1
SCHEDULE 14A
(RULE 14A-101)
INFORMATION REQUIRED IN PROXY STATEMENT
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:
[X] Preliminary Proxy Statement [ ] Confidential, for Use of the
Commission Only (as permitted by
Rule 14a-6(e)(2))
[ ] Definitive Proxy Statement
[ ] Definitive Additional Materials
[ ] Soliciting Material Pursuant to sec. 240.14a-11(c) or sec. 240.14a-12
ENRON CORP.
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(Name of Registrant as Specified in its Charter)
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(Name of Person(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)(l) and
0-11.
(1) Title of each class of securities to which transaction applies:
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(2) Aggregate number of securities to which transaction applies:
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(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):
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(4) Proposed maximum aggregate value of transaction:
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(5) Total fee paid:
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[ ] Fee paid previously with preliminary materials.
[ ] Check box if any part of the fee is offset as provided by Exchange Act
Rule 0-11(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:
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(2) Form, Schedule or Registration Statement No.:
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(3) Filing Party:
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(4) Date Filed:
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2
[ENRON LOGO]
ENRON CORP.
NOTICE OF ANNUAL MEETING OF SHAREHOLDERS
May 4, 1999
TO THE SHAREHOLDERS:
Notice is hereby given that the annual meeting of shareholders of Enron
Corp. ("Enron") will be held in the LaSalle Ballroom of the Doubletree Hotel at
Allen Center, 400 Dallas Street, Houston, Texas, at 10:00 a.m. Houston time on
Tuesday, May 4, 1999, for the following purposes:
1. To elect sixteen directors of Enron to hold office until the next annual
meeting of shareholders and until their respective successors are duly
elected and qualified;
2. To approve the Enron Corp. Annual Incentive Plan;
3. To approve the Amended and Restated Enron Corp. 1991 Stock Plan (as
amended and restated effective May 4, 1999);
4. To ratify the Board of Directors' appointment of Arthur Andersen LLP,
independent public accountants, as Enron's auditors for the year ending
December 31, 1999;
5. To approve, contingent upon Enron's declaring a stock split of at least
-for- on or before May 4, 2001, a proposed amendment to Enron's
Amended and Restated Articles of Incorporation to increase the total
number of authorized shares of Common Stock from 600,000,000 to
1,200,000,000; and
6. To transact such other business as may properly be brought before the
meeting or any adjournment(s) thereof.
Holders of record of Enron Common Stock and Cumulative Second Preferred
Convertible Stock at the close of business on March 8, 1999, will be entitled to
notice of and to vote at the meeting or any adjournment(s) thereof.
Shareholders who do not expect to attend the meeting are requested to sign
and return the enclosed proxy, for which a postage-paid, return envelope is
enclosed. The proxy must be signed and returned in order to be counted.
By Order of the Board of Directors,
PEGGY B. MENCHACA
Vice President and Secretary
Houston, Texas
March , 1999
3
[ENRON LOGO]
ENRON CORP.
PROXY STATEMENT
The enclosed form of proxy is solicited by the Board of Directors of Enron
Corp. ("Enron") to be used at the annual meeting of shareholders to be held in
the LaSalle Ballroom of the Doubletree Hotel at Allen Center, 400 Dallas Street,
Houston, Texas, at 10:00 a.m. Houston time on Tuesday, May 4, 1999. The mailing
address of the principal executive office of Enron is 1400 Smith St., Houston,
Texas 77002-7369. This proxy statement and the related proxy are to be first
sent or given to the shareholders of Enron on approximately March , 1999. Any
shareholder giving a proxy may revoke it at any time provided written notice of
such revocation is received by the Vice President and Secretary of Enron before
such proxy is voted; otherwise, if received in time, properly completed proxies
will be voted at the meeting in accordance with the instructions specified
thereon. Shareholders attending the meeting may revoke their proxies and vote in
person.
Holders of record at the close of business on March 8, 1999, of Enron's
Common Stock (the "Common Stock") will be entitled to one vote per share on all
matters submitted to the meeting. Holders of record at the close of business on
March 8, 1999, of Enron's Cumulative Second Preferred Convertible Stock (the
"Preferred Convertible Stock") will be entitled to a number of votes per share
equal to the conversion rate of 13.652 shares of Common Stock for each share of
Preferred Convertible Stock. On March 8, 1999, the record date, there were
outstanding and entitled to vote at the annual meeting of shareholders
351,213,484 shares of Common Stock and 1,315,267 shares of Preferred Convertible
Stock. There are no other voting securities outstanding. Common Stock and
Preferred Convertible Stock are collectively referred to herein as "Voting
Stock."
Enron's annual report to shareholders for the year ended December 31, 1998,
including financial statements, is being mailed herewith to all shareholders
entitled to vote at the annual meeting. The annual report does not constitute a
part of the proxy soliciting material.
ITEM 1.
ELECTION OF DIRECTORS
At the meeting, sixteen directors are to be elected to hold office until
the next succeeding annual meeting of the shareholders and until their
respective successors have been elected and qualified. All of the nominees are
currently directors of Enron except Dr. John Mendelsohn. Proxies cannot be voted
for a greater number of persons than the number of nominees named on the
enclosed form of proxy. A plurality of the votes cast in person or by proxy by
the holders of Voting Stock is required to elect a director. Accordingly, under
the Oregon Business Corporations Act and Enron's bylaws, abstentions and "broker
non-votes" would not have the same legal effect as a vote withheld with respect
to a particular director. A broker non-vote occurs if a broker or other nominee
does not have discretionary authority and has not received instructions with
respect to a particular item. Shareholders may not cumulate their votes in the
election of directors.
