned all shares of TU Electric's common
stock and approximately 71% of the outstanding shares of TU Electric's preferred
stock.
The Company voted all shares of common stock for the amendments. Of the
outstanding shares of preferred stock, 5,017,963 voted for the amendments,
including 3,632,149 which were held by the Company, and 29,716.25 voted against
the amendments. There were 8,976 abstentions and broker non-votes, none of which
was counted as an affirmative vote.
24
<PAGE>
PART II. OTHER INFORMATION
TEXAS UTILITIES COMPANY AND SUBSIDIARIES
TEXAS UTILITIES ELECTRIC COMPANY AND SUBSIDIARIES
ITEM 5. OTHER INFORMATION
THE COMPANY
- -----------
On August 5, 1997, the merger transactions (Merger) provided for in a
previously announced agreement between the Company and ENSERCH Corporation
(ENSERCH) were completed. At the effective time of the Merger: (i) the Company
and ENSERCH merged into wholly owned subsidiaries of TUC, which, as a result,
now owns all the common stock of the Company and of ENSERCH, (ii) TUC changed
its name to Texas Utilities Company, (iii) the Company changed its name to Texas
Energy Industries, Inc., (iv) each share of the Company's common stock was
automatically converted into one share of common stock of TUC, and (v) each
share of common stock of ENSERCH was automatically converted into 0.225 share of
common stock of TUC with cash issued in lieu of fractional shares. The share
conversions were tax-free transactions.
Under the terms of the Merger, TUC acquired Lone Star Gas Company (Lone Star
Gas) and Lone Star Pipeline Company (Lone Star Pipeline), the local distribution
and pipeline divisions of ENSERCH and other ENSERCH businesses, excluding
Enserch Exploration Inc. Lone Star Gas is one of the largest gas distribution
companies in the United States and the largest in Texas, serving over 1.3
million customers and providing service through over 23,500 miles of
distribution mains. Lone Star Pipeline has one of the largest pipelines in the
United States, consisting of 9,200 miles of gathering and transmission pipelines
in Texas. Also included in the acquisition are ENSERCH's subsidiaries engaged
in natural gas processing, natural gas marketing and independent power
production.
In the Merger, approximately 15,861,000 shares of TUC common stock, with a
market value of approximately $550 million at the time of the Merger, were
issued to former holders of ENSERCH common stock. Approximately $1.3 billion of
ENSERCH's debt and preferred stock will remain outstanding. The acquisition of
ENSERCH will be accounted for as a purchase business combination.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
THE COMPANY AND TU ELECTRIC
- ---------------------------
(a) Exhibits filed as a part of Part II are:
4(a) - Restated Articles of Incorporation of TU Electric.
4(b) - Fifty-eighth Supplemental Indenture, dated as of July 1, 1997, to
the Texas Utilities Electric Company Mortgage and Deed of Trust,
dated as of December 1, 1983, between TU Electric and Irving Trust
Company (now the Bank of New York), Trustee.
10 - Long-Term Incentive Compensation Plan of Texas Utilities Company
System.
15 - Letters from Deloitte & Touche LLP as to unaudited interim financial
information
15(a) Texas Utilities Company
15(b) Texas Utilities Electric Company
27 - Financial Data Schedules
27(a) Texas Utilities Company
27(b) Texas Utilities Electric Company
(b) Reports on Form 8-K filed since March 31, 1997:
None.
25
<PAGE>
SIGNATURE
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned hereunto duly authorized.
TEXAS ENERGY INDUSTRIES, INC.
(formerly Texas Utilities Company)
By /s/ Marc D. Moseley
-----------------------------
Marc D. Moseley
Controller and Principal
Accounting Officer
Date: August 11, 1997
- --------------------------------------------------------------------------------
SIGNATURE
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned hereunto duly authorized.
TEXAS UTILITIES ELECTRIC COMPANY
By /s/ Marc D. Moseley
-----------------------------
Marc D. Moseley
Controller and Principal
Accounting Officer
Date: August 11, 1997
26
<PAGE>
INDEX TO EXHIBITS
EXHIBIT
NO. DESCRIPTION OF EXHIBIT
- ------- ----------------------
4(a) - Restated Articles of Incorporation of Texas Utilities Electric
Company.
4(b) - Fifty-eighth Supplemental Indenture, dated as of July 1, 1997, to
the Texas Utilities Electric Company Mortgage and Deed of Trust,
dated as of December 1, 1983, between TU Electric and Irving Trust
Company (now the Bank of New York), Trustee.
10 - Long-Term Incentive Compensation Plan of Texas Utilities Company
System.
15 - Letters from Deloitte & Touche LLP as to unaudited interim financial
information
15(a) Texas Utilities Company
15(b) Texas Utilities Electric Company
27 - Financial Data Schedules
27(a) Texas Utilities Company
27(b) Texas Utilities Electric Company
<PAGE>
EXHIBIT 4(a)
RESTATED ARTICLES OF INCORPORATION OF
TEXAS UTILITIES ELECTRIC COMPANY
Pursuant to the provisions of Article 4.07 of the Texas Business
Corporation Act, Texas Utilities Electric Company, a Texas corporation, adopts
the following Restated Articles of Incorporation which accurately copy the
Articles of Incorporation and all amendments thereto that are in effect to date
and as further amended by such Restated Articles of Incorporation as hereinafter
set forth and which contain no other change in any provision thereof:
ARTICLE I. The name of the Corporation is Texas Utilities Electric
Company.
ARTICLE II. The Articles of Incorporation of the Corporation are
amended by the Restated Articles of Incorporation as follows:
The amendment alters or changes Articles III, V, VI, and VII of the
original or amended Articles of Incorporation by deleting the provisions of each
such Article and substituting therefor the provisions set forth in Articles III,
V, VI and VII, respectively, set forth in Annex "I" attached hereto and
incorporated herein. The full text of each provision so altered is set forth in
Annex "I" attached hereto and incorporated herein.
ARTICLE III. The designation and number of outstanding shares of each
class or series entitled to vote thereon as a class were as follows:
Number of Shares Outstanding
Class or Series and Entitled to Vote as a Class
--------------- -------------------------------
Common 156,800,000.00
Preferred 5,613,800.25
The Restated Articles of Incorporation as so amended were adopted by the
shareholders of the Corporation at a meeting held on May 20, 1997. The number
of shares of each class or series entitled to vote as a class or series that
were voted for or against such amendments were as follows:
Class or Series Number of Shares Voted
--------------- -----------------------------
For Against
--- -------
Common 156,800,000 0
Preferred 5,017,963 29,716.25
1
<PAGE>
ARTICLE IV. The Articles of Incorporation and all amendments and
supplements thereto are hereby superseded by the Restated Articles of
Incorporation set forth in Annex "I" attached hereto and incorporated herein for
all purposes, which accurately copy the entire text thereof and as amended as
above set forth.
TEXAS UTILITIES ELECTRIC COMPANY
By: /s/ Glen H. Hibbs
---------------------------------------
An Authorized Officer
2
<PAGE>
ANNEX I
RESTATED ARTICLES OF INCORPORATION
OF
TEXAS UTILITIES ELECTRIC COMPANY
ARTICLE I
---------
The name of the Corporation is Texas Utilities Electric Company.
ARTICLE II
----------
The purposes for which the Corporation is organized are the
production, generation, manufacture, purchase, transportation, transmission,
distribution, supply and sale to the public of electric current and power, gas,
steam, and any other form or source of light, heat, energy or power; and the
transaction otherwise of any and all lawful business for which corporations may
be incorporated in the State of Texas.
ARTICLE III
-----------
The post office address of the registered office of the Corporation is
Energy Plaza, 1601 Bryan Street, Dallas, Texas, 75201-3411, and the name of its
registered agent at such address is Peter B. Tinkham.
ARTICLE IV
----------
The period of duration of the Corporation is perpetual.
3
<PAGE>
ARTICLE V
---------
The number of directors of the Corporation shall be fixed from time to
time as provided for in the Bylaws and shall be one or more.
The number of directors constituting the current Board of Directors of
the Corporation is seven (7), and the names and addresses of the persons serving
as directors are as follows:
Name Address
---- -------
T. L. Baker Energy Plaza, 1601 Bryan Street
Dallas, Texas 75201-3411
J. S. Farrington Energy Plaza, 1601 Bryan Street
Dallas, Texas 75201-3411
H. Jarrell Gibbs Energy Plaza, 1601 Bryan Street
Dallas, Texas 75201-3411
Michael J. McNally Energy Plaza, 1601 Bryan Street
Dallas, Texas 75201-3411
Erle A. Nye Energy Plaza, 1601 Bryan Street
Dallas, Texas 75201-3411
W. M. Taylor Energy Plaza, 1601 Bryan Street
Dallas, Texas 75201-3411
E. L. Watson Energy Plaza, 1601 Bryan Street
Dallas, Texas 75201-3411
ARTICLE VI
----------
The aggregate number of shares of capital stock which the Corporation
shall have authority to issue is 197,000,000 shares, of which 17,000,000 shares
are classified as Preferred Stock, without par value, and 180,000,000 shares are
classified as Common Stock, without par value.
The descriptions of the different classes of capital stock of the
Corporation, and the preferences, designations, relative rights, privileges,
powers, restrictions, limitations and qualifications of said classes of capital
stock, are as follows:
4
<PAGE>
Division A --- Preferred Stock
1. Series and Limits of Variations between Series. Subject to the
----------------------------------------------
provisions of Division B of this Article VI which describe certain terms,
characteristics and relative rights and preferences of various series of
Preferred Stock which will be issuable at such time as the Board of Directors of
the Corporation shall provide (which provisions, however, shall not continue
effective as to any shares which are redeemed or purchased and thereby restored
to the status of authorized but unissued shares of Preferred Stock without
designation), the Preferred Stock may be divided into and issued in one or more
series from time to time as herein provided, each series to be so designated as
to distinguish the shares thereof from the shares of all other series and
classes. The authorized number of shares of any such series, the designation of
such series, and the terms, characteristics and relative rights and preferences
thereof (in those respects in which the shares of one series may vary from the
shares of other series as herein provided) shall be established at any time
prior to the issuance thereof by resolution or resolutions of the Board of
Directors of the Corporation. The Preferred Stock of all series shall be of the
same class and of equal rank and shall be identical in all respects, except that
there may be variations in the following particulars:
(a) The rate or rates at which dividends are to accrue on the shares
of such series, hereinafter referred to as the "authorized dividend rate";
(b) The terms and conditions upon which the shares of such series may
be redeemed, and the amount payable in respect to the shares of such series in
case of the redemption thereof at the option of the Corporation (the amount or
amounts so established being hereinafter referred to as the "authorized
redemption price"), and the amount payable in respect of the shares of such
series in case of the redemption thereof for any sinking fund of such series,
which amounts in respect of any series may, but need not, vary according to the
time or circumstances of such action or otherwise;
(c) The amount payable in respect of the shares of such series in
case of liquidation, dissolution or winding up of the Corporation (the amount or
amounts so established being hereinafter referred to as the "authorized
liquidation price"), and the amount payable, if any, in addition to the
authorized liquidation price for each series, in case such liquidation,
dissolution or winding up be voluntary (the amount or amounts so established
being hereinafter referred to as the "authorized liquidation premium"), which
amounts in respect of any series may, but need not, vary according to the time
or circumstances of such action or otherwise;
(d) Any requirement as to any sinking fund or purchase fund for, or
the redemption, purchase or other retirement by the Corporation of, the shares
of such series;
(e) The right, if any, to exchange or convert the shares of such
series into shares of any other series of the Preferred Stock or, to the extent
permitted by law, into securities of the Corporation or any other corporation or
other entity, and the rate or basis, time, manner and conditions of exchange or
conversion or the method by which the same shall be determined; and
(f) The voting rights, if any, of shares of such series.
2. Dividends. Out of the assets of the Corporation legally available
---------
for dividends, the holders of the Preferred Stock of each series shall be
entitled, in preference to the holders of the Common Stock, to receive, but only
when and as declared payable by the Board of Directors, dividends at the
authorized dividend rate for such series, and no more, payable quarterly on
February 1, May 1, August 1, and November 1 in each year, or otherwise as the
Board of Directors may
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determine or as set forth herein with respect to any particular series of
Preferred Stock, to shareholders of record as of a date not exceeding fifty (50)
days nor less than ten (10) days preceding such dividend payment dates, and such
dividends on the Preferred Stock shall be cumulative, so that, if in any past
dividend period or periods full dividends upon each series of the outstanding
Preferred Stock at the authorized dividend rate or rates therefor shall not have
been paid, the deficiency (without interest) shall be paid or declared and set
apart for payment before any dividends shall be paid upon or set apart for the
Common Stock (other than a dividend payable in Common Stock of the Corporation).
Dividends on all shares of the Preferred Stock of each series shall commence to
accrue and be cumulative from a date established by or upon authority of the
Board of Directors. Any dividends paid on the Preferred Stock in an amount less
than full cumulative dividends accrued or in arrears upon all Preferred Stock
outstanding shall, if more than one series be outstanding, be divided between
the different series in proportion to the aggregate amounts which would be
distributable to the Preferred Stock of each series if full cumulative dividends
were declared and paid thereon.
3. Preference on Liquidation. In the event of any liquidation,
-------------------------
dissolution, or winding up of the Corporation, the holders of the Preferred
Stock of each series shall have a preference over the holders of the Common
Stock until the authorized liquidation price per share for such series, plus, in
case such liquidation, dissolution or winding up shall have been voluntary, the
authorized liquidation premium per share for such series, if any, together in
all cases with unpaid accumulated dividends, if any, shall have been paid or
distributed or declared and set apart for payment or distribution, but the
holders of the Preferred Stock shall be entitled to no further participation in
any such distribution. If upon any such liquidation, dissolution or winding up,
the assets distributable among the holders of the Preferred Stock shall be
insufficient to permit the payment of the full preferential amounts aforesaid,
then said assets shall be distributed among the holders of each series of the
Preferred Stock then outstanding, ratably in proportion to the full preferential
amounts to which they are respectively entitled. Nothing in this Section 3
shall be deemed to prevent the purchase or redemption of Preferred Stock in any
manner permitted by Section 4 of this Division A, nor shall anything in this
Section 3 be deemed to prevent the purchase or redemption by the Corporation of
shares of its Common Stock. No such purchase or redemption shall be deemed to
be a liquidation, dissolution, or winding up of the Corporation or a
distribution of assets to its Common Shareholders within the meaning of this
Section 3 whether or not shares of Common Stock so redeemed or purchased shall
be retired, nor shall a consolidation or merger of the Corporation or a sale or
transfer of all or substantially all of its assets as an entirety be regarded as
a liquidation, dissolution or winding up of the Corporation within the meaning
of this Section 3.
4. Redemption and Repurchase. The Corporation may at any time or
-------------------------
from time to time, by resolution of the Board of Directors, redeem all or any
part of the Preferred Stock, or of any series thereof, by paying in cash the
authorized redemption price applicable thereto plus the amount of unpaid
accumulated dividends, if any, to the date of such redemption. If less than all
the shares of one series of Preferred Stock is to be redeemed, the shares to be
redeemed shall be selected ratably or by lot, in such manner as may be
prescribed by resolution of the Board of Directors. Notice of such redemption
shall be mailed to each holder of redeemable shares being called, not less than
twenty (20) nor more than sixty (60) days before the date fixed for redemption,
at his address as it appears
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on the stock transfer books of the Corporation, with postage thereon prepaid.
Such notice of redemption of such shares shall set forth the series or part
thereof to be redeemed, the date fixed for redemption, the redemption price, and
the place at which the shareholders may obtain payment of the redemption price
upon surrender of their respective share certificates. The Corporation may at
any time revoke or rescind its decision to redeem preferred stock subsequent to
giving notice to the preferred shareholders but prior to the redemption date so
long as the Company shall not have deposited with the bank or trust company
and/or irrevocably directed the bank or trust company to apply, from moneys held
by it available to be used for the redemption of shares, an amount in cash
sufficient to redeem all of the shares. From and after the date fixed in any
such notice as the date of redemption, unless default shall be made by the
Corporation in providing funds sufficient for such redemption at the time and
place specified for the payment thereof pursuant to said notice or the
Corporation revokes its decision to redeem the preferred stock prior to the
redemption date, all dividends on the shares so redeemed shall cease to accrue,
and all rights of the holders of such shares as shareholders of the Corporation
except only the right to receive the redemption funds to which they are
entitled, shall cease and determine.
The Corporation may, on or prior to the date fixed for any redemption,
deposit with any bank or trust company, or any entity duly appointed and acting
as a transfer agent of the Corporation, as a trust fund, a sum sufficient to
redeem shares called for redemption, with irrevocable instructions and authority
to such bank or trust company to give or complete the notice of redemption
thereof and to pay, on or after the date fixed for such redemption, to the
respective holders of shares, as evidenced by a list of holders of such shares
certified by an officer of the Corporation, the redemption price upon the
surrender of their respective share certificates, in the case of certificated
shares. Thereafter, from and after the date fixed for redemption such shares
shall be deemed to be redeemed and dividends thereon shall cease to accrue after
such date fixed for redemption. Such deposit shall be deemed to constitute full
payment of such shares to their holders. From and after the date such deposit is
made and such instruction given, such shares shall no longer be deemed to be
outstanding, and the holders thereof shall cease to be shareholders with respect
to such shares, and shall have no rights with respect thereto except the right
to receive from the bank or trust company payment of the redemption price of
such shares, without interest, upon the surrender of their respective
certificates therefor, and any right to convert such shares which may exist. In
case the holders of such shares shall not, within six (6) years after such
deposit, claim the amount deposited for redemption thereof, such bank or trust
company shall upon demand pay over to the Corporation the balance of such amount
so deposited to be held in trust and such bank or trust company shall thereupon
be relieved of all responsibility to the holders thereof, and any interest
accrued thereon shall be paid over to the Corporation and become its property.
Nothing in this Section 4 contained shall limit the right of the
Corporation to purchase or otherwise acquire shares of the Preferred Stock to
the extent permitted by law.
Shares of Preferred Stock of the Corporation redeemed or purchased by
the Corporation shall be restored to the status of authorized but unissued
shares of Preferred Stock without designation, and may from time to time be
reissued as provided in Section 1 of this Division A. All such redemptions and
purchases of Preferred Stock of the Corporation shall be effected in accordance
with the laws of the State of Texas governing redemption or purchase of
redeemable shares.
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5. Voting Rights. Except for those purposes only for which the right
-------------
to vote is expressly conferred in this Article VI upon holders of the Preferred
Stock, no holders of the Preferred Stock shall be entitled to notice of or to
vote at any meeting of shareholders of the Corporation or at any election of the
Corporation or the shareholders thereof.
If and when dividends payable on any of the Preferred Stock shall be
in default in an amount equal to six full quarterly payments or more per share,
and thereafter until all dividends on any of the Preferred Stock in default
shall have been paid, the holders of all of the Preferred Stock, voting as a
class in contradistinction to the Common Stock as a class, shall be entitled to
elect the smallest number of directors necessary to constitute a majority of the
full Board of Directors, and the holders of the Common Stock, voting separately
as a class, shall be entitled to elect the remaining directors of the
Corporation. The terms of office as directors of all persons who may be
directors of the Corporation at the time shall terminate upon the election of a
majority of the Board of Directors by the holders of the Preferred Stock, except
that if the holders of the Common Stock shall not have elected the remaining
directors of the Corporation then, and only in that event, the directors of the
Corporation in office just prior to the election of a majority of the Board of
Directors by the holders of the Preferred Stock shall elect the remaining
directors to the Corporation. Thereafter, while such default continues and the
majority of the Board is being elected by the holders of the Preferred Stock,
the remaining directors, whether elected by directors, as aforesaid, or whether
originally or later elected by holders of the Common Stock, shall continue in
office until their successors are elected by holders of the Common Stock and
shall qualify. The term of office of the directors so elected by the holders of
the Preferred Stock, voting separately as a class, and of the directors elected
by the holders of the Common Stock, voting separately as a class, or elected by
directors, as aforesaid, shall be until the next annual meeting of shareholders
or until the privilege of the holders of the Preferred Stock to elect directors
shall terminate as hereinafter provided, whichever shall be the earlier date and
until their successors shall have been elected and shall have qualified.
If and when all dividends then in default on all of the Preferred
Stock shall be paid (such dividends to be declared and paid out of any funds
legally available therefor as soon as reasonably practicable), the holders of
the Preferred Stock shall be divested of any privilege with respect to the
election of directors which is conferred upon the holders of such Preferred
Stock under this Section 5, and the voting power of the holders of the Preferred
Stock and the holders of the Common Stock shall revert to the status existing
before the first dividend payment date on which dividends on any of the
Preferred Stock were not paid in full, but always subject to the same provisions
for vesting such privilege in the holders of the Preferred Stock in case of
further like default or defaults in the payment of dividends thereon. Upon
termination of any such voting privilege upon payment of all accumulated and
defaulted dividends on the Preferred Stock, the terms of office of all persons
who have been elected directors of the Corporation by vote of the holders of the
Preferred Stock as a class, pursuant to such voting privilege, shall forthwith
terminate, and the resulting vacancies shall be filled by the vote of a majority
of the remaining directors.
