<PAGE>
SCHEDULE 14A INFORMATION
PROXY STATEMENT PURSUANT TO SECTION 14(A) OF THE SECURITIES EXCHANGE ACT OF 1934
(AMENDMENT NO. )
Filed by the Registrant [x]
Filed by a Party other than the Registrant [_]
Check the appropriate box:
[_] Preliminary Proxy Statement [_] CONFIDENTIAL, FOR USE OF THE
COMMISSION ONLY (AS PERMITTED BY
RULE 14A-6(E)(2))
[x] Definitive Proxy Statement
[_] Definitive Additional Materials
[_] Soliciting Material Pursuant to (S)240.14a-11(c) or (S)240.14a-12
Texas Utilities Company
-------------------------------------------------------------------------
(Name of Registrant as Specified In Its Charter)
Texas Utilities Company
-------------------------------------------------------------------------
(Name of Persons(s) Filing Proxy Statement, if other than the Registrant)
Payment of Filing Fee (Check the appropriate box):
[x] No fee required.
[_] Fee computed on table below per Exchange Act Rules 14a-6(i)(4) and 0-11.
(1) Title of each class of securities to which transaction applies:
(2) Aggregate number of securities to which transaction applies:
(3) Per unit price or other underlying value of transaction computed
pursuant to Exchange Act Rule 0-11 (Set forth the amount on which the
filing fee is calculated and state how it was determined):
(4) Proposed maximum aggregate value of transaction:
(5) Total fee paid:
[_] Fee paid previously with preliminary materials:
[_] Check box if any part of the fee is offset as provided by Exchange Act Rule
0-1 1(a)(2) and identify the filing for which the offsetting fee was paid
previously. Identify the previous filing by registration statement number,
or the Form or Schedule and the date of its filing.
(1) Amount Previously Paid:
(2) Form, Schedule or Registration Statement No.:
(3) Filing Party:
(4) Date Filed:
Notes:
<PAGE>
TEXAS UTILITIES COMPANY
Energy Plaza
1601 Bryan Street
Dallas, Texas 75201-3411
------------------
NOTICE OF ANNUAL MEETING OF SHAREHOLDERS
------------------
April 4, 1997
To the Shareholders of
Texas Utilities Company:
The annual meeting of shareholders of Texas Utilities Company will be held
in the Eugene McDermott Concert Hall of the Morton H. Meyerson Symphony
Center, 2301 Flora Street, Dallas, Texas on Friday, May 23, 1997 at 9:30 a.m.
for the following purposes:
1. To elect a Board of Directors for the ensuing year;
2. To approve the Long-Term Incentive Compensation Plan; and
3. To approve the selection of auditors for the year 1997.
The Board of Directors has fixed the close of business on March 24, 1997 as
the time as of which shareholders entitled to notice of, and to vote at, the
meeting and any adjournments shall be determined.
WHETHER OR NOT YOU WILL BE ABLE TO ATTEND THE MEETING, PLEASE SIGN AND
RETURN THE ACCOMPANYING PROXY PROMPTLY. NO POSTAGE NEED BE AFFIXED TO THE
REPLY ENVELOPE WHICH IS ENCLOSED HEREWITH FOR YOUR CONVENIENCE IF IT IS MAILED
IN THE UNITED STATES.
Peter B. Tinkham
Treasurer and Assistant
Secretary
<PAGE>
TEXAS UTILITIES COMPANY
Energy Plaza
1601 Bryan Street
Dallas, Texas 75201- 3411
------------------
PROXY STATEMENT
------------------
April 4, 1997
A proxy in the accompanying form is solicited by the Board of Directors of
TEXAS UTILITIES COMPANY for use at the annual meeting of shareholders to be
held in the Eugene McDermott Concert Hall of the Morton H. Meyerson Symphony
Center, 2301 Flora Street, Dallas, Texas, on Friday, May 23, 1997, at 9:30
a.m. and any adjournments thereof for the purposes set forth in the
accompanying notice.
The close of business on March 24, 1997 has been fixed as the time as of
which shareholders entitled to notice of, and to vote with respect to, this
meeting shall be determined. At such date there were outstanding and entitled
to vote 224,602,557 shares of common stock. Except as indicated below, each
share is entitled to one vote on all matters submitted to shareholders.
Any shareholder may exercise the right of cumulative voting in the election
of directors provided the shareholder gives written notice of such intention
to the Secretary of the Company on or before the date preceding the election.
When exercising this right the shareholder is entitled to one vote for each
share held multiplied by the number of directors to be elected and he may cast
all of his votes for a single nominee or spread his votes among the nominees
in any manner desired.
This Notice, Proxy Statement and form of proxy are being mailed or given to
shareholders on or about April 4, 1997.
The cost of soliciting proxies will be borne by the Company. In addition to
use of the mails, proxies may be solicited by directors, officers and regular
employees of the Company in person or by telephone. The Company has hired D.
F. King & Co., Inc. to assist in the solicitation of proxies at an estimated
cost of $7,500 plus disbursements. Shareholders may assist the Company in
avoiding expenses in this connection by returning their proxies promptly.
1
<PAGE>
Any proxy delivered pursuant to this solicitation is revocable at the option
of the person executing the same at any time prior to the exercise thereof.
The shares represented by any proxy duly given as a result of this request
will be voted in the discretion of the persons named in the proxy unless the
shareholder specifies a choice by means of the ballot space on the proxy, in
which case the shares will be voted accordingly.
The Company has adopted a confidential voting policy. Accordingly,
tabulation of proxies and votes cast at the meeting will be conducted by an
independent agent and the votes of individual shareholders will be kept
private and not disclosed to the Company, except in limited circumstances.
The presence in person or by proxy of the holders of a majority of the
shares of the common stock entitled to vote shall constitute a quorum entitled
to transact business at the meeting. Directors are elected by plurality vote
of the votes cast at the meeting; abstentions will have no effect. The
approval of the Long-Term Incentive Compensation Plan and the approval of the
selection of auditors require the affirmative vote of a majority of the shares
represented at the meeting; abstentions and non-votes, i.e. shares held by
brokers and other nominees or fiduciaries that are present at the meeting but
not voted on a particular matter, will be treated as negative votes.
1998 ANNUAL MEETING SHAREHOLDERS' PROPOSALS
All proposals from shareholders to be considered at the next annual meeting
scheduled for May 15, 1998 must be received by the Secretary of the Company,
Energy Plaza, 1601 Bryan Street, Dallas, Texas 75201-3411, not later than the
close of business on December 5, 1997.
ELECTION OF DIRECTORS
It is the intent of the Board of Directors that the persons named in the
proxy will vote your shares in favor of the nominees for directors listed
hereafter, unless authority is withheld. All of the nominees are current
members of the Board of Directors and have been nominated by the Nominating
Committee. The persons named in the proxy may cumulate the votes represented
thereby and in case any such nominee shall become unavailable, which the Board
of Directors has no reason to anticipate, may vote for a substitute.
