MEMORANDUM OF UNDERSTANDING
Exhibit
10(yy)
The
Settling Parties have reached an agreement in principle as set forth in this
Memorandum of Understanding (the "Memorandum") providing for the settlement and
dismissal with prejudice of the claims asserted in the Consolidated Securities
Action on the terms and subject to the conditions set forth below (the
"Settlement").1 This
Memorandum sets forth the principal terms of the Settlement, which will be
embodied and amplified in a Securities Settlement Agreement as described
below.
RECITALS
On and
after October 15, 2002, thirty securities Class Actions (collectively, the
"Securities Actions") were filed by the plaintiffs named herein on behalf of
themselves and all others similarly situated in (or transferred to) the United
States District Court for the Northern District of Texas, Dallas Division (the
"Federal Court"), against TXU Corp., Xxxx Xxx, Xxxxxxx X. XxXxxxx, Xxxxx X.
Xxxxxx, Xxxxx X. Xxxxxx, X.X. Xxxxxx, Xxxxx X. Xxxxxx, X.X. Xxxxxxxxxx, Xxxxxxx
X. Xxxxxxx, Xxxxxx Xxxxx, Xxxx X. Xxxxxx, Xxxxxxxx X. Xxxxx, X.X. Xxxxxxxxxxxxx,
Xxxxxxx X. Xxxxx and Xxxxxxx X. Xxxxxxxxxx (collectively, “Defendants”)
..
By Order
dated May 8, 2003, the Federal Court consolidated the Securities Actions under
the caption Xxxxxxxx,
et al. v. TXU Corp., et al., Civil
Action No. 3:02-CV-2243-K (the "Consolidated Securities Action").
By Order
dated May 8, 2003, the Federal Court appointed the Plumbers & Pipefitters
National Pension Fund, Xxxxxx X. Xxxxxxx, Xx., and Xxxxxx Canada (the
“Securities Plaintiffs”) as Lead Plaintiffs and appointed Lead Counsel in the
Consolidated Securities Action.
The
Settling Parties have engaged in substantial arm's length negotiations in an
effort to resolve all claims that have been, or could have been, asserted in the
Consolidated Securities Action, including conducting numerous meetings and
telephone conferences where the terms of the agreements detailed herein were
extensively debated and negotiated.
The
Securities Defendants have denied and continue to deny that they engaged in any
wrongdoing of any kind, or that they violated or breached any law, regulation,
or duty owed to the Securities Plaintiffs. They further deny that they have
liability as a result of any and all allegations contained in the Consolidated
Securities Action, and are entering into the Settlement to eliminate the
burdens, distractions, expense, and uncertainty of further
litigation.
___________________
1 All
capitalized terms not otherwise defined shall have the meaning set forth in
Section I below.
WHEREAS,
the terms and conditions of this Memorandum are the result of arm's length
negotiations between the Settling Parties and represent a fair and reasonable
resolution of the Consolidated Securities Action under all of the facts and
circumstances.
NOW,
THEREFORE, in consideration of the promises and agreements, covenants,
representations, and warranties set forth herein, intending to be legally
bound:
THE
SETTLING PARTIES STIPULATE AND AGREE AS FOLLOWS:
ADDITIONAL
DEFINITIONS
The
following additional definitions shall apply in this Memorandum:
(a) “Action”
means the Consolidated Securities Action.
(b) "Effective
Date" means the date of completion of the following: (i) Court approval of the
dismissal of the claims that have been, or could have been, asserted in the
Action in all material respects AND EITHER (ii) expiration of the time to appeal
or otherwise seek review of the Order and Final Judgment which approves the
Settlement without any appeal having been taken or review sought; OR (iii) if an
appeal is taken or review sought, the expiration of five days after an appeal or
review shall have been finally determined by the highest court before which
appeal or review is sought and which upholds the terms of such appealed
settlement and/or an Order and Final Judgment and is not subject to further
judicial review.
(c) “TXU” or
the “Company” means TXU Corp. and its subsidiaries and affiliates, agents,
partnerships, joint ventures, and their assigns and successors in
interest.
(d) "Co-Lead
Plaintiffs' Counsel" means Lerach Xxxxxxxx Xxxxx Xxxxxx Xxxxxx & Xxxxxxx LLP
and Xxxxxxx & Xxxxxxx Law Firm, LLP.
(e) “Settling
Parties” means the Securities Parties.
(f) “Securities
Defendants” means the TXU Defendants and the Underwriter
Defendants.