In case of any vacancy in the office of a director occurring among the
directors elected by the holders of the Preferred Stock, voting as a class, the
remaining directors elected by the holders of the Preferred Stock, by
affirmative vote of a majority thereof, or the remaining director so elected if
there be but one, may elect a successor or successors to hold office for the
unexpired term or terms of the director or directors whose place or places shall
be vacant. In case of any vacancy in the office of a director occurring among
the directors elected by the holders of the Common Stock, voting
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separately as a class, or elected by directors, as aforesaid, the remaining
directors so elected, by affirmative vote of a majority thereof, or the
remaining director so elected if there be but one, may elect a successor or
successors to hold office for the unexpired term or terms of the director or
directors whose place or places shall be vacant.
Whenever dividends on the Preferred Stock shall be in default, as
provided in this Section 5, it shall be the duty of the officers of the
Corporation, or in the event of their failure to do so within twenty (20) days
of such default, the privilege is granted any holder of Preferred Stock who
shall first demand the right so to do by written notice to the Corporation,
forthwith to cause notice to be given to the holders of the Preferred Stock and
to the holders of the Common Stock of a meeting to be held at such time as the
Corporation's officers, or such holder of Preferred Stock, as the case may be,
may fix, not less than ten (10) nor more than sixty (60) days after the accrual
of such privilege, for the purpose of electing directors. Each holder of record
of Preferred Stock, or his legal representative, shall be entitled at such
meeting to one vote for each share of Preferred Stock standing in his name on
the books of the Corporation. At each meeting of shareholders held for such
purpose, the presence in person or by proxy of the holders of a majority of the
Common Stock shall be required to constitute a quorum of the Common Stock for
the election of directors, and the presence in person or by proxy of the holders
of a majority of the Preferred Stock shall be required to constitute a quorum of
the Preferred Stock for the election of directors; provided, however, that the
absence of a quorum of the holders of stock of either the Preferred Stock or the
Common Stock shall not prevent the election at any such meeting or adjournment
thereof of directors by such other class, if the necessary quorum of the holders
of stock of such other class is present in person or by proxy at such meeting or
any adjournment thereof, and provided, that in the event a quorum of the holders
of the Common Stock is present but a quorum of the holders of the Preferred
Stock is not present, then the directors so elected by the holders of the Common
Stock shall not assume their offices and duties but the directors in office
immediately prior thereto shall remain in office until the holders of the
Preferred Stock, with a quorum present, shall have elected the directors they
shall be entitled to elect; and provided, further, that in the absence of a
quorum of holders of stock of either class, a majority of the holders of the
stock of the class which lacks a quorum who are present in person or by proxy,
shall have power to adjourn the election of the directors to be elected by such
class from time to time without notice other than announcement at the meeting,
until the requisite quorum of holders of such class shall be present in person
or by proxy, but such adjournment shall not be made to a date beyond the date
for the mailing of the notice of the next annual meeting of shareholders of the
Corporation or special meeting in lieu thereof.
6. Restrictions on Certain Corporate Action.
----------------------------------------
(a) So long as any shares of the Preferred Stock are outstanding, the
Corporation shall not, without the consent (given by vote at a meeting called
for that purpose) of the holders of at least a majority of the total number of
shares of the Preferred Stock then outstanding:
(1) Create or authorize any new stock ranking prior to the
Preferred Stock as to dividends or in liquidation, dissolution, winding up or
distribution, or create or authorize any security convertible into shares of any
such stock; or
(2) Amend, alter, change or repeal any of the express terms of
the Preferred Stock then outstanding in a manner substantially prejudicial to
the holders thereof, provided however, that if such amendment, alteration, or
change affects less than all series of Preferred Stock,
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only the consent of the holders of a majority of the aggregate of the series so
affected shall be required.
(b) So long as any shares of the Preferred Stock are outstanding, the
Corporation shall not, without the consent (given by vote at a meeting called
for that purpose) of the holders of a majority of the total number of shares of
the Preferred Stock, considered as one class, then outstanding:
(1) Create or assume any unsecured indebtedness maturing more
than one year after the date of its creation or assumption unless and until the
Corporation's net earnings available for the payment of interest (gross
operating revenues plus other income, minus operating expenses, including
depreciation expense and taxes, other than income, profits, and other taxes,
measured by, or dependent on, income) as determined by generally accepted
accounting practices and as stated on the books of account of the Corporation
for a period of twelve consecutive calendar months ending not more than three
months prior to the beginning of the calendar month in which such indebtedness
shall be created or assumed, shall have been at least twice the interest charges
(using, for the purpose of this computation with respect to indebtedness with
interest rates that are not fixed, the interest rate in effect at the end of
such twelve month period) on all outstanding indebtedness created or assumed by
the Corporation and payable more than one year from the date of such creation or
assumption, including the interest charges on the indebtedness so to be created
or assumed (using, for the purpose of this computation, the interest rate in
effect at the time of incurrence or assumption of such indebtedness); provided
that the requirements of this subparagraph (1) shall not apply to indebtedness
created or assumed to refund by payment, replacement, retirement, acquisition,
purchase, exchange, redemption, surrender or otherwise all outstanding shares of
the Preferred Stock or any indebtedness outstanding at any time and maturing
more than one year after the date of creation or assumption of such refunded
indebtedness; or
(2) Issue, sell or dispose of any shares of the Preferred
Stock in addition to the shares of Preferred Stock outstanding, or of any other
class of stock ranking prior to, or on a parity with, the Preferred Stock as to
dividends or distributions, unless the net income of the Corporation, determined
after provisions for depreciation and all taxes, and in accordance with
generally accepted accounting principles to be available for the payment of
dividends for a period of twelve (12) consecutive calendar months within the
fifteen (15) calendar months immediately preceding the issuance, sale or
disposition of such stock is at least equal to twice the annual dividend
requirements on all outstanding shares of the Preferred Stock and of all other
classes of stock ranking prior to, or on a parity with, the Preferred Stock as
to dividends or distributions, including the shares proposed to be issued;
provided that there shall be excluded from the foregoing computation interest
charges on all indebtedness and dividends on all stock which is to be retired in
connection with the issue of such additional shares of Preferred Stock, and
where such additional shares of Preferred Stock are to be issued in connection
with the acquisition of new property, the net earnings of the property to be so
acquired may be included on a pro forma basis in the foregoing computation,
computed on the same basis as the net earnings of the Corporation; or
(3) Pay any dividend on any stock of the Corporation junior to
the Preferred Stock if immediately after such payment the retained earnings of
the Corporation would be less than one and one-half (1-1/2) times the full
annual dividend requirement on the Preferred Stock issued and outstanding and on
any other issued and outstanding stock of the Corporation
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ranking on a parity with or having a priority over the Preferred Stock in
respect of dividends or of payments in liquidation.
The term "net earnings available for the payment of interest" shall
mean the net earnings of the Corporation as shown by its books of account, as
based on generally accepted principles of accounting, and shall include the
following items and be calculated in the following manner:
(1) Its gross operating revenues and other income, including
revenues from rental of plants or systems and net income from
miscellaneous non-operating sources, and excluding any extraordinary
charges to income as defined by generally accepted accounting
principles, any regulatory disallowances, the effect of any change in
accounting principles promulgated by the Financial Accounting
Standards Board, and any other non-cash, non-recurring book losses,
(2) Its operating expenses, including expenses for current
repairs and maintenance, insurance and rental expenses for plants or
systems and other rentals,
(3) Its provisions out of income for renewals, replacement,
depreciation, depletion or retirement of property,
(4) Its taxes charged to income other than income, profits, and
other taxes measured by, or dependent on, income, and
(5) The balance remaining after deducting the sum of the amounts
of (2), (3) and (4) from the amount of item (1) above, shall be the
"net earnings available for the payment of interest" for the purposes
of this Section 6.
For purposes of this Section 6, the term "indebtedness" shall not
include any obligation or liability which, by its terms or otherwise, is non-
recourse to the Corporation whether or not such obligation or liability is
reflected in the financial statements of the Corporation.
Division B --- Series of Preferred Stock
Each series of Preferred Stock will be issuable as provided for in
Division A of this Article. Unless otherwise specifically provided for, none of
such series will have any fixed liquidation premium or exchange or conversion
rights.
1. The $4.50 Preferred Stock. 74,367 shares of the authorized stock
-------------------------
classified as Preferred Stock as provided in Division A of this Article VI shall
constitute the first series of Preferred Stock and are designated as $4.50
Preferred Stock; the fixed dividend rate on the shares of such series is four
dollars and fifty cents ($4.50) per share per annum; the fixed redemption price
on the shares of such series is $110 per share; the fixed liquidation price on
the shares of such series is $100 per share.
2. The $4.24 Preferred Stock. 100,000 shares of the authorized stock
-------------------------
classified as Preferred Stock as provided in Division A of this Article VI shall
constitute the second series of Preferred Stock and are designated as $4.24
Preferred Stock; the fixed dividend rate on the shares of such series is four
dollars and twenty-four cents ($4.24) per share per annum; the fixed redemption
price on the shares of such series is $103.50 per share; the fixed liquidation
price on the shares of such series is $100 per share.
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3. The $4 (Dallas Power Series) Preferred Stock. 70,000 shares of
--------------------------------------------
the authorized stock classified as Preferred Stock as provided in Division A of
this Article VI shall constitute the third series of Preferred Stock and are
designated as $4 (Dallas Power Series) Preferred Stock; the fixed dividend rate
on the shares of such series is four dollars ($4) per share per annum; the fixed
redemption price on the shares of such series is $103.56 per share; the fixed
liquidation price on the shares of such series is $100 per share.
4. The $4.80 Preferred Stock. 100,000 shares of the authorized stock
-------------------------
classified as Preferred Stock as provided in Division A of this Article VI shall
constitute the fourth series of Preferred Stock and are designated as $4.80
Preferred Stock; the fixed dividend rate on the shares of such series is four
dollars and eighty cents ($4.80) per share per annum; the fixed redemption price
on the shares of such series is $102.79 per share; the fixed liquidation price
on the shares of such series is $100 per share.
5. The $7.20 Preferred Stock. All shares redeemed.
-------------------------
6. The $6.84 Preferred Stock. All shares redeemed.
-------------------------
7. The $7.48 Preferred Stock. All shares redeemed.
-------------------------
8. The $4 (Texas Electric Series) Preferred Stock. 110,000 shares of
----------------------------------------------
the authorized stock classified as Preferred Stock as provided in Division A of
this Article VI shall constitute the eighth series of Preferred Stock and are
designated as $4 (Texas Electric Series) Preferred Stock; the fixed dividend
rate on the shares of such series is Four Dollars and No Cents ($4.00) per share
per annum; the fixed redemption price on the shares of such series is $102 per
share; the fixed liquidation price on the shares of such series is $100 per
share.
9. The $4.56 (Texas Electric Series) Preferred Stock. 64,947 shares
-------------------------------------------------
of the authorized stock classified as Preferred Stock as provided in Division A
of this Article VI shall constitute the ninth series of Preferred Stock and are
designated as $4.56 (Texas Electric Series) Preferred Stock; the fixed dividend
rate on the shares of such series is Four Dollars and Fifty-six Cents ($4.56)
per share per annum, and such dividends shall be payable quarterly on January 1,
April 1, July 1 and October 1 of each year; the fixed redemption price on the
shares of such series is $112.00 per share; the fixed liquidation price on the
shares of such series is $100 per share.
10. The $4.64 Preferred Stock. 100,000 shares of the authorized
-------------------------
stock classified as Preferred Stock as provided in Division A of this Article VI
shall constitute the tenth series of Preferred Stock and are designated as $4.64
Preferred Stock; the fixed dividend rate on the shares of such series is Four
Dollars and Sixty-four Cents ($4.64) per share per annum, and such dividends
shall be payable quarterly on January 1, April 1, July 1 and October 1 of each
year; the fixed redemption price on the shares of such series is $103.25 per
share; the fixed liquidation price on the shares of such series is $100 per
share.
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11. The $5.08 Preferred Stock. 80,000 shares of the authorized stock
-------------------------
classified as Preferred Stock as provided in Division A of this Article VI shall
constitute the eleventh series of Preferred Stock and are designated as $5.08
Preferred Stock; the fixed dividend rate on the shares of such series is Five
Dollars and Eight Cents ($5.08) per share per annum; the fixed redemption price
on the shares of such series is $103.60 per share; the fixed liquidation price
on the shares of such series is $100 per share.
12. The $8.92 Preferred Stock. All shares redeemed.
-------------------------
13. The $7.44 Preferred Stock. All shares redeemed.
-------------------------
14. The $8.44 Preferred Stock. All shares redeemed.
-------------------------
15. The $9.36 Preferred Stock. All shares redeemed.
-------------------------
16. The $8.32 Preferred Stock. All shares redeemed.
-------------------------
17. The $10.12 Preferred Stock. All shares redeemed.
--------------------------
18. The $4 (Texas Power Series) Preferred Stock. 70,000 shares of
-------------------------------------------
the authorized stock classified as Preferred Stock as provided in Division A of
this Article VI shall constitute the eighteenth series of Preferred Stock and
are designated as $4 (Texas Power Series) Preferred Stock; the fixed dividend
rate on the shares of such series is Four Dollars and No Cents ($4.00) per share
per annum; the fixed redemption price on the shares of such series is $102 per
share; the fixed liquidation price on the shares of such series is $100 per
share.
19. The $4.56 (Texas Power Series) Preferred Stock. 133,628 shares
----------------------------------------------
of the authorized stock classified as Preferred Stock as provided in Division A
of this Article VI shall constitute the nineteenth series of Preferred Stock and
are designated as $4.56 (Texas Power Series) Preferred Stock; the fixed dividend
rate on the shares of such series is Four Dollars and Fifty-six Cents ($4.56)
per share per annum; the fixed redemption price on the shares of such series is
$112 per share; the fixed liquidation price on the shares of such series is $100
per share.
20. The $4.84 Preferred Stock. 70,000 shares of the authorized stock
-------------------------
classified as Preferred Stock as provided in Division A of this Article VI shall
constitute the twentieth series of Preferred Stock and are designated as $4.84
Preferred Stock; the fixed dividend rate on the shares of such series is Four
Dollars and Eighty-four Cents ($4.84) per share per annum; the fixed redemption
price on the shares of such series is $101.79 per share; the fixed liquidation
price on the shares of such series is $100 per share.
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21. The $4.76 Preferred Stock. 100,000 shares of the authorized
-------------------------
stock classified as Preferred Stock as provided in Division A of this Article VI
shall constitute the twenty-first series of Preferred Stock and are designated
as $4.76 Preferred Stock; the fixed dividend rate on the shares of such series
is Four Dollars and Seventy-six Cents ($4.76) per share per annum; the fixed
redemption price on the shares of such series is $102 per share; the fixed
liquidation price on the shares of such series is $100 per share.
22. The $4.44 Preferred Stock. 150,000 shares of the authorized
-------------------------
stock classified as Preferred Stock as provided in Division A of this Article VI
shall constitute the twenty-second series of Preferred Stock and are designated
as $4.44 Preferred Stock; the fixed dividend rate on the shares of such series
is Four Dollars and Forty-four Cents ($4.44) per share per annum; the fixed
redemption price on the shares of such series is $102.61 per share; the fixed
liquidation price on the shares of such series is $100 per share.
23. The $7.80 Preferred Stock. All shares redeemed.
-------------------------
24. The $7.24 Preferred Stock. All shares redeemed.
-------------------------
25. The $8.20 Preferred Stock. All shares redeemed.
-------------------------
26. The $9.32 Preferred Stock. All shares redeemed.
-------------------------
27. The $8.68 Preferred Stock. All shares redeemed.
-------------------------
28. The $8.16 Preferred Stock. All shares redeemed.
-------------------------
29. The $8.84 Preferred Stock. All shares redeemed.
-------------------------
30. The $10.92 Preferred Stock. All shares redeemed.
--------------------------
31. The $10.08 Preferred Stock. All shares redeemed.
--------------------------
32. The $11.32 Preferred Stock. All shares redeemed.
--------------------------
33. The Adjustable Rate Cumulative Preferred Stock, Series A.
--------------------------------------------------------
884,700 shares of the authorized stock classified as Preferred Stock as provided
in Division A of this Article VI shall constitute the thirty-third series of
Preferred Stock and are designated as Adjustable Rate Cumulative Preferred
Stock, Series A, which series shall have, in addition to the general terms and
characteristics of all the authorized shares of Preferred Stock of the
Corporation, the following distinctive terms and characteristics: (a) The
thirty-third series of Preferred Stock shall have a dividend rate for the
initial dividend payment period ending July 31, 1984, at the rate of 11.04% per
annum, and for each subsequent quarterly dividend period at the Applicable Rate
(as hereinafter defined) from time to time in effect, provided that the dividend
rate on the thirty-third series of Preferred Stock for any dividend period shall
in no event be less than 6.50% per annum or
14
<PAGE>
greater than 13% per annum. Except as provided below in this paragraph, the
"Applicable Rate" for any dividend period will be 2.50% less than the highest of
(i) the Treasury Bill Rate, (ii) the Ten Year Constant Maturity Rate and (iii)
the Twenty Year Constant Maturity Rate (each as hereinafter defined) for such
dividend period. In the event that the Corporation determines in good faith that
for any reason one or more of such rates cannot be determined for any dividend
period, then the Applicable Rate for such dividend period shall be 2.50% less
than the higher of whichever of such rates can be so determined. In the event
that the Corporation determines in good faith that none of such rates can be
determined for any dividend period, then the Applicable Rate in effect for the
preceding dividend period shall be continued for such dividend period.
Except as provided below in this paragraph, the "Treasury Bill Rate"
for each dividend period will be the arithmetic average of the two most recent
weekly per annum secondary market discount rates (or the one weekly per annum
secondary market discount rate, if only one such rate shall be published during
the relevant Calendar Period (as defined below)) for three-month U. S.
Treasury bills, as published weekly by the Federal Reserve Board during the
Calendar Period immediately prior to the last ten calendar days of July,
October, January or April, as the case may be, prior to the dividend period for
which the Applicable Rate is being determined. In the event that the Federal
Reserve Board does not publish such a weekly per annum secondary market discount
rate during any such Calendar Period, then the Treasury Bill Rate for such
dividend period shall be the arithmetic average of the two most recent weekly
per annum secondary market discount rates (or the one weekly per annum secondary
market discount rate, if only one such rate shall be published during such
Calendar Period) for the three-month U. S. Treasury bills, as published weekly
during such Calendar Period by any Federal Reserve Bank or by any U. S.
Government department or agency selected by the Corporation. In the event that
a per annum secondary market discount rate for three-month U. S. Treasury bills
shall not be published by the Federal Reserve Board or by any Federal Reserve
Bank or by any U. S. Government department or agency during such Calendar
Period, then the Treasury Bill Rate for such dividend period shall be the
arithmetic average of the two most recent weekly per annum secondary market
discount rates (or the one weekly per annum secondary market discount rate, if
only one such rate shall be published during such Calendar Period) for all of
the U. S. Treasury bills then having maturities of not less than 80 nor more
than 100 days, as published during such Calendar Period by the Federal Reserve
Board or, if the Federal Reserve Board shall not publish such rates, by any
Federal Reserve Bank or by any U. S. Government department or agency selected by
the Corporation. In the event that the Corporation determines in good faith
that for any reason no such U. S. Treasury bill rates are published as provided
above during such Calendar Period, then the Treasury Bill Rate for such dividend
period shall be the arithmetic average of the per annum secondary market
discount rates based upon the closing bids during such Calendar Period for each
of the issues of marketable non-interest bearing U. S. Treasury securities with
a maturity of not
15
<PAGE>
less than 80 nor more than 100 days from the date of each such quotation, as
quoted daily for each business day in New York City (or less frequently if daily
quotations shall not be generally available) to the Corporation by at least
three recognized U. S. Government securities dealers selected by the
Corporation.
Except as provided below in this paragraph, the "Ten Year Constant
Maturity Rate" for each such dividend period shall be the arithmetic average of
the two most recent weekly per annum Ten Year Average Yields (as defined below)
(or the one weekly per annum Ten Year Average Yield, if only one such Yield
shall be published during the relevant Calendar Period as provided below), as
published weekly by the Federal Reserve Board during the Calendar Period
immediately prior to the last ten calendar days of July, October, January or
April, as the case may be, prior to the dividend period for which the Applicable
Rate is being determined. In the event that the Federal Reserve Board does not
publish such a weekly per annum Ten Year Average Yield during such Calendar
Period, then the Ten Year Constant Maturity Rate for such dividend period shall
be the arithmetic average of the two most recent weekly per annum Ten Year
Average Yields, (or the one weekly per annum Ten Year Average Yield, if only one
such yield shall be published during such Calendar Period), as published weekly
during such Calendar Period by any Federal Reserve Bank or by any U. S.