It is the intention of the persons named in the enclosed proxy to vote such
proxy "FOR" the election of the nominees named herein. Should any nominee become
unavailable for election, discretionary authority is conferred to vote for a
substitute. The following information regarding the nominees, their principal
occupations, employment history and directorships in certain companies is as
reported by the respective nominees.
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[PHOTO] ROBERT A. BELFER, 63
Director since 1983
Mr. Belfer's principal occupation is Chairman and Chief
Executive Officer of Belco Oil & Gas Corp., a company formed
in 1992. Prior to his resignation in April, 1986 from Belco
Petroleum Corporation ("BPC"), a wholly owned subsidiary of
Enron, Mr. Belfer served as President and then Chairman of
BPC. Mr. Belfer is also a director of NAC Re Corporation.
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[PHOTO] NORMAN P. BLAKE, JR., 57
Director since 1993
Mr. Blake is the Chairman, President and Chief Executive
Officer of Promus Hotel Corporation. Mr. Blake served as
Chairman, President, and CEO of USF & G Corporation, one of
the nation's largest property and casualty insurers, from
November, 1990 until it was merged with The St. Paul
Companies in 1998. He is a director and Vice Chairman of The
St. Paul Companies and director of Owens-Corning
Corporation.
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[PHOTO] RONNIE C. CHAN, 49
Director since 1996
For over eight years, Mr. Chan has been Chairman of Hang
Lung Development Limited, a publicly traded Hong Kong based
company involved in property development and investment as
well as hotel development and management. Mr. Chan also
co-founded and is a director of Morningside/Springfield
Group, which invests in private industrial companies
internationally, and he serves on the boards of Standard
Chartered Bank PLC and Motorola, Inc.
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[PHOTO] JOHN H. DUNCAN, 71
Director since 1985
Mr. Duncan's principal occupation has been investments since
1990. Mr. Duncan is also a director of EOTT Energy Corp.
(the general partner of EOTT Energy Partners, L.P.), Enron
Oil & Gas Company ("EOG"), Chase Bank of Texas, National
Association and Group I Automotive Inc.
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[PHOTO] JOE H. FOY, 72
Director since 1985
Mr. Foy is a former President of Houston Natural Gas
Corporation ("HNG") (a predecessor of Enron) and is a
retired partner of Bracewell & Patterson L.L.P., Houston,
Texas. For over five years prior to his retirement in 1992,
Mr. Foy served as a Senior Partner at such firm. Mr. Foy is
also a director of Central and South West Corporation.
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[PHOTO] WENDY L. GRAMM, 54
Director since 1993
Dr. Gramm is an economist and Director of the Regulatory
Studies Program of the Mercatus Center at George Mason
University. From February, 1988 until January, 1993, Dr.
Gramm served as Chairman of the Commodity Futures Trading
Commission in Washington, D.C. Dr. Gramm is also a director
of IBP, inc., State Farm Insurance Co., the Chicago
Mercantile Exchange and Invesco Funds Group, Inc.
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[PHOTO] KEN L. HARRISON, 56
Director since 1997
Mr. Harrison has served as Vice Chairman of the Board of
Enron since July 1, 1997, and since 1987, has served as
Chairman of the Board and Chief Executive Officer of
Portland General Electric Company ("PGE"), an electric
utility company, and as of 1998 served as chairman of Enron
Communications, Inc., both subsidiaries of Enron. He served
as Chairman of the Board, Chief Executive Officer, and
President of Portland General Corporation, an electric
utility holding company, for more than five years before it
merged with Enron on July 1, 1997. He is also a director of
EOG.
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[PHOTO] ROBERT K. JAEDICKE, 70
Director since 1985
Dr. Jaedicke is Professor (Emeritus) of Accounting at the
Stanford University Graduate School of Business in Stanford,
California. He has been on the Stanford University faculty
since 1961 and served as Dean from 1983 until 1990. Dr.
Jaedicke is also a director of Boise Cascade Corporation,
California Water Service Company, GenCorp, Inc. and State
Farm Insurance Co.
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[PHOTO] KENNETH L. LAY, 56
Director since 1985
For over thirteen years, Mr. Lay has been Chairman of the
Board and Chief Executive Officer of Enron. Mr. Lay is also
a director of Eli Lilly and Company, Compaq Computer
Corporation, EOG, EOTT Energy Corp. (the general partner of
EOTT Energy Partners, L.P.) and Trust Company of the West.
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[PHOTO] CHARLES A. LEMAISTRE, 75
Director since 1985
For 18 years, Dr. LeMaistre served as President of The
University of Texas M. D. Anderson Cancer Center in Houston,
Texas, and now holds the position of President Emeritus.
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[PHOTO] DR. JOHN MENDELSOHN, 62
Since July 1, 1996, Dr. Mendelsohn has served as President
of the University of Texas M.D. Anderson Cancer Center.
Prior to 1996, Dr. Mendelsohn was Chairman of the Department
of Medicine at Memorial Sloan-Kettering Cancer Center in New
York. Dr. Mendelsohn is a director of ImClone Systems, Inc.
Over the past five years, he also has served as an editor of
professional publications and as a consultant or scientific
advisory board member for a number of pharmaceutical
companies and educational, non-profit and governmental
institutions.