(g) “TXU
Defendants” means TXU, Xxxx Xxx, Xxxxxxx X. XxXxxxx, Xxxxx X. Xxxxxx, Xxxxx X.
Xxxxxx, X.X. Xxxxxx, Xxxxx X. Xxxxxx, X.X. Xxxxxxxxxx, Xxxxxxx X. Xxxxxxx,
Xxxxxx Xxxxx, Xxxx X. Xxxxxx, Xxxxxxxx X. Xxxxx, X.X. Xxxxxxxxxxxxx, Xxxxxxx X.
Xxxxx and Xxxxxxx X. Xxxxxxxxxx.
(h) “Securities
Parties” means the Securities Plaintiffs and the Securities
Defendants.
(i) “Securities
Plaintiff Class” means all persons or entities who purchased the publicly traded
securities of TXU or entities affiliated therewith (collectively, the “TXU
Securities”) between April 26, 2001 and October 11, 2002 (the “Class Period”).
Excluded from the Securities Plaintiff Class are the Securities Defendants, as
well as officers and directors of TXU and its affiliates and subsidiaries and
the Underwriter Defendants, members of their immediate families, their
affiliates and those members of the Securities Plaintiff Class that timely and
validly exclude themselves from the Securities Plaintiff Class.
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(j) “Underwriter
Defendants” means Xxxxxxx Lynch, Pierce, Xxxxxx & Xxxxx, Inc., Bank of
America Securities LLC, Credit Suisse First Boston Corporation, and Xxxxxxx
Xxxxx Barney Inc.
(k) “Released
Securities Parties” means the Securities Defendants and their affiliates,
subsidiaries, assigns, officers, directors, employees, and agents, specifically
including the law firms, attorneys, auditors and insurers who were retained by
or rendered advice in connection with, the Action or the facts, circumstances
and events upon which the Action is based.
SETTLEMENT
TERMS FOR THE CONSOLIDATED SECURITIES ACTION
(i) Securities
Settlement Agreement. The
Settling Parties shall use all reasonable efforts, acting in good faith, to
agree upon, execute, and move the Federal Court for preliminary approval of a
mutually agreeable definitive settlement agreement and such other documentation
as may be required to obtain final approval of the settlement and release of the
claims that were, or could have been, asserted by Plaintiffs and the members of
the Securities Plaintiff Class against the Securities Defendants (the
"Securities Settlement") by the Federal Court within forty five (45) days of the
execution of this Memorandum (the "Securities Settlement Agreement"). The terms
of the Securities Settlement Agreement shall be consistent with the terms of
this Memorandum and shall provide:
1. for
acceptance of the terms contained in the “Settlement Term Sheet” attached hereto
as Schedule 1;
2. for the
creation, and presentation to the Federal Court for approval, of an appropriate
form of notice, proof of claim, and related materials;
3. that the
Securities Defendants have denied, and continue to deny, that they engaged in
any wrongdoing of any kind, or violated any law or regulation, or breached any
duty to the Securities Plaintiffs or the Securities Plaintiff Class, and
Defendants further deny that they have liability as a result of any and all
allegations contained in the Consolidated Securities Action, and are entering
into the Settlement to eliminate the burden, distraction, expense, and
uncertainty of further litigation;
4. for the
implementation of the various corporate governance changes detailed in Schedule
2 attached hereto;
5. acknowledgement
that the additional corporate governance changes detailed in Schedule 3 were
implemented in light, and as a result, of the Consolidated Securities
Action;
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6. for the
calculation and payment of allowable claims;
7. for the
dismissal of the Consolidated Securities Action consistent with the terms set
forth below;
8. for the
release of claims against the Released Securities Parties, pursuant to the terms
set forth below;
9. for
certification, for purposes of the Securities Settlement alone, of the
Securities Plaintiff Class pursuant to Rule 23 of the Federal Rules of
Civil Procedure.
10. for the
requirements and procedures for notice to members of the Securities Plaintiff
Class and procedures and requirements for the submission of proofs of claim, the
calculation of allowable claims, the appropriate allocation among members of the
Class, the plan of distribution, the submission of members of the Securities
Plaintiff Class to the jurisdiction of the Federal Court for purposes of
resolving disputed claims, and summary resolution, or disputed
claims;
11. for such
other matters that are customarily included in stipulations governing the
settlement of securities class actions;
12. that the
Securities Plaintiffs expressly warrant that, in entering into the Settlement,
have relied solely upon their own knowledge and investigation, and not upon any
promise, representation, warranty, or other statement by the Securities
Defendants not expressly contained in this Memorandum or the Securities
Settlement Agreement ; and
13. that
Co-Lead Plaintiffs Counsel shall be allowed to review non-privileged documents,
deposition transcripts, and non-privileged reports, and to conduct witness
interviews to enable them to conduct further analysis of the evidence relevant
to the claims made in the Action.
