EXHIBIT 10
LONG-TERM INCENTIVE COMPENSATION PLAN
OF THE
TEXAS UTILITIES COMPANY SYSTEM
SECTION 1. PURPOSE
Texas Utilities Company, a Texas corporation (the "Company"), hereby
establishes the Long-Term Incentive Compensation Plan of the Texas Utilities
Company System (the "Plan") to promote the interests of the Company and its
shareholders through the (i) attraction and retention of executive officers and
other key employees essential to the success of the Company; (ii) motivation of
executive officers and other key employees using performance-related incentives
linked to long-range performance goals and the interests of Company
shareholders; and (iii) enabling of such employees to share in the long-term
growth and success of the Company. The Plan permits the grant of Incentive
Stock Options (intended to qualify under Section 422 of the Code), Nonqualified
Stock Options, Stock Appreciation Rights, Restricted Stock, Restricted Stock
Units, Performance Shares, Performance Units, Bonus Stock, and any other Stock
Unit Awards or stock-based forms of awards as the Committee, in its sole and
complete discretion, may determine to be appropriate in carrying out the intent
and purposes of this Plan.
SECTION 2. DEFINITIONS
When used in this Plan, the following terms shall have the meanings set
forth below:
2.1 "Affiliate" shall have the meaning ascribed to such term in Rule
12b-2 under the Exchange Act.
2.2 "Agreement" means a written agreement between the Company and a
Participant implementing the grant, and setting forth the
particular terms, conditions and restrictions of each Award. With
respect to the grant of an Option, the Agreement may be referred
to herein as an "Option Agreement," and with respect to any other
Award hereunder, the Agreement may be referred to herein as an
"Award Agreement."
2.3 "Award" means a grant under the Plan of Nonqualified Stock
Options, Incentive Stock Options, Stock Appreciation Rights,
Restricted Stock, Restricted Stock Units, Performance Units,
Performance Shares, Bonus Stock, or other Stock Unit Awards.
2.4 "Award Date" or "Grant Date" means the date on which an Award is
made by the Committee under the Plan.
2.5 "Beneficial Owner" shall have the meaning ascribed to such term
in Rule 13d-3 under the Exchange Act.
2.6 "Board" or "Board of Directors" means the Board of Directors of
the Company.
2.7 "Bonus Stock" means an Award granted pursuant to Section 10 of
the Plan.
2.8 "Cashless Exercise" means the exercise of an Option by the
Participant through the use of a brokerage firm to make payment
to the Company of the exercise price either from the proceeds of
a loan to the Participant from the brokerage firm or from the
proceeds of the sale of Stock issued pursuant to the exercise of
the Option, and upon receipt of such payment, the Company
delivers the exercised Shares to the brokerage firm.
2.9 "Change in Control" shall be deemed to have occurred if the
conditions set forth in any one of the following paragraphs shall
have been satisfied:
(a) Any Person, corporation or other entity or group, including
any "group" as defined in Section 13(d)(3) of the Exchange
Act, becomes the Beneficial Owner of Shares of the Company
having 20% or more of the total number of votes that may be
cast for the election of directors of the Company; or
(b) As the result of, or in connection with, any tender or
exchange offer, merger or other business combination, sale
of assets, sale of securities, contested election, or any
combination of the foregoing (a "Transaction"), the persons
who were directors of the Company immediately before the
Transaction shall cease to constitute a majority of the
Board of Directors of the Company or any successor to the
Company or its assets; or
(c) If at any time: (i) the Company shall consolidate or merge
with any other Person and the Company shall not be the
continuing or surviving corporation; (ii) any Person shall
consolidate or merge with the Company, and the Company shall
be the continuing or surviving corporation and in connection
therewith, all or part of the outstanding Stock shall be
converted into, or exchanged for, stock or other securities
of any other Person or cash or any other property; (iii) the
Company shall be a party to a statutory share exchange with
any other Person after which the Company is a Subsidiary of
any other Person; or (iv) the Company shall sell or
otherwise transfer 50% or more of the assets or earning
power of the Company and its Subsidiaries (taken as a whole)
to any Person or Persons.