Government department or agency selected by the Corporation. In the event that
a per annum Ten Year Average Yield shall not be published by the Federal Reserve
Board or by any Federal Reserve Bank or by any U. S. Government department or
agency during such Calendar Period, then the Ten Year Constant Maturity Rate for
such dividend period shall be the arithmetic average of the two most recent
weekly per annum average yields to maturity (or the one weekly average yield to
maturity, if only one such yield shall be published during such Calendar Period)
for all of the actively traded marketable U. S. Treasury fixed interest rate
securities (other than Special Securities, as defined below) then having
maturities of not less than eight nor more than twelve years, as published
during such Calendar Period by the Federal Reserve Board or, if the Federal
Reserve Board shall not publish such yields, by any Federal Reserve Bank or by
any U. S. Government department or agency selected by the Corporation. In the
event that the Corporation determines in good faith that for any reason the
Corporation cannot determine the Ten Year Constant Maturity Rate for any
dividend period as provided above in this paragraph, then the Ten Year Constant
Maturity Rate for such dividend period shall be the arithmetic average of the
per annum average yields to maturity based upon the closing bids during such
Calendar Period for each of the issues of actively traded marketable U. S.
Treasury fixed interest rate securities (other than Special Securities) with a
final maturity date not less than eight nor more than twelve years from the date
of each such quotation, as quoted daily for each business day in New York City
(or less frequently if daily quotations shall not be generally available) to the
Corporation by at least three recognized U. S. Government securities dealers
selected by the Corporation.
Except as provided below in this paragraph, the "Twenty Year Constant
Maturity Rate" for each such dividend period shall be the arithmetic average of
the two most recent weekly per annum Twenty Year Average Yields (as defined
below) (or the one weekly per annum Twenty Year Average Yield, if only one such
Yield shall be published during the relevant Calendar Period), as published
weekly by the Federal Reserve Board during the Calendar Period immediately prior
to the last ten calendar days of July, October, January or April, as the case
may be, prior to the dividend period for which the Applicable Rate is being
determined. In the event that the Federal Reserve Board does not publish such a
weekly per annum Twenty Year Average Yield during such Calendar
16
<PAGE>
Period, then the Twenty Year Constant Maturity Rate for such dividend period
shall be the arithmetic average of the two most recent weekly per annum Twenty
Year Average Yields (or the one weekly per annum Twenty Year Average Yield, if
only one such Yield shall be published during such Calendar Period), as
published weekly during such Calendar Period by any Federal Reserve Bank or by
any U. S. Government department or agency selected by the Corporation. In the
event that a per annum Twenty Year Average Yield shall not be published by the
Federal Reserve Board or by any Federal Reserve Bank or by any U. S. Government
department or agency during such Calendar Period, then the Twenty Year Constant
Maturity Rate for such dividend period shall be the arithmetic average of the
two most recent weekly per annum average yields to maturity (or the one weekly
average yield to maturity, if only one such yield shall be published during such
Calendar Period) for all of the actively traded marketable U. S. Treasury fixed
interest rate securities (other than Special Securities) then having maturities
of not less than eighteen nor more than twenty-two years, as published during
such Calendar Period by the Federal Reserve Board or, if the Federal Reserve
Board shall not publish such yields, by any Federal Reserve Bank or by any U. S.
Government department or agency selected by the Corporation. In the event that
the Corporation determines in good faith that for any reason the Corporation
cannot determine the Twenty Year Constant Maturity Rate for any dividend period
as provided above in this paragraph, then the Twenty Year Constant Maturity Rate
for such dividend period shall be the arithmetic average of the per annum
average yields to maturity based upon the closing bids during such Calendar
Period for each of the issues of actively traded marketable U. S. Treasury fixed
interest rate securities (other than Special Securities) with a final maturity
date not less than eighteen nor more than twenty-two years from the date of each
such quotation, as quoted daily for each business day in New York City (or less
frequently if daily quotations shall not be generally available) to the
Corporation by at least three recognized U. S. Government securities dealers
selected by the Corporation.
The Treasury Bill Rate, the Ten Year Constant Maturity Rate and the
Twenty Year Constant Maturity Rate shall each be rounded to the nearest five
one-hundredths of a percentage point.
The amount of dividends per share payable for each dividend period
shall be computed by dividing the Applicable Rate for such period by four and
applying the rate derived from such division against the fixed liquidation price
of $100 per share of the thirty-third series. The amount of dividends payable
for any period shorter than a full quarterly dividend period and for the initial
dividend period shall be computed on the basis of a 360-day year of 30-day
months and the actual number of days which have elapsed in such period.
The Applicable Rate with respect to each dividend period will be
calculated as promptly as practicable by the Corporation according to the
appropriate method described herein. The mathematical accuracy of each such
calculation will be confirmed in writing by independent accountants of
recognized standing. The Corporation will cause each dividend rate to be
published in a newspaper of general circulation in New York City prior to the
commencement of the new dividend period to which it applies and will cause
notice of such Applicable Rate to be mailed to the holders of the thirty-third
series.
As used herein, the term "Calendar Period" means a period of fourteen
calendar days; the term "Special Securities" means securities which can, at the
option of the holder, be surrendered at face value in payment of any Federal
estate tax or which provide tax benefits to the holder and are priced to reflect
such tax benefits or which were originally issued at a deep or substantial
discount;
17
<PAGE>
the term "Ten Year Average Yield" means the average yield to maturity for
actively traded marketable U. S. Treasury fixed interest rate securities
(adjusted to constant maturities of ten years); and the term "Twenty Year
Average Yield" means the average yield to maturity for actively traded
marketable U. S. Treasury fixed interest rate securities (adjusted to constant
maturities of twenty years).
(b) Said thirty-third series shall not be redeemable prior to June 1,
1989; and on and after that date shall be redeemable at any time, in whole or in
part, at $103 per share, if redeemed prior to June 1, 1994, and, if redeemed
thereafter, at $100 per share, plus in each case accrued and unpaid dividends to
the redemption date.
(c) The amount payable upon the shares of said thirty-third series in
the event of involuntary dissolution, liquidation or winding up of the
Corporation shall be $100 per share plus an amount equivalent to the accrued and
unpaid dividends thereon, if any, to the date of such involuntary dissolution,
liquidation or winding up, and the amount payable upon shares of said thirty-
third series in the event of voluntary dissolution, liquidation or winding up of
the Corporation shall be an amount equivalent to the then redemption price
(including an amount equivalent to accumulated and unpaid dividends thereon, if
any) of shares of said thirty-third series.
34. The Adjustable Rate Cumulative Preferred Stock, Series B. All
--------------------------------------------------------
shares redeemed.
35. The $9.48 Cumulative Preferred Stock. All shares redeemed.
------------------------------------
36. The $8.92 Cumulative Preferred Stock. All shares redeemed.
------------------------------------
37. The $10.00 Cumulative Preferred Stock. All shares redeemed.
-------------------------------------
38. The Stated Rate Auction Preferred Stock, Series A. All
-------------------------------------------------
shares redeemed.
39. The $9.64 Cumulative Preferred Stock. All shares redeemed.
------------------------------------
40. The Flexible Adjustable Rate Preferred Stock, Series A. All
------------------------------------------------------
shares redeemed.
41. The Flexible Adjustable Rate Preferred Stock, Series B. All
------------------------------------------------------
shares redeemed.
42. The $10.375 Cumulative Preferred Stock. All shares redeemed.
--------------------------------------
43. The $9.875 Cumulative Preferred Stock. All shares redeemed.
-------------------------------------
44. The $8.20 Cumulative Preferred Stock. 338,872.25 shares of the
------------------------------------
authorized stock classified as Preferred Stock as provided in Division A of this
Article VI shall constitute the forty-fourth series of Preferred Stock and are
designated as $8.20 Cumulative Preferred Stock, which series shall have, in
addition to the general terms and characteristics of all the authorized shares
of Preferred Stock of the Company, the following distinctive terms and
characteristics:
18
<PAGE>
(a) The forty-fourth series of Preferred Stock shall have a fixed
dividend rate of Eight Dollars and Twenty Cents ($8.20) per share per annum; and
dividends on shares of the forty-fourth series of Preferred Stock shall be
cumulative from the date of issuance and shall be payable on the first days of
January, April, July and October in each year, commencing April 1, 1993;
(b) Said forty-fourth series shall not be redeemable prior to January
1, 1998; and on and after that date the fixed redemption price on the shares of
such forty-fourth series shall be $100.00 per share plus unpaid and accumulated
dividends, if any, to the redemption date;
(c) The amount payable upon the shares of said forty-fourth series in
the event of voluntary or involuntary dissolution, liquidation or winding up of
the Company shall be $100 per share plus an amount equivalent to the unpaid and
accumulated dividends thereon, if any, to the date of such voluntary or
involuntary dissolution, liquidation or winding up.
45. The $7.98 Cumulative Preferred Stock. 474,000 shares of the
------------------------------------
authorized stock classified as Preferred Stock as provided in Division A of this
Article VI shall constitute the forty-fifth series of Preferred Stock and are
designated as $7.98 Cumulative Preferred Stock, which series shall have, in
addition to the general terms and characteristics of all the authorized shares
of Preferred Stock of the Company, the following distinctive terms and
characteristics:
(a) The forty-fifth series of Preferred Stock shall have a fixed
dividend rate of Seven Dollars and Ninety-Eight Cents ($7.98) per share per
annum. Dividends on shares of the forty-fifth series of Preferred Stock shall
be cumulative from the date of issuance and shall be payable on the first days
of January, April, July and October in each year commencing July 1, 1993.
(b) Said forty-fifth series shall not be redeemable prior to April 1,
2003; and on and after that date the fixed redemption price on the shares of
such forty-fifth series shall be $103.99 per share if redeemed after March 31,
2003, but on or prior to March 31, 2004, $103.59 per share if redeemed after
March 31, 2004, but on or prior to March 31, 2005, $103.19 per share if redeemed
after March 31, 2005, but on or prior to March 31, 2006, $102.79 per share if
redeemed after March 31, 2006, but on or prior to March 31, 2007, $102.39 per
share if redeemed after March 31, 2007, but on or prior to March 31, 2008,
$101.99 per share if redeemed after March 31, 2008, but on or prior to March 31,
2009, $101.60 per share if redeemed after March 31, 2009, but on or prior to
March 31, 2010, $101.20 per share if redeemed after March 31, 2010, but
on or prior to March 31, 2011, $100.80 per share if redeemed after March 31,
2011, but on or prior to March 31, 2012, $100.40 per share if redeemed after
March 31, 2012, but on or prior to March 31, 2013, and $100.00 per share if
redeemed after March 31, 2013, plus in each case unpaid and accumulated
dividends, if any, to the redemption date.
(c) The amount payable upon the shares of said forty-fifth series in
the event of voluntary or involuntary dissolution, liquidation or winding up of
the Company shall be $100 per share plus an amount equivalent to the unpaid and
accumulated dividends thereon, if any, to the date of such voluntary or
involuntary dissolution, liquidation or winding up.
46. The $6.98 Cumulative Preferred Stock. 1,000,000 shares of the
------------------------------------
authorized stock classified as Preferred Stock as provided in Division A of this
Article VI shall constitute the forty-sixth series of Preferred Stock and are
designated as $6.98 Cumulative Preferred Stock, which series shall have, in
addition to the general terms and characteristics of all the authorized shares
of Preferred Stock of the Company, the following distinctive terms and
characteristics:
19
<PAGE>
(a) The forty-sixth series of Preferred Stock shall have a fixed
dividend rate of Six Dollars and Ninety-Eight Cents ($6.98) per share per annum.
Dividends on shares of the forty-sixty series of Preferred Stock shall be
cumulative from the date of issuance and shall be payable on the first days of
January, April, July and October in each year commencing July 1, 1993.
(b) Said forty-sixth series shall not be redeemable prior to July 1,
2003; and on and after that date the fixed redemption price on the shares of
such forty-sixth series shall be $100 per share plus unpaid and accumulated
dividends, if any, to the redemption date.
(c) The amount payable upon the shares of said forty-sixth series in
the event of voluntary or involuntary dissolution, liquidation or winding up of
the Company shall be $100 per share plus an amount equivalent to the unpaid and
accumulated dividends thereon, if any, to the date of such voluntary or
involuntary dissolution, liquidation or winding up.
(d) The $6.98 Cumulative Preferred Stock shall be subject to
redemption as and for a sinking fund pursuant to which the Company will redeem
50,000 shares of the $6.98 Cumulative Preferred Stock, out of funds legally
available therefor, annually, on July 1, in each year commencing with the year
2003 and ending in the year 2007 and all the remaining outstanding shares of
$6.98 Cumulative Preferred Stock on July 1, 2008 (each such date being
hereinafter referred to as a "$6.98 Cumulative Preferred Stock Sinking Fund
Redemption Date"), at a price equal to $100 per share, plus an amount equal to
the unpaid and accumulated dividends on such share, if any, to the date of
redemption (the obligation of the Company so to redeem the shares of the $6.98
Cumulative Preferred Stock, being hereinafter referred to as the "$6.98
Cumulative Preferred Stock Sinking Fund Obligation"); the $6.98 Cumulative
Preferred Stock Sinking Fund Obligation during the specified period will be
cumulative; if on any $6.98 Cumulative Preferred Stock Sinking Fund Redemption
Date, the Company shall not have funds legally available therefor sufficient to
redeem the full number of shares required to be redeemed on that date, the $6.98
Cumulative Preferred Stock Sinking Fund Obligation with respect to the shares
not redeemed shall carry forward to each successive $6.98 Cumulative Preferred
Stock Sinking Fund Redemption Date and each successive July 1 thereafter until
such shares shall have been redeemed; whenever on any $6.98 Cumulative Preferred
Stock Sinking Fund Redemption Date, the funds of the Company legally available
for the satisfaction of the $6.98 Cumulative Preferred Stock Sinking Fund
Obligation and all other sinking fund, mandatory redemption and similar
obligations then existing with respect to any other class or series of its stock
ranking on a parity as to dividends or assets with the $6.98 Cumulative
Preferred Stock (such Obligation and obligations collectively being hereinafter
referred to as the "Total Sinking Fund Obligation") are insufficient to permit
the Company to satisfy fully its Total Sinking Fund Obligation on that date, the
Company shall apply to the satisfaction of its $6.98 Cumulative Preferred Stock
Sinking Fund Obligation on that date that proportion of such legally available
funds which is equal to the ratio of such $6.98 Cumulative Preferred Stock
Sinking Fund Obligation to such Total Sinking Fund Obligation; the Company may,
however, credit against the $6.98 Cumulative Preferred Stock Sinking Fund
Obligation for any year shares of the $6.98 Cumulative Preferred Stock
(including shares of the $6.98 Cumulative Preferred Stock optionally redeemed as
hereinbefore set forth) redeemed in any manner (other than shares of the $6.98
Cumulative Preferred Stock redeemed pursuant to the $6.98 Cumulative Preferred
Stock Sinking Fund Obligation), purchased or otherwise acquired, and not
previously credited against its $6.98 Cumulative Preferred Stock Sinking Fund
Obligation; notwithstanding the above, the Company shall in no event apply any
funds to the satisfaction of its $6.98 Cumulative Preferred Stock Sinking Fund
Obligation, on any $6.98
20
<PAGE>
Cumulative Preferred Stock Sinking Fund Redemption Date, unless and until all
dividends accrued and payable on all then outstanding shares of the $6.98
Cumulative Preferred Stock and all other series of the Company's Preferred Stock
shall have been paid or funds shall have been set apart for their payment for
all past quarterly dividend periods ending on or before said $6.98 Cumulative
Preferred Stock Sinking Fund Redemption Date; the Company will have the option
on July 1, in each year, commencing with the year 2003, to redeem up to an
additional 50,000 shares of the $6.98 Cumulative Preferred Stock, at a price
equal to $100 per share plus an amount equal to the unpaid and accumulated
dividends on such share, if any, to the date of redemption; the Company's option
to redeem up to an additional 50,000 shares of the $6.98 Cumulative Preferred
Stock during the specified period shall be noncumulative.
47. The $7.50 Cumulative Preferred Stock. 392,233.50 shares of the
------------------------------------
authorized stock classified as Preferred Stock as provided in Division A of this
Article VI shall constitute the forty-seventh series of Preferred Stock and are
designated as $7.50 Cumulative Preferred Stock, which series shall have, in
addition to the general terms and characteristics of all the authorized shares
of Preferred Stock of the Company, the following distinctive terms and
characteristics:
(a) The forty-seventh series of Preferred Stock shall have a fixed
dividend rate of Seven Dollars and Fifty Cents ($7.50) per share per annum; and
dividends on shares of the forty-seventh series of Preferred Stock shall be
cumulative from the date of issuance and shall be payable on the first days of
January, April, July and October in each year, commencing October 1, 1993;
(b) Said forty-seventh series shall not be redeemable prior to August
1, 2001; and on and after that date the fixed redemption price on the shares of
such forty-seventh series shall be $100 per share plus unpaid and accumulated
dividends, if any, to the redemption date;
(c) The amount payable upon the shares of said forty-seventh series
in the event of voluntary or involuntary dissolution, liquidation or winding up
of the Company shall be $100 per share plus an amount equivalent to the unpaid
and accumulated dividends thereon, if any, to the date of such voluntary or
involuntary dissolution, liquidation or winding up.
48. The $6.375 Cumulative Preferred Stock. 1,000,000 shares of the
-------------------------------------
authorized stock classified as Preferred Stock as provided in Division A of this
Article VI shall constitute the forty-eighth series of Preferred Stock and are
designated as $6.375 Cumulative Preferred Stock, which series shall have, in
addition to the general terms and characteristics of all the authorized shares
of Preferred Stock of the Company, the following distinctive terms and
characteristics:
(a) The forty-eighth series of Preferred Stock shall have a fixed
dividend rate of Six Dollars and Thirty-seven and One-half Cents ($6.375) per
share per annum. Dividends on shares of the forty-eighth series of Preferred
Stock shall be cumulative from the date of issuance and shall be payable on the
first days of January, April, July and October in each year commencing
January 1, 1994.
(b) Said forty-eighth series shall not be redeemable prior to October
1, 2003; and on and after that date the fixed redemption price on the shares of
such forty-eighth series shall be $100 per share plus unpaid and accumulated
dividends, if any, to the redemption date.
(c) The amount payable upon the shares of said forty-eighth series in
the event of voluntary or involuntary dissolution, liquidation or winding up of
the Company shall be $100 per share plus an amount equivalent to the unpaid and
accumulated dividends thereon, if any, to the date
21
<PAGE>
of such voluntary or involuntary dissolution, liquidation or winding up.
(d) The $6.375 Cumulative Preferred Stock shall be subject to
redemption as and for a sinking fund pursuant to which the Company will redeem
50,000 shares of the $6.375 Cumulative Preferred Stock, out of funds legally
available therefor, annually, on October 1, in each year commencing with the
year 2003 and ending in the year 2007 and all the remaining outstanding shares
of $6.375 Cumulative Preferred Stock on October 1, 2008 (each such date being
hereinafter referred to as a "$6.375 Cumulative Preferred Stock Sinking Fund
Redemption Date"), at a price equal to $100 per share, plus an amount equal to
the unpaid and accumulated dividends on such share, if any, to the date of
redemption (the obligation of the Company so to redeem the shares of the $6.375
Cumulative Preferred Stock being hereinafter referred to as the "$6.375
Cumulative Preferred Stock Sinking Fund Obligation"); the $6.375 Cumulative
Preferred Stock Sinking Fund Obligation during the specified period will be
cumulative; if on any $6.375 Cumulative Preferred Stock Sinking Fund Redemption
Date, the Company shall not have funds legally available therefor sufficient to
redeem the full number of shares required to be redeemed on that date, the
$6.375 Cumulative Preferred Stock Sinking Fund Obligation with respect to the
shares not redeemed shall carry forward to each successive $6.375 Cumulative
Preferred Stock Sinking Fund Redemption Date and each successive October 1
thereafter until such shares shall have been redeemed; whenever on any $6.375
Cumulative Preferred Stock Sinking Fund Redemption Date, the funds of the
Company legally available for the satisfaction of the $6.375 Cumulative
Preferred Stock Sinking Fund Obligation and all other sinking fund, mandatory
redemption and similar obligations then existing with respect to any other class
or series of its stock ranking on a parity as to dividends or assets with the
$6.375 Cumulative Preferred Stock (such Obligation and obligations collectively
being hereinafter referred to as the "Total Sinking Fund Obligation") are
insufficient to permit the Company to satisfy fully its Total Sinking Fund
Obligation on that date, the Company shall apply to the satisfaction of its
$6.375 Cumulative Preferred Stock Sinking Fund Obligation on that date that
proportion of such legally available funds which is equal to the ratio of such
$6.375 Cumulative Preferred Stock Sinking Fund Obligation to such Total Sinking
Fund Obligation; the Company may, however, credit against the $6.375 Cumulative
Preferred Stock Sinking Fund Obligation for any year shares of the $6.375
Cumulative Preferred Stock (including shares of the $6.375 Cumulative Preferred
Stock optionally redeemed as hereinbefore set forth) redeemed in any manner
(other than shares of the $6.375 Cumulative Preferred Stock redeemed pursuant to
the $6.375 Cumulative Preferred Stock Sinking Fund Obligation), purchased or
otherwise acquired, and not previously credited against its $6.375 Cumulative
Preferred Stock Sinking Fund Obligation; notwithstanding the above, the Company
shall in no event apply any funds to the satisfaction of its $6.375 Cumulative
Preferred Stock Sinking Fund Obligation, on any $6.375 Cumulative Preferred
Stock Sinking Fund Redemption Date, unless and until all dividends accrued and
payable on all then outstanding shares of the $6.375 Cumulative Preferred Stock
and all other series of the Company's Preferred Stock shall have been paid or
funds shall have been set apart for their payment for all past quarterly
dividend periods ending on or before said $6.375 Cumulative Preferred Stock
Sinking Fund Redemption Date.