14. that TXU
shall have the right to terminate the Securities Settlement in the event that
investors who would otherwise be members of the Securities Plaintiff Class, and
purchased TXU securities in aggregated amounts to be specified in a supplemental
agreement to be lodged with the Federal Court (the “Supplemental Agreement”),
request exclusion from the Class.
(ii) Released
Claims. The
Securities Settlement Agreement shall contain a full and general release to all
of the Securities Defendants and Released Securities Parties, including the
claims that were, or could have been, asserted in the July 21, 2003 complaint
captioned Xxxxxxxx, et
al. v. TXU Corp, et al., Civil
Action No. 3:02-CV-2243-K. The releases set forth in the Securities Settlement
Agreement shall cover all claims both known and unknown with the Securities
Plaintiffs waiving the benefits of §1542 of the California Civil Code (or any
law of any state or territory of the United States, or principle of common law,
that is similar, comparable, or equivalent to §1542 of the California Civil
Code) which provides: “A general release does not extend to claims which the
creditor does not know or suspect to exist in his favor at the time of executing
the release, which if known by him must have materially affected his settlement
with the debtor.” The Securities Settlement Agreement shall also contain a full
and general release of Co-Lead Plaintiffs' Counsel by the TXU Defendants of any
claims they have relating to, or arising out of, the Consolidated Securities
Action.
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(iii) Securities
Settlement Fund. In full
and final settlement and release of all claims asserted, and all claims that
could have been asserted, against the Securities Defendants and/or the Released
Securities Parties in the Consolidated Securities Action, the Securities
Settlement Agreement shall provide that the following contribution will be made
to the Securities Settlement Fund. Within sixty (60) days of the execution of
the Memorandum, the Defendants shall deposit or cause to be deposited
$149,750,000 (the "Securities Settlement Fund") into a qualified settlement fund
created by order of the Federal Court consistent with Section 468B of the
Internal Revenue Code or into such other vehicle as TXU and the Securities
Plaintiffs may agree, with Lerach Xxxxxxxx Xxxxx Xxxxxx Xxxxxx & Xxxxxxx LLP
acting as escrow agent or its equivalent (the "Account").
(iv) Costs. All
claims of the Securities Plaintiffs and the Securities Plaintiff Class against
the Securities Defendants in the Consolidated Securities Action, all fees to be
paid to counsel to the Securities Plaintiffs, and all other administrative or
other approved expenses of the Securities Settlement, including all notice
expenses and escrow costs, shall be paid from the Securities Settlement Fund. An
amount of cash, not to exceed $100,000, shall be made available out of the
Securities Settlement Fund to the Co-Lead Plaintiffs' Counsel for purposes of
defraying the actual cost of notice to the Securities Plaintiff
Class.
(v) Attorneys'
Fees. Counsel
for the Securities Plaintiffs and the Securities Plaintiff Class may apply to
the Federal Court for an award of attorneys' fees and reimbursement of all
expenses incurred on behalf of the Securities Plaintiffs and the Securities
Plaintiffs Class. All attorneys’ fees and expenses and interest due any counsel
for the Securities Plaintiffs shall be payable solely out of the Securities
Settlement Fund and shall be deducted from the Securities Settlement Fund prior
to the distribution to the members of the Securities Plaintiff Class following
entry of an order by the Federal Court approving any fees and expenses to the
Securities Plaintiffs' counsel. Lead Plaintiffs' Counsel may withdraw from the
escrow account and allocate amongst counsel for the Securities Plaintiffs the
fees and expenses so awarded; provided, however, that in the event that the
order approving the fee and expense award is reversed or modified on appeal, and
in the event that counsel for the Securities Plaintiffs (or any of them) has
received payment, such counsel shall, within five (5) business days of the date
which the fee and expense award is modified or reversed, refund to the Escrow
Account the fees and expenses previously received by them in full or in any
amount consistent with such reversal or modification, plus the interest earned
thereon through the date of such refund.
(vi) Press
Releases. Before
issuing any press release about the Settlement, (a) the Securities Plaintiffs
and/or Co-Lead Plaintiffs' Counsel will provide the TXU Defendants with a
reasonable period of time to review and comment on any such release, and (b) the
TXU Defendants will provide Co-Lead Plaintiffs' Counsel with a reasonable period
of time to review and comment on any such release.