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[PHOTO] JEROME J. MEYER, 61
Director since 1997
For over eight years, Mr. Meyer has served as Chairman and
Chief Executive Officer and a director of Tektronix, Inc.,
an electronics manufacturer located in Wilsonville, Oregon.
He is also a director of Standard Insurance Corp. and AMP,
Incorporated.
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[PHOTO] JEFFREY K. SKILLING, 45
Director since 1997
Since January 1, 1997, Mr. Skilling has served as President
and Chief Operating Officer of Enron. From June, 1995 until
December, 1996, he served as Chief Operating Officer and
Managing Director of Enron Capital & Trade Resources Corp.
("ECT"). From August, 1990 until June, 1995, Mr. Skilling
served ECT in a variety of senior managerial positions.
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8
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[PHOTO] JOHN A. URQUHART, 70
Director since 1990
Mr. Urquhart serves as Senior Advisor to the Chairman of
Enron. From 1991-1998, Mr. Urquhart was Vice Chairman of the
Board of Enron. Since August, 1991, Mr. Urquhart has also
been President of John A. Urquhart Associates, a management
consulting firm in Fairfield, Connecticut. He also serves as
a director of Aquarion Company, TECO Energy, Inc., Hubbell,
Inc., The Weir Group, PLC and Catalytica Inc.
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[PHOTO] JOHN WAKEHAM, 66
Director since 1994
Lord Wakeham is a retired former U.K. Secretary of State for
Energy and Leader of the Houses of Commons and Lords. He
served as a Member of Parliament from 1974 until his
retirement from the House of Commons in April, 1992. Prior
to his government service, Lord Wakeham managed a large
private practice as a chartered accountant. In the U.K., he
is currently Chairman of the Press Complaints Commission and
chairman or director of a number of publicly traded U.K.
companies.
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[PHOTO] HERBERT S. WINOKUR, JR., 55
Director since 1985
Mr. Winokur is Chairman and Chief Executive Officer of
Capricorn Holdings, Inc. (a private investment company) and
Managing General Partner of Capricorn Investors, L.P. and
Capricorn Investors II, L.P., private investment
partnerships concentrating on investments in restructure
situations, organized by Mr. Winokur in 1987 and 1994,
respectively. Prior to his current appointment, Mr. Winokur
was Senior Executive Vice President and a director of Penn
Central Corporation. Mr. Winokur is also a director of NAC
Re Corporation, The WMF Group, Ltd., Mrs. Fields Holding
Company, Inc., CCC Information Services Group, Inc. and
DynCorp.
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9
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS
As of February 15, 1999, Enron knows of no one who beneficially owns in
excess of 5% of a class of Enron's Voting Stock except as set forth in the table
below:
AMOUNT AND NATURE OF BENEFICIAL OWNERSHIP
-------------------------------------------------------------
SOLE VOTING
AND
SOLE VOTING SHARED VOTING LIMITED
AND AND OR NO PERCENT
TITLE OF CLASS NAME AND ADDRESS INVESTMENT INVESTMENT INVESTMENT OF
OF STOCK OF BENEFICIAL OWNER POWER POWER POWER OTHER CLASS
- -------------- ------------------- ----------- ------------- ----------- --------- -------
Common Robert A. Belfer 4,546,904(1)(2) 20,541(3) 11,933(4)(5) 1.35
Preferred 767 Fifth Avenue
Convertible New York, NY 10153 237,773(6) 1,052(7) 18.13
Common Mr. and Mrs. Lawrence Ruben 2,848,758(8) 1,947,372(9) 1.41
Preferred 600 Madison Avenue
Convertible New York, NY 10022 192,541(10) 50,270(11) 18.44
Common Jack Saltz 1,418,739(12) 819,053(13) *
Preferred 767 Fifth Avenue
Convertible New York, NY 10153 72,857 58,900(14) 10.00
Common Enron Corp. 6,415,048(15) 1.91
Preferred Savings Plan
Convertible 70,000(15) 5.32
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* Less than 1%.
(1) Includes 13,248 shares held by trust of which Mr. Belfer is trustee, in all
of which shares Mr. Belfer disclaims beneficial ownership. Also includes
3,246,076 shares that would be acquired upon the conversion of the
Preferred Convertible Stock shown in the table as being beneficially owned
by Mr. Belfer with sole voting and investment power.
(2) 14,568 shares of Common Stock are subject to stock options exercisable
within 60 days after February 15, 1999, which number is included in the
number of shares shown as beneficially owned as of such date.
(3) Includes 6,180 shares held by Mr. Belfer's wife. Also includes 14,361
shares that would be acquired upon the conversion of the Preferred
Convertible Stock shown in the table as being beneficially owned by Mr.
Belfer with shared voting and investment power.
(4) Includes restricted shares of Common Stock held under Enron's 1991 Stock
Plan (the "1991 Stock Plan"). Participants in the 1991 Stock Plan have sole
voting power and no investment power for restricted shares awarded under
the 1991 Stock Plan until such shares vest in accordance with 1991 Stock
Plan provisions. After vesting, the participant has sole investment and
voting powers.
(5) Includes shares held under Enron's Savings Plan (the "Savings Plan").
Participants in the Savings Plan instruct the Savings Plan Trustee as to
how the participant's shares should be voted. Additionally, participants
have limited investment power with respect to shares in the Savings Plan.
(6) Includes 3,370 shares held by trusts of which Mr. Belfer is trustee, in all
of which shares Mr. Belfer disclaims beneficial ownership.