2
<PAGE>
The names of the nominees for the office of director for the ensuing year
and information about them, as furnished by the nominees themselves, are set
forth below:
<TABLE>
<CAPTION>
SERVED AS
NAME AGE DIRECTOR SINCE BUSINESS EXPERIENCE DURING PAST FIVE YEARS
---- --- -------------- ------------------------------------------
<S> <C> <C> <C>
J. S. Farrington
(2)(5)................. 62 1983 Chairman of the Board of the Company since
May 1995; prior thereto Chairman of the
Board and Chief Executive of the Company
(February 1987--May 1995); prior thereto
President of the Company (May 1983--February
1987). A Director of TU Electric.
Bayard H. Friedman
(1)(2)(3)(4)(6)........ 70 1991 Friedman & Uhlemeyer, Inc., Investment
Adviser, since December 1992. Prior thereto,
Senior Chairman and Director, Team Bank
(January 1990--November 1992). A Director of
Justin Industries.
William M. Griffin
(1)(3)(4)(6)........... 70 1966 Principal, The WMG Company (investments).
Executive Vice President (until August 1985)
and Chairman of the Finance Committees
(until March 1986) of The Hartford Fire
Insurance Company and Subsidiaries. A
Director of The Hartford Fire Insurance
Company (until March 1991) and Shawmut
National Corporation (until April 1992).
Kerney Laday
(1)(3)(4)(6)........... 55 1993 President, The Laday Company (management
consulting and business development) since
July 1995; prior thereto Vice President,
field operations, Southern Region, U. S.
Customer Operations, Xerox Corporation
(January 1991--June 1995); prior thereto
Vice President and region general manager,
Xerox (1986 to 1991).
Margaret N. Maxey
(1)(2)(3)(4)(6)........ 70 1984 Director, Clint W. Murchison, Sr. Chair of
Free Enterprise and Professor, Biomedical
Engineering Program, College of Engineering,
The University of Texas at Austin since
1982; prior thereto Assistant Director,
Energy Research Institute, Columbia, South
Carolina, 1980-1982.
James A. Middleton
(1)(3)(4)(5)(6)........ 61 1989 Chairman of the Board and Chief Executive
Officer, Crown Energy Company (oil and gas
producing and tar sands processing) since
January 1996; prior thereto Executive Vice
President (October 1987--December 1994) and
Senior Vice President (June 1981--October
1987) of Atlantic Richfield Company.
President, ARCO Oil and Gas Company,
(January 1985--October 1990). A Director of
Crown Energy Company and ARCO Chemical
Company.
</TABLE>
3
<PAGE>
<TABLE>
<CAPTION>
SERVED AS
NAME AGE DIRECTOR SINCE BUSINESS EXPERIENCE DURING PAST FIVE YEARS
---- --- -------------- ------------------------------------------
<S> <C> <C> <C>
Erle Nye
(2)(5)................. 59 1987 President and Chief Executive of the Company
since May 1995; prior thereto President of
the Company (February 1987--May 1995);
Chairman of the Board and Chief Executive,
and a Director of TU Electric.
J. E. Oesterreicher
(1)(3)(4)(6)........... 55 1996 Chairman of the Board of J.C. Penney Company,
Inc. (department store chain) since January
1997 and Chief Executive Officer since
January 1995; Vice Chairman of the Board
from 1995 to 1997; President, J.C. Penney
Stores and Catalog from 1992 to 1995. A
Director of J.C. Penney Company, Inc. and
Brinker International, Inc.
Charles R. Perry
(1)(2)(3)(4)(5)(6)..... 67 1985 Oil and gas interests, private investments.
Chairman of the Board of Perry Management,
Inc., Avion Flight Centre, Inc. and Perry
Gas Companies, Inc.
Herbert H. Richardson
(1)(3)(4)(5)(6) 66 1992 Associate Vice Chancellor for Engineering and
Director, Texas Transportation Institute,
The Texas A&M University System; Associate
Dean of Engineering, Regents Professor and
Distinguished Professor of Engineering,
Texas A&M University; Chancellor, The Texas
A&M University System, 1991--1993 and Deputy
Chancellor for Engineering, The Texas A&M
University System, 1986--1991.
</TABLE>
- ---------
(1) Member of Audit Committee.
(2) Member of Executive Committee.
(3) Member of Finance Committee.
(4) Member of Nominating Committee.
(5) Member of Nuclear Committee.
(6) Member of Organization and Compensation Committee.
4
<PAGE>
During 1996 the Board of Directors held seven meetings. The standing
committees of the Board of Directors and the membership of each committee are
shown on the preceding pages. During 1996 each of the Directors attended more
than 90% of the aggregate of the Board of Directors meetings and the meetings
of the Committees on which they serve.
The Audit Committee nominates to the Board, for approval by the shareholders
at each annual meeting, a firm of independent auditors to audit the books of
account and records of the Company and to perform such other duties as this
Committee may prescribe or approve, receives the reports and comments from
such independent auditors, reviews the adequacy of internal controls, reviews
the accounting principles employed in financial reporting and takes any action
with respect thereto as it may deem appropriate, reports to the Board of
Directors upon its findings and recommendations and performs such other duties
as may be assigned to it from time to time by the Board; the Audit Committee
held two meetings during 1996. The Executive Committee exercises the authority
of the Board in the intervals between meetings of the Board; the Executive
Committee did not meet during 1996. The Finance Committee reviews and
recommends to the Board, for its consideration, major financial undertakings
and policies and performs such other duties as may be assigned to it from time
to time by the Board; the Finance Committee held three meetings during 1996.
The Nominating Committee selects and recommends to the Board, for its
consideration, persons as nominees for election as directors of the Company
and performs such other duties as may be assigned to it from time to time by
the Board; the Nominating Committee held one meeting in 1996. Shareholders may
recommend nominees for directors to the Nominating Committee by writing to the
Secretary of the Company, Energy Plaza, 1601 Bryan Street, Dallas, Texas
75201-3411. The Nuclear Committee reviews, generally oversees, and makes
reports and recommendations to the Board in connection with, the operation of
the Company's nuclear generating units; the Nuclear Committee held four
meetings during 1996. The Organization and Compensation Committee reviews and
establishes the duties, titles and remuneration of officers of the Company;
the Organization and Compensation Committee held three meetings in 1996.
Non-officer directors were compensated in 1996 by a retainer fee at the
annual rate of $25,000 plus $1,500 for each Board meeting attended and $1,000
for each committee meeting attended. Additionally, non-officer directors who
are members of the Nuclear Committee receive an annual retainer fee of $10,000
for their services on that Committee. Directors who are officers of the
Company do not receive any fees for service as a director. All directors are
reimbursed for expenses. Non-officer directors may elect to defer, in
increments of 25%, all or a portion of their annual Board retainer pursuant to
the Deferred Compensation Plan for Outside Directors (Directors' Plan).