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(vii) Conditions
to Securities Settlement. This
Memorandum shall be null and void and of no force and effect and the Securities
Settlement Fund, together with any interest thereon, net of any actual costs
incurred for notice expenses, will be returned to the contributing parties in
pro
rata share if
any of the conditions set forth in this paragraph are not met and the Securities
Parties choose not to proceed with the Securities Settlement. The consummation
of the Securities Settlement contemplated herein is subject to:
1. the
drafting and execution of a Securities Settlement Agreement and the Supplemental
Agreement that is acceptable to the Settling Parties and of such pleadings and
notices as may be required to obtain the Federal Court's approval of the
Securities Settlement;
2. the
funding of the Securities Settlement Fund as provided above;
3. the
implementation of the corporate governance changes as provided for in Schedules
2 and 3 attached hereto;
4. preliminary
approval by the Federal Court of the Securities Settlement;
5. certification
of the Securities Plaintiff Class for settlement purposes only by the Federal
Court;
6. TXU’s
determination not to exercise its termination rights, if any, under the
Supplemental Agreement with respect to requests for exclusion from the
Securities Plaintiff Class;
7. final
approval by the Federal Court of the Securities Settlement, except with respect
to attorneys' fees requested by counsel to the Securities Plaintiffs Class or as
to the plan of allocation; and
8. final
judgment, which means a judgment entered by the Federal Court approving the
Securities Settlement and dismissing all claims that have been, or could have
been, brought in the Consolidated Securities Action as against the Securities
Defendants with prejudice and without costs to any party, that has become final
and no longer subject to further appeal or review, whether by exhaustion of any
possible appeal, lapse of time, or otherwise.
CONDITIONS
TO SETTLEMENT
The
Settling Parties acknowledge that the failure to complete the Settlement under
the terms of this Memorandum will result in irreparable harm that cannot be
adequately compensated through money damages and that each therefore agrees that
specific performance is the appropriate remedy for breach of this Memorandum,
provided, however, that only the Securities Plaintiffs and TXU may seek relief
under this section.
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GENERAL
TERMS
(i) Further
Documentation. The
Settling Parties acknowledge that this Memorandum does not set forth all of the
substantive terms necessary and appropriate for a complete and final Settlement
of the Consolidated Securities Action, and undertake to work in good faith to
memorialize such terms, which shall be embodied in the Securities Settlement
Agreement.
(ii) Amendments. This
Memorandum and all documents executed pursuant hereto and thereto, shall
constitute a legally binding and enforceable obligation on the part of each of
the parties hereto and their successors-in-interest, subject only to their terms
and conditions set forth herein and therein. This Memorandum may be amended only
by a written instrument signed by each of the respective parties hereto, or
their counsel acting on their behalf.
(iii) Entire
Agreement. This
Memorandum and all documents executed pursuant hereto and thereto, constitutes
the entire agreement between the parties with respect to the matters discussed
herein and supersedes any and all prior negotiations, discussions, agreements or
undertakings, whether oral or written, with respect to such matters. This
Memorandum shall be deemed drafted equally by all parties hereto.
(iv) Counterparts. This
Memorandum may be executed in counterparts by any of the signatories hereto, and
as so executed shall constitute one agreement.
0000
XxXxxxxx Xxxxxx, Xxxxx 000
Xxxxxx,
XX 00000
Telephone:
214/000-0000
214/000-0000
(fax)
DATED: January __, 2005
LERACH XXXXXXXX XXXXX
XXXXXX
XXXXXX & XXXXXXX
LLP
XXXXXX X.
XXXXXXX
XXXX XXXXXXX
XXXXX XXXXXXXX XXXXXXX
___________________________________
XXXXXX X.
XXXXXXX
000 X Xxxxxx, Xxxxx 0000
Xxx Xxxxx, XX 00000
Telephone: 619/000-0000
619/000-0000 (fax)
Attorneys in Charge and
Co-Lead Counsel for
Plaintiffs
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DATED:
January __, 2005 XXXXXX,
XXXXXXXXXX &
XXXXXXXXX
LLP
XXXXXX X.
XXXXXX
____________________________________
XXXXXX X.
XXXXXX
000
Xxxxxx Xxxxxx
Xxx
Xxxxxxxxx, XX 00000-0000
Telephone:
415/000-0000
415/000-0000
(fax)
Attorneys
for TXU Defendants
DATED:
January __, 2005 ____________________________________
XXXXX X.