(7) Includes 625 shares held by Mr. Belfer's wife and 427 shares held by trusts
of which Mr. Belfer is a co-trustee, in all of which shares Mr. Belfer
disclaims beneficial ownership.
(8) Includes 59 shares held as trustee or co-trustees for their children and
61,200 shares held by Mrs. Ruben as trustee for a charitable trust. Also
includes 2,628,569 shares that would be acquired upon the conversion of the
Preferred Convertible Stock.
(9) Includes 41,091 shares held by Mr. Ruben as co-trustee for his children;
332,280 shares held by Mr. Ruben as co-trustee for his nieces and nephews;
and 112,264 shares held by charitable foundations in which Mr. and Mrs.
Ruben have no pecuniary interest. Also includes 686,286 shares that would
be acquired upon the conversion of the Preferred Convertible Stock.
(10) Includes 95,663 shares held by Mrs. Ruben as trustee for her children and
3,600 shares held by Mrs. Ruben as trustee for a charitable trust.
(11) Includes 11,051 shares held by Mr. Ruben as co-trustee for his nieces and
nephews, in which shares Mr. Ruben has no pecuniary interest.
(12) Includes 994,643 shares that would be acquired upon the conversion of the
Preferred Convertible Stock.
(13) Includes 804,103 shares that would be acquired upon the conversion of the
Preferred Convertible Stock.
(14) Held by Mr. Saltz's wife as trustee for their children.
(15) Pursuant to the terms of the Savings Plan, shares allocated to employee
accounts are voted by the Savings Plan Trustee as instructed by the
employees. If the trustee receives no voting directions from the respective
employees, then all such shares are to be voted by the trustee in the same
proportion as the allocated shares that are voted by employees. Includes
955,640 shares that would be acquired upon the conversion of the Preferred
Convertible Stock.
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10
STOCK OWNERSHIP OF MANAGEMENT AND BOARD OF DIRECTORS AS OF FEBRUARY 15, 1999
AMOUNT AND NATURE
OF BENEFICIAL OWNERSHIP
------------------------------------------
SOLE SHARED SOLE VOTING
VOTING VOTING AND LIMITED
AND AND OR NO
INVESTMENT INVESTMENT INVESTMENT PERCENT
TITLE OF CLASS NAME POWER(1) POWER(1) POWER(2)(3) OF CLASS
-------------- ---- ---------- ---------- ------------ --------
Enron Corp.
Common Stock Robert A. Belfer...................... 4,546,904(4) 20,541(5) 11,933 1.35
Norman P. Blake, Jr................... 19,371 278 *
Ronnie C. Chan........................ 7,438 *
John H. Duncan........................ 82,871 27,848 278 *
Joe H. Foy............................ 30,328 278 *
Ken L. Harrison....................... 193,785 62,545 *
Robert K. Jaedicke.................... 25,024 278 *
Kenneth L. Lay........................ 3,190,482 559,137(6) 117,511 1.14
Charles A. LeMaistre.................. 25,624 800 278 *
Rebecca P. Mark....................... 441,209 84,220 *
Jerome J. Meyer....................... 4,534 *
Kenneth D. Rice....................... 301,664 1 66,058 *
Jeffrey K. Skilling................... 866,629 207,703 *
Joseph W. Sutton...................... 272,880 454 75,919 *
John A. Urquhart...................... 81,948 278 *
John Wakeham.......................... 4,392 180 *
Charls E. Walker...................... 4,311 3,044(7) 278 *
Herbert S. Winokur, Jr................ 55,404 3,500(8) 278 *
All directors and executive officers
as a group (27 in number)........... 13,888,041(4) 620,574(5) 770,707 4.39
Enron Corp.
Preferred Con-
vertible Stock Robert A. Belfer...................... 237,773(9) 1,052(10) 18.13
All directors and executive
officers............................
All directors and executive officers
as a group (27 in number)........... 237,773 1,052 18.13
Enron Oil & Gas
Company Common
Stock Robert A. Belfer...................... 15,800 22,600(11) *
Norman P. Blake, Jr................... 2,000 *
John H. Duncan........................ 18,225 21,775
Joe H. Foy............................ 7,000 *
Ken L. Harrison....................... 1,300 1,000 *
Kenneth L. Lay........................ 20,000(12) 30,000 *
Rebecca P. Mark....................... (12)
Kenneth D. Rice....................... 2,334
Jeffrey K. Skilling................... 100,000(12) *
Charls E. Walker...................... 2,000 1,000
All directors and executive officers
as a group (27 in number)........... 188,904(12) 76,375 17,683(13) *
(Table continues on next page)
8
11
AMOUNT AND NATURE
OF BENEFICIAL OWNERSHIP
------------------------------------------
SOLE SHARED SOLE VOTING
VOTING VOTING AND LIMITED
AND AND OR NO
INVESTMENT INVESTMENT INVESTMENT PERCENT
TITLE OF CLASS NAME POWER(1) POWER(1) POWER(2)(3) OF CLASS
-------------- ---- ---------- ---------- ------------ --------
EOTT Energy
Partners, L.P.
Common Units Norman P. Blake, Jr................... 1,000 *
John H. Duncan........................ 8,500 *
Kenneth L. Lay........................ 5,000 *
All directors and executive officers
as a group (27 in number)........... 9,500 5,000 *
Northern Border
Partners, L.P.
Common Units Robert A. Belfer...................... 32,500 25,500(14) *
Norman P. Blake....................... 1,500 *
All directors and executive officers
as a group (27 in number)........... 34,000 25,500 *
- ---------------
* Less than 1%.