49. The $7.22 Cumulative Preferred Stock. 301,132.50 shares of the
------------------------------------
authorized stock classified as Preferred Stock as provided in Division A of this
Article VI shall constitute the forty-ninth series of Preferred Stock and are
designated as $7.22 Cumulative Preferred Stock, which series shall have, in
addition to the general terms and characteristics of all the authorized shares
of
22
<PAGE>
Preferred Stock of the Company, the following distinctive terms and
characteristics:
(a) The forty-ninth series of Preferred Stock shall have a fixed
dividend rate of Seven Dollars and Twenty-two Cents ($7.22) per share per annum;
and dividends on shares of the forty-ninth series of Preferred Stock shall be
cumulative from the date of issuance and shall be payable on the first days of
January, April, July and October in each year, commencing January 1, 1994;
(b) Said forty-ninth series shall not be redeemable prior to November
1, 2001; and on and after that date the fixed redemption price on the shares of
such forty-ninth series shall be $100 per share plus unpaid and accumulated
dividends, if any, to the redemption date;
(c) The amount payable upon the shares of said forty-ninth series in
the event of voluntary or involuntary dissolution, liquidation or winding up of
the Company shall be $100 per share plus an amount equivalent to the unpaid and
accumulated dividends thereon, if any, to the date of such voluntary or
involuntary dissolution, liquidation or winding up.
Division C --- Common Stock
Subject to the rights expressly conferred upon the holders of
Preferred Stock, under prescribed conditions, by this Article VI, and
subordinate thereto, the holders of the Common Stock alone shall:
1. Receive all dividends declared by the Board of Directors;
provided, however, so long as any shares of the Preferred Stock are outstanding,
the Corporation shall not declare or pay any dividends on the Common Stock,
except as follows:
(a) If and so long as the Common Stock Equity at the end of the
calendar month immediately preceding the date on which a dividend
on Common Stock is declared is, or as a result of such dividend
would become, less than 20% of total capitalization, the
Corporation shall not declare such dividends in an amount which,
together with all other dividends on Common Stock declared within
the year ending with and including the date of such dividend
declaration, exceeds 75% of the net income of the Corporation
available for dividends on the Common Stock for the twelve full
calendar months immediately preceding the month in which such
dividends are declared.
For the purpose of this Section 1, (i) the term "Common Stock Equity"
shall mean the sum of the stated value of the outstanding Common Stock and the
retained earnings, including reservations thereof, and other paid-in capital of
the Corporation, whether or not available for the payment of dividends on the
Common Stock; (ii) the term "total capitalization" shall mean the sum of the
stated capital applicable to the outstanding stock of all classes of the
Corporation, the retained earnings, including reservations thereof, and other
paid-in capital of the Corporation, whether or not available for the payment of
dividends on the Common Stock of the Corporation, and the principal amount of
all outstanding debt of the Corporation (other than any obligation or liability
which, by its terms or otherwise, is non-recourse to the Corporation whether or
not such obligation or liability is reflected in the financial statements of the
Corporation) maturing more than twelve months after the date of the
determination of the total capitalization; and (iii) the term "dividends on
Common Stock" shall embrace dividends on Common Stock (other than dividends
payable only in shares of Common Stock), distributions on, and purchases or
other acquisitions for value of, any Common Stock of the
23
<PAGE>
Corporation or other stock, if any, subordinate to the Preferred Stock.
2. Receive all assets of the Corporation available for distribution
to its shareholders in the event of any liquidation, dissolution, or winding up
of the Corporation. The Board of Directors, by vote of a majority of the
members thereof, may distribute in kind to the holders of the Common Stock such
remaining assets of the Corporation, or may sell, transfer or otherwise dispose
of all or any of the remaining property and assets of the Corporation to any
other corporation or other purchaser and receive payment therefor wholly or
partially in cash, property, stock or obligations of such purchaser, and may
sell all or any part of the consideration received therefor and distribute the
same or the proceeds thereof to the holders of the Common Stock.
3. Possess exclusively full voting power for the election of
directors and for all other purposes except as otherwise provided herein.
Division D --- Provisions Applicable to All Classes of Stock
1. Pre-emptive Rights. Upon any issue or sale for money or other
------------------
consideration of any stock of this Corporation that may be authorized from time
to time, no holder of stock irrespective of the kind of such stock shall have
any pre-emptive or other right to subscribe for, purchase or receive any
proportionate or other share of the stock so issued or sold (including treasury
shares), but the Board of Directors may dispose of all or any portion of such
stock as and when it may determine free of any such rights, whether by offering
the same to shareholders or by sale or other disposition as said Board may deem
advisable; provided, however, that if the Board of Directors shall determine to
offer any new or additional shares of Common Stock, or any security convertible
into Common Stock, for money, other than by a public offering of all of such
shares or an offering of all of such shares to or through underwriters or
investment bankers who shall have agreed promptly to make a public offering of
such shares, the same shall first be offered pro rata to the holders of the then
outstanding shares of Common Stock of the Corporation upon terms not less
favorable to the purchaser (without deduction of such reasonable compensation,
allowance or discount for the sale, underwriting or purchase as may be fixed
thereafter by the Board of Directors) than those on which the Board of Directors
issues and disposes of such stock or securities to other than such holders of
Common Stock; and provided further, that the time within which such pre-emptive
rights shall be exercised may be limited by the Board of Directors to such time
as the said Board may deem proper, not less, however, than twenty days after
mailing of notice that such stock rights are available and may be exercised.
The foregoing provisions of this paragraph shall not be changed unless the
holders of record of not less than two-thirds (2/3) of the number of shares of
Common Stock then outstanding shall consent thereto in writing or by voting
therefor in person or by proxy at the meeting of stockholders at which any such
change is considered.
2. Votes Per Share. Unless otherwise expressly provided in the
---------------
resolution of the Board of Directors of the Corporation establishing a series of
Preferred Stock, any shareholder of the Corporation having the right to vote at
any meeting of the shareholders or of any class or series thereof, as herein
provided, shall be entitled to one vote for each share of stock held by him.
There shall be no cumulative voting by any class, series, or shares of stock of
this Corporation.
24
<PAGE>
3. Increase of Capital Stock. The capital stock of the Corporation
-------------------------
may be increased at any time, and from time to time, upon the vote of the
holders of record of not less than a majority of the aggregate number of shares
of the capital stock of the Corporation then outstanding and having power to
vote upon such increase.
ARTICLE VII
-----------
The Corporation from time to time, subject to the limitations or
requirements hereinabove provided and to the extent it may lawfully do so, may
purchase any of its stock outstanding at such price as may be authorized by its
Board of Directors and accepted by the holders of the stock purchased, and may
resell any stock so purchased or otherwise acquired by it at such price as may
be authorized by its said Board of Directors.
ARTICLE VIII
------------
Subject to the other provisions hereof, in order to acquire funds with
which to make any redemption or purchase of stock herein authorized, the
Corporation, subject to the limitations or requirements hereinabove provided and
to the extent it may lawfully do so, may issue and sell Common Stock or
Preferred Stock of any class then authorized but unissued, or bonds, notes, or
other evidences of indebtedness convertible or not into Common Stock or stock of
any other class then authorized but unissued.
ARTICLE IX
----------
The Corporation shall reimburse or indemnify any former, present or
future director, officer or employee of the Corporation, or any person who may
have served at its request as a director, officer or employee of another
corporation, or any former, present or future director, officer or employee of
the Corporation who shall have served or shall be serving as an administrator,
agent or fiduciary for the Corporation or for another corporation at the request
of the Corporation (and his heirs, executors and administrators) from and
against all expenses and liabilities incurred by him or them, or imposed on him
or them, including, but not limited to, judgments, settlements, court costs and
attorneys' fees, in connection with, or arising out of, the defense of any
action, suit or proceeding in which he may be involved by reason of his being or
having been such director, officer or employee, except with respect to matters
as to which he shall be adjudged in such action, suit or proceeding to be liable
because he did not act in good faith, or because of dishonesty or conflict of
interest in the performance of his duty.
No former, present or future director, officer or employee of the
Corporation (or his heirs, executors and administrators) shall be liable for any
act, omission, step or conduct taken or had in good faith, which is required,
authorized or approved by any order or orders issued pursuant to the Public
Utility Holding Company Act of 1935, the Federal Power Act, or any other federal
or state statute regulating the Corporation or its subsidiaries, or any
amendments to any thereof. In any action, suit or proceeding based on any act,
omission, step or conduct, as in this paragraph described, the provisions hereof
shall be brought to the attention of the court. In the event that the foregoing
provisions of this paragraph are found by the court not to constitute a valid
defense, each such
25
<PAGE>
director, officer or employee (and his heirs, executors and administrators)
shall be reimbursed for, or indemnified against, all expenses and liabilities
incurred by him or them, or imposed on him or them, including, but not limited
to, judgments, settlements, court costs and attorneys' fees, in connection with,
or arising out of, any such action, suit or proceeding based on any act,
omission, step or conduct taken or had in good faith as in this paragraph
described.
The foregoing rights shall not be exclusive of other rights to which
any such director, officer or employee (or his heirs, executors and
administrators) may otherwise be entitled under any bylaw, agreement, vote of
shareholders or otherwise, and shall be available whether or not the director,
officer or employee continues to be a director, officer or employee at the time
of incurring such expenses and liabilities. In furtherance, and not in
limitation of the foregoing provisions of this Article IX, the Corporation may
indemnify and insure any such persons to the fullest extent permitted by the
Texas Business Corporation Act, as amended from time to time, or the laws of the
State of Texas, as in effect from time to time.
ARTICLE X
---------
A director of the Corporation shall not be liable to the Corporation
or its shareholders for monetary damages for any act or omission in the
director's capacity as a director, except that this provision does not eliminate
or limit liability of a director for:
(a) a breach of a director's duty of loyalty to the Corporation or
its shareholders;
(b) an act or omission not in good faith that constitutes a breach of
duty of a director to the Corporation or an act or omission that
involved intentional misconduct or a knowing violation of the law;
(c) a transaction from which a director received an improper benefit,
whether or not the benefit resulted from an action taken within the
scope of the director's office; or
(d) an act or omission for which the liability of a director is
expressly provided for by statute.
If the laws of the State of Texas are amended to authorize action
further eliminating or limiting the personal liability of directors, then the
liability of a director of the Corporation shall be eliminated or limited to the
fullest extent permitted by such laws as so amended. Any repeal or modification
of this Article X shall not adversely affect any right of protection of a
director of the Corporation existing at the time of such repeal or modification.
ARTICLE XI
----------
The power to alter, amend or repeal the Bylaws of the Corporation, or
to adopt new Bylaws, is hereby delegated to the Board of Directors subject to
repeal or change by action of the shareholders.
ARTICLE XII
-----------
The Corporation has heretofore complied with the requirements of law
as to the initial minimum capital requirements without which it could not
commence business under the Texas Business Corporation Act.
26
<PAGE>
EXHIBIT 4(b)
[CONFORMED COPY]
================================================================================
TEXAS UTILITIES ELECTRIC COMPANY
TO
THE BANK OF NEW YORK,
(FORMERLY IRVING TRUST COMPANY)
TRUSTEE UNDER THE TEXAS UTILITIES
ELECTRIC COMPANY MORTGAGE AND
DEED OF TRUST, DATED AS OF
DECEMBER 1, 1983
__________________
FIFTY-EIGHTH SUPPLEMENTAL INDENTURE
PROVIDING AMONG OTHER THINGS FOR
FIRST MORTGAGE BONDS,
POLLUTION CONTROL SERIES AH
FIRST MORTGAGE BONDS,
POLLUTION CONTROL SERIES AI
AND
FIRST MORTGAGE BONDS,
POLLUTION CONTROL SERIES AJ
__________________
DATED AS OF JULY 1, 1997
THIS INSTRUMENT GRANTS A SECURITY INTEREST BY A UTILITY
THIS INSTRUMENT CONTAINS AFTER-ACQUIRED PROPERTY PROVISIONS
<PAGE>
THIS INSTRUMENT GRANTS A SECURITY INTEREST BY A UTILITY
THIS INSTRUMENT CONTAINS AFTER-ACQUIRED PROPERTY PROVISIONS
FIFTY-EIGHTH SUPPLEMENTAL INDENTURE
_________________________________
INDENTURE, dated as of July 1, 1997, between TEXAS UTILITIES ELECTRIC
COMPANY, a corporation of the State of Texas, whose address is Energy Plaza,
1601 Bryan Street, Dallas, Texas 75201 (hereinafter sometimes called the
Company), and THE BANK OF NEW YORK (formerly Irving Trust Company), a
corporation of the State of New York, whose address is 101 Barclay Street, New
York, New York 10286 (hereinafter sometimes called the Trustee), Trustee under
the Mortgage and Deed of Trust, dated as of December 1, 1983 (hereinafter called
the Original Indenture, the Original Indenture and any and all indentures and
instruments supplemental thereto being hereinafter sometimes collectively called
the Mortgage), which Original Indenture was executed and delivered by the
Company to secure the payment of bonds issued or to be issued under and in
accordance with the provisions of the Mortgage, reference to which Mortgage is
made, this Indenture (hereinafter called the Fifty-eighth Supplemental
Indenture) being supplemental thereto;
WHEREAS, said Original Indenture was recorded or filed as required in the
State of Texas; and
WHEREAS, the Company executed and delivered to the Trustee the following
supplemental indentures:
<TABLE>
<CAPTION>
DESIGNATION DATED AS OF
----------- -----------
<S> <C>
First Supplemental Indenture............................. April 1, 1984
Second Supplemental Indenture............................ September 1, 1984
Third Supplemental Indenture............................. April 1, 1985
Fourth Supplemental Indenture............................ August 1, 1985
Fifth Supplemental Indenture............................. September 1, 1985
Sixth Supplemental Indenture............................. December 1, 1985
Seventh Supplemental Indenture........................... March 1, 1986
Eighth Supplemental Indenture............................ May 1, 1986
Ninth Supplemental Indenture............................. October 1, 1986
Tenth Supplemental Indenture............................. December 1, 1986
Eleventh Supplemental Indenture.......................... December 1, 1986
Twelfth Supplemental Indenture........................... February 1, 1987
Thirteenth Supplemental Indenture........................ March 1, 1987
Fourteenth Supplemental Indenture........................ April 1, 1987
Fifteenth Supplemental Indenture......................... July 1, 1987
Sixteenth Supplemental Indenture......................... September 1, 1987
Seventeenth Supplemental Indenture....................... October 1, 1987
Eighteenth Supplemental Indenture........................ March 1, 1988
Nineteenth Supplemental Indenture........................ May 1, 1988
</TABLE>
<PAGE>
2
<TABLE>
<CAPTION>
DESIGNATION DATED AS OF
----------- -----------
<S> <C>
Twentieth Supplemental Indenture......................... September 1, 1988
Twenty-first Supplemental Indenture...................... November 1, 1988
Twenty-second Supplemental Indenture..................... January 1, 1989
Twenty-third Supplemental Indenture...................... August 1, 1989
Twenty-fourth Supplemental Indenture..................... November 1, 1989
Twenty-fifth Supplemental Indenture...................... December 1, 1989
Twenty-sixth Supplemental Indenture...................... February 1, 1990
Twenty-seventh Supplemental Indenture.................... September 1, 1990
Twenty-eighth Supplemental Indenture..................... October 1, 1990
Twenty-ninth Supplemental Indenture...................... October 1, 1990
Thirtieth Supplemental Indenture......................... March 1, 1991
Thirty-first Supplemental Indenture...................... May 1, 1991
Thirty-second Supplemental Indenture..................... July 1, 1991
Thirty-third Supplemental Indenture...................... February 1, 1992
Thirty-fourth Supplemental Indenture..................... April 1, 1992
Thirty-fifth Supplemental Indenture...................... April 1, 1992
Thirty-sixth Supplemental Indenture...................... June 1, 1992
Thirty-seventh Supplemental Indenture.................... June 1, 1992
Thirty-eighth Supplemental Indenture..................... August 1, 1992
Thirty-ninth Supplemental Indenture...................... October 1, 1992
Fortieth Supplemental Indenture.......................... November 1, 1992
Forty-first Supplemental Indenture....................... December 1, 1992
Forty-second Supplemental Indenture...................... March 1, 1993
Forty-third Supplemental Indenture....................... April 1, 1993
Forty-fourth Supplemental Indenture...................... April 1, 1993
Forty-fifth Supplemental Indenture....................... May 1, 1993
Forty-sixth Supplemental Indenture....................... July 1, 1993
Forty-seventh Supplemental Indenture..................... October 1, 1993
Forty-eighth Supplemental Indenture...................... November 1, 1993
Forty-ninth Supplemental Indenture....................... May 1, 1994
Fiftieth Supplemental Indenture.......................... May 1, 1994
Fifty-first Supplemental Indenture....................... August 1, 1994
Fifty-second Supplemental Indenture...................... April 1, 1995
Fifty-third Supplemental Indenture....................... June 1, 1995
Fifty-fourth Supplemental Indenture...................... October 1, 1995
Fifty-fifth Supplemental Indenture....................... March 1, 1996
Fifty-sixth Supplemental Indenture....................... September 1, 1996
Fifty-seventh Supplemental Indenture..................... February 1, 1997
</TABLE>
which supplemental indentures were or are to be recorded or filed as required in
the State of Texas; and
WHEREAS, by the Original Indenture, the Company covenanted that it would
execute and deliver such supplemental indenture or indentures and such further
instruments and do such further acts as may be necessary or proper to carry out
more effectually the purposes of the Mortgage and to make subject to the Lien of
the Mortgage any property thereafter acquired and intended to be subject to the
Lien thereof; and
<PAGE>
3
WHEREAS, in addition to the property described in the Original Indenture,
the Company has acquired certain other property, rights and interests in
property; and
WHEREAS, the Company has heretofore issued as of June 30, 1997, in
accordance with the provisions of the Original Indenture, as heretofore
supplemented, the following series of First Mortgage and Collateral Trust Bonds
and First Mortgage Bonds:
<TABLE>
<CAPTION>
Principal Principal
Amount Amount
Series Issued Outstanding
------ -------------- --------------
<S> <C> <C>
12% Series due March 1, 1985......................$ 1,000,000 $ None
13 5/8% Series due April 1, 2014.................. 100,000,000 None
13 1/2% Series due September 1, 2014.............. 150,000,000 None
12 7/8% Series due April 1, 2015.................. 150,000,000 None
12% Series due August 1, 2015..................... 100,000,000 None
12% Series due September 1, 2015.................. 75,000,000 None
11 1/8% Series due December 1, 2015............... 150,000,000 None
9 3/8% Series due March 1, 2016................... 200,000,000 None
9 3/4% Series due May 1, 2016..................... 200,000,000 None
7 3/4% Pollution Control Series C................. 70,000,000 None
8 1/4% Pollution Control Series D................. 200,000,000 None
9 1/2% Series due December 1, 2016................ 300,000,000 None
9 1/4% Series due February 1, 2017................ 250,000,000 None
7 7/8% Pollution Control Series E................. 100,000,000 None
10 1/2% Series due April 1, 2017.................. 250,000,000 None
9 1/2% Series due July 1, 1997.................... 150,000,000 None
10 1/2% Series due July 1, 2017................... 150,000,000 None
9% Pollution Control Series F..................... 55,000,000 51,525,000
9% Pollution Control Series G..................... 12,000,000 12,000,000
9 7/8% Pollution Control Series H................. 112,000,000 28,765,000
9 1/4% Pollution Control Series I................. 100,000,000 54,005,000
10 3/8% Series due May 1, 1998.................... 150,000,000 None
11 3/8% Series due May 1, 2018.................... 150,000,000 None
Secured Medium-Term Notes, Series A............... 300,000,000 30,000,000
10.44% Series due November 1, 2008................ 150,000,000 3,000,000
8 1/4% Pollution Control Series J................. 100,000,000 100,000,000
9 1/2% Series due August 1, 1999.................. 200,000,000 200,000,000
10% Series due August 1, 2019..................... 100,000,000 None
9 7/8% Series due November 1, 2019................ 150,000,000 None
Secured Medium-Term Notes, Series B............... 150,000,000 114,200,000
8 1/8% Pollution Control Series K................. 50,000,000 50,000,000
8 1/8% Pollution Control Series L................. 40,000,000 40,000,000
10 5/8% Series due September 1, 2020.............. 250,000,000 None
Secured Medium-Term Notes, Series C............... 150,000,000 None
8 1/4% Pollution Control Series
due October 1, 2020............................. 11,000,000 11,000,000