XXXXX
TXU
Legal
0000
Xxxxx Xxxxxx, Xxxxx 0000
Xxxxxx,
Xxxxx 00000-0000
214.812.6001
000.000.0000
(fax)
Attorney
for TXU Defendants
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SCHEDULE
1
1.The cash
portion of the settlement will be paid into an escrow fund located in California
and controlled by Lerach Xxxxxxxx Xxxxx Xxxxxx Xxxxxx & Xxxxxxx (“LCSGRR”)
(subject to court oversight) within 60 days from agreement in principle
evidenced by a signed MOU. However, the monies shall bear interest at 12-1/2%
beginning 60 days after execution of an MOU until actually deposited in the
escrow account.
2.The
settlement will be non-recapture, i.e., it is
not a claims-made settlement. The defendants have no ability to get back any of
the settlement monies. The settlement claims process will be administered by an
independent claims administrator approved by the court. The defendants will have
no involvement in reviewing or challenging claims.
3.Any
attorneys’ fees and costs awarded plaintiffs’ counsel by the court shall be paid
to plaintiffs’ counsel immediately upon award, notwithstanding the existence of
any timely filed objections thereto, or potential for appeal therefrom, or
collateral attack on the settlement or any part thereof, subject to plaintiffs’
counsel’s several obligation to make appropriate refunds or repayments to the
settlement fund plus interest earned thereon if, and when, as a result of any
appeal and/or further proceedings on remand, or successful collateral attack,
the fee or cost award is lowered.
4.The
settlement will contain a release providing “Defendants and their related
parties shall be released from any and all claims arising from both the purchase
of TXU securities during the Class Period and the acts, facts, statements, or
omissions that were or could have been alleged by the plaintiff(s) in the
action.” The releases between the parties will include releases of all counsel
in the action. The settlement will not be conditioned upon the obtaining of or
any judicial approval of any releases between or among the settling defendants
and/or any third parties. No such releases will be contained in the Stipulation
or referred to in the Final Judgment approving the settlement.
5.If so
ordered by the court upon preliminary approval, plaintiffs’ counsel shall be
entitled to provisional reimbursement of 75% of their out-of-pocket costs,
subject to plaintiffs’ counsel’s several obligation to make appropriate refunds
or repayments to the settlement fund plus interest earned thereon if, and when,
as a result of any order, the final fee or cost award is lower than that
amount.
6.The class
notice will provide for a 30-day opt-out period.
SCHEDULE
2
CORPORATE
GOVERNANCE REFORMS TO BE IMPLEMENTED BY TXU
Set forth
below are the future corporate governance reforms and enhancements that TXU has
agreed to implement and maintain for at least seven (7) years as part of the
overall resolution of the Action:
1. Stock
Ownership.
In light
of the litigation, TXU had planned to adopt stock ownership guidelines requiring
directors to hold, at a minimum, $40,000 worth of TXU common stock, with a five
year compliance period. TXU will increase the minimum stock holding to $75,000
and will reduce the compliance period to two years from the date of appointment
to the board.
2.Increased
Number of Independent Directors.
The
defendants will use their best efforts to ensure that at least 70% of the
board
qualifies as independent pursuant to the standards set forth in this agreement
on or before December 31, 2005 and in any event 70% of the members of the board
shall meet such independence requirements on or before May 31,
2006.
3.
New
Independent Directors.
At least
two members of the board of directors who were on the TXU Board of Directors
during the Class Period and remain on the TXU board shall be replaced no later
than May 31, 2006 by two new independent board members who have no prior
relationship with TXU and via a process conducted by the nominating committee in
cooperation with lead plaintiffs.
4.Lead
Independent Director.
The
duties of TXU’s “Lead Independent Director” (established and provided specific
oversight duties by TXU in light of the litigation) shall include the
requirement that he/she affirmatively assist in governance compliance and have
the explicit authority to retain independent counsel or
consultants.
5.Enhanced
Independent Standards.