Amounts deferred are matched by the Company. Under the Directors' Plan, a
trustee purchases Company common stock with an amount of cash equal to each
participant's deferred retainer and matching amount,
5
<PAGE>
and accounts are established for each participant containing performance units
equal to such number of common shares. Directors' Plan investments, including
reinvested dividends, are restricted to Company common stock. On the
expiration of the applicable maturity period (not fewer than three nor more
than ten years, as selected by the participant) or upon death or disability,
the value of the participant's accounts is paid in cash based on the then
current value of the performance units.
BENEFICIAL OWNERSHIP OF COMMON STOCK OF THE COMPANY
Each nominee for director and certain executive officers reported beneficial
ownership of common stock of the Company, as of March 26, 1997, as follows:
<TABLE>
<CAPTION>
NUMBER OF SHARES
-----------------------------
DEFERRED
BENEFICIALLY PLANS
NAME OWNED (1) TOTAL
---- ------------ -------- -------
<S> <C> <C> <C>
J. S. Farrington............................... 19,365 50,961 70,326
Bayard H. Friedman (2)......................... 2,416 2,793 5,209
William M. Griffin............................. 25,000 2,793 27,793
Kerney Laday................................... 800 2,793 3,593
Margaret N. Maxey.............................. 4,862 2,793 7,655
James A. Middleton............................. 3,000 2,793 5,793
Erle Nye....................................... 20,114 43,594 63,708
J. E. Oesterreicher............................ 1,200 1,210 2,410
Charles R. Perry............................... 1,000 2,793 3,793
Herbert H. Richardson.......................... 1,100 1,000 2,100
H. Jarrell Gibbs............................... 7,032 19,340 26,372
W. M. Taylor................................... 9,304 18,703 28,007
T. L. Baker.................................... 3,012 16,544 19,556
All Directors and Executive Officers
as a group (13 persons)....................... 98,205 168,110 266,315
</TABLE>
- ---------
(1) Share units held in deferred compensation accounts under the Deferred and
Incentive Compensation Plan or the Directors' Plan. Although these plans
allow such units to be paid only in the form of cash, investments in such
units create essentially the same investment stake in the performance of
the Company's common stock as do investments in actual shares of common
stock.
(2) In addition to the shares reported above, clients of Mr. Friedman's
investment advisory firm own 1,480 shares of the common stock of the
Company. Mr. Friedman disclaims any beneficial interest in such shares.
6
<PAGE>
The named individuals have voting and investment power for the shares of
common stock reported as Beneficially Owned. Ownership of such common stock by
each individual director and executive officer and for all directors and
executive officers as a group constituted less than 1% of the Company's
outstanding shares.
The Company has no knowledge of any person who beneficially owned more than
5% of the common stock of the Company as of December 31, 1996. Mellon Bank,
N.A. (Mellon), in its capacity as Trustee of the Employees' Thrift Plan of the
Texas Utilities Company System (Plan), holds a total of 12,314,898 shares of
the Company's common stock, or 5.5% of the outstanding common shares, of which
6,699,556 shares, or 3.0% of the outstanding shares, have been allocated to
Plan participants' accounts. Plan participants are entitled to direct Mellon
as to how to vote shares allocated to their accounts and Mellon disclaims
beneficial ownership of such allocated shares.
7
<PAGE>
EXECUTIVE COMPENSATION
The Company and its subsidiaries have paid or awarded compensation during
the last three calendar years to the following executive officers for services
in all capacities:
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
ANNUAL COMPENSATION LONG-TERM COMPENSATION (2)
----------------------- -----------------------------
AWARDS PAYOUTS
--------------------- -------
OTHER ALL
ANNUAL SECURITIES OTHER
COMPEN- RESTRICTED UNDERLYING LTIP COMPEN-
NAME AND SALARY BONUS SATION STOCK OPTIONS/ PAYOUTS SATION
PRINCIPAL POSITION YEAR ($) ($) (1) ($) AWARDS ($) SARS (#) ($) ($) (3)
------------------ ---- ------- ------- ------- ---------- ---------- ------- -------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
J. S. Farrington,....... 1996 752,813 157,782 -- 315,563 -- 0 128,336
Chairman of the Board 1995 825,000 165,000 -- 313,500 -- 34,135 105,671
of the Company (4) 1994 804,167 0 -- 273,500 -- 0 85,817
Erle Nye, .............. 1996 723,333 185,000 -- 351,500 -- 0 117,908
President and Chief 1995 679,167 140,000 -- 266,000 -- 25,602 87,810
Executive of the 1994 618,750 0 -- 217,000 -- 0 67,275
Company
H. Jarrell Gibbs,....... 1996 321,250 113,000 -- 189,500 -- 0 53,203
President of 1995 282,917 67,200 -- 120,300 9,102 38,702
TU Electric 1994 245,167 40,000 -- 97,880 -- 0 29,017
W. M. Taylor,........... 1996 312,500 83,500 -- 156,625 -- 0 49,530
President, Generation 1995 282,917 64,700 -- 117,800 -- 10,809 38,278
Division-TU Electric 1994 249,333 40,000 -- 97,880 -- 0 30,333
T. L. Baker,............ 1996 275,833 60,500 -- 123,500 -- 0 46,319
President, Electric 1995 261,667 44,900 -- 93,500 -- 11,947 34,465
Service Division 1994 245,833 25,000 -- 80,000 -- 0 28,183
-TU Electric
</TABLE>
- ---------
(1) Amounts reported as Bonus in the Summary Compensation Table are
attributable, beginning in 1995, to the named officer's participation in
the Annual Incentive Plan (AIP). Officers of the Company and its
subsidiaries with a title of Vice President or above are eligible to
participate in the AIP. Under the terms of the AIP, target incentive
awards ranging from 35% to 50% of base salary, and a maximum award of 100%
of base salary, are established. The percentage of the target or the
maximum actually awarded, if any, is dependent upon the attainment of per
share net income goals established in advance by the Organization and
Compensation Committee (Committee) as well as the Committee's evaluation
of the participant's and the Company's performance. One-half of each such
award is paid in cash and is reflected as Bonus in the Summary
Compensation Table. Payment of the remainder of the award is deferred
under the Deferred and Incentive Compensation Plan (DICP) discussed
hereinafter.