2.10 "Code" means the Internal Revenue Code of 1986 and the rules and
regulations promulgated thereunder, or any successor law, as
amended from time to time.
2
2.11 "Committee" means the Organization and Compensation Committee of
the Board.
2.12 "Common Stock" or "Stock" means the Common Stock of the Company,
without par value, or such other security or right or instrument
into which such Common Stock may be changed or converted in the
future.
2.13 "Company" means Texas Utilities Company, including all Affiliates
and wholly-owned subsidiaries, or any successor thereto.
2.14 "Covered Participant" means a Participant who is a "covered
employee" as defined in Code Section 162(m)(3) and the
regulations promulgated thereunder.
2.15 "Designated Beneficiary" means the beneficiary designated by the
Participant, pursuant to procedures established by the Committee,
to receive amounts due to the Participant in the event of the
Participant's death. If the Participant does not make an
effective designation, then the Designated Beneficiary will be
deemed to be the Participant's estate.
2.16 "Disability" means (i) the mental or physical disability of the
Participant defined as "Disability" under the terms of the Texas
Utilities System Employee Long-Term Disability Income Plan, as
amended from time to time in accordance with the provisions of
such plan; or (ii) a determination by the Committee, in its sole
discretion, of total disability (based on medical evidence) that
precludes the Participant from engaging in any occupation or
employment for wage or profit for at least twelve months and
appears to be permanent. All decisions by the Committee relating
to a Participant's Disability (including a decision that a
Participant is not disabled), shall be final and binding on all
parties.
2.17 "Divestiture" means the sale of, or closing by, the Company of
the business operations in which the Participant is employed.
2.18 "Early Retirement" means Earlier-than-Normal Retirement of a
Participant under, and subject to, the provisions of the
Retirement Plan.
2.19 "Exchange Act" means the Securities Exchange Act of 1934 and the
rules and regulations promulgated thereunder, or any successor
law as amended from time to time.
2.20 "Executive Officer" means any employee considered by the Company
to be an Executive Officer.
2.21 "Fair Market Value" means, on any given date, the closing price
of Stock as reported on the New York Stock Exchange composite
tape on such day or, if no Shares were
3
traded on the New York Stock Exchange on such day, then on the
next preceding day that Stock was traded on such exchange, all as
reported by The Wall Street Journal or such other source as the
-----------------------
Committee may select.
2.22 "Full-time Employee" means an individual who is employed by the
Company or a Subsidiary in a customary employer-employee
relationship, is on the payroll of the Company or such
Subsidiary, receives compensation directly from the Company or
such Subsidiary, and is designated in the internal payroll or
other records of the Company or a Subsidiary as a regular, full-
time employee. This designation excludes all leased employees
(within the meaning of Code Section 414(n)), part-time employees,
temporary employees, or contract employees, as well as all
consultants to, the Company.
2.23 "Incentive Stock Option" or "ISO" means an option to purchase
Stock, granted under Section 6 herein, which is designated as an
incentive stock option and is intended to meet the requirements
of Code Section 422.
2.24 "Key Employee" means a Full-time Employee who is an officer or
other key employee of the Company or its Subsidiaries as
designated or determined by the Committee.
2.25 "Nonqualified Stock Option" or "NQSO" means an option to purchase
Stock, granted under Article 6 herein, which is not intended to
qualify as, or constitute an Incentive Stock Option.
2.26 "Normal Retirement" means Normal Retirement of a Participant
under, and subject to, the provisions of the Retirement Plan.
2.27 "Option" means an Incentive Stock Option or a Nonqualified Stock
Option.
2.28 "Other Stock Unit Award" means awards of Stock or other Awards
that are valued in whole or in part by reference to, or are
otherwise based on, the value of the Company's Common Stock.
2.29 "Participant" means a Key Employee who has been granted an Award
under the Plan.
2.30 "Performance Criteria" means the objectives established by the
Committee for a Performance Period, for the purpose of
determining when an Award subject to such objectives has been
earned.