(1) The number of shares of Common Stock subject to stock options exercisable
within 60 days after February 15, 1999, which number is included in the
number of shares shown as beneficially owned as of such date, is as
follows: Mr. Belfer, 14,568 shares; Mr. Blake, 13,008 shares; Mr. Chan,
2,496 shares; Mr. Duncan, 23,208 shares, for which he has shared voting and
investment power for 22,888 of such shares; Mr. Foy, 18,248 shares; Mr.
Harrison, 190,202 shares; Dr. Jaedicke, 17,248 shares; Mr. Lay, 2,741,640
shares, for which he has shared voting and investment power for 188,846 of
such shares; Dr. LeMaistre, 18,248 shares; Ms. Mark, 327,201 shares; Mr.
Meyer, 1,360 shares; Mr. Rice, 207,257 shares; Mr. Skilling, 734,190
shares; Mr. Sutton, 255,627 shares; Mr. Urquhart, 74,818 shares; Lord
Wakeham, 3,728 shares; Dr. Walker, 320 shares; Mr. Winokur, 18,248 shares;
and all directors and executive officers as a group (27 in number),
7,975,092 shares.
(2) Includes restricted shares of Common Stock held under Enron's 1991 and 1994
Stock Plans (the "Plans") for certain individuals. Participants in those
Plans have sole voting power and no investment power for restricted shares
awarded under the Plans until such shares vest in accordance with the
Plans' provisions. After vesting, the participant has sole investment and
voting powers.
(3) Includes shares held under the Savings Plan and/or the Enron Corp. Employee
Stock Ownership Plan ("ESOP"). Participants in the Savings Plan instruct
the Savings Plan Trustee as to how the participant's shares should be
voted. Additionally, participants have limited investment power with
respect to shares in the Savings Plan. Participants in the ESOP have sole
voting power and no investment power prior to distribution of shares from
the ESOP. Total shares held by the group includes 5,584 shares with shared
voting power.
(4) Includes 13,248 shares held by a trust of which Mr. Belfer is trustee, in
all of which shares Mr. Belfer disclaims beneficial ownership. Also
includes 3,246,076 shares that would be acquired upon the conversion of the
Preferred Convertible Stock shown in the table as being beneficially owned
by Mr. Belfer with sole voting and investment power.
(5) Includes 6,180 shares held by Mr. Belfer's wife. Also includes 14,361
shares that would be acquired upon the conversion of the Preferred
Convertible Stock shown in the table as being beneficially owned by Mr.
Belfer with shared voting and investment power.
(6) Includes 195,600 shares held in a charitable foundation in which Mr. Lay
has no pecuniary interest.
(7) Shares owned by Dr. Walker's wife and in which Dr. Walker disclaims
beneficial ownership.
(8) Shares held in a charitable foundation in which Mr. Winokur has no
pecuniary interest.
(9) Includes 3,370 shares held by trusts of which Mr. Belfer is trustee, in all
of which shares Mr. Belfer disclaims beneficial ownership.
(10) Includes 625 shares held by Mr. Belfer's wife and 427 shares held by trusts
of which Mr. Belfer is a co-trustee, in all of which shares Mr. Belfer
disclaims beneficial ownership.
(11) Includes 20,000 shares held by trusts of which Mr. Belfer is co-trustee or
his wife is trustee for their children and 2,600 shares held by his
daughter, in all of which shares Mr. Belfer disclaims beneficial ownership
and 3,000 shares held in a charitable foundation in which Mr. Belfer has no
pecuniary interest.
(12) Does not include 82,270,000 shares owned by Enron in which each of Messrs.
Lay, Harrison, Skilling and Ms. Mark, in their capacities as Chairman of
the Board, Vice Chairman of the Board, President and Vice Chairman,
respectively, of Enron, has sole voting and investment power pursuant to
the provisions of Enron's bylaws.
(13) Total shares held by the group includes 472 shares with shared voting
power.
(14) Includes 19,500 shares held in trusts in which Mr. Belfer's son or wife is
trustee or in which Mr. Belfer is trustee or a co-trustee, 3,000 shares
held by Mr. Belfer's wife and 3,000 shares held in a charitable trust in
which Mr. Belfer has no pecuniary interest.
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12
BOARD OF DIRECTORS AND COMMITTEES
The Board of Directors held five regularly scheduled meetings and three
special meetings during the year ended December 31, 1998. The Executive
Committee meets on a less formal basis and may exercise all of the powers of the
Board of Directors, except where restricted by Enron's bylaws or by applicable
law. During the year ended December 31, 1998, the Executive Committee met 13
times. The Executive Committee is currently composed of Messrs. Duncan
(Chairman), Belfer, Foy, Lay, LeMaistre, Skilling and Winokur.
On May 4, 1998, the Board of Directors adopted the Corporate Governance
Guidelines of the Board of Directors of Enron Corp. (the "Corporate Governance
Guidelines"). The Corporate Governance Guidelines set forth procedures and
guidelines to assist the Board of Directors in discharging its responsibilities
to Enron and Enron's shareholders. The Corporate Governance Guidelines impose
the following obligations on the Board of Directors: (i) ensuring legal and
ethical conduct by Enron, its officers, and employees, and (ii) approving Enron
corporate strategy and major management initiatives including general oversight
of Enron's business. In addition, the Corporate Governance Guidelines set forth
guidelines for selection, compensation and evaluation of the Board of Directors
and senior executives of Enron, ensuring that a succession plan is in place with
respect to senior executives.