8
<PAGE>
(2) Amounts reported as Long-Term Compensation are attributable to the named
officer's participation in the DICP. Officers of the Company and its
subsidiaries with the title of Vice President or above are eligible to
participate in the DICP. Participants in the DICP may defer a percentage
of their base salary not to exceed a maximum percentage determined by the
Committee for each Plan year and in any event not to exceed 15% of the
participant's base salary. The Company makes a matching award (Matching
Award) equal to 150% of the participant's deferred salary. In addition,
one-half of any AIP award (Incentive Award) is deferred and invested under
the DICP. The Matching Awards and Incentive Awards are subject to
forfeiture under certain circumstances. Under the DICP, a trustee
purchases Company common stock with an amount of cash equal to each
participant's deferred salary, Matching Award and Incentive Award, and
accounts are established for each participant containing performance units
(Units) equal to such number of common shares. DICP investments, including
reinvested dividends, are restricted to Company common stock. On the
expiration of the applicable maturity period (three years for the
Incentive Awards and five years for deferred salary and Matching Awards)
the values of the participant's accounts are paid in cash based upon the
then current value of the Units; provided, however, that in no event will
a participant's account be deemed to have a cash value which is less than
the sum of such participant's deferred salary together with a 6% per annum
(compounded annually) interest equivalent thereon. The maturity period is
waived if the participant dies or becomes totally and permanently disabled
and may be extended under certain circumstances.
Salary deferred under the DICP is included in amounts reported as Salary in
the Summary Compensation Table. Amounts shown in the table below represent
the number of shares purchased under the DICP with such deferred salaries
for 1996:
LONG-TERM INCENTIVE PLAN--AWARDS IN LAST FISCAL YEAR
<TABLE>
<CAPTION>
PERFORMANCE
OR OTHER
PERIOD
NUMBER OF UNTIL
SHARES, UNITS OR MATURATION
NAME OTHER RIGHTS (#) OR PAYOUT
---- ---------------- -----------
<S> <C> <C>
J. S. Farrington................................ 2,483 5 Years
Erle Nye........................................ 2,620 5 Years
H. Jarrell Gibbs................................ 1,203 5 Years
W. M. Taylor.................................... 1,150 5 Years
T. L. Baker..................................... 991 5 Years
</TABLE>
Incentive Awards and Matching Awards that have been made under the DICP are
included under Restricted Stock Awards in the Summary Compensation Table.
As a
9
<PAGE>
result of these awards, undistributed Incentive Awards and Matching Awards
made under the Plan in prior years, and dividends reinvested thereon, the
number and market value of such Units at December 31, 1996 (each of which
is equal to one share of common stock) held in the DICP accounts for
Messrs. Farrington, Nye, Gibbs, Taylor and Baker were 35,601 ($1,450,763),
30,816 ($1,255,786), 14,113 ($575,142), 13,423 ($546,997) and 11,455
($466,831), respectively.
Amounts reported as LTIP Payouts in the Summary Compensation Table
represent payouts maturing during such years of earnings on salary deferred
under the DICP in prior years.
(3) Amounts reported as All Other Compensation are attributable to the named
officer's participation in certain plans described hereinafter in this
footnote:
Under the Employees' Thrift Plan of the Texas Utilities Company System
(Thrift Plan) all employees with at least six months of eligible service
with the Company or any of its subsidiaries may invest up to 16% of their
regular salary or wages in common stock of the Company, or in a variety of
selected mutual funds. Under the Thrift Plan, the Company matches a portion
of an employee's savings in an amount equal to 40%, 50% or 60% (depending
on the employee's length of service) of the first 6% of such employee's
savings. All matching amounts are invested in common stock of the Company.
The amounts reported under All Other Compensation in the Summary
Compensation Table include these matching amounts which, for Messrs.
Farrington, Nye, Gibbs, Taylor and Baker, amounted to $5,400, $5,400,
$4,500, $5,400 and $5,400, respectively, during 1996.
The Company has a Salary Deferral Program (Program) under which each
employee of the Company and its subsidiaries whose annual salary is equal
to or greater than an amount established under the Program ($91,740 for the
Program Year beginning April 1996) may elect to defer a percentage of
annual salary for a period of seven years, a period ending with the
retirement of such employee, or for a combination thereof. Such deferrals
may not exceed in the aggregate 10% of the employee's annual salary. Salary
deferred under the Program is included in amounts reported under Salary in
the Summary Compensation Table. The Company makes a matching award, subject
to forfeiture under certain circumstances, equal to 100% of the salary
deferred under the Program. The trustee for the Program distributes, at the
end of the applicable maturity period, cash equal to the greater of the
actual earnings of Program assets, or the average yield during the
applicable maturity period of U. S. Treasury Notes with a maturity of ten
years. The distributions of the amounts due under the Program are in a lump
sum if the maturity period is seven years or, if the retirement option is
elected, in twenty annual installments. The Company is financing the
retirement portion of the Program through the purchase of corporate-owned
life insurance on the lives of the
10
<PAGE>
participants. The proceeds from such insurance are expected to allow the
Company to fully recover the cost of the retirement option. During 1996,
matching awards, which are included under All Other Compensation in the
Summary Compensation Table, were made for Messrs. Farrington, Nye, Gibbs,
Taylor and Baker in the amounts of $75,281, $72,333, $32,125, $31,250 and
$27,583, respectively.
Under the Split-Dollar Life Insurance Program of the Texas Utilities
Company System (Insurance Program), split-dollar life insurance policies
are purchased for officers of the Company and its subsidiaries with a title
of Vice President or above, with a death benefit equal to four times their
annual compensation. Effective in October 1996, new participants vest in
the policies issued under the Insurance Program over a six year period. The
Company pays the premiums for these policies and has received a collateral
assignment of the policies equal in value to the sum of all of its
insurance premium payments. Although the Insurance Program is terminable at
any time, it is designed so that if it is continued, the Company will fully
recover all of the insurance premium payments it has made either upon the
death of the participant or, if the assumptions made as to policy yield are
realized, upon the later of fifteen years of participation or the
participant's attainment of age sixty-five. During 1996, the economic
benefit derived by Messrs. Farrington, Nye, Gibbs, Taylor and Baker from
the term insurance coverage provided and the interest foregone on the
remainder of the insurance premiums paid by the Company amounted to
$47,655, $40,175, $16,578, $12,880 and $13,336, respectively.
(4) Mr. Farrington served as Chief Executive until May 1995. Mr. Farrington
has a management transition agreement with the Company pursuant to which
he will remain as Chairman of the Board until May 1997, at which time he
will be named Chairman Emeritus. He will retire as an active employee in
May 1998 and serve thereafter as a consultant to the Company for a two
year period. In accordance with the agreement, during the period from May
1996 until his retirement, Mr. Farrington's salary will be reduced by 15%
each year, and he will be eligible to participate in all employee benefit
plans of the Company. As a consultant, he will receive $200,000 annually.