7 7/8% Pollution Control Series
due March 1, 2021............................... 100,000,000 100,000,000
9 3/4% Series due May 1, 2021..................... 300,000,000 280,855,000
0% Pollution Control Series M due June 1, 2021.... 86,250,000 None
0% Pollution Control Series N due June 1, 2021.... 57,500,000 None
0% Pollution Control Series O due June 1, 2021.... 57,500,000 None
</TABLE>
<PAGE>
4
<TABLE>
<S> <C> <C>
0% Pollution Control Series P due June 1, 2021....$ 115,000,000 $ 47,029,250
8 1/8% Series due February 1, 2002................ 150,000,000 150,000,000
8 7/8% Series due February 1, 2022................ 175,000,000 175,000,000
8 1/4% Series due April 1, 2004................... 100,000,000 100,000,000
9% Series due April 1, 2022....................... 100,000,000 None
6 3/4% Pollution Control Series due
April 1, 2022................................... 50,000,000 50,000,000
7 1/8% Series due June 1, 1997.................... 150,000,000 None
8% Series due June 1, 2002........................ 147,000,000 147,000,000
6 5/8% Pollution Control Series due
June 1, 2022.................................... 33,000,000 33,000,000
6 3/8% Series due August 1, 1997.................. 175,000,000 175,000,000
7 3/8% Series due August 1, 2001.................. 150,000,000 150,000,000
8 1/2% Series due August 1, 2024.................. 175,000,000 163,000,000
6.70% Pollution Control Series due
October 1, 2022................................. 16,935,000 16,935,000
6.55% Pollution Control Series due
October 1, 2022................................. 40,000,000 40,000,000
7 3/8% Series due November 1, 1999................ 100,000,000 100,000,000
8 3/4% Series due November 1, 2023................ 200,000,000 195,550,000
6 1/2% Pollution Control Series due
December 1, 2027................................ 46,660,000 46,660,000
6 3/4% Series due March 1, 2003................... 200,000,000 200,000,000
7 7/8% Series due March 1, 2023................... 300,000,000 300,000,000
6.05% Pollution Control Series due
April 1, 2025................................... 90,000,000 90,000,000
6.10% Pollution Control Series due
April 1, 2028................................... 50,000,000 50,000,000
5 7/8% Series due April 1, 1998................... 175,000,000 175,000,000
6 3/4% Series due April 1, 2003................... 100,000,000 100,000,000
7 7/8% Series due April 1, 2024................... 225,000,000 225,000,000
0% Pollution Control Series due June 1, 2023...... 115,000,000 115,000,000
5 3/4% Series due July 1, 1998.................... 150,000,000 150,000,000
6 3/4% Series due July 1, 2005.................... 100,000,000 100,000,000
7 5/8% Series due July 1, 2025.................... 250,000,000 250,000,000
5 1/2% Series due October 1, 1998................. 125,000,000 125,000,000
6 1/4% Series due October 1, 2004................. 125,000,000 125,000,000
7 3/8% Series due October 1, 2025................. 300,000,000 208,000,000
5 1/2% Pollution Control Series due May 1, 2022... 50,000,000 50,000,000
5.55% Pollution Control Series due May 1, 2022.... 75,000,000 75,000,000
5.85% Pollution Control Series due May 1, 2022.... 33,465,000 33,465,000
Floating Rate Series due May 1, 1999.............. 300,000,000 300,000,000
Pollution Control Series Q due May 1, 2029........ 45,045,500 45,045,500
Pollution Control Series R due May 1, 2029........ 45,045,500 45,045,500
0% Series due 1994................................ 1,013,831,000 None
Pollution Control Series S due April 1, 2030...... 58,270,500 58,270,500
Pollution Control Series T due April 1, 2030...... 18,400,000 18,400,000
Pollution Control Series U........................ 136,108,250 136,108,250
Pollution Control Series V........................ 136,108,250 136,108,250
Pollution Control Series W........................ 13,857,500 13,857,500
Pollution Control Series X........................ 21,246,250 21,246,250
Secured Medium-Term Notes, Series D............... 201,150,000 201,150,000
Pollution Control Series Y........................ 28,819,000 28,819,000
Pollution Control Series Z........................ 66,642,500 66,642,500
Pollution Control Series AA....................... 28,750,000 28,750,000
Pollution Control Series AB....................... 28,750,000 28,750,000
Pollution Control Series AC....................... 70,397,250 70,397,250
Pollution Control Series AD....................... 57,500,000 57,500,000
</TABLE>
<PAGE>
5
<TABLE>
<S> <C> <C>
Pollution Control Series AE....................... 57,500,000 57,500,000
Pollution Control Series AF....................... 36,000,750 36,000,750
Pollution Control Series AG....................... 28,801,750 28,801,750
</TABLE>
which bonds are also hereinafter sometimes called bonds of the First through
Ninety-fourth Series, respectively; and
WHEREAS, Section 2.01 of the Original Indenture provides that the form of
each series of bonds (other than the First Series) issued thereunder and of the
coupons to be attached to coupon bonds of such series shall be established by
Resolution of the Board of Directors of the Company, and that the form of such
series, as established by said Board of Directors, shall specify the descriptive
title of the bonds and various other terms thereof, and may also have such
omissions or modifications or contain such provisions not prohibited by the
provisions of the Mortgage as the Board of Directors may, in its discretion,
cause to be inserted therein expressing or referring to the terms and conditions
upon which such bonds are to be issued and/or secured under the Mortgage;
and
WHEREAS, Section 22.04 of the Original Indenture provides, among other
things, that any power, privilege or right expressly or impliedly reserved to or
in any way conferred upon the Company by any provision of the Mortgage, whether
such power, privilege or right is in any way restricted or is unrestricted, may
be in whole or in part waived or surrendered or subjected to any restriction if
at the time unrestricted, or to additional restriction if already restricted,
and the Company may enter into any further covenants, limitations, restrictions
or provisions for the benefit of any one or more series of bonds issued
thereunder, or the Company may cure any ambiguity contained therein, or in any
supplemental indenture, or may establish the terms and provisions of any series
of bonds other than the First Series, by an instrument in writing executed and
acknowledged by the Company in such manner as would be necessary to entitle a
conveyance of real estate to be recorded in all of the states in which any
property at the time subject to the Lien of the Mortgage shall be situated; and
WHEREAS, the Company now desires to create three new series of bonds and to
add to its covenants and agreements contained in the Mortgage certain other
covenants and agreements to be observed by it and to alter and amend in certain
respects the covenants and provisions contained in the Mortgage; and
WHEREAS, the execution and delivery by the Company of this Fifty-eighth
Supplemental Indenture, and the terms of the bonds of the Ninety-fifth, Ninety-
sixth and Ninety-seventh Series, hereinafter referred to, have been duly
authorized by the Board of Directors of the Company by appropriate resolutions
of said Board of Directors;
NOW, THEREFORE, THIS INDENTURE WITNESSETH: That the Company, in
consideration of the premises and of Ten Dollars to it duly paid by the Trustee
at or before the ensealing and delivery of these presents, the receipt whereof
is hereby acknowledged, and in order to secure the payment of both the principal
of and interest and premium, if any, on the bonds from time to time issued under
the Mortgage, according to their tenor
<PAGE>
6
and effect and the performance of all the provisions of the Mortgage (including
any instruments supplemental thereto and any modification made as in the
Mortgage provided) and of said bonds, hath granted, bargained, sold, released,
conveyed, assigned, transferred, mortgaged, hypothecated, affected, pledged, set
over and confirmed and granted a security interest in and by these presents doth
grant, bargain, sell, release, convey, assign, transfer, mortgage, hypothecate,
affect, pledge, set over and confirm and grant a security interest in (subject,
however, to Excepted Encumbrances as defined in Section 1.06 of the Original
Indenture) unto The Bank of New York, Trustee under the Mortgage, and to its
successor or successors in said trust, and to said Trustee and its successors
and assigns forever, all properties of the Company, real, personal and mixed, of
the kind or nature specifically mentioned in the Original Indenture, as
heretofore supplemented, or of any other kind or nature acquired by the Company
on or after the date of the execution and delivery of the Original Indenture
(except any herein or in the Original Indenture expressly excepted), now owned
or, subject to the provisions of Section 18.03 of the Original Indenture,
hereafter acquired by the Company (by purchase, consolidation, merger, donation,
construction, erection or in any other way) and wheresoever situated, including
(without in anywise limiting or impairing by the enumeration of the same, the
scope and intent of the foregoing or of any general description contained in
this Fifty-eighth Supplemental Indenture) all real estate, lands, easements,
servitudes, licenses, permits, franchises, privileges, rights of way and other
rights in or relating to real estate or the occupancy of the same; all power
sites, flowage rights, water rights, water locations, water appropriations,
ditches, flumes, reservoirs, reservoir sites, canals, raceways, waterways, dams,
dam sites, aqueducts, and all other rights or means for appropriating,
conveying, storing and supplying water; all rights of way and roads; all plants
for the generation of electricity by steam, water and/or other power; all power
houses, gas plants, street lighting systems, standards and other equipment
incidental thereto; all telephone, radio and television systems, air-
conditioning systems and equipment incidental thereto, water wheels, water
works, water systems, steam heat and hot water plants, substations, lines,
service and supply systems, bridges, culverts, tracks, ice or refrigeration
plants and equipment, offices, buildings and other structures and the equipment
thereof; all machinery, engines, boilers, dynamos, turbines, electric, gas and
other machines, prime movers, regulators, meters, transformers, generators
(including, but not limited to, engine driven generators and turbo-generator
units), motors, electrical, gas and mechanical appliances, conduits, cables,
water, steam heat, gas or other pipes, gas mains and pipes, service pipes,
fittings, valves and connections, pole and transmission lines, towers, overhead
conductors and devices, underground conduits, underground conductors and
devices, wires, cables, tools, implements, apparatus, storage battery equipment,
and all other fixtures and personalty; all municipal and other franchises,
consents or permits; all lines for the transmission and distribution of electric
current, gas, steam heat or water for any purpose including towers, poles,
wires, cables, pipes, conduits, ducts and all apparatus for use in connection
therewith and (except as herein or in the Original Indenture expressly excepted)
all the right, title and interest of the Company in and to all other property of
any kind or nature appertaining to and/or used and/or occupied and/or enjoyed in
connection with any property hereinbefore or in the Original Indenture
described.
<PAGE>
7
TOGETHER WITH all and singular the tenements, hereditaments, prescriptions,
servitudes and appurtenances belonging or in anywise appertaining to the
aforesaid property or any part thereof, with the reversion and reversions,
remainder and remainders and (subject to the provisions of Section 13.01 of the
Original Indenture) the tolls, rents, revenues, issues, earnings, income,
product and profits thereof, and all the estate, right, title and interest and
claim whatsoever, at law as well as in equity, which the Company now has or may
hereafter acquire in and to the aforesaid property and franchises and every part
and parcel thereof.
IT IS HEREBY AGREED by the Company that, subject to the provisions of
Section 18.03 of the Original Indenture, all the property, rights and franchises
acquired by the Company (by purchase, consolidation, merger, donation,
construction, erection or in any other way) after the date hereof, except any
herein or in the Original Indenture expressly excepted, shall be and are as
fully granted and conveyed hereby and as fully embraced within the Lien of the
Original Indenture and the Lien hereof as if such property, rights and
franchises were now owned by the Company and were specifically described herein
and conveyed hereby.
PROVIDED that the following are not and are not intended to be now or
hereafter granted, bargained, sold, released, conveyed, assigned, transferred,
mortgaged, hypothecated, affected, pledged, set over or confirmed hereunder, nor
is a security interest therein hereby or by the Original Indenture, as
heretofore supplemented, granted or intended to be granted, and the same are
hereby expressly excepted from the Lien and operation of the Original Indenture,
as heretofore supplemented, and from the Lien and operation of this Fifty-eighth
Supplemental Indenture, viz.: (1) cash, shares of stock, bonds, notes and other
obligations and other securities not hereinbefore or hereafter specifically
pledged, paid, deposited, delivered or held under the Mortgage or covenanted so
to be; (2) merchandise, equipment, apparatus, materials or supplies held for the
purpose of sale or other disposition in the usual course of business or for the
purpose of repairing or replacing (in whole or in part) any rolling stock,
buses, motor coaches, automobiles or other vehicles or aircraft or boats, ships,
or other vessels and any fuel, oil and similar materials and supplies consumable
in the operation of any of the properties of the Company; rolling stock, buses,
motor coaches, automobiles and other vehicles and all aircraft; boats, ships and
other vessels; all timber, minerals, mineral rights and royalties; (3) bills,
notes and other instruments and accounts receivable, judgments, demands, general
intangibles and choses in action, and all contracts, leases and operating
agreements not specifically pledged hereunder or under the Mortgage or
covenanted so to be; (4) the last day of the term of any lease or leasehold
which may hereafter become subject to the Lien of the Mortgage; (5) electric
energy, gas, water, steam, ice, and other materials or products generated,
manufactured, produced, or purchased by the Company for sale, distribution or
use in the ordinary course of its business; (6) any natural gas wells or natural
gas leases or natural gas transportation lines or other works or property used
primarily and principally in the production of natural gas or its
transportation, primarily for the purpose of sale to natural gas customers or to
a natural gas distribution or pipeline company, up to the point of connection
with any distribution system; and (7) the Company's franchise to be a
corporation; provided, however, that the property and rights
<PAGE>
8
expressly excepted from the Lien and operation of the Original Indenture and
this Fifty-eighth Supplemental Indenture in the above subdivisions (2) and (3)
shall (to the extent permitted by law) cease to be so excepted in the event and
as of the date that the Trustee or a receiver or trustee shall enter upon and
take possession of the Mortgaged and Pledged Property in the manner provided in
Article XV of the Original Indenture by reason of the occurrence of a Default.
TO HAVE AND TO HOLD all such properties, real, personal and mixed, granted,
bargained, sold, released, conveyed, assigned, transferred, mortgaged,
hypothecated, affected, pledged, set over or confirmed or in which a security
interest has been granted by the Company as aforesaid, or intended so to be
(subject, however, to Excepted Encumbrances as defined in Section 1.06 of the
Original Indenture), unto The Bank of New York, Trustee, and its successors and
assigns forever.
IN TRUST NEVERTHELESS, for the same purposes and upon the same terms,
trusts and conditions and subject to and with the same provisos and covenants as
are set forth in the Original Indenture, as heretofore supplemented, this Fifty-
eighth Supplemental Indenture being supplemental to the Original Indenture.
AND IT IS HEREBY COVENANTED by the Company that all the terms, conditions,
provisos, covenants and provisions contained in the Original Indenture, as
heretofore supplemented, shall affect and apply to the property hereinbefore
described and conveyed and to the estate, rights, obligations and duties of the
Company and the Trustee and the beneficiaries of the trust with respect to said
property, and to the Trustee and its successors as Trustee of said property, in
the same manner and with the same effect as if said property had been owned by
the Company at the time of the execution of the Original Indenture, and had been
specifically and at length described in and conveyed to said Trustee by the
Original Indenture as a part of the property therein stated to be conveyed.
The Company further covenants and agrees to and with the Trustee and its
successors in said trust under the Mortgage, as follows:
ARTICLE I
NINETY-FIFTH SERIES OF BONDS
SECTION 1. There shall be a series of bonds designated "Pollution Control
Series AH" (herein sometimes referred to as the "Ninety-fifth Series"), each of
which shall also bear the descriptive title "First Mortgage Bond", and the form
thereof, which shall be established in accordance with a Resolution of the Board
of Directors of the Company, shall contain suitable provisions with respect to
the matters hereinafter in this Section specified. Bonds of the Ninety-fifth
Series may be issued in one or more tranches and may be issued with up to one
month's accrued interest. Bonds of the Ninety-fifth Series shall be issued as
fully registered bonds in denominations of One Hundred Dollars and, at the
option of the Company, in any multiple or multiples thereof (the exercise of
such option
<PAGE>
9
to be evidenced by the execution and delivery thereof); Bonds of the
Ninety-fifth Series shall mature on such date not later than the maturity date
of the Series 1997D Brazos Revenue Bonds, referred to below, shall bear interest
at such rate or rates, payable on such date or dates, and have such other terms
and provisions not inconsistent with the Original Indenture as the proper
officer or officers of the Company may determine in accordance with one or more
Resolutions filed with the Trustee referring to this Fifty-eighth Supplemental
Indenture (such determinations shall be evidenced by or in accordance with one
or more written orders filed with the Trustee for the authentication and
delivery of bonds of the Ninety-fifth Series and shall constitute determinations
of the Board of Directors with respect to such bonds for purposes of the
Mortgage), the principal of each said bond to be payable at the office or agency
of the Company in the Borough of Manhattan, The City of New York, New York, or
at the office or agency of the Company in the City of Dallas, Texas, as the
holder of any said bond may elect, in such coin or currency of the United States
of America as at the time of payment is legal tender for public and private
debts. Bonds of the Ninety-fifth Series shall be dated as in Section 2.03 of
the Original Indenture provided.
(I) The bonds of the Ninety-fifth Series shall be initially issued in an
aggregate principal amount not to exceed $33,079,750 to, and registered in the
name of, the trustee under the Trust Indenture, dated as of July 1, 1997
(hereinafter sometimes called the "1997D Brazos Bond Indenture"), of the Brazos
River Authority (hereinafter sometimes called the "Brazos Authority"), under
which its Collateralized Pollution Control Revenue Refunding Bonds (Texas
Utilities Electric Company Project) Series 1997D (hereinafter sometimes called
the "Series 1997D Brazos Revenue Bonds") are to be issued, in order to provide
the benefit of a lien to secure the obligation of the Company to make the
Installment Payments and Purchase Price payments pursuant to, and as such terms
are defined in, the Series 1997D Installment Sale and Bond Amortization
Agreement, dated as of July 1, 1997 (hereinafter sometimes called the "1997D
Brazos Agreement"), between the Brazos Authority and the Company. The maximum
amount of bonds of the Ninety-fifth Series that may be issued is unlimited but
the aggregate principal amount of bonds of the Ninety-fifth Series at any one
time Outstanding shall not exceed $33,079,750. The maximum stated interest rate
for any bonds of the Ninety-fifth Series shall not exceed 15% per annum.
The Company shall receive a credit against its obligation to make any
payment of the principal of and interest, if any, on any tranche of the bonds of
the Ninety-fifth Series, whether at maturity, upon redemption or otherwise, in
an amount equal to (x) the sum of (a) the amount, if any, on deposit in the Debt
Service Fund maintained under the 1997D Brazos Bond Indenture which reduces the
corresponding Installment Payment and (b) the amount, if any, paid by the
Company pursuant to Section 5.04 of the 1997D Brazos Agreement in respect of the
corresponding Installment Payment multiplied by (y) the ratio of the principal
amount of Outstanding bonds of the Ninety-fifth Series to the principal amount
of outstanding Series 1997D Brazos Revenue Bonds.
The Trustee may conclusively presume that the obligation of the Company to
pay the principal of, and interest, if any, on any tranche of the bonds of the
Ninety-fifth Series
<PAGE>
10
as the same shall become due and payable shall have been fully satisfied and
discharged unless and until it shall have received a written notice from the
trustee under the 1997D Brazos Bond Indenture, signed by the President, a Vice
President or a Trust Officer of such trustee, stating that the corresponding
Installment Payment or Purchase Price payment has become due and payable and has
not been fully paid and specifying the amount of funds required to make such
payment.
(II) In the event that any Series 1997D Brazos Revenue Bonds outstanding
under the 1997D Brazos Bond Indenture shall become immediately due and payable
pursuant to Section 6.02 of the 1997D Brazos Bond Indenture, upon the occurrence
of an Event of Default under Section 6.01(a) of the 1997D Brazos Bond Indenture,
all bonds of the Ninety-fifth Series, then Outstanding, shall be redeemed by the
Company, on the date such Series 1997D Brazos Revenue Bonds shall have become
immediately due and payable, at the principal amount thereof.
The Trustee may conclusively presume that no redemption of bonds of the
Ninety-fifth Series is required pursuant to the first paragraph of this
subsection (II) unless and until it shall have received a written notice from
the trustee under the 1997D Brazos Bond Indenture, signed by the President, a
Vice President or a Trust Officer of such trustee, stating that Series 1997D
Brazos Revenue Bonds have become immediately due and payable pursuant to Section
6.02 of the 1997D Brazos Bond Indenture, upon the occurrence of an Event of
Default under Section 6.01(a) of the 1997D Brazos Bond Indenture and specifying
the principal amount thereof. Said notice shall also contain a waiver of notice
of such redemption by the trustee under the 1997D Brazos Bond Indenture, as the
holder of all bonds of the Ninety-fifth Series then Outstanding.