2.31 "Performance Award" means a performance-based Award made under
Section 9 herein, which may be in the form of either Performance
Shares or Performance Units.
4
2.32 "Performance Period" means the time period designated by the
Committee during which performance goals must be met in order for
a Participant to obtain a performance-based Award.
2.33 "Performance Share" means an Award, designated as a Performance
Share, granted to a Participant pursuant to Section 9 herein, the
value of which is determined, in whole or in part, by the value
of Company Stock in a manner deemed appropriate by the Committee
and described in the applicable Agreement.
2.34 "Performance Unit" means an Award, designated as a Performance
Unit, granted to a Participant pursuant to Section 9 herein, the
value of which is determined, in whole or in part, by the
attainment of pre-established Performance Criteria as deemed
appropriate by the Committee and described in the Agreement.
2.35 "Period of Restriction" means the period during which the
transfer of Shares of Restricted Stock is restricted, pursuant to
Section 8 herein.
2.36 "Person" shall have the meaning ascribed to such term in Section
3(a)(9) of the Exchange Act and used in Sections 13(d) and 14(d)
thereof, including a "group" as defined in Section 13(d).
2.37 "Plan" means the Long-Term Incentive Compensation Plan of the
Texas Utilities Company System as herein established and as
hereafter amended from time to time.
2.38 "Restricted Stock" means an Award of Stock granted to a
Participant pursuant to Section 8 herein.
2.39 "Restricted Stock Unit" means a fixed or variable dollar
denominated right to acquire Stock, which may or may not be
subject to restrictions, contingently awarded under Section 8 of
the Plan.
2.40 "Retirement Plan" means the Retirement Plan for Employees of the
Texas Utilities Company System, as it may be amended from time to
time.
2.41 "Rule 16b-3" means Rule 16b-3 under Section 16(b) of the Exchange
Act as adopted in Exchange Act Release No. 34-37260 (May 30,
1996), or any successor rule as amended from time to time.
2.42 "Section 162(m)" means Section 162(m) of the Code, or any
successor section under the Code, as amended from time to time
and as interpreted by final or proposed regulations promulgated
thereunder from time to time.
5
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
3.3 Rule 16b-3 and Section 162(m) Requirements. Notwithstanding any
------------------------------------------
other provision of the Plan, the Committee may impose such conditions on any
Award as it may deem to be advisable or required to satisfy the requirements of
Rule 16b-3 or Section 162(m).
SECTION 4. ELIGIBILITY
The Committee shall have sole and complete discretion in determining those
Key Employees who shall participate in the Plan. The Committee may request
recommendations for individual awards from the Company's Chief Executive Officer
and may delegate to the Chief Executive Officer the authority to make Awards to
Participants who are not Executive Officers of the Company.
SECTION 5. SHARES SUBJECT TO THE PLAN
5.1 Number of Shares. Subject to adjustment as provided for in
----------------
Section 5.4 below, the maximum aggregate number of Shares that may be issued
pursuant to Awards made under the Plan shall not exceed 2,500,000 Shares, which
may be in any combination of Options, Restricted Stock, Restricted Stock Units,
Performance Shares, Bonus Shares, or Other Stock Unit Award. Shares of Common
Stock may be available from the authorized but unissued Shares, Shares issued
and reacquired by the Company or Shares purchased in the open market for
purposes of the Plan. Except as provided in Sections 5.2 and 5.3 herein, the
issuance of Shares in connection with the exercise of, or as other payment for,
Awards under the Plan shall reduce the number of Shares available for future
Awards under the Plan.
5.2 Lapsed Awards or Forfeited Shares. In the event that: (i) any
---------------------------------
Option or other Award granted under the Plan terminates, expires, or lapses for
any reason without having been exercised in accordance with its terms; (ii)
Shares issued pursuant to the Awards are canceled or forfeited for any reason;
or (iii) Awards are paid in cash, the Shares subject to such Award shall
thereafter be again available for grant of an Award under the Plan.
5.3 Delivery of Shares as Payment. In the event a Participant pays
-----------------------------
for any Option or other Award granted under the Plan through the delivery of
previously acquired shares of Common Stock, the number of shares of Common Stock
available for Awards under the Plan shall be increased by the number of shares
surrendered by the Participant.