By no
later than May 31, 2006, TXU shall implement heightened independence standards
detailed below:
(a)
To be
deemed "independent," a director must satisfy the following
qualifications:
(i) Has not
been employed by the Company or its subsidiaries or affiliates in an executive
capacity within the last five calendar years;
(ii) has not
received, during the current calendar year or any of the three immediately
preceding calendar years, remuneration, directly or indirectly, other than de
minimis remuneration, as a result of service as, or being affiliated with an
entity that serves as, (i) an advisor, consultant, or legal counsel to the
Company or to a member of the Company's senior management; or (ii) a significant
customer or supplier of the Company;
(iii) has no
personal services contract(s) with the Company, or any member of the Company's
senior management;
(iv) is not a
director, an officer or trustee of a not-for-profit entity that has received
contributions from the Company in an amount which, in any of the last three
fiscal years of such entity, exceeds the lesser of $200,000 or 5% of such
non-profit's gift revenues;
(v) is not
employed by a public company at which an executive officer of the Company also
serves as a director;
(vi) has not
had any of the relationships described in (i) — (v) above with any affiliate or
subsidiary of the Company; and
(vii) is not a
member of the immediate family of any person described in (i) — (v)
above.
(viii) a
director is deemed to have received remuneration, directly or indirectly, if
remuneration, other than de minimis remuneration, was paid by the Company, its
subsidiaries, or affiliates, to any entity in which the director has a
beneficial ownership interest of five percent or more, or to an entity by which
the director is employed or self-employed other than as a director. Remuneration
is deemed de minimis remuneration if such remuneration, is $40,000 or less in
any calendar year.
(b) The Board
would adopt stock ownership guidelines that required directors to hold, at a
minimum, $75,000 worth of TXU common stock, with a two-year compliance
period.
6.Poison
Pill.
Subject
to Board approval after appropriate analysis and advice necessary to comply with
its fiduciary duties, TXU will rescind its “shareholder rights plan” adopted on
2/19/99 and no such device or provision shall be adopted in future unless
approved first by the holders of a majority of the outstanding shares of TXU
common stock excluding votes of officers, directors, their controlling persons
or affiliates.
7.Stock
Option Plans.
No stock
option plan shall be implemented without prior approval by holders of a majority
of the outstanding shares of TXU. Similarly, no stock option plan may be
modified with or provide for reload, repricing or replacement options to reduce
option exercise prices or increase the number of shares granted without prior
approval by a majority of the holders, the outstanding shares of
TXU.
8.Corporate
Ethics Officer.
TXU has
appointed an officer for corporate ethics, honesty and legal compliance who, in
the absence of a complainant’s bad-faith subject to the requirements of
applicable laws and regulations, will keep confidential the identities of
employees who report instances of illegal conduct.
9.Executive
and Director Compensation.
TXU’s
Compensation Committee shall review annually director compensation. TXU will not
enter into any future employment agreements or benefit agreements that include a
“change of control” definition that does not require an actual sale or merger to
occur, and the Committee shall annually review the use of corporate
aircraft.
00.Xxxxxxxxx
Reporting.
TXU’s CFO
shall not have been employed by TXU’s outside auditor firm during the prior five
years, and at every scheduled board meeting after quarter ends management will
provide a report as to the company’s financial condition and prospects which
will be noted in the minutes.
11. Best
Value Contracting Policy. TXU
shall use its best efforts to implement and utilize the contracting policies
detailed in Exhibit 1 attached hereto in connection with the awarding of
construction, maintenance and similar contracts with a value of $750,000 or more
involving TXU, its affiliates and/or its subsidiaries whether such contract is
awarded directly by TXU or through its agents, including Cap Gemini Energy
LP.
12.Audit
Committee.
The
charter of TXU’s Audit Committee shall require it to meet with the General
Counsel periodically to review related-party transactions and xxxxxxx xxxxxxx
requirements, the CFO’s performance and lack of conflicts shall be part of the
CFO’s annual review and TXU’s auditing firm shall not perform any consulting
work for TXU not approved by Audit Committee or provide tax or financial
planning advice to any officer.
13.Prohibited
Transactions.
No
director or member of the company’s leadership team shall short TXU stock or
engage in derivative transactions relating to TXU securities. “Cluster” sales
shall be reported upon to the Chairman and lead independent
director.
14.Shareholder
Proposals.
All of
TXU’s shareholder proposals shall be evaluated by the Nominating and Governance
Committee. The Committee shall recommend to the board whether or not to support
such proposal and the reasons for such recommendation. The Committee shall
consist only of independent directors.
15. Board
and Management Integrity.
Directors
shall participate in mandatory executive sessions of TXU’s non-management
directors. Topics addressed shall include the quality of TXU's financial
reporting and disclosure practices, the integrity and performance of TXU's top
executives, and the company's relationship with its outside auditor. TXU shall
amend the charter of the Nominating and Governance Committee to include "strong
character" and "business acumen" as desired attributes for
directors.