(III) The Company hereby waives its right to have any notice of redemption
pursuant to subsection (II) of this Section 1 state that such notice is subject
to the receipt of the redemption moneys by the Trustee on or before the date
fixed for redemption. Notwithstanding the provisions of Section 12.02 of the
Mortgage, any such notice under such subsection shall not be conditional.
(IV) At the option of the registered owner, any bonds of the Ninety-fifth
Series, upon surrender thereof for cancellation at the office or agency of the
Company in the Borough of Manhattan, The City of New York, New York, shall be
exchangeable for a like aggregate principal amount of bonds of the same series
of other authorized denominations.
Bonds of the Ninety-fifth Series shall not be transferrable except to any
successor trustee under the 1997D Brazos Bond Indenture, any such transfer to be
made at the office or agency of the Company in the Borough of Manhattan, The
City of New York, New York.
The Company hereby waives any right to make a charge for any exchange or
transfer of bonds of the Ninety-fifth Series.
<PAGE>
11
ARTICLE II
NINETY-SIXTH SERIES OF BONDS
SECTION 2. There shall be a series of bonds designated "Pollution Control
Series AI" (herein sometimes referred to as the "Ninety-sixth Series"), each of
which shall also bear the descriptive title "First Mortgage Bond", and the form
thereof, which shall be established in accordance with a Resolution of the Board
of Directors of the Company, shall contain suitable provisions with respect to
the matters hereinafter in this Section specified. Bonds of the Ninety-sixth
Series may be issued in one or more tranches and may be issued with up to one
month's accrued interest. Bonds of the Ninety-sixth Series shall be issued as
fully registered bonds in denominations of One Hundred Dollars and, at the
option of the Company, in any multiple or multiples thereof (the exercise of
such option to be evidenced by the execution and delivery thereof); Bonds of the
Ninety-sixth Series shall mature on such date not later than the maturity date
of the Series 1997A Sabine Revenue Bonds, referred to below, shall bear interest
at such rate or rates, payable on such date or dates, and have such other terms
and provisions not inconsistent with the Original Indenture as the proper
officer or officers of the Company may determine in accordance with one or more
Resolutions filed with the Trustee referring to this Fifty-eighth Supplemental
Indenture (such determinations shall be evidenced by or in accordance with one
or more written orders filed with the Trustee for the authentication and
delivery of bonds of the Ninety-sixth Series and shall constitute determinations
of the Board of Directors with respect to such bonds for purposes of the
Mortgage), the principal of each said bond to be payable at the office or agency
of the Company in the Borough of Manhattan, The City of New York, New York, or
at the office or agency of the Company in the City of Dallas, Texas, as the
holder of any said bond may elect, in such coin or currency of the United States
of America as at the time of payment is legal tender for public and private
debts. Bonds of the Ninety-sixth Series shall be dated as in Section 2.03 of
the Original Indenture provided.
(I) The bonds of the Ninety-sixth Series shall be initially issued in an
aggregate principal amount not to exceed $59,253,750 to, and registered in the
name of, the trustee under the Trust Indenture, dated as of July 1, 1997
(hereinafter sometimes called the "1997A Sabine Bond Indenture"), of the Sabine
River Authority of Texas (hereinafter sometimes called the "Sabine Authority"),
under which its Collateralized Pollution Control Revenue Refunding Bonds (Texas
Utilities Electric Company Project) Series 1997A (hereinafter sometimes called
the "Series 1997A Sabine Revenue Bonds") are to be issued, in order to provide
the benefit of a lien to secure the obligation of the Company to make the
Installment Payments and Purchase Price payments pursuant to, and as such terms
are defined in, the Series 1997A Installment Sale and Bond Amortization
Agreement, dated as of July 1, 1997 (hereinafter sometimes called the "1997A
Sabine Agreement"), between the Sabine Authority and the Company. The maximum
amount of bonds of the Ninety-sixth Series that may be issued is unlimited but
the aggregate principal amount of bonds of the Ninety-sixth Series at any one
time Outstanding shall not exceed $59,253,750. The
<PAGE>
12
maximum stated interest rate for any bonds of the Ninety-sixth Series shall not
exceed 15% per annum.
The Company shall receive a credit against its obligation to make any
payment of the principal of and interest, if any, on any tranche of the bonds of
the Ninety-sixth Series, whether at maturity, upon redemption or otherwise, in
an amount equal to (x) the sum of (a) the amount, if any, on deposit in the Debt
Service Fund maintained under the 1997A Sabine Bond Indenture which reduces the
corresponding Installment Payment and (b) the amount, if any, paid by the
Company pursuant to Section 5.04 of the 1997A Sabine Agreement in respect of the
corresponding Installment Payment multiplied by (y) the ratio of the principal
amount of Outstanding bonds of the Ninety-sixth Series to the principal amount
of outstanding Series 1997A Sabine Revenue Bonds.
The Trustee may conclusively presume that the obligation of the Company to
pay the principal of, and interest, if any, on any tranche of the bonds of the
Ninety-sixth Series as the same shall become due and payable shall have been
fully satisfied and discharged unless and until it shall have received a written
notice from the trustee under the 1997A Sabine Bond Indenture, signed by the
President, a Vice President or a Trust Officer of such trustee, stating that the
corresponding Installment Payment or Purchase Price payment has become due and
payable and has not been fully paid and specifying the amount of funds required
to make such payment.
(II) In the event that any Series 1997A Sabine Revenue Bonds outstanding
under the 1997A Sabine Bond Indenture shall become immediately due and payable
pursuant to Section 6.02 of the 1997A Sabine Bond Indenture, upon the occurrence
of an Event of Default under Section 6.01(a) of the 1997A Sabine Bond Indenture,
all bonds of the Ninety-sixth Series, then Outstanding, shall be redeemed by the
Company, on the date such Series 1997A Sabine Revenue Bonds shall have become
immediately due and payable, at the principal amount thereof.
The Trustee may conclusively presume that no redemption of bonds of the
Ninety-sixth Series is required pursuant to the first paragraph of this
subsection (II) unless and until it shall have received a written notice from
the trustee under the 1997A Sabine Bond Indenture, signed by the President, a
Vice President or a Trust Officer of such trustee, stating that Series 1997A
Sabine Revenue Bonds have become immediately due and payable pursuant to Section
6.02 of the 1997A Sabine Bond Indenture, upon the occurrence of an Event of
Default under Section 6.01(a) of the 1997A Sabine Bond Indenture and specifying
the principal amount thereof. Said notice shall also contain a waiver of notice
of such redemption by the trustee under the 1997A Sabine Bond Indenture, as the
holder of all bonds of the Ninety-sixth Series then Outstanding.
(III) The Company hereby waives its right to have any notice of redemption
pursuant to subsection (II) of this Section 2 state that such notice is subject
to the receipt of the redemption moneys by the Trustee on or before the date
fixed for redemption. Notwithstanding the provisions of Section 12.02 of the
Mortgage, any such notice under such subsection shall not be conditional.
<PAGE>
13
(IV) At the option of the registered owner, any bonds of the Ninety-sixth
Series, upon surrender thereof for cancellation at the office or agency of the
Company in the Borough of Manhattan, The City of New York, New York, shall be
exchangeable for a like aggregate principal amount of bonds of the same series
of other authorized denominations.
Bonds of the Ninety-sixth Series shall not be transferrable except to any
successor trustee under the 1997A Sabine Bond Indenture, any such transfer to be
made at the office or agency of the Company in the Borough of Manhattan, The
City of New York, New York.
The Company hereby waives any right to make a charge for any exchange or
transfer of bonds of the Ninety-sixth Series.
ARTICLE III
NINETY-SEVENTH SERIES OF BONDS
SECTION 3. There shall be a series of bonds designated "Pollution Control
Series AJ" (herein sometimes referred to as the "Ninety-seventh Series"), each
of which shall also bear the descriptive title "First Mortgage Bond", and the
form thereof, which shall be established in accordance with a Resolution of the
Board of Directors of the Company, shall contain suitable provisions with
respect to the matters hereinafter in this Section specified. Bonds of the
Ninety-seventh Series may be issued in one or more tranches and may be issued
with up to one month's accrued interest. Bonds of the Ninety-seventh Series
shall be issued as fully registered bonds in denominations of One Hundred
Dollars and, at the option of the Company, in any multiple or multiples thereof
(the exercise of such option to be evidenced by the execution and delivery
thereof); Bonds of the Ninety-seventh Series shall mature on such date not later
than the maturity date of the Series 1997A Trinity Revenue Bonds, referred to
below, shall bear interest at such rate or rates, payable on such date or dates,
and have such other terms and provisions not inconsistent with the Original
Indenture as the proper officer or officers of the Company may determine in
accordance with one or more Resolutions filed with the Trustee referring to this
Fifty-eighth Supplemental Indenture (such determinations shall be evidenced by
or in accordance with one or more written orders filed with the Trustee for the
authentication and delivery of bonds of the Ninety-seventh Series and shall
constitute determinations of the Board of Directors with respect to such bonds
for purposes of the Mortgage), the principal of each said bond to be payable at
the office or agency of the Company in the Borough of Manhattan, The City of New
York, New York, or at the office or agency of the Company in the City of Dallas,
Texas, as the holder of any said bond may elect, in such coin or currency of the
United States of America as at the time of payment is legal tender for public
and private debts. Bonds of the Ninety-seventh Series shall be dated as in
Section 2.03 of the Original Indenture provided.
<PAGE>
14
(I) The bonds of the Ninety-seventh Series shall be initially issued in an
aggregate principal amount not to exceed $13,800,000 to, and registered in the
name of, the trustee under the Trust Indenture, dated as of July 1, 1997
(hereinafter sometimes called the "1997A Trinity Bond Indenture"), of the
Trinity River Authority of Texas (hereinafter sometimes called the "Trinity
Authority"), under which its Collateralized Pollution Control Revenue Refunding
Bonds (Texas Utilities Electric Company Project) Series 1997A (hereinafter
sometimes called the "Series 1997A Trinity Revenue Bonds") are to be issued, in
order to provide the benefit of a lien to secure the obligation of the Company
to make the Installment Payments and Purchase Price payments pursuant to, and as
such terms are defined in, the Series 1997A Installment Sale and Bond
Amortization Agreement, dated as of July 1, 1997 (hereinafter sometimes called
the "1997A Trinity Agreement"), between the Trinity Authority and the Company.
The maximum amount of bonds of the Ninety-seventh Series that may be issued is
unlimited but the aggregate principal amount of bonds of the Ninety-seventh
Series at any one time Outstanding shall not exceed $13,800,000. The maximum
stated interest rate for any bonds of the Ninety-seventh Series shall not exceed
15% per annum.
The Company shall receive a credit against its obligation to make any
payment of the principal of and interest, if any, on any tranche of the bonds of
the Ninety-seventh Series, whether at maturity, upon redemption or otherwise, in
an amount equal to (x) the sum of (a) the amount, if any, on deposit in the Debt
Service Fund maintained under the 1997A Trinity Bond Indenture which reduces the
corresponding Installment Payment and (b) the amount, if any, paid by the
Company pursuant to Section 5.04 of the 1997A Trinity Agreement in respect of
the corresponding Installment Payment multiplied by (y) the ratio of the
principal amount of Outstanding bonds of the Ninety-seventh Series to the
principal amount of outstanding Series 1997A Trinity Revenue Bonds.
The Trustee may conclusively presume that the obligation of the Company to
pay the principal of, and interest, if any, on any tranche of the bonds of the
Ninety-seventh Series as the same shall become due and payable shall have been
fully satisfied and discharged unless and until it shall have received a written
notice from the trustee under the 1997A Trinity Bond Indenture, signed by the
President, a Vice President or a Trust Officer of such trustee, stating that the
corresponding Installment Payment or Purchase Price payment has become due and
payable and has not been fully paid and specifying the amount of funds required
to make such payment.
(II) In the event that any Series 1997A Trinity Revenue Bonds outstanding
under the 1997A Trinity Bond Indenture shall become immediately due and payable
pursuant to Section 6.02 of the 1997A Trinity Bond Indenture, upon the
occurrence of an Event of Default under Section 6.01(a) of the 1997A Trinity
Bond Indenture, all bonds of the Ninety-seventh Series, then Outstanding, shall
be redeemed by the Company, on the date such Series 1997A Trinity Revenue Bonds
shall have become immediately due and payable, at the principal amount thereof.
The Trustee may conclusively presume that no redemption of bonds of the
Ninety-seventh Series is required pursuant to the first paragraph of this
subsection (II) unless and
<PAGE>
15
until it shall have received a written notice from the trustee under the 1997A
Trinity Bond Indenture, signed by the President, a Vice President or a Trust
Officer of such trustee, stating that Series 1997A Trinity Revenue Bonds have
become immediately due and payable pursuant to Section 6.02 of the 1997A Trinity
Bond Indenture, upon the occurrence of an Event of Default under Section 6.01(a)
of the 1997A Trinity Bond Indenture and specifying the principal amount thereof.
Said notice shall also contain a waiver of notice of such redemption by the
trustee under the 1997A Trinity Bond Indenture, as the holder of all bonds of
the Ninety-seventh Series then Outstanding.
(III) The Company hereby waives its right to have any notice of redemption
pursuant to subsection (II) of this Section 3 state that such notice is subject
to the receipt of the redemption moneys by the Trustee on or before the date
fixed for redemption. Notwithstanding the provisions of Section 12.02 of the
Mortgage, any such notice under such subsection shall not be conditional.
(IV) At the option of the registered owner, any bonds of the Ninety-
seventh Series, upon surrender thereof for cancellation at the office or agency
of the Company in the Borough of Manhattan, The City of New York, New York,
shall be exchangeable for a like aggregate principal amount of bonds of the same
series of other authorized denominations.
Bonds of the Ninety-seventh Series shall not be transferrable except to any
successor trustee under the 1997A Trinity Bond Indenture, any such transfer to
be made at the office or agency of the Company in the Borough of Manhattan, The
City of New York, New York.
The Company hereby waives any right to make a charge for any exchange or
transfer of bonds of the Ninety-seventh Series.
ARTICLE IV
MISCELLANEOUS PROVISIONS
SECTION 4. Subject to the amendments provided for in this Fifty-eighth
Supplemental Indenture, the terms defined in the Original Indenture, as
heretofore supplemented, shall for all purposes of this Fifty-eighth
Supplemental Indenture have the meanings specified in the Original Indenture, as
heretofore supplemented.
SECTION 5. The Trustee hereby accepts the trusts herein declared,
provided, created or supplemented and agrees to perform the same upon the terms
and conditions herein and in the Original Indenture, as heretofore supplemented,
set forth and upon the following terms and conditions:
<PAGE>
16
The Trustee shall not be responsible in any manner whatsoever for or in
respect of the validity or sufficiency of this Fifty-eighth Supplemental
Indenture or for or in respect of the recitals contained herein, all of which
recitals are made by the Company solely. In general, each and every term and
condition contained in Article XIX of the Original Indenture shall apply to and
form part of this Fifty-eighth Supplemental Indenture with the same force and
effect as if the same were herein set forth in full with such omissions,
variations and insertions, if any, as may be appropriate to make the same
conform to the provisions of this Fifty-eighth Supplemental Indenture.
SECTION 6. Whenever in this Fifty-eighth Supplemental Indenture either of
the parties hereto is named or referred to, this shall, subject to the
provisions of Articles XVIII and XIX of the Original Indenture, be deemed to
include the successors and assigns of such party, and all the covenants and
agreements in this Fifty-eighth Supplemental Indenture contained, by or on
behalf of the Company, or by or on behalf of the Trustee, shall, subject as
aforesaid, bind and inure to the respective benefits of the respective
successors and assigns of such parties, whether so expressed or not.
SECTION 7. Nothing in this Fifty-eighth Supplemental Indenture expressed
or implied, is intended, or shall be construed to confer upon, or to give to,
any person, firm or corporation, other than the parties hereto and the holders
of the bonds and coupons Outstanding under the Mortgage, any right, remedy or
claim under or by reason of this Fifty-eighth Supplemental Indenture or any
covenant, condition, stipulation, promise or agreement hereof, and all the
covenants, conditions, stipulations, promises and agreements in this Fifty-
eighth Supplemental Indenture contained, by or on behalf of the Company, shall
be for the sole and exclusive benefit of the parties hereto, and of the holders
of the bonds and coupons Outstanding under the Mortgage.
SECTION 8. This Fifty-eighth Supplemental Indenture shall be executed in
several counterparts, each of which shall be an original and all of which shall
constitute but one and the same instrument.
<PAGE>
17
IN WITNESS WHEREOF, TEXAS UTILITIES ELECTRIC COMPANY has caused its
corporate name to be hereunto affixed, and this instrument to be signed and
sealed by its Chairman of the Board and Chief Executive, President or one of its
Vice Presidents, and its corporate seal to be attested by its Secretary or one
of its Assistant Secretaries for and in its behalf, and THE BANK OF NEW YORK has
caused its corporate name to be hereunto affixed, and this instrument to be
signed and sealed by one of its Vice Presidents or Assistant Vice Presidents and
its corporate seal to be attested by one of its Assistant Vice Presidents,
Assistant Secretaries or Assistant Treasurers, all as of the day and year first
above written.
TEXAS UTILITIES ELECTRIC COMPANY
By /s/ RON SEIDEL
------------------------------
RON SEIDEL
Vice President
Attest:
/s/ GLEN H. HIBBS
- ---------------------------------
GLEN H. HIBBS
Assistant Secretary
Executed, sealed and delivered by
TEXAS UTILITIES ELECTRIC COMPANY
in the presence of:
/s/ W. E. PATTERSON
- ----------------------------------
/s/ JUSTUS B. RHODES
- ---------------------------------
<PAGE>
18
THE BANK OF NEW YORK,
Trustee
By /s/ W. N. GITLIN
-----------------------------
W. N. GITLIN
Vice President
Attest:
/s/ STEPHEN J. GIURLANDO
- ----------------------------------
STEPHEN J. GIURLANDO
Assistant Vice President
Executed, sealed and delivered by
THE BANK OF NEW YORK
in the presence of:
/s/ JASON B. GREGORY
- -----------------------------------
/s/ ESSIE ELCOCK
- ---------------------------------------
<PAGE>
19
STATE OF TEXAS )
) SS.:
COUNTY OF DALLAS )
Before me, a Notary Public in and for said State, on this day personally
appeared RON SEIDEL, known to me to be the person whose name is subscribed to
the foregoing instrument and known to me to be a Vice President of TEXAS
UTILITIES ELECTRIC COMPANY, a Texas corporation, and acknowledged to me that
said person executed said instrument for the purposes and consideration therein
expressed, and as the act of said corporation.
Given under my hand and seal of office this 23rd day of June, 1997.
----
/s/ LENAE B. DAVIS
-------------------------------------
LENAE B. DAVIS
Notary Public, State of Texas
My Commission Expires June 23, 2000
<PAGE>
20
STATE OF NEW YORK )
) SS.:
COUNTY OF NEW YORK )
Before me, a Notary Public in and for said State, on this day personally
appeared W.N. GITLIN, known to me to be the person whose name is subscribed to
the foregoing instrument and known to me to be a Vice President of THE BANK OF
NEW YORK, a New York corporation, and acknowledged to me that said person
executed said instrument for the purposes and consideration therein expressed,
and as the act of said corporation.
Given under my hand and seal of office this 18th day of June, 1997.
----
/s/ WILLIAM J. CASSELS
------------------------------------
WILLIAM J. CASSELS
Notary Public, State of New York
No. 01CA5027729
Qualified in Bronx
Certificate filed in New York County
Commission Expires May 16, 1998
<PAGE>
21
SUMMARY OF RECORDING DATA
Fifty-eighth Supplemental Indenture
Filed July 8, 1997
Office of the Secretary of the State of Texas,
Utility Security Instrument File No. 83-281286
<PAGE>
EXHIBIT 10
LONG-TERM INCENTIVE COMPENSATION PLAN
OF THE
TEXAS UTILITIES COMPANY SYSTEM
SECTION 1. PURPOSE
Texas Utilities Company, a Texas corporation (the "Company"), hereby
establishes the Long-Term Incentive Compensation Plan of the Texas Utilities
Company System (the "Plan") to promote the interests of the Company and its
shareholders through the (i) attraction and retention of executive officers and
other key employees essential to the success of the Company; (ii) motivation of
executive officers and other key employees using performance-related incentives
linked to long-range performance goals and the interests of Company
shareholders; and (iii) enabling of such employees to share in the long-term
growth and success of the Company. The Plan permits the grant of Incentive
Stock Options (intended to qualify under Section 422 of the Code), Nonqualified
Stock Options, Stock Appreciation Rights, Restricted Stock, Restricted Stock
Units, Performance Shares, Performance Units, Bonus Stock, and any other Stock
Unit Awards or stock-based forms of awards as the Committee, in its sole and
complete discretion, may determine to be appropriate in carrying out the intent
and purposes of this Plan.
SECTION 2. DEFINITIONS
When used in this Plan, the following terms shall have the meanings set
forth below:
2.1 "Affiliate" shall have the meaning ascribed to such term in Rule
12b-2 under the Exchange Act.