The Board of Directors uses working committees with functional
responsibility in the more complex recurring areas where disinterested oversight
is required. The Audit and Compliance Committee serves as the overseer of
Enron's financial reporting, internal controls, and compliance processes. At
five meetings during the year ended December 31, 1998, the Audit and Compliance
Committee met with the independent auditors, as well as Enron officers and
employees who are responsible for legal, financial and accounting matters. In
addition to recommending the appointment of the independent auditors to the
Board of Directors, the Audit and Compliance Committee reviews the scope of and
fees related to the audit, the accounting policies and reporting practices,
contract and internal auditing and internal controls, compliance with Enron's
policies regarding business conduct and other matters as deemed appropriate. The
Audit and Compliance Committee is currently composed of Messrs. Jaedicke
(Chairman), Chan, Foy, and Wakeham and Dr. Gramm.
The Compensation and Management Development Committee's responsibility is
to establish Enron's compensation strategy and ensure that the senior executives
of Enron and its wholly owned affiliates are compensated effectively in a manner
consistent with the stated compensation strategy of Enron, internal equity
considerations, competitive practices and the requirements of appropriate
regulatory bodies. In meeting seven times during the year ended December 31,
1998, the Compensation and Management Development Committee also continued to
monitor and approve awards earned pursuant to Enron's comprehensive executive
compensation program, monitor Enron's employee benefit programs, and review
matters relating to management development and management succession. The
Compensation and Management Development Committee is currently composed of
Messrs. LeMaistre (Chairman), Blake, Duncan and Jaedicke.
The Finance Committee serves as a monitor of Enron's financial activities.
In meeting seven times during the year ended December 31, 1998, the Finance
Committee reviewed the financial plans and proposals of management, including
equity and debt offerings, changes in stock dividends and the equity repurchase
program, changes in the risk management policy, transaction approval process and
the policy for approval of guarantees, letters of credit, letters of indemnity
and recommending action with regard thereto to the Board of Directors. The
Finance Committee is currently composed of Messrs. Winokur (Chairman), Belfer,
Blake, Chan, Meyer, Urquhart and Walker.
The Nominating and Corporate Governance Committee has oversight for
recommendations regarding the size of the Board of Directors, recruiting and
recommending candidates for election to the Board of Directors, monitoring the
Corporate Governance Guidelines for revision and compliance, and periodic
evaluation of director independence and performance. In meeting three times
during the year ended December 31, 1998, and pursuant to the Corporate
Governance Guidelines (which provide that each director is expected to volunteer
to retire from the Board of Directors effective at the Annual Meeting of
Shareholders that follows such director's 72nd birthday), the Nominating and
Corporate Governance Committee recommended that the voluntary resignation of Dr.
Charls E. Walker be accepted, that the voluntary resignations of Messrs. Foy and
LeMaistre be rejected, and that the incumbent slate of directors (except for Dr.
Walker),
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plus Dr. John Mendelson be approved by the Board of Directors for submission to
the Enron shareholders at the 1999 Annual Meeting of Shareholders. The
Nominating and Corporate Governance Committee is currently composed of Messrs.
Walker (Chairman), Meyer and Wakeham, and Dr. Gramm.
COMPENSATION OF DIRECTORS AND EXECUTIVE OFFICERS
DIRECTOR COMPENSATION
Each nonemployee director of Enron receives an annual service fee of
$50,000 for serving as a director. No additional fees are paid for serving on
committees, except that committee chairs receive an additional $10,000 annually.
Meeting fees are $1,250 for each Board of Directors meeting attended and $1,250
for each committee meeting attended. Total directors' fees paid in cash,
deferred under Enron's 1994 Deferral Plan or received in a combination of
phantom stock units and stock options in lieu of cash under the 1991 Stock Plan
in 1998 were $890,875, or an average of $63,634 per nonemployee director.
Section 6.9 of the 1991 Stock Plan ("the 1991 Stock Plan") permits
nonemployee directors whose ownership of Common Stock would result in a material
conflict of interest for business, employment or professional purposes, to
submit an opinion of counsel of such fact to the Committee with a request that
such nonemployee director not be eligible to receive further grants under the
1991 Stock Plan and to forfeit all outstanding grants made to such nonemployee
director until such time as the Committee is satisfied that such conflicts have
been removed or no longer apply. In December, 1998, an opinion of counsel was
submitted to the Committee indicating that Dr. Wendy Gramm, wife of Senator Phil
Gramm, could have a material conflict of interest as a result of legislation
that has been, or may be, introduced in the United States Senate involving
electricity deregulation and other issues of direct concern to Enron and its
subsidiaries if she continued participation in the 1991 Stock Plan and
maintained ownership of Enron stock. Based on the opinion that her continued
participation in the 1991 Stock Plan could be considered as a conflict of
interest, Dr. Gramm's unvested restricted shares and options were canceled as of
December 31, 1998, in accordance with the 1991 Stock Plan. In lieu of future
stock grants, Dr. Gramm will receive value equal to the stock grants stipulated
under the 1991 Stock Plan which will be deposited in the Flexible Deferral
Account of the 1994 Enron Corp. Deferral Plan coincident with the grant date
applicable to the stipulated director stock grants. Additionally, all quarterly
retainer fees and meeting fees will be paid in cash. Further, Dr. Gramm's
phantom stock account in the 1994 Deferral Plan has been reinvested in the
Flexible Deferral Account of the 1994 Deferral Plan effective January 1, 1999.