5.4 Capital Adjustments. The number and class of Shares subject to
-------------------
each outstanding Award, the Option Price and the aggregate number, type and
class of Shares for which Awards thereafter may be made shall be subject to
adjustment, if any, as the Committee deems appropriate, based on the occurrence
of a number of specified and non-specified events. Such specified events are
discussed in this Section 5.4, but such discussion is not intended to provide an
exhaustive list of such events which may necessitate adjustments.
(a) If the outstanding Shares are increased, decreased or exchanged
through merger, consolidation, sale of all or substantially all
of the property of the Company,
7
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
shall specify whether the Option is intended to be an Incentive Stock Option or
a Nonqualified Stock Option.
6.2 Option Price. The exercise price per share of Stock covered by
------------
an Option ("Option Price") shall be determined on the Grant Date by the
Committee; provided that the Option Price shall not be less than 100% of the
Fair Market Value of the Common Stock on the Grant Date.
6.3 Exercisability. Options granted under the Plan shall be
--------------
exercisable at such times and be subject to such restrictions and conditions as
the Committee shall determine, which will be specified in the Option Agreement
and need not be the same for each Participant. However, no Option granted under
the Plan may be exercisable until the expiration of at least six months after
the Grant Date (except that such limitations shall not apply in the case of
death or Disability of the Participant, or a Change in Control), nor after the
expiration of ten years from the Grant Date.
6.4 Method of Exercise. Options shall be exercised by the delivery
------------------
of a written notice from the Participant to the Company in a form prescribed by
the Committee setting forth the number of Shares with respect to which the
Option is to be exercised, accompanied by full payment or provision for full
payment for the Shares. The Option Price shall be payable to the Company in full
in cash, or its equivalent, or by delivery of Shares of Stock (not subject to
any security interest or pledge) having a Fair Market Value at the time of
exercise equal to the exercise price of the Shares, or by a combination of the
foregoing. In addition, at the request of the Participant, and subject to
applicable laws and regulations, the Company may (but shall not be required to)
cooperate in a Cashless Exercise of the Option. As soon as practicable, after
receipt of written notice and full payment of the Option Price, the Company
shall deliver to the Participant a stock certificate, issued in the
Participant's name, evidencing the number of Shares with respect to which the
Option was exercised.
SECTION 7. STOCK APPRECIATION RIGHTS
7.1 Grant of Stock Appreciation Rights. Subject to the terms and
----------------------------------
provisions of the Plan and applicable law, the Committee, at any time and from
time to time, may grant freestanding Stock Appreciation Rights, Stock
Appreciation Rights in tandem with an Option, or Stock Appreciation Rights in
addition to an Option. Stock Appreciation Rights granted in tandem with an
Option or in addition to an Option may be granted at the time of the Option or
at a later time. No Stock Appreciation Rights granted under the Plan may be
exercisable until the expiration of at least six months after the Grant Date
(except that such limitations shall not apply in the case of death or Disability
of the Participant, or a Change in Control), nor after the expiration of ten
years from the Grant Date.
7.2 Price. The exercise price of each Stock Appreciation Right shall
-----
be determined at the time of grant by the Committee, subject to the limitation
that the grant price shall not be less than 100% of Fair Market Value of the
Common Stock on the Grant Date.
9
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
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
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
(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
(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
The Plan shall terminate December 31, 2006; however, all Awards made prior
to, and which are outstanding on such date, shall remain valid in accordance
with their terms and conditions.
14.2 Withholding. The Company shall have the right to deduct or with
-----------
old, or require a Participant to remit to the Company, any taxes required by law
to be withheld from Awards made under this Plan. In the event an Award is paid
in the form of Common Stock, the Committee may require the Participant to remit
to the Company the amount of any taxes required to be withheld from such payment
in Common Stock, or, in lieu thereof, the Company may withhold (or the
Participant may be provided the opportunity to elect to tender) the number of
shares of Common Stock equal in Fair Market Value to the amount required to be
withheld.