EXHIBIT
1
BEST
VALUE CONTRACTING POLICY TO BE IMPLEMENTED BY TXU
Best
Value Contracting Policy
This Best
Value Contracting Policy as adopted will apply only to construction, maintenance
and similar contracts (other than contracts awarded under emergency
circumstances where normal bid processes must be suspended in order to respond
to exigent circumstances involving transmission and distribution systems, mining
equipment, generating plants, and related facilities owned and operated by TXU
Corp.’s subsidiaries and affiliates) with a value of $750,000 or more involving
TXU, its affiliates and/or its subsidiaries whether such contract is awarded
directly by TXU or through its agents. TXU Corp. will use its best efforts to
implement the following contracting policies through its outsourced business
services provided by Cap Gemini Energy LP:
A. Definition
of Qualified Provider
A
provider will only be selected for award of a contract after establishing
compliance with the following criteria:
1. Each
provider must have demonstrated to have the required skills, experience and
qualified personnel for a given project. In particular, each provider shall
contribute to and participate in craft training and have demonstrated skills of
the supervisory staff, compliance with laws and regulations, and past
performance on projects. This will be determined through direct knowledge TXU
personnel have of the provider or through interviewing the provider and its
personnel and obtaining recommendations from recent customers.
2. Each
provider must demonstrate the financial strength to complete the specific
project and provide benefits to workers at a level that demonstrates a
commitment to a positive economic impact on the community where the work is
being performed.
3. Each
provider must have a written safety policy acceptable to TXU and a demonstrated
commitment to safety. Each contactor must provide validated safety records
concerning their safety record on recent projects.
4. Each
provider must have a drug-free work environment with an acceptable drug policy
to include testing and monitoring of personnel and otherwise meets TXU’s
requirements.
5. Each
provider must be in compliance with employment laws including, but not limited
to, racial discrimination and immigration laws.
6. Each
provider must meet TXU’s insurance requirements.
7. Each
provider must be able to post a performance bond applicable to the
project.
8. Providers
must have a required business license to operate in the states involved in the
particular project.
9. Each
provider must provide information concerning any litigation involving them in
the last three years relating to or arising from employment, labor or safety
issues, as well as breach of contract and/or fraud.
10. Each
provider shall provide employment benefits so as they have a positive economic
impact on the communities in which the work is being performed.
Once
selected, a provider shall annually certify its compliance with this
paragraph.
B. General
Rules and Procedures
1. Open
Competition. Solicitations for projects shall be conducted in the context of
free and open competition and follow the same advertising requirements used for
sealed bidding.
2. RFP
Process: Potential providers shall compete for projects by submitting sealed
proposals in response to Request for Proposals (“RFPs”).
3. Best
Value Award Method: TXU shall administer its Best Value RFP process in
accordance with the standards and procedures of this Policy.
4. Required
Technical Evaluation Factors: RFPs issued pursuant to this policy shall include
the following evaluation factors: (a) Past Performance; (b) Management
Plan/Schedule; (c) Staffing/Training/Safety Plan; (d) Wages & Fringe Benefit
Plan; and (e) Local Economic Benefit Plan.
5. Subcontractor
Listing: providers such as general contractors, construction managers or other
prime contractors shall list proposed subcontractors (over $100,000) in their
proposals and the awarding of contracts shall be based, in part, on the
qualifications and capabilities of the listed subcontractors.
C. RFP
Standards and Criteria
1. Required
RFP Evaluation Factors: RFPs issued under this policy shall include the
technical evaluation factors and definitions specified below.
2. Required
Evaluation Factors & Definitions
(a) Past
Performance: Performance information and data on the provider’s past projects
for the three most recent years, especially projects similar in size and scope.
TXU shall examine all available performance evaluation reports from the outside
provider and pre-listed subcontractors and should also utilize any other
relevant sources of past performance data. Past Performance shall include the
degree to which the provider:
(i) completed
projects safely (including an examination of accident/injury data, lost-time
data and safety violations);
(ii) complied
with applicable laws and regulations (including those relating to permitting,
licensing, wages and environmental);
(iii) completed
projects in a timely and cost-effective manner; and
(iv) complied
with project plans and specifications.
(b) Management
Plan/Schedule: Provider’s plan for managing the project must demonstrate its
technical qualifications and competency to perform the work. The Management
Plan/Schedule shall include:
(i) management
team/key personnel proposed for project;
(ii) technical
approach to the project and quality control program; and
(iii) project
schedule and degree to which the provider can realistically perform the schedule
as proposed.