Directors can elect to receive fees in cash, defer receipt of their fees to
a later specified date under Enron's 1994 Deferral Plan, or receive their fees
in a combination of phantom stock units and stock options in lieu of cash under
the 1991 Stock Plan. Beginning January 1, 1996, participants in Enron's 1994
Deferral Plan may elect to invest their deferrals among several different
investment choices. During 1998, six directors elected to defer fees under
Enron's 1994 Deferral Plan. Prior to 1994, directors were able to defer their
fees under Enron's 1985 Deferral Plan, which continues to credit interest on
account balances based on 150% of Moody's seasoned corporate bond yield index
with a minimum rate of 12%, which for 1996, 1997 and 1998 was the minimum rate
of 12%. Three directors elected to receive their fees in a combination of
phantom stock units and stock options in lieu of cash according to the terms of
the 1991 Stock Plan. During 1998, each nonemployee director received 400 shares
of phantom stock units (valued at $53 per share on the date of grant) and
options to purchase 1600 shares (with an exercise price of $53 per share)
according to the terms of the 1991 Stock Plan.
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REPORT FROM THE COMPENSATION AND MANAGEMENT DEVELOPMENT COMMITTEE
REGARDING EXECUTIVE COMPENSATION
The Compensation and Management Development Committee (the "Committee") of
the Board of Directors is responsible for developing the Enron executive
compensation philosophy. It is the duty of the Committee to administer the
philosophy and its relationship with the compensation paid to the Chief
Executive Officer (the "CEO") and each of the other executive officers.
The basic philosophy behind executive compensation at Enron is to reward
the executive's performance that creates long-term shareholder value. This
pay-for-performance tenet is embedded in most aspects of an executive's total
compensation package. Salary increases, annual incentive awards and long-term
incentive grants are reviewed periodically to ensure consistency with Enron's
total compensation philosophy.
Base Salary
All decisions regarding base salary are made based upon individual
performance as measured against pre-established individual objectives and
competitive practice as measured by periodic compensation surveys.
In the past, Enron has conducted a bi-annual executive compensation study
covering the top 25 to 30 executive positions in the top corporate and operating
company positions. In October, 1998, the Committee utilized the services of
Towers Perrin, a consulting firm experienced in executive compensation, to
conduct an expanded executive compensation study covering the top executives who
have received long-term compensation grants. Corporate positions were
benchmarked using the companies from a variety of industries with revenues from
$20 billion to $30 billion because the Committee felt that this provides more
comparable data for measuring corporate compensation. Operating company
positions were benchmarked according to revenue size using data collected from
sources best representing their specific markets. For example, Enron Capital &
Trade Resources Corp.'s ("ECT") positions were benchmarked with financial
institutions, brokerage firms, and energy marketing and trading firms while
Enron International Inc.("EI") was benchmarked with pipeline companies, business
development and engineering and construction firms with an international focus,
and various financial institutions to represent EI's expertise at obtaining
project financing. Base salaries for all positions are targeted at the median of
the respective markets.
Annual Incentive Awards
In 1999, the Annual Incentive Plan will be provided for certain executive
officers subject to the provisions of Section 16 of the Securities Exchange Act
of 1934, as amended ("Section 16 officers"), and will be funded as a percentage
of recurring after-tax net income as approved by the Committee and the
shareholders and is based on company performance and competitive industry
practice. Downward adjustment of the fund is at the sole discretion of the
Committee and is based on performance against other goals such as earnings per
share, cash flow, strengthening the balance sheet and total shareholder return.
These factors are not weighted, but are applied at the sole discretion of the
Committee. However, upward adjustment of the fund, over the formula-driven
amount, is not allowed. Since the performance goal of Enron is recurring
after-tax net income, the fund increases or decreases based on the earnings
performance of Enron. All decisions regarding individual incentive awards are
made based upon individual performance as measured against pre-established
individual objectives and competitive practice as measured by compensation
surveys, but in no event will an individual incentive award exceed the specified
percentage of recurring after-tax net income as established by the Committee and
approved by shareholders. Under the Annual Incentive Plan, awards can be made in
any combination of cash, stock and stock options. Annual incentive awards are
intended to result in total direct compensation (base plus annual incentive) at
the top quartile of the industry comparator group, given top quartile
performance. Based upon Enron's 1998 performance and the last compensation
survey described above, this objective was met.
Long-Term Incentive Grants
Long-term incentive grants are targeted at the top quartile of the specific
industry comparator group for corporate and operating company executive
compensation participants. Long-term grants are typically made up of any
combination of performance units, stock options, and/or performance based
restricted stock. For
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ECT executives, the long-term component of their total compensation package is
made up of grants of stock options and phantom stock units. The phantom stock
units are granted under the ECT Phantom Stock Unit Plan.