11
<PAGE>
PENSION PLAN TABLE
<TABLE>
<CAPTION>
YEARS OF SERVICE
- -------------------------------------------------------------------------------------
REMUNERATION 20 25 30 35 40
- ------------ -- -- -- -- --
<S> <C> <C> <C> <C> <C>
$ 50,000 $ 14,688 $ 18,360 $ 22,032 $ 25,704 $ 29,376
100,000 29,688 37,110 44,532 51,954 59,376
200,000 59,688 74,610 89,532 104,454 119,376
400,000 119,688 149,610 179,532 209,454 239,376
800,000 239,688 299,610 359,532 419,454 479,376
1,000,000 299,688 374,610 449,532 524,454 599,376
1,400,000 419,688 524,610 629,532 734,454 839,376
</TABLE>
The Company and its subsidiaries maintain retirement plans (Plans) which are
qualified under applicable provisions of the Internal Revenue Code of 1986, as
amended (Code). Annual retirement benefits are computed as follows: for each
year of accredited service up to a total of 40 years of service, 1.3% of the
first $7,800, plus 1.5% of the excess over $7,800 of the participant's average
annual earnings during his or her three years of highest earnings. Amounts
reported under Salary for the named officers in the Summary Compensation Table
approximate earnings as defined by the Plans. Benefits paid under the Plans
are not subject to any reduction for Social Security payments but are limited
by provisions of the Code. The Company maintains a Supplemental Retirement
Plan (Supplemental Plan) which provides for the payment of retirement benefits
which would otherwise be limited by the Code or by the definition of earnings
in the Plans. Under the Supplemental Plan, retirement benefits are calculated
in accordance with the same formula used under the Plans, except that earnings
also include AIP awards (50% of the AIP award is reported under Bonus for the
named officers in the Summary Compensation Table). As of February 28, 1997,
years of accredited service under the plans for Messrs. Farrington, Nye,
Gibbs, Taylor and Baker were 37, 34, 34, 29 and 26, respectively. The table
illustrates the total annual benefit payable at retirement under the Plans and
Supplemental Plan prior to any reduction for a contingent beneficiary option
which may be selected by the participant.
The following information contained under the headings Organization and
Compensation Committee Report on Executive Compensation and Performance Graph
is not to be deemed to be (i) incorporated by reference into any filing under
the Securities Act of 1933 or the Securities Exchange Act of 1934 (Securities
Acts) or (ii) "soliciting material" or "filed" with the SEC within the meaning
of Item 402(a)(9) of SEC Regulation S-K of the Securities Acts.
12
<PAGE>
ORGANIZATION AND COMPENSATION COMMITTEE REPORT
ON EXECUTIVE COMPENSATION
The Organization and Compensation Committee of the Board of Directors
(Committee) is responsible for reviewing and establishing the compensation of
the executive officers of the Company. The Committee consists of all of the
nonemployee directors of the Company and is chaired by James A. Middleton. The
Committee has directed the preparation of this report and has approved its
contents and submission to the shareholders.
As a matter of policy, the Committee believes that levels of executive
compensation should be based upon an evaluation of the performance of the
Company and its officers generally, as well as in comparison to persons with
comparable responsibilities in similar business enterprises. Compensation
plans should align executive compensation with returns to shareholders with
due consideration accorded to balancing both long-term and short-term
objectives. The overall compensation program should provide for an appropriate
and competitive balance between base salaries and performance-based annual and
long-term incentives. The Committee has determined that, as a matter of policy
to be implemented over time, the base salaries of the officers will be
established at the median, or 50th percentile, of the top ten electric
utilities in the United States and that opportunities for total direct
compensation to reach the 75th percentile, or above, of such utilities will be
provided through performance-based compensation plans. Such compensation
principles and practices have allowed, and should continue to allow, the
Company to attract, retain and motivate its key executives.
In furtherance of these policies, a nationally recognized compensation
consultant has been retained since 1994 to assist the Committee in its
periodic reviews of compensation and benefits provided to officers. The
consultant's prior recommendations, including the Annual Incentive Plan
(referred to as AIP and described hereinafter and in footnote 1 on page 8 of
this proxy statement) as well as changes in life insurance coverage and
retirement benefits, have generally been implemented. The consultant has
recommended, and assisted the Committee in the development of, the Long-Term
Incentive Compensation Plan (the Long-Term Plan) which has been approved by
the Committee and the Board and which is being recommended to the shareholders
for their approval.
The compensation of the officers of the Company has consisted principally of
base salaries, the opportunity to participate in the Deferred and Incentive
Compensation Plan (referred to as the DICP and described in footnote 2 on
pages 9 and 10 of this proxy statement) and the opportunity to earn an
incentive award under the AIP. Benefits provided under the DICP and the AIP
represent a substantial portion of officers' compensation, and the value of
future payments under the DICP, as well as the value of the deferred portion
of any award under the AIP, is directly related to the future performance of
the Company's
13
<PAGE>
common stock. It is anticipated that performance-based incentive awards under
the AIP and, if it is approved by the shareholders, the Long-Term Plan, will,
in future years, constitute an increasing percentage of the officers' total
compensation.
The AIP is administered by the Committee and provides an objective framework
within which annual Company and individual performance can be evaluated by the
Committee. Depending on the results of such performance evaluations, and the
attainment of the per share net income goals established in advance, the
Committee may provide annual incentive compensation awards to eligible
officers. The evaluation of each individual participant's performance is based
upon the attainment of individual and business unit objectives. The Company's
performance is evaluated, compared to the ten largest electric utilities
and/or the electric utility industry, based upon its total return to
shareholders and return on invested capital, as well as other measures
relating to competitiveness, service quality and employee safety. The
combination of individual and Company performance results, together with the
Committee's evaluation of the competitive level of compensation which is
appropriate for such results, determines the amount, if any, actually awarded.
As previously noted, the Committee and the Board have adopted, subject to
shareholder approval, the Long-Term Plan as more fully described on pages 17
through 20 of this proxy statement. The Long-Term Plan is a comprehensive,
stock-based incentive compensation plan under which all awards will be made
in, or based on the value of, the Company's common stock. The Committee
believes that the Long-Term Plan is necessary in order to continue to be able
to attract, motivate and retain officers and other key employees through
stock-based compensation. The Long-Term Plan is designed such that the value
of awards will be directly related to long term returns to shareholders and
the Plan will, thereby, constitute an appropriate component of the Company's
overall compensation program.
In establishing levels of executive compensation at its May 1996 meeting,
the Committee reviewed various performance and compensation data, including
the performance measures under the AIP and the report of its compensation
consultant. Information was also gathered from industry sources and other
published and private materials which provided a basis for comparing the
largest electric and gas utilities and other survey groups representing a
large variety of business organizations. Included in the data considered was
that the Company's total return to shareholders in 1995 was 38.5%, which was
the third highest total return amongst the ten largest utilities.
Additionally, in 1995, TU Electric, the Company's principal subsidiary, was
the second largest electric utility in the United States as measured by
megawatt hour sales and, compared to other electric utilities in the United
States, was seventh in electric revenues, sixth in total assets, fourth in net
generating capability, eighth in number of customers and eleventh in number of
employees. This information provided a basis for comparing the Company with
the largest
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<PAGE>
electric and gas utilities, including companies generally comparable in size
represented in the Moody's 24 Utilities whose comparative investment return is
depicted in the graph on page 16. Compensation amounts were established by the
Committee based upon its subjective evaluation of Company and individual
performance at levels consistent with the Committee's policy relating to total
direct compensation.