(c) Staffing/Training/Safety
Plans. Provider’s plan must demonstrate its capability to recruit, deploy and
retain sufficient numbers of qualified construction craft personnel for the
project. The Project Staffing/Training/Safety Plan shall include:
(i) Staffing:
significant weight will be given to firms that utilize reliable staffing
sources, such as local union hiring halls or referral systems;
(ii) Training:
consideration should be given reliability of the training providers, the
facilities and resources used and the degree to which the firm participates in a
bona fide registered apprenticeship training program (a bona fide registered
apprenticeship training program is one registered with the U.S. Department of
Labor or a State Apprenticeship Council).
(iii) Safety:
pro-active safety measures by the provider, including formal safety training
programs, such as the OSHA Construction Safety and Health courses, written
health and safety plans, accident-prevention programs and substance abuse
programs, should be given consideration.
(d) Local
Economic Benefits Plan: Provider’s plan shall demonstrate how it will provide
economic benefits to the local community. The Local Economic Benefits Plan shall
include:
(i) the
number of jobs generated for local residents;
(ii) the level
of wages paid and types of fringe benefits provided, including employer provided
health insurance;
(iii) the
offeror’s use of local joint venture partners and subcontractors;
and
(iv) the
amount of tax revenue generated for the local economy.
3. Debriefing
Rights: Providers shall be entitled to debriefings in which they can obtain
their technical performance as well as the price performance and technical
performance of the successful provider.
4. Contract
Award: Each provider shall have its offer considered both as to its respective
price proposals and technical proposals and the provider proffering the superior
overall offer, taking into account all of these factors, shall be awarded the
project.
5. BVC
Policy Review: Lead plaintiffs’ representative shall have the right to conduct
an annual audit of TXU’s compliance with the BVC Policy for three years after
the court approval of the settlement of which this is a part by, among other
things, meeting with TXU representatives responsible for compliance with the BVC
Policy. Lead plaintiffs’ representative shall provide TXU with at least thirty
(30) days written notice of intent to engage in such audit. TXU and its
representatives shall take all reasonable steps to facilitate such audit. To the
extent a dispute arises relating to the BVC Policy and/or compliance hereunder,
such issue shall be submitted to mediator Xxxxxx Xxxxxx for resolution within
thirty (30) days of the date TXU is notified of such issue. In the event Xxxxxx
Xxxxxx is incapable of serving in this role, the parties shall select a mutually
agreeable replacement mediator.
SCHEDULE
3
GOVERNANCE
REFORMS ADOPTED BY TXU
IN
RESPONSE TO THE CONSOLIDATED SECURITIES ACTION
Defendants
acknowledge that the pendency and prosecution of the Action, including the
demands made in connection therewith, were a material and substantial factor
underlying the decision of the Board of Directors of TXU (the “TXU Board”) to
substantially alter and improve the manner in which the Company is governed.
Subsequent to the filing of the Action, the Board adopted various corporate
governance changes detailed in internal TXU’S charter and guidelines in order to
improve TXU’s corporate governance, including:
1. Enhanced
Board Independence. TXU
implemented policies to ensure heightened director independence whereby to be
considered “independent,” a director may not have been employed as an executive
at TXU (or TXU’s subsidiaries or affiliates) in the last three years, has no
personal service contracts with the company or senior management, is not
employed by a public company at which an executive officer of TXU is a director,
and is not an officer, director or trustee of a not-for-profit entity that in
any of the last three years received contributions from the Company the greater
of $1,000,000 or 2%.
2. Stock
Ownership. TXU had
planned to require directors to hold, at a minimum, $40,000 worth of TXU common
stock.
3. Appointment
of a Chief Governance Officer and Director of Corporate
Governance. TXU has
appointed a Chief Governance Officer and Director of Corporate Governance, whose
duties include oversight of the Company’s corporate governance policies,
procedures and practices. In addition, the Chief Governance Officer also serves
as the Chief Compliance Officer, responsible for oversight of compliance with
TXU’s Code of Conduct.
4. Xxxxxxx
Xxxxxxx Controls. Xxxxxxx
xxxxxxx controls have been implemented that provide trading bars and
pre-clearance conditions, requiring pre-clearance from a pre-clearance group
that includes the general counsel, the corporate secretary and the
CFO.
5. Lead
Independent Director. Created
the position of a “Lead Independent Director” with specific, articulated duties
designed to enhance the oversight of TXU’s management and Board by TXU’s
independent directors.
6. Governance,
Compensation and Audit Committees Composed of Independent
Directors. TXU has
agreed that each of the three Committees shall be composed of independent
directors.