14.3 Awards. Each Award granted under the Plan shall be evidenced in
------
a corresponding Award Agreement provided in writing to the Participant, which
shall specify the terms, conditions and any rules applicable to the Award,
including but not limited to the effect of a Change in Control, or death,
Disability, Divestiture, Early Retirement, Normal Retirement or other
termination of employment of the Participant on the Award.
14.4 Nontransferability. Except with respect to Nonqualified Stock
------------------
Options, no Award granted under the Plan may be sold, transferred, pledged,
assigned or otherwise alienated or hypothecated, except by will or the laws of
descent and distribution. Further, no lien, obligation, or liability of the
Participant may be assigned to any right or interest of any Participant in an
Award under this Plan.
14.5 No Right to Employment. Neither the Plan, nor any Award made, or
----------------------
any other action taken, hereunder shall be construed as giving any Participant
or other person any right of employment or continued employment with the
Company.
14.6 Rights as Shareholder. Subject to the terms and conditions of
---------------------
each particular Award, no Participant or Designated Beneficiary shall be deemed
a shareholder of the Company nor have any rights as such with respect to any
shares of Common Stock to be provided under the Plan until he or she has become
the holder of such shares.
14.7 Construction of the Plan. The Plan and all Agreements shall be
------------------------
governed, construed, interpreted and administered in accordance with the laws of
the State of Texas. In the event any provision of the Plan or any Agreement
shall be held invalid, illegal or unenforceable, in whole or in part, for any
reason, such determination shall not affect the validity, legality or
enforceability of any remaining provision, portion of provision or Plan overall,
which shall remain in full force and effect as if the Plan had been absent the
invalid, illegal or unenforceable provision or portion thereof.
14.8 Amendment of Plan. The Committee or the Board of Directors may
-----------------
amend, suspend, or terminate the Plan or any portion thereof at any time,
provided such amendment is made with shareholder approval if and to the extent
such approval is necessary to comply with any legal
15
requirement, including for these purposes any approval requirement which is a
requirement for the performance-based compensation exception under Code Section
162(m).
14.9 Amendment of Award. In its sole and complete discretion, the
------------------
Committee may at any time amend any Award for the following reasons: (i)
additions and/or changes are made to the Code, any federal or state securities
law, or other law or regulations applicable to the Award; or (ii) any other
event not described in clause (i) occurs and the Participant gives his or her
consent to such amendment.
14.10 Exemption from Computation of Compensation for Other Purposes.
-------------------------------------------------------------
By acceptance of an applicable Award under this Plan, subject to the conditions
of such Award, each Participant shall be considered in agreement that all shares
of Stock sold or awarded and all Options granted under this Plan shall be
considered extraordinary, special incentive compensation and will not be
included as "earnings," "wages," "salary" or "compensation" in any pension,
welfare, life insurance, or other employee benefit arrangement of the Company.
14.11 Legend. In its sole and complete discretion, the Committee may
------
elect to legend certificates representing Shares sold or awarded under the Plan,
to make appropriate references to the restrictions imposed on such Shares.
14.12 Certain Participants. All Award Agreements for Participants
--------------------
subject to Section 16(b) of the Exchange Act shall be deemed to include any such
additional terms, conditions, limitations and provisions as Rule 16b-3 requires,
unless the Committee in its discretion determines that any such Award should not
be governed by Rule 16b-3. All performance-based Awards to Covered Participants
shall be deemed to include any such additional terms, conditions, limitations
and provisions as are necessary to comply with the performance-based
compensation exemption of Code Section 162(m), unless the Committee, in its
discretion, determines that any such Award is not intended to qualify for the
exemption for performance-based compensation under Code Section 162(m).
14.13 Unfunded Plan. The Plan is intended to constitute an unfunded
-------------
deferred compensation arrangement for a select group of management or highly
compensated employees.
EXECUTED on this 23rd day of May, 1997.
TEXAS UTILITIES COMPANY
By: /s/ Peter B. Tinkham
-----------------------------------------------
Peter B. Tinkham, Secretary and Assistant
Treasurer
\
16