In May 1996 the Committee increased Mr. Nye's base salary as Chief Executive
to an annual rate of $740,000 representing a $40,000 or 5.7% increase over the
amount established for Mr. Nye in May of 1995. Based upon the Committee's
evaluation of individual and Company performance, as called for by the AIP,
the Committee also provided Mr. Nye with an AIP award of $370,000 compared to
the prior year's award of $280,000. This level of compensation was established
based upon the Committee's subjective evaluation of the information described
in this report.
In discharging its responsibilities with respect to establishing executive
compensation, the Committee normally considers such matters at its May meeting
held in conjunction with the Annual Meeting of Shareholders. Although Company
management may be present during Committee discussions of officers'
compensation, Committee decisions with respect to the compensation of the
President and Chief Executive and the Chairman of the Board are reached in
private session without the presence of any member of Company management.
Section 162(m) of the Code limits the deductibility of compensation which a
publicly traded corporation provides to its most highly compensated officers.
As a general policy, the Company does not intend to provide compensation which
is not deductible for federal income tax purposes. Awards under the AIP in
1996 and subsequent years as well as awards under the Long-Term Plan are
expected to be fully deductible, and the DICP and the Salary Deferral Program
have been amended to require the deferral of distributions of amounts earned
in 1995 and subsequent years until the time when such amounts would be
deductible. Awards provided under the AIP in 1995 and distributions under the
DICP and the Salary Deferral Program which were earned in plan years prior to
1995, may not be fully deductible but such amounts are not expected to be
material.
Shareholder comments to the Committee are welcomed and should be addressed
to the Secretary of the Company at the Company's offices.
ORGANIZATION AND COMPENSATION COMMITTEE
James A. Middleton, Chair Margaret N. Maxey
Bayard H. Friedman J. E.
William M. Griffin Oesterreicher
Charles R. Perry
Kerney Laday Herbert H.
Richardson
15
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PERFORMANCE GRAPH
The following graph compares the performance of the Company's common stock to
the S&P 500 Index and to the Moody's 24 Utilities for the last five years. The
graph assumes the investment of $100 at December 31, 1991 and that all
dividends were reinvested. The amount of the investment at the end of each year
is shown in the graph and in the table which follows.
[PERFORMANCE GRAPH APPEARS HERE]
<TABLE>
<CAPTION>
----------------------------------
1991 1992 1993 1994 1995 1996
- --------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Texas Utilities................................. 100 110 119 97 134 140
- --------------------------------------------------------------------------------
S&P 500 Index................................... 100 108 118 120 165 203
- --------------------------------------------------------------------------------
Moody's 24 Utilities............................ 100 105 115 98 129 131
- --------------------------------------------------------------------------------
</TABLE>
16
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APPROVAL OF LONG-TERM INCENTIVE COMPENSATION PLAN
The Board of Directors has adopted the Long-Term Incentive Compensation Plan
(Plan), subject to approval by the Company's shareholders. The purpose of the
Plan is to assist the Company in attracting, retaining and motivating
executive officers and other key employees essential to the success of the
Company through performance-related incentives linked to long-range
performance goals. Performance goals under the Plan may be based on individual
performance of the particular employee and/or include criteria such as
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, all as the Organization and
Compensation Committee (Committee) may determine. The Board believes that the
Plan is necessary in order for the Company to attract and retain qualified
executive officers capable of directing the Company through an ever-changing
and increasingly competitive business environment and will more closely align
executive compensation with shareholder returns. The Board also believes that
the Plan is essential for the Company to maintain for its key employees an
appropriate and competitive balance of base salaries, annual incentives and
long-term incentives.
The Plan is a comprehensive, stock-based incentive compensation plan,
providing for discretionary awards (Awards) of incentive stock options,
nonqualified stock options, stock appreciation rights, restricted stock,
restricted stock units, performance shares, performance units, bonus stock and
other stock-based awards. All Awards will be made in, or based on the value
of, the Company's Common Stock.
The Plan will be administered by the Committee, which consists entirely of
outside directors. Regular, full time employees of the Company and its
subsidiaries who are designated by the Committee as key employees will be
eligible to participate in, and receive Awards under, the Plan. The selection
of key employees who are to receive Awards under the Plan, as well as all
terms, conditions, performance criteria and restrictions applicable to each
Award, will be determined by the Committee in its discretion. The Committee
may delegate to the Company's Chief Executive the authority to grant awards to
key employees who are not executive officers.
The maximum number of shares of Common Stock for which Awards may be granted
under the Plan is 2,500,000 subject to adjustment in the event of a merger,
consolidation, reorganization, recapitalization, stock dividend, stock split,
or other similar event. Shares subject to previously canceled, lapsed or
forfeited Awards or Awards paid in cash may be reissued under the Plan. The
shares to be issued under the Plan may consist of authorized but unissued
shares, shares issued and reacquired by the Company or shares purchased in the
open market. As of March 26, 1997, the closing price of a share of Common
Stock on the New York Stock Exchange was $35.125.
17
<PAGE>
STOCK OPTIONS AND STOCK APPRECIATION RIGHTS. The number of shares and other
terms of each grant will be determined by the Committee. The price payable
upon exercise of an option may not be less than 100% of the fair market value
of the Common Stock at the time of the grant, and may be paid in cash or with
shares of Common Stock. Under the terms of the Plan, options may not be
exercised until at least six months after they are granted, except in the case
of the death or disability of the participant or a change in control of the
Company. Options may remain outstanding for no more than ten years. Stock
appreciation rights (SARs) entitle the participant to receive, upon exercise
of the SAR, cash or, at the election of the Committee, shares of Common Stock
or a combination thereof, in an amount equal to the difference between the SAR
exercise price and the fair market value of the shares of Common Stock subject
to the SAR. SARs may be granted to participants under the Plan on a
freestanding basis or in tandem with a stock option. The exercise price of
SARs will be not less than 100% of the fair market value of the Common Stock
on the date of grant. SARs granted under the Plan will not be exercisable
until at least six months following the date of grant and no later than ten
years thereafter. Incentive stock options and SARs may not be transferred
other than by will or the laws of descent and distribution.
STOCK AND STOCK UNIT AWARDS. The Plan also provides for the granting of
restricted stock, restricted stock units, performance shares and performance
units, bonus stock and other stock-based awards. The number of shares or units
and all terms and conditions, including the restriction period, performance
criteria and other restrictions and conditions applicable to each such Award,
will be determined by the Committee. During the restriction period,
participants may exercise full voting rights, and will be entitled to receive
all dividends and other distributions paid, with respect to restricted stock
they have been granted; provided that stock dividends, if any, remain subject
to the same restrictions as the underlying stock. Payment to the participant
may be in shares of Common Stock or cash, or a combination thereof, and in a
lump sum or installments, all as determined by the Committee. Shares of Common
Stock may also be awarded to participants under the Plan as a bonus. Such
shares may be granted with or without restrictions. Shares awarded subject to
performance criteria or other restrictions which are not satisfied, are
forfeited and must be returned to the Company. In addition to the foregoing
types of awards, the Plan permits the Committee to grant any other stock based
award as the Committee may determine. Such stock based awards may be in the
form of the Company's Common Stock or other securities, the value of which is
based, in whole or in part, on the value of the Company's Common Stock on the
grant date.