2.2 "Agreement" means a written agreement between the Company and a
Participant implementing the grant, and setting forth the
particular terms, conditions and restrictions of each Award. With
respect to the grant of an Option, the Agreement may be referred
to herein as an "Option Agreement," and with respect to any other
Award hereunder, the Agreement may be referred to herein as an
"Award Agreement."
2.3 "Award" means a grant under the Plan of Nonqualified Stock
Options, Incentive Stock Options, Stock Appreciation Rights,
Restricted Stock, Restricted Stock Units, Performance Units,
Performance Shares, Bonus Stock, or other Stock Unit Awards.
2.4 "Award Date" or "Grant Date" means the date on which an Award is
made by the Committee under the Plan.
<PAGE>
2.5 "Beneficial Owner" shall have the meaning ascribed to such term
in Rule 13d-3 under the Exchange Act.
2.6 "Board" or "Board of Directors" means the Board of Directors of
the Company.
2.7 "Bonus Stock" means an Award granted pursuant to Section 10 of
the Plan.
2.8 "Cashless Exercise" means the exercise of an Option by the
Participant through the use of a brokerage firm to make payment
to the Company of the exercise price either from the proceeds of
a loan to the Participant from the brokerage firm or from the
proceeds of the sale of Stock issued pursuant to the exercise of
the Option, and upon receipt of such payment, the Company
delivers the exercised Shares to the brokerage firm.
2.9 "Change in Control" shall be deemed to have occurred if the
conditions set forth in any one of the following paragraphs shall
have been satisfied:
(a) Any Person, corporation or other entity or group, including
any "group" as defined in Section 13(d)(3) of the Exchange
Act, becomes the Beneficial Owner of Shares of the Company
having 20% or more of the total number of votes that may be
cast for the election of directors of the Company; or
(b) As the result of, or in connection with, any tender or
exchange offer, merger or other business combination, sale
of assets, sale of securities, contested election, or any
combination of the foregoing (a "Transaction"), the persons
who were directors of the Company immediately before the
Transaction shall cease to constitute a majority of the
Board of Directors of the Company or any successor to the
Company or its assets; or
(c) If at any time: (i) the Company shall consolidate or merge
with any other Person and the Company shall not be the
continuing or surviving corporation; (ii) any Person shall
consolidate or merge with the Company, and the Company shall
be the continuing or surviving corporation and in connection
therewith, all or part of the outstanding Stock shall be
converted into, or exchanged for, stock or other securities
of any other Person or cash or any other property; (iii) the
Company shall be a party to a statutory share exchange with
any other Person after which the Company is a Subsidiary of
any other Person; or (iv) the Company shall sell or
otherwise transfer 50% or more of the assets or earning
power of the Company and its Subsidiaries (taken as a whole)
to any Person or Persons.
2.10 "Code" means the Internal Revenue Code of 1986 and the rules and
regulations promulgated thereunder, or any successor law, as
amended from time to time.
2
<PAGE>
2.11 "Committee" means the Organization and Compensation Committee of
the Board.
2.12 "Common Stock" or "Stock" means the Common Stock of the Company,
without par value, or such other security or right or instrument
into which such Common Stock may be changed or converted in the
future.
2.13 "Company" means Texas Utilities Company, including all Affiliates
and wholly-owned subsidiaries, or any successor thereto.
2.14 "Covered Participant" means a Participant who is a "covered
employee" as defined in Code Section 162(m)(3) and the
regulations promulgated thereunder.
2.15 "Designated Beneficiary" means the beneficiary designated by the
Participant, pursuant to procedures established by the Committee,
to receive amounts due to the Participant in the event of the
Participant's death. If the Participant does not make an
effective designation, then the Designated Beneficiary will be
deemed to be the Participant's estate.
2.16 "Disability" means (i) the mental or physical disability of the
Participant defined as "Disability" under the terms of the Texas
Utilities System Employee Long-Term Disability Income Plan, as
amended from time to time in accordance with the provisions of
such plan; or (ii) a determination by the Committee, in its sole
discretion, of total disability (based on medical evidence) that
precludes the Participant from engaging in any occupation or
employment for wage or profit for at least twelve months and
appears to be permanent. All decisions by the Committee relating
to a Participant's Disability (including a decision that a
Participant is not disabled), shall be final and binding on all
parties.
2.17 "Divestiture" means the sale of, or closing by, the Company of
the business operations in which the Participant is employed.
2.18 "Early Retirement" means Earlier-than-Normal Retirement of a
Participant under, and subject to, the provisions of the
Retirement Plan.
2.19 "Exchange Act" means the Securities Exchange Act of 1934 and the
rules and regulations promulgated thereunder, or any successor
law as amended from time to time.
2.20 "Executive Officer" means any employee considered by the Company
to be an Executive Officer.
2.21 "Fair Market Value" means, on any given date, the closing price
of Stock as reported on the New York Stock Exchange composite
tape on such day or, if no Shares were
3
<PAGE>
traded on the New York Stock Exchange on such day, then on the
next preceding day that Stock was traded on such exchange, all as
reported by The Wall Street Journal or such other source as the
-----------------------
Committee may select.
2.22 "Full-time Employee" means an individual who is employed by the
Company or a Subsidiary in a customary employer-employee
relationship, is on the payroll of the Company or such
Subsidiary, receives compensation directly from the Company or
such Subsidiary, and is designated in the internal payroll or
other records of the Company or a Subsidiary as a regular, full-
time employee. This designation excludes all leased employees
(within the meaning of Code Section 414(n)), part-time employees,
temporary employees, or contract employees, as well as all
consultants to, the Company.
2.23 "Incentive Stock Option" or "ISO" means an option to purchase
Stock, granted under Section 6 herein, which is designated as an
incentive stock option and is intended to meet the requirements
of Code Section 422.
2.24 "Key Employee" means a Full-time Employee who is an officer or
other key employee of the Company or its Subsidiaries as
designated or determined by the Committee.
2.25 "Nonqualified Stock Option" or "NQSO" means an option to purchase
Stock, granted under Article 6 herein, which is not intended to
qualify as, or constitute an Incentive Stock Option.
2.26 "Normal Retirement" means Normal Retirement of a Participant
under, and subject to, the provisions of the Retirement Plan.
2.27 "Option" means an Incentive Stock Option or a Nonqualified Stock
Option.
2.28 "Other Stock Unit Award" means awards of Stock or other Awards
that are valued in whole or in part by reference to, or are
otherwise based on, the value of the Company's Common Stock.
2.29 "Participant" means a Key Employee who has been granted an Award
under the Plan.
2.30 "Performance Criteria" means the objectives established by the
Committee for a Performance Period, for the purpose of
determining when an Award subject to such objectives has been
earned.
2.31 "Performance Award" means a performance-based Award made under
Section 9 herein, which may be in the form of either Performance
Shares or Performance Units.
4
<PAGE>
2.32 "Performance Period" means the time period designated by the
Committee during which performance goals must be met in order for
a Participant to obtain a performance-based Award.
2.33 "Performance Share" means an Award, designated as a Performance
Share, granted to a Participant pursuant to Section 9 herein, the
value of which is determined, in whole or in part, by the value
of Company Stock in a manner deemed appropriate by the Committee
and described in the applicable Agreement.
2.34 "Performance Unit" means an Award, designated as a Performance
Unit, granted to a Participant pursuant to Section 9 herein, the
value of which is determined, in whole or in part, by the
attainment of pre-established Performance Criteria as deemed
appropriate by the Committee and described in the Agreement.
2.35 "Period of Restriction" means the period during which the
transfer of Shares of Restricted Stock is restricted, pursuant to
Section 8 herein.
2.36 "Person" shall have the meaning ascribed to such term in Section
3(a)(9) of the Exchange Act and used in Sections 13(d) and 14(d)
thereof, including a "group" as defined in Section 13(d).
2.37 "Plan" means the Long-Term Incentive Compensation Plan of the
Texas Utilities Company System as herein established and as
hereafter amended from time to time.
2.38 "Restricted Stock" means an Award of Stock granted to a
Participant pursuant to Section 8 herein.
2.39 "Restricted Stock Unit" means a fixed or variable dollar
denominated right to acquire Stock, which may or may not be
subject to restrictions, contingently awarded under Section 8 of
the Plan.
2.40 "Retirement Plan" means the Retirement Plan for Employees of the
Texas Utilities Company System, as it may be amended from time to
time.
2.41 "Rule 16b-3" means Rule 16b-3 under Section 16(b) of the Exchange
Act as adopted in Exchange Act Release No. 34-37260 (May 30,
1996), or any successor rule as amended from time to time.
2.42 "Section 162(m)" means Section 162(m) of the Code, or any
successor section under the Code, as amended from time to time
and as interpreted by final or proposed regulations promulgated
thereunder from time to time.
5
<PAGE>
2.43 "Securities Act" means the Securities Act of 1933 and the rules
and regulations promulgated thereunder, or any successor law, as
amended from time to time.
2.44 "Stock" or "Shares" means the Common Stock of the Company.
2.45 "Stock Appreciation Right" means the right to receive an amount
equal to the excess of the Fair Market Value of a share of Stock
(as determined on the date of exercise) over the Exercise Price
of a related Option or the Fair Market Value of the Stock on the
Grant Date of the Stock Appreciation Right.
2.46 "Stock Unit Award" means an award of Common Stock or units
granted under Section 11.
2.47 "Subsidiary" means a corporation in which the Company owns,
either directly or through one or more of its Subsidiaries, at
least 50% of the total combined voting power of all classes of
stock.
SECTION 3. ADMINISTRATION
3.1 The Committee. The Plan shall be administered and interpreted by
-------------
the Committee which shall have full authority, discretion and power necessary or
desirable for such administration and interpretation. The express grant in this
Plan of any specific power to the Committee shall not be construed as limiting
any power or authority of the Committee. In its sole and complete discretion
the Committee may adopt, alter, suspend and repeal any such administrative
rules, regulations, guidelines, and practices governing the operation of the
Plan as it shall from time to time deem advisable. In addition to any other
powers and, subject to the provisions of the Plan, the Committee shall have the
following specific powers: (i) to determine the terms and conditions upon which
Awards may be made and exercised; (ii) to determine the Participants to which
Awards shall be made; (iii) to determine all terms and provisions of each
Agreement, which need not be identical for types of Awards nor for the same type
of Award to different Participants; (iv) to construe and interpret all terms,
conditions and provisions of the Plan and all Agreements; (v) to establish,
amend, or waive rules or regulations for the Plan's administration; (vi) to
accelerate the exercisability of any Award, the length of a Performance Period
or the termination of any Period of Restriction; and (vii) to make all other
determinations and take all other actions necessary or advisable for the
administration or interpretation of the Plan. The Committee may seek the
assistance or advice of any persons it deems necessary to the proper
administration of the Plan.
3.2 Committee Decisions. Unless strictly and expressly prohibited by
-------------------
law, all determinations and decisions made by the Committee pursuant to the
provisions of this Plan shall be final, conclusive, and binding upon all
persons, including Participants, Designated Beneficiaries, the Company, its
shareholders and employees.
6
<PAGE>
3.3 Rule 16b-3 and Section 162(m) Requirements. Notwithstanding any
------------------------------------------
other provision of the Plan, the Committee may impose such conditions on any
Award as it may deem to be advisable or required to satisfy the requirements of
Rule 16b-3 or Section 162(m).
SECTION 4. ELIGIBILITY
The Committee shall have sole and complete discretion in determining those
Key Employees who shall participate in the Plan. The Committee may request
recommendations for individual awards from the Company's Chief Executive Officer
and may delegate to the Chief Executive Officer the authority to make Awards to
Participants who are not Executive Officers of the Company.
SECTION 5. SHARES SUBJECT TO THE PLAN
5.1 Number of Shares. Subject to adjustment as provided for in
----------------
Section 5.4 below, the maximum aggregate number of Shares that may be issued
pursuant to Awards made under the Plan shall not exceed 2,500,000 Shares, which
may be in any combination of Options, Restricted Stock, Restricted Stock Units,
Performance Shares, Bonus Shares, or Other Stock Unit Award. Shares of Common
Stock may be available from the authorized but unissued Shares, Shares issued
and reacquired by the Company or Shares purchased in the open market for
purposes of the Plan. Except as provided in Sections 5.2 and 5.3 herein, the
issuance of Shares in connection with the exercise of, or as other payment for,
Awards under the Plan shall reduce the number of Shares available for future
Awards under the Plan.
5.2 Lapsed Awards or Forfeited Shares. In the event that: (i) any
---------------------------------
Option or other Award granted under the Plan terminates, expires, or lapses for
any reason without having been exercised in accordance with its terms; (ii)
Shares issued pursuant to the Awards are canceled or forfeited for any reason;
or (iii) Awards are paid in cash, the Shares subject to such Award shall
thereafter be again available for grant of an Award under the Plan.
5.3 Delivery of Shares as Payment. In the event a Participant pays
-----------------------------
for any Option or other Award granted under the Plan through the delivery of
previously acquired shares of Common Stock, the number of shares of Common Stock
available for Awards under the Plan shall be increased by the number of shares
surrendered by the Participant.
5.4 Capital Adjustments. The number and class of Shares subject to
-------------------
each outstanding Award, the Option Price and the aggregate number, type and
class of Shares for which Awards thereafter may be made shall be subject to
adjustment, if any, as the Committee deems appropriate, based on the occurrence
of a number of specified and non-specified events. Such specified events are
discussed in this Section 5.4, but such discussion is not intended to provide an
exhaustive list of such events which may necessitate adjustments.
(a) If the outstanding Shares are increased, decreased or exchanged
through merger, consolidation, sale of all or substantially all
of the property of the Company,
7
<PAGE>
reorganization, recapitalization, reclassification, stock
dividend, stock split, reverse stock split or other distribution
in respect to such Shares, for a different number or type of
Shares, or if additional Shares or new or different Shares are
distributed with respect to such Shares, an appropriate and
proportionate adjustment shall be made in: (i) the maximum number
of shares of Stock available for the Plan as provided in Section
5.1 herein; (ii) the type of shares or other securities available
for the Plan; (iii) the number of shares of Stock subject to any
then outstanding Awards under the Plan; and (iv) the price
(including Exercise Price) for each share of Stock (or other kind
of shares or securities) subject to then outstanding Awards, but
without change in the aggregate purchase price as to which such
Options remain exercisable or Restricted Stock releasable.
(b) In the event other events not specified above in this Section
5.4, such as any extraordinary cash dividend, split-up, reverse
split, spin-off, combination, exchange of shares, warrants or
rights offering to purchase Common Stock, or other similar
corporate event, affect the Common Stock such that an adjustment
is necessary to maintain the benefits or potential benefits
intended to be provided under this Plan, then the Committee in
its discretion may make adjustments to any or all of: (i) the
number and type of shares which thereafter may be optioned and
sold or awarded or made subject to Stock Appreciation Rights
under the Plan; (ii) the grant, exercise or conversion price of
any Award made under the Plan thereafter; and (iii) the number
and price (including Exercise Price) of each share of Stock (or
other kind of shares or securities) subject to the then
outstanding Awards.
(c) Any adjustment made by the Committee pursuant to the provisions
of this Section 5.4 shall be final, binding and conclusive. A
notice of such adjustment, including identification of the event
causing such adjustment, the calculation method of such
adjustment, and the change in price and the number of shares of
Stock, or securities, cash or property purchasable subject to
each Award shall be sent to each Participant. No fractional
interests shall be issued under the Plan based on such
adjustments.
SECTION 6. STOCK OPTIONS
6.1 Grant of Stock Options. Subject to the terms and provisions of
----------------------
the Plan and applicable law, the Committee, at any time and from time to time,
may grant Options to Key Employees as it shall determine. The Committee shall
have sole and complete discretion in determining the type of Option granted, the
Option Price (as hereinafter defined), the duration of the Option, the number of
Shares to which an Option pertains, any conditions imposed upon the
exercisability or the transferability of the Options, including vesting
conditions, the conditions under which the Option may be terminated, and any
such other provisions as may be warranted to comply with the law or rules of any
securities trading system or stock exchange. Each Option grant shall have such
specified terms and conditions detailed in an Option Agreement. The Option
Agreement
8
<PAGE>
shall specify whether the Option is intended to be an Incentive Stock Option or
a Nonqualified Stock Option.
6.2 Option Price. The exercise price per share of Stock covered by
------------
an Option ("Option Price") shall be determined on the Grant Date by the
Committee; provided that the Option Price shall not be less than 100% of the
Fair Market Value of the Common Stock on the Grant Date.
6.3 Exercisability. Options granted under the Plan shall be
--------------
exercisable at such times and be subject to such restrictions and conditions as
the Committee shall determine, which will be specified in the Option Agreement
and need not be the same for each Participant. However, no Option granted under
the Plan may be exercisable until the expiration of at least six months after
the Grant Date (except that such limitations shall not apply in the case of
death or Disability of the Participant, or a Change in Control), nor after the
expiration of ten years from the Grant Date.
6.4 Method of Exercise. Options shall be exercised by the delivery
------------------
of a written notice from the Participant to the Company in a form prescribed by
the Committee setting forth the number of Shares with respect to which the
Option is to be exercised, accompanied by full payment or provision for full
payment for the Shares. The Option Price shall be payable to the Company in full
in cash, or its equivalent, or by delivery of Shares of Stock (not subject to
any security interest or pledge) having a Fair Market Value at the time of
exercise equal to the exercise price of the Shares, or by a combination of the
foregoing. In addition, at the request of the Participant, and subject to
applicable laws and regulations, the Company may (but shall not be required to)
cooperate in a Cashless Exercise of the Option. As soon as practicable, after
receipt of written notice and full payment of the Option Price, the Company
shall deliver to the Participant a stock certificate, issued in the
Participant's name, evidencing the number of Shares with respect to which the
Option was exercised.
SECTION 7. STOCK APPRECIATION RIGHTS
7.1 Grant of Stock Appreciation Rights. Subject to the terms and
----------------------------------
provisions of the Plan and applicable law, the Committee, at any time and from
time to time, may grant freestanding Stock Appreciation Rights, Stock
Appreciation Rights in tandem with an Option, or Stock Appreciation Rights in
addition to an Option. Stock Appreciation Rights granted in tandem with an
Option or in addition to an Option may be granted at the time of the Option or
at a later time. No Stock Appreciation Rights granted under the Plan may be
exercisable until the expiration of at least six months after the Grant Date
(except that such limitations shall not apply in the case of death or Disability
of the Participant, or a Change in Control), nor after the expiration of ten
years from the Grant Date.
7.2 Price. The exercise price of each Stock Appreciation Right shall
-----
be determined at the time of grant by the Committee, subject to the limitation
that the grant price shall not be less than 100% of Fair Market Value of the
Common Stock on the Grant Date.
9
<PAGE>
7.3 Exercise. Stock Appreciation Rights shall be exercised by the
--------
delivery of a written notice from the Participant to the Company in a form
prescribed by the Committee. Upon such exercise, the Participant shall be
entitled to receive an amount equal to the excess of the Fair Market Value of a
Share over the grant price thereof on the date of exercise of the Stock
Appreciation Right multiplied by the number of Shares for which the Stock
Appreciation Right was granted.
7.4 Payment. Payment upon exercise of the Stock Appreciation Right
-------
shall be in the amount of the full exercise price therefor, and shall be made in
the form of cash, cash installments, Shares of Common Stock, or a combination
thereof, as determined in the sole and complete discretion of the Committee.
However, if any payment in the form of Shares results in a fractional share,
such payment for the fractional share shall be made in cash.
SECTION 8. RESTRICTED STOCK AND RESTRICTED STOCK UNITS
8.1 Grant of Restricted Stock. Subject to the terms and provisions
-------------------------
of the Plan and applicable law, the Committee, at any time and from time to
time, may grant shares of Restricted Stock and Restricted Stock Units under the
Plan to such Participants, and in such amounts and for such duration and/or
consideration as it shall determine.
8.2 Restricted Stock Award Agreement. Each Restricted Stock and
--------------------------------
Restricted Stock Unit granted hereunder shall be evidenced by an Award Agreement
that shall specify the Period of Restriction, the conditions which must be
satisfied prior to removal of the restriction, the number of Shares of
Restricted Stock or Restricted Stock Units granted, payment terms for each such
Award (e.g. whether the Award will be paid in shares of Stock, cash or a
combination thereof, and whether payment will be in a lump sum or installments),
and such other provisions as the Committee shall determine. The Committee may
specify, but is not limited to, the following types of restrictions in the Award
Agreement: (i) restrictions on acceleration or achievement of terms or vesting
based on any Performance Criteria, including, but not limited to, absolute or
relative increases in total shareholder return, revenues, sales, net income, or
net worth of the Company, any of its Subsidiaries, divisions, business units or
other areas of the Company; and (ii) any other restrictions which the Committee
may deem advisable, including requirements established pursuant to the
Securities Act, the Exchange Act, the Code and any securities trading system or
stock exchange upon which such Shares under the Plan are listed.