In the event of a change in control of the Company, all outstanding stock
options and SARs shall immediately become fully vested, and all restrictions
and performance criteria relating to all outstanding Awards shall be deemed to
have been fully satisfied, unless the transaction or event constituting the
change in control was approved in advance by a
18
<PAGE>
majority of the Company's Board of Directors. Under the terms of the Plan, a
change in control shall be deemed to have occurred if: (i) any person becomes
the beneficial owner of 20% or more of the Company's voting securities; (ii)
the Company is involved in a merger, acquisition or similar transaction
pursuant to which the Company's directors immediately before the transaction
cease to constitute a majority of the Company's directors after the
transaction; or (iii) the Company is involved in a transaction pursuant to
which it is not the surviving corporation, its Common Stock is exchanged for,
or converted into securities of another entity, it becomes a subsidiary of
another entity, or 50% or more of its aggregate assets or earning power is
sold to another entity.
The Company expects that Awards made under the Plan will be fully deductible
for federal income tax purposes. Among other requirements, Section 162(m) of
the Code, which limits such deductions, requires that a maximum amount of
performance-based compensation which can be provided to any covered
participant be established; and, for this purpose, such annual aggregate
maximum amount is 100,000 shares with respect to options and SARs and, with
respect to other Awards, is the fair market value of such number of shares as
of the first day of such year. Actual Awards, if any, will be determined by
the Committee.
No Awards have been granted under the Plan. Because all Awards are within
the discretion of the Committee, the Awards that would have been made to
participants during the last fiscal year had the Plan been in effect, and the
Awards that may be made in the future, as well as the number of employees to
whom Awards may be made, are not presently determinable. However, it is
presently estimated that the number of employees of the Company and its
subsidiaries who may receive Awards under the Plan during the first several
years would not exceed 50.
The Plan may be amended, modified, suspended or terminated by the Board of
Directors at any time. No amendment shall be effective prior to approval of
the shareholders to the extent such approval is necessary to comply with any
legal requirement. If not earlier terminated, the Plan shall terminate on
December 31, 2006.
FEDERAL INCOME TAX CONSEQUENCES. The Plan will have the following federal
income tax consequences under the present provisions of the Code. The
Company's deductions for compensation paid under the Plan are in all cases
subject to the requirement of reasonableness.
Incentive Stock Options. Neither the grant, exercise nor purchase of shares
under an incentive stock option will cause the recognition of ordinary income
by the participant provided the participant does not dispose of the underlying
shares within two years from the date of the grant of the option and within
one year after the exercise of the option. However,
19
<PAGE>
the amount by which the fair market value of the shares at the time of
exercise exceeds the exercise price will be treated as an item includable in
the tax base upon which "alternative minimum tax" may be imposed. Neither the
grant nor the exercise of an incentive stock option will produce a tax
deduction for the Company.
If the shares purchased by the participant pursuant to the exercise of an
incentive stock option are disposed of after the expiration of two years from
the date of the grant of the option and after one year from the date of
exercise, the gain or loss on the sale, based upon the difference between the
amount realized and the exercise price, will constitute long-term capital gain
or loss. If the shares purchased by a participant pursuant to the exercise of
an incentive stock option are sold at a gain prior to the expiration of either
of such periods, so much of the gain as does not exceed the difference between
the exercise price and the lesser of the fair market value of the shares on
the date of exercise or the amount realized on the date of sale will be
taxable as compensation to the participant; and a tax deduction will be
allowable to the Company in an amount equal to the compensation recognized by
the participant.
Nonqualified Options. The grant of a nonqualified option will not cause the
recognition of ordinary income by the participant or entitle the Company to a
deduction for federal income tax purposes because, under existing Treasury
regulations, such an option does not have a "readily ascertainable" fair
market value. The exercise of a nonqualified option which is not subject to
any restrictions on the participant's ownership or disposition thereof will
cause the recognition of compensation in an amount equal to the difference
between the exercise price and the fair market value on the exercise date of
the shares purchased by the participant, and a tax deduction will be available
to the Company in an amount equal to the compensation recognized by the
participant. If restrictions apply regarding forfeiture and transferability to
the shares upon exercise, the time of recognition of compensation and the
amount thereof, and the availability of a tax deduction to the Company, will
be determined when such restrictions cease to apply.
BOARD RECOMMENDATION. The Board of Directors adopted the Plan, subject to
shareholder approval, at its February 21, 1997 meeting. The Board believes
that the approval and adoption of the Plan will advance the interests of the
Company and its shareholders by enabling the Company to attract and retain
high caliber, motivated executive officers and other key employees by offering
compensation incentives which provide such officers and employees with a sense
of proprietorship through stock ownership.
THE BOARD OF DIRECTORS RECOMMENDS A VOTE FOR APPROVAL OF THE
LONG-TERM INCENTIVE COMPENSATION PLAN.
20
<PAGE>
SELECTION OF AUDITORS
The Audit Committee has nominated to the Board of Directors for its
consideration the firm of Deloitte & Touche LLP to act as independent auditors
for the Company for the year 1997 and, subject to the approval of shareholders
at the annual meeting, the Board has selected that firm to audit the books of
account and records of the Company and to make a report thereon to the
shareholders. The persons named in the proxy will, unless otherwise instructed
thereon, vote your shares in favor of the following resolution which will be
submitted for consideration:
RESOLVED that the selection of the firm of Deloitte & Touche LLP,
independent auditors, to audit the books of account and records of the
Company for the year 1997, to make a report thereon "To the
Shareholders of Texas Utilities Company," and to perform other
services, be, and it hereby is, approved.
The firm of Deloitte & Touche LLP, independent auditors, has been the
outside auditors for the Company since its organization in 1945 and for
certain of the subsidiaries since 1932, including the last fiscal year.
Representatives of Deloitte & Touche LLP are expected to be present at the
annual meeting and will have the opportunity to make a statement, if they
desire to do so, and to respond to appropriate questions.
THE BOARD OF DIRECTORS RECOMMENDS A VOTE FOR THE APPROVAL OF AUDITORS.
OTHER BUSINESS
Other than as stated herein, the Board of Directors does not intend to bring
any business before the meeting and it has not been informed of any matters
that may be presented to the meeting by others. However, if any other matters
properly come before the meeting, it is the intent of the Board of Directors
that the persons named in the proxy will vote pursuant to the proxy in
accordance with their judgment with respect to such matters.
Dated: April 4, 1997
WHETHER OR NOT YOU WILL BE ABLE TO ATTEND THE MEETING,
PLEASE SIGN AND RETURN THE ACCOMPANYING PROXY PROMPTLY.