8.3 Nontransferability. Except as provided in this Section 8, the
------------------
Shares of Restricted Stock or Restricted Stock Units granted under the Plan may
not be sold, transferred, pledged, assigned, or otherwise alienated or
hypothecated until the termination of the applicable Period of Restriction or
upon earlier satisfaction of other conditions as specified by the Committee in
its sole discretion and set forth in the applicable Award Agreement. All rights
with respect to the Restricted Stock and Restricted Stock Units granted to a
Participant under the Plan shall be exercisable during his or her lifetime only
by such Participant or his or her guardian or legal representative.
10
<PAGE>
8.4 Removal of Restrictions. Except as otherwise noted in this
-----------------------
Section 8, Restricted Stock and Restricted Stock Units covered by each Award
made under the Plan shall become freely transferable by the Participant after
the last day of the Period of Restriction and/or upon the satisfaction of other
conditions as determined by the Committee.
8.5 Voting Rights. During the Period of Restriction, Participants in
-------------
whose name Restricted Stock is granted under the Plan may exercise full voting
rights with respect to those shares.
8.6 Dividends and Other Distributions. During the Period of
---------------------------------
Restriction, Participants in whose name Restricted Stock is granted under the
Plan shall be entitled to receive all dividends and other distributions paid
with respect to those Shares. If any such dividends or distributions are paid in
Shares, the Shares shall be subject to the same restrictions on transferability
and forfeitability as the Restricted Stock with respect to which they were
distributed.
SECTION 9. PERFORMANCE AWARDS
9.1 Grant of Performance Awards. Subject to the terms and provisions
---------------------------
of the Plan and applicable law, the Committee, at any time and from time to
time, may issue Performance Awards in the form of either Performance Units or
Performance Shares to Participants subject to the Performance Criteria,
Performance Period and other consideration or restrictions as it shall
determine. The Committee shall have complete discretion in determining the
number and value of Performance Units or Performance Shares granted to each
Participant.
9.2 Value of Performance Awards. The Committee shall determine the
---------------------------
number and value of Performance Units or Performance Shares granted to each
Participant as a Performance Award. The Committee shall set Performance Criteria
in its discretion for each Participant who is granted a Performance Award. The
extent to which such Performance Criteria are met will determine the value of
the Performance Unit or Performance Share to the Participant. Such Performance
Criteria may be particular to a Participant, may relate to the performance of
the Company or Subsidiary which employs him or her, may be based on the division
or business unit which employs him or her, may be based on the performance of
the Company and its Subsidiaries generally, or any combination of the foregoing.
The Performance Criteria may be based on achievement of balance sheet or income
statement objectives, or any other objectives established by the Committee. The
Performance Criteria may be absolute in their terms or measured against, or in
relationship to, other companies comparably, similarly or otherwise situated.
The terms and conditions of each Performance Award will be set forth in an Award
Agreement.
9.3 Settlement of Performance Awards. After a Performance Period has
--------------------------------
ended, the holder of a Performance Unit or Performance Share shall be entitled
to receive the value thereof based on the degree to which the Performance
Criteria established by the Committee and set forth in the Award Agreement have
been satisfied.
11
<PAGE>
9.4 Form of Payment. Payment of the amount to which a Participant
---------------
shall be entitled upon the settlement of the Performance Award shall be made in
cash, Stock, or a combination thereof and may be made in a lump sum or
installments all as determined by the Committee and set forth in the related
Award Agreement.
SECTION 10. BONUS STOCK
Subject to the terms and provisions of the Plan and applicable law, the
Committee may, at any time and from time to time, award shares of Bonus Stock to
participants under the Plan without cash consideration. The Committee shall
determine and indicate in the related Award Agreement whether such shares of
Bonus Stock shall be unencumbered of any restrictions (other than those which
the Committee deems necessary or advisable to comply with law) or shall be
subject to restrictions and limitations similar to those referred to in Section
9. In the event the Committee assigns any restrictions on the shares of Bonus
Stock, then such shares shall be subject to at least the following restrictions:
(a) No Shares of Bonus Stock may be sold, transferred, pledged,
assigned or otherwise alienated or hypothecated if such Shares
are subject to restrictions which have not lapsed or been
satisfied.
(b) If any condition of vesting of the shares of Bonus Stock are not
met, all such Shares subject to such vesting shall be delivered
to the Company (in a manner determined by the Committee) within
60 days of the failure to meet such conditions without any
payment from the Company.
SECTION 11. OTHER STOCK BASED AWARDS
11.1 Grant of Other Stock Based Awards. Subject to the terms and
---------------------------------
provisions of the Plan and applicable law, the Committee may, at any time and
from time to time, issue to Participants, either alone or in addition to other
Awards made under the Plan, Stock Unit Awards which may be in the form of Common
Stock or other securities. The value of each such Award shall be based, in
whole or in part, on the value of the underlying Common Stock on the Grant Date.
The Committee, in its sole and complete discretion, may determine that an Award,
either in the form of a Stock Unit Award under this Section 11 or as an Award
granted pursuant to Sections 6 through 10, may provide to the Participant (i)
dividends or dividend equivalents (payable on a current or deferred basis) and
(ii) cash payments in lieu of or in addition to an Award. Subject to the
provisions of the Plan, the Committee, in its sole and complete discretion,
shall determine the terms, restrictions, conditions, vesting requirements, and
payment rules of the Award. The Award Agreement shall specify the rules of each
Award as determined by the Committee. However, each Stock Unit Award need not
be subject to identical rules.
11.2 Rules. The Committee, in its sole and complete discretion, may
-----
grant a Stock Unit Award subject to the following rules:
12
<PAGE>
(a) Common Stock or other securities issued pursuant to Stock Unit
Awards may not be sold, transferred, pledged, assigned or
otherwise alienated or hypothecated by a Participant until the
expiration of at least six months from the Grant Date, except
that such limitation shall not apply in the case of death or
Disability of the Participant or a Change in Control. To the
extent Stock Unit Awards are deemed to be derivative securities
within the meaning of Rule 16b-3, the rights of a Participant who
is subject to Section 16 of the Exchange Act with respect to such
Awards shall not vest or be exercisable until the expiration of
at least six months from the Award Date. All rights with respect
to such Stock Unit Awards granted to a Participant under the Plan
shall be exercisable during his or her lifetime only by such
Participant or his or her guardian or legal representative.
(b) Stock Unit Awards may require the payment of cash consideration
by the Participant in receipt of the Award or provide that the
Award, and any Common Stock or other securities issued in
conjunction with the Award, be delivered without the payment of
cash consideration.
(c) The Committee, in its sole and complete discretion, may establish
certain Performance Criteria that may relate in whole or in part
to receipt of Stock Unit Awards.
(d) Stock Unit Awards may be subject to a deferred payment schedule
and/or vesting over a specified period.
(e) The Committee, in its sole and complete discretion, as a result
of certain circumstances, may waive or otherwise remove, in whole
or in part, any restriction or condition imposed on a Stock Unit
Award.
SECTION 12. SPECIAL PROVISIONS APPLICABLE TO COVERED PARTICIPANTS
Awards to Covered Participants shall be governed by the conditions of this
Section 12 in addition to the requirements of Sections 6 through 11 above.
Should conditions set forth under this Section 12 conflict with the requirements
of Sections 6 through 11, the conditions of this Section 12 shall prevail.
(a) All Performance Criteria relating to Covered Participants for a
relevant Performance Period shall be established by the Committee
in writing prior to the beginning of the Performance Period, or
by such other later date for the Performance Period as may be
permitted under Section 162(m) of the Code. Performance Criteria
may include alternative and multiple Performance Criteria and
will be based on one or more of the following business criteria:
business or financial goals of the Company, including absolute or
relative levels of total shareholder return, revenues, sales, net
income, or net worth of the Company, any of its Subsidiaries,
divisions, business units, or other areas of the Company.
13
<PAGE>
(b) The Performance Criteria must be objective and must satisfy third
party "objectivity" standards under Code Section 162(m), and the
regulations promulgated thereunder.
(c) The Performance Criteria shall not allow for any discretion by
the Committee as to an increase in any Award, but discretion to
lower an Award is permissible.
(d) The Award and payment of any Award under this Plan to a Covered
Participant with respect to a relevant Performance Period shall
be contingent upon the attainment of the Performance Criteria
that are applicable to such Award. The Committee shall certify in
writing prior to payment of any such Award that such applicable
Performance Criteria have been satisfied. Resolutions adopted by
the Committee may be used for this purpose.
(e) The aggregate maximum Awards that may be paid (in cash or in
shares of Stock or a combination thereof) to any Covered
Participant under the Plan pursuant to Sections 8, 9, 10 and 11
during any calendar year shall be an amount equivalent to the
fair market value of 100,000 shares of Stock, such fair market
value to be determined as of the first day of such calendar year.
(f) The aggregate maximum number of shares of Stock subject to
Options and SARs made to any Covered Participant during any
calendar year shall be 100,000.
(g) All Awards to Covered Participants under this Plan shall be
further subject to such other conditions, restrictions, and
requirements as the Committee may determine to be necessary to
carry out the purposes of this Section 12.
SECTION 13. CHANGE IN CONTROL
Notwithstanding any other provision of this Plan, in the event of a Change
in Control: (i) all outstanding Options shall immediately become fully vested
and exercisable; (ii) all Periods of Restriction shall be deemed to have been
completed; (iii) all Performance Criteria shall be deemed to have been satisfied
in full; and (iv) all other restrictions of any kind applicable to all
outstanding Awards shall be deemed to have lapsed or been satisfied in full;
provided that none of the effects described in (i) - (iv) above shall occur if
the Change in Control, or the transaction, event or occurrence causing the
Change in Control was duly and effectively approved in advance by the
affirmative vote of a majority of the Company's Board of Directors.
SECTION 14. GENERAL PROVISIONS
14.1 Plan Term. The Plan was adopted by the Board on February 21,
---------
1997, and became effective upon receiving shareholder approval on May 23, 1997.
14
<PAGE>
The Plan shall terminate December 31, 2006; however, all Awards made prior
to, and which are outstanding on such date, shall remain valid in accordance
with their terms and conditions.
14.2 Withholding. The Company shall have the right to deduct or with
-----------
old, or require a Participant to remit to the Company, any taxes required by law
to be withheld from Awards made under this Plan. In the event an Award is paid
in the form of Common Stock, the Committee may require the Participant to remit
to the Company the amount of any taxes required to be withheld from such payment
in Common Stock, or, in lieu thereof, the Company may withhold (or the
Participant may be provided the opportunity to elect to tender) the number of
shares of Common Stock equal in Fair Market Value to the amount required to be
withheld.
14.3 Awards. Each Award granted under the Plan shall be evidenced in
------
a corresponding Award Agreement provided in writing to the Participant, which
shall specify the terms, conditions and any rules applicable to the Award,
including but not limited to the effect of a Change in Control, or death,
Disability, Divestiture, Early Retirement, Normal Retirement or other
termination of employment of the Participant on the Award.
14.4 Nontransferability. Except with respect to Nonqualified Stock
------------------
Options, no Award granted under the Plan may be sold, transferred, pledged,
assigned or otherwise alienated or hypothecated, except by will or the laws of
descent and distribution. Further, no lien, obligation, or liability of the
Participant may be assigned to any right or interest of any Participant in an
Award under this Plan.
14.5 No Right to Employment. Neither the Plan, nor any Award made, or
----------------------
any other action taken, hereunder shall be construed as giving any Participant
or other person any right of employment or continued employment with the
Company.
14.6 Rights as Shareholder. Subject to the terms and conditions of
---------------------
each particular Award, no Participant or Designated Beneficiary shall be deemed
a shareholder of the Company nor have any rights as such with respect to any
shares of Common Stock to be provided under the Plan until he or she has become
the holder of such shares.
14.7 Construction of the Plan. The Plan and all Agreements shall be
------------------------
governed, construed, interpreted and administered in accordance with the laws of
the State of Texas. In the event any provision of the Plan or any Agreement
shall be held invalid, illegal or unenforceable, in whole or in part, for any
reason, such determination shall not affect the validity, legality or
enforceability of any remaining provision, portion of provision or Plan overall,
which shall remain in full force and effect as if the Plan had been absent the
invalid, illegal or unenforceable provision or portion thereof.
14.8 Amendment of Plan. The Committee or the Board of Directors may
-----------------
amend, suspend, or terminate the Plan or any portion thereof at any time,
provided such amendment is made with shareholder approval if and to the extent
such approval is necessary to comply with any legal
15
<PAGE>
requirement, including for these purposes any approval requirement which is a
requirement for the performance-based compensation exception under Code Section
162(m).
14.9 Amendment of Award. In its sole and complete discretion, the
------------------
Committee may at any time amend any Award for the following reasons: (i)
additions and/or changes are made to the Code, any federal or state securities
law, or other law or regulations applicable to the Award; or (ii) any other
event not described in clause (i) occurs and the Participant gives his or her
consent to such amendment.
14.10 Exemption from Computation of Compensation for Other Purposes.
-------------------------------------------------------------
By acceptance of an applicable Award under this Plan, subject to the conditions
of such Award, each Participant shall be considered in agreement that all shares
of Stock sold or awarded and all Options granted under this Plan shall be
considered extraordinary, special incentive compensation and will not be
included as "earnings," "wages," "salary" or "compensation" in any pension,
welfare, life insurance, or other employee benefit arrangement of the Company.
14.11 Legend. In its sole and complete discretion, the Committee may
------
elect to legend certificates representing Shares sold or awarded under the Plan,
to make appropriate references to the restrictions imposed on such Shares.
14.12 Certain Participants. All Award Agreements for Participants
--------------------
subject to Section 16(b) of the Exchange Act shall be deemed to include any such
additional terms, conditions, limitations and provisions as Rule 16b-3 requires,
unless the Committee in its discretion determines that any such Award should not
be governed by Rule 16b-3. All performance-based Awards to Covered Participants
shall be deemed to include any such additional terms, conditions, limitations
and provisions as are necessary to comply with the performance-based
compensation exemption of Code Section 162(m), unless the Committee, in its
discretion, determines that any such Award is not intended to qualify for the
exemption for performance-based compensation under Code Section 162(m).
14.13 Unfunded Plan. The Plan is intended to constitute an unfunded
-------------
deferred compensation arrangement for a select group of management or highly
compensated employees.
EXECUTED on this 23rd day of May, 1997.
TEXAS UTILITIES COMPANY
By: /s/ Peter B. Tinkham
-----------------------------------------------
Peter B. Tinkham, Secretary and Assistant
Treasurer
\
16
<PAGE>
EXHIBIT 15(a)
Texas Utilities Company:
We have made a review, in accordance with standards established by the American
Institute of Certified Public Accountants, the unaudited condensed consolidated
interim financial information of Texas Utilities Company and subsidiaries for
the periods ended June 30, 1997 and 1996, as indicated in our report dated
August 11, 1997; because we did not perform an audit, we expressed no opinion on
that information.
We are aware that our report referred to above, which was included in your
Quarterly Report on Form 10-Q for the quarter ended June 30, 1997, is
incorporated by reference in Registration Statement No. 33-32831 on Form S-3 and
Registration Statements No. 33-32833, 33-32835, 33-32837, 33-32839, 33-32841
and 33-32843 on Form S-8 of TUC Holding Company (to be known as Texas Utilities
Company).
We also are aware that the aforementioned report, pursuant to Rule 436(c) under
the Securities Act of 1933, is not considered a part of the Registration
Statement prepared or certified by an accountant or a report prepared or
certified by an accountant within the meaning of Sections 7 and 11 of that Act.
Deloitte & Touche LLP
Dallas, Texas
August 11, 1997
<PAGE>
EXHIBIT 15(b)
Texas Utilities Electric Company:
We have reviewed, in accordance with standards established by the American
Institute of Certified Public Accountants, the unaudited condensed consolidated
interim financial information of Texas Utilities Electric Company and
subsidiaries for the periods ended June 30, 1997 and 1996, as indicated in our
report dated August 11, 1997; because we did not perform an audit, we expressed
no opinion on that information.
We are aware that our report referred to above, which is included in your
Quarterly Report on Form 10-Q for the quarter ended June 30, 1997, is
incorporated by reference in Registration Statement No. 33-69554 on Form S-3
and Post Effective Amendment No. 1 to Registration Statement No. 33-83976 on
Form S-3.
We also are aware that the aforementioned report, pursuant to Rule 436(c) under
the Securities Act of 1933, is not considered a part of the Registration
Statement prepared or certified by an accountant or a report prepared or
certified by an accountant within the meaning of Sections 7 and 11 of that Act.
Deloitte & Touche LLP
Dallas, Texas
August 11, 1997
<TABLE> <S> <C>
<PAGE>
<ARTICLE> UT
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
CONDENSED STATEMENTS OF CONSOLIDATD INCOME, CONDENSED STATEMENTS OF CONSOLIDATED
CASH FLOWS, AND CONDENSED CONSOLIDATED BALANCE SHEETS AND IS QUALIFIED IN ITS
ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<CIK> 0000097561
<NAME> TEXAS UTILITIES COMPANY
<MULTIPLIER> 1,000
<S> <C>
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<PERIOD-START> JAN-01-1997
<PERIOD-END> JUN-30-1997
<BOOK-VALUE> PER-BOOK
<TOTAL-NET-UTILITY-PLANT> 17,425,574
<OTHER-PROPERTY-AND-INVEST> 1,167,616
<TOTAL-CURRENT-ASSETS> 950,689
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<OTHER-ASSETS> 0
<TOTAL-ASSETS> 21,509,857
<COMMON> 4,791,193
<CAPITAL-SURPLUS-PAID-IN> 0
<RETAINED-EARNINGS> 1,252,310
<TOTAL-COMMON-STOCKHOLDERS-EQ> 6,043,503
895,458
139,140
<LONG-TERM-DEBT-NET> 8,303,859
<SHORT-TERM-NOTES> 73,835
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<COMMERCIAL-PAPER-OBLIGATIONS> 439,667
<LONG-TERM-DEBT-CURRENT-PORT> 371,377
0
<CAPITAL-LEASE-OBLIGATIONS> 0
<LEASES-CURRENT> 0
<OTHER-ITEMS-CAPITAL-AND-LIAB> 5,243,018
<TOT-CAPITALIZATION-AND-LIAB> 21,509,857
<GROSS-OPERATING-REVENUE> 3,082,289
<INCOME-TAX-EXPENSE> 148,255
<OTHER-OPERATING-EXPENSES> 0
<TOTAL-OPERATING-EXPENSES> 2,240,553
<OPERATING-INCOME-LOSS> 841,736
<OTHER-INCOME-NET> (9,869)
<INCOME-BEFORE-INTEREST-EXPEN> 831,867
<TOTAL-INTEREST-EXPENSE> 408,067
<NET-INCOME> 423,800
0
<EARNINGS-AVAILABLE-FOR-COMM> 275,545
<COMMON-STOCK-DIVIDENDS> 235,833
<TOTAL-INTEREST-ON-BONDS> 227,308
<CASH-FLOW-OPERATIONS> 731,379
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<TABLE> <S> <C>
<PAGE>
<ARTICLE> UT
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
CONDENSED STATEMENTS OF INCOME, CONDENSED STATEMENTS OF CASH FLOWS, AND
CONDENSED BALANCE SHEETS AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH
FINANCIAL STATEMENTS.
</LEGEND>
<CIK> 0000710182
<NAME> TEXAS UTILITIES ELECTRIC COMPANY
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-START> JAN-01-1997
<PERIOD-END> JUN-30-1997
<BOOK-VALUE> PER-BOOK
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<OTHER-PROPERTY-AND-INVEST> 522,768
<TOTAL-CURRENT-ASSETS> 746,357
<TOTAL-DEFERRED-CHARGES> 1,915,228
<OTHER-ASSETS> 0
<TOTAL-ASSETS> 18,944,004
<COMMON> 4,595,889
<CAPITAL-SURPLUS-PAID-IN> 0
<RETAINED-EARNINGS> 1,543,623
<TOTAL-COMMON-STOCKHOLDERS-EQ> 6,139,512
895,458
139,140
<LONG-TERM-DEBT-NET> 6,040,031
<SHORT-TERM-NOTES> 0
<LONG-TERM-NOTES-PAYABLE> 306,607
<COMMERCIAL-PAPER-OBLIGATIONS> 0
<LONG-TERM-DEBT-CURRENT-PORT> 352,464
0
<CAPITAL-LEASE-OBLIGATIONS> 0
<LEASES-CURRENT> 0
<OTHER-ITEMS-CAPITAL-AND-LIAB> 5,070,792
<TOT-CAPITALIZATION-AND-LIAB> 18,944,004
<GROSS-OPERATING-REVENUE> 2,817,000
<INCOME-TAX-EXPENSE> 176,141
<OTHER-OPERATING-EXPENSES> 2,039,121
<TOTAL-OPERATING-EXPENSES> 2,215,262
<OPERATING-INCOME-LOSS> 601,738
<OTHER-INCOME-NET> 14,530
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<TOTAL-INTEREST-EXPENSE> 290,270
<NET-INCOME> 325,998
19,562
<EARNINGS-AVAILABLE-FOR-COMM> 306,436
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