21
<PAGE>
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.
2.5 "Beneficial Owner" shall have the meaning ascribed to such term in
Rule 13d-3 under the Exchange Act.
<PAGE>
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.
2.11 "Committee" means the Organization and Compensation Committee of the
Board.
2
<PAGE>
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 designed 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 traded on the New York Stock Exchange
on such day, then on the next preceding day
3
<PAGE>
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 Texas Utilities Company Long-Term Incentive Plan 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) if
Shares issued pursuant to the Awards are canceled or forfeited for any reason,
or (iii) if 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 exercise 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 withhold,
-----------
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 ____ day of ________________, 1997.
TEXAS UTILITIES COMPANY
By:
--------------------------------
16
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[LOGO OF TEXAS UTILITIES APPEARS HERE]
- --------------------------------------------------------------------------------
NOTICE OF
ANNUAL MEETING
OF SHAREHOLDERS
AND
PROXY STATEMENT
- --------------------------------------------------------------------------------
TIME:
FRIDAY, MAY 23, 1997, AT 9:30 A.M.
PLACE:
EUGENE MCDERMOTT CONCERT HALL
MORTON H. MEYERSON
SYMPHONY CENTER
2301 FLORA STREET
DALLAS, TEXAS 75201
Whether or not you will be able
to attend the meeting, please
sign and return the enclosed
proxy promptly so that you may
be represented at the meeting.
<PAGE>
[LOGO OF TEXAS UTILITIES COMPANY APPEARS HERE]
THIS PROXY IS SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS
The undersigned hereby appoints J.S. Farrington and Erle Nye, and each of
them, Proxies with power to appoint a substitute, and hereby authorizes them to
represent and to vote all shares of common stock of Texas Utilities Company held
of record by the undersigned on March 24, 1997 at the annual meeting of
shareholders of the Company to be held in the Eugene McDermott Concert Hall of
the Morton H. Meyerson Symphony Center, 2301 Flora Street, Dallas, Texas,
on Friday, May 23, 1997, and at any adjournments thereof, and to vote, as
directed on the reverse side of this card, on all specified matters coming
before said meeting, and in their discretion, upon such other matters not
specified as may come before said meeting.
(Continued, and to be signed and dated, on reverse side)
<PAGE>
THIS PROXY WHEN PROPERLY EXECUTED WILL BE VOTED IN THE Please mark
MANNER DIRECTED HEREIN. IF NO DIRECTION IS MADE, THIS your votes as [X]
PROXY WILL BE VOTED FOR ITEMS 1, 2 AND 3. indicated in
this example
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DIRECTORS RECOMMEND A VOTE FOR ALL NOMINEES AND FOR ITEMS 2 AND 3.
FOR WITHHELD
1. Election of Directors: [__] [__]
NOMINEES:
J.S. Farrington James A. Middleton
Bayard H. Friedman Erle Nye
William M. Griffin J.E. Oesterreicher
Kerney Laday Charles R. Perry
Margaret N. Maxey Herbert H. Richardson
For, except vote withheld from the following nominee(s):
______________________________________________________________
FOR AGAINST ABSTAIN
2. Approval of the Long-Term Incentive [__] [__] [__]
Compensation Plan
FOR AGAINST ABSTAIN
3. Approval of Auditors - Deloitte & Touche LLP [__] [__] [__]
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NOTE: Please sign names exactly as printed hereon. Joint
owners should each sign. In signing as attorney,
administrator, executor, guardian, officer, partner or
trustee, please give full title as such. Receipt is
acknowledged of the Annual Report of the Company for
1996, notice of meeting and proxy statement.
Signature(s)_________________________________________ Date__________________
<PAGE>
EMPLOYEES' THRIFT PLAN
OF THE TEXAS UTILITIES COMPANY SYSTEM
1997 PROXY
PARTICIPANTS IN THE EMPLOYEES' THRIFT PLAN OF THE TEXAS UTILITIES COMPANY
SYSTEM MAY VOTE THE SHARES OF COMMON STOCK HELD IN THEIR PLAN ACCOUNTS AT
THE ANNUAL MEETING OF SHAREHOLDERS OF TEXAS UTILITIES COMPANY BY USING THIS
CONFIDENTIAL VOTING INSTRUCTION CARD TO GIVE VOTING INSTRUCTIONS TO THE
TRUSTEE FOR SUCH PLAN, MELLON BANK N.A., PRIOR TO 5:00 PM (NEW YORK TIME)
ON MAY 15, 1997. THESE CONFIDENTIAL VOTING INSTRUCTIONS WILL BE SEEN ONLY
BY AUTHORIZED PERSONNEL APPOINTED BY THE TRUSTEE. IF THIS CARD IS NOT
TIMELY RECEIVED BY THE TRUSTEE, THE SHARES REPRESENTED BY THIS CARD WILL BE
VOTED BY THE TRUSTEE IN THE SAME PERCENTAGE AS SHARES HELD BY PARTICIPANT
FOR WHICH THE TRUSTEE HAS RECEIVED TIMELY VOTING INSTRUCTIONS.
The undersigned hereby instructs the trustee to execute the proxy solicited
on behalf of the Board of Directors for the annual meeting of shareholders of
Texas Utilities Company to be held in the Eugene McDermott Concert Hall of the
Morton H. Meyerson Symphony Center, 2301 Flora Street, Dallas, Texas, on Friday,
May 23, 1997, and at any adjournments thereof, and to authorize the Proxies
named therein to vote as directed on the reverse side of this card, on all
specified matters coming before said meeting, and in their discretion, upon such
other matters not specified as may come before said meeting.
(Continued, and to be signed and dated, on reverse side)
<PAGE>
This card when properly executed will instruct the Please mark
trustee to vote in the manner directed herein. your votes as [X]
The execution and return of this card, with no indicated in
direction given, will constitute instructions to vote this example
FOR Items 1,2 and 3.
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Directors recommend a vote FOR all Nominees and
FOR Items 2 and 3.
FOR WITHHELD
1. Election of Directors: [__] [__]
NOMINEES:
J.S. Farrington James A. Middleton
Bayard H. Friedman Erle Nye
William M. Griffin J.E. Oesterreicher
Kerney Laday Charles R. Perry
Margaret N. Maxey Herbert H. Richardson
For, except vote withheld from the following nominee(s):
___________________________________________________________
FOR AGAINST ABSTAIN
2. Approval of the Long-Term Incentive [__] [__] [__]
Compensation Plan
FOR AGAINST ABSTAIN
3. Approval of Auditors - Deloitte & Touche LLP [__] [__] [__]
- --------------------------------------------------------------------------------
NOTE: Please sign names exactly as printed hereon.
In signing as administrator, executor or guardian,
please give full title as such. Receipt is
acknowledged of the Annual Report of the Company
for 1996, notice of meeting and proxy statement.
Signature(s)______________________________ Date ____________________________