In the past, Enron has typically granted performance units to corporate and
certain operating company executives which compare Enron's total shareholder
return to peer group performance over a four-year period. Under this program, in
order for top quartile compensation to be realized, the total shareholder return
of Enron must rank at least third among the peer group of 12 companies for the
four-year period. Although Enron's relative performance to its peers is an
important measure, it has become more difficult to identify the most appropriate
peer group for a company with Enron's diversified lines of business. Also, due
to the changes associated with increased merger and acquisition activity, peer
group performance is much more volatile without directly being tied to the
efforts of executive management. Enron's desire is to (a) ensure executive
retention where performance warrants, (b) compensate top executives based on
performance relative to the aggressive performance goals set at the beginning of
each year and which the company's executives directly control, and (c) provide
long-term compensation programs most effective in creating a link between
executive and shareholder financial returns. As a result, for the 1999 long-term
grants to corporate and certain operating company executives, performance based
restricted stock and stock options have been utilized. Aggregate stock holdings
of the executives have no bearing on the size of long-term incentive grants. The
ultimate value of the performance based restricted stock awards to executives
depends upon the achievement of recurring after-tax net income targets
established by the Committee for the years 1999, 2000 and 2001 and Enron's stock
price. Stock options are granted at market price; therefore, for any
compensation to be realized pursuant to stock options, the market price of
Common Stock must increase.
Total Compensation
Approximately 75% of the total compensation of Enron's most senior
executives is "at risk", based strictly upon the performance of Enron relative
to stated recurring after-tax net income targets, stock price performance and
total shareholder return which impacts grants of performance units which are
still outstanding. Also, several significant elements in the employee benefit
package, the Employee Stock Ownership Plan, Enron Corp. Savings Plan and
Portland General Holdings Retirement Savings Plan (which together hold
approximately 5.9% of Common Stock as of December 31, 1998), the Bonus Stock
Option/ Phantom Stock Deferral Programs and the All-Employee Stock Option
Program are driven by increasing shareholder value.
Inherent in this "at-risk" component is a heavy weighting toward long-term
performance. We believe this feature provides Enron management with a long-term
strategic incentive that will encourage the continued creation of shareholder
value. In addition, the Committee has approved stock ownership guidelines which
provide that each member of the Office of the Chairman is required to own Enron
stock having a value equal to at least five times his or her annual base salary,
each Management Committee member is required to own Enron stock having a value
equal to at least two times his or her annual base salary, and other principal
corporate and operating officers named in the annual report to shareholders are
required to own Enron stock having a value equal to at least his or her annual
base salary. For purposes of these guidelines, ownership includes grants of
restricted stock but does not include grants of stock options.
The Committee consults from time to time with Towers Perrin which has
access to national compensation surveys and financial records of Enron. The
Committee reviews all elements of executive compensation to ensure that the
total compensation delivered is reflective of company performance with input on
market competitiveness. The executive compensation program is designed to
provide top quartile compensation for top quartile performance. Through the
Towers Perrin study which was recently conducted, the Committee confirmed that
Enron's total direct compensation levels are competitive with the targeted
objective.
Chief Executive Officer Compensation
As part of an annual review, the Committee applies the executive
compensation philosophy to the total compensation package of the CEO and the
other executives. In 1998, Mr. Lay received a $100,000, or 8.3%,
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increase in base salary. Mr. Lay's base salary on May 1, 1998 was $1,300,000.
Since Mr. Lay's base salary exceeds $1,000,000, base salary in excess of this
amount is deferred into Enron's 1994 Deferral Plan to preserve tax deductibility
under Section 162(m) of the Internal Revenue Code. (See "Compliance with
Internal Revenue Code Section 162(m)" below.) In recognition of Enron's
extremely strong performance during 1998 relative to recurring after-tax net
income, Mr. Lay received an annual incentive award consisting of $3,150,000 in
cash. The Committee determined the amount of the annual incentive award taking
into consideration the annual performance report presented by management, which
reflected an increase in total recurring net income of 35% from the previous
year, Enron's increase in earnings per share of over 14%, and a shareholder
return of 40%, compared to 2.9% for Enron's proxy peer group, 28.3% for the
Standard & Poors 500 ("S&P 500") and 18.1% for the Dow Jones Industrial Average.
In addition to the annual incentive award, at the end of 1998, Mr. Lay
received a long-term incentive award consisting of a grant of stock options, at
market value on the date of grant, to acquire 295,325 common shares, and a grant
of 68,057 shares of performance based restricted stock. The performance based
restricted stock will vest and be released on January 31, 2002 as follows: (a)
33 1/3% of the shares will vest and be released if earnings targets are met in
any one year of the three-year period 1999, 2000 and 2001, (b) 66 2/3% of the
shares will vest and be released if earnings targets are met in any two years of
the three-year period 1999, 2000 and 2001, and (c) 100% of the shares will vest
and be released if earnings targets are met in each year of the three-year
period 1999, 2000 and 2001 or cumulatively over the three-year period 1999,
2000, and 2001. Shares of performance based restricted stock which do not become
vested according to the above provisions will be canceled. Also, the accelerated
vesting provisions were triggered on (1) Mr. Lay's February 8, 1994 stock option
award since Enron's 1998 recurring earnings per share goal was met and (2) Mr.
Lay's December, 1996 and January, 1997 grants since Enron's total shareholder
return for 1998 of 40% was higher than the 1998 S&P 500 performance.
Mr. Lay did not receive a cash payment under the Performance Unit Plan for
the 1995-1998 performance period. Payments are made under the Performance Unit
Plan only if Enron's total shareholder return ranks at least sixth out of 12
industry peers for the four-year performance period. During the measurement
period from 1995-1998, Enron's return to its shareholders was 98.4% compared
with 128.85% for industry peers, 180.8% for the S&P 500, and 20.5% for 90-day
U.S. Treasury Bills. This performance earned Enron a ranking of seventh and
therefore, the units had no value.
Compliance with Internal Revenue Code Section 162(m)
Section 162(m) of the Internal Revenue Code, as amended ("Section 162(m)"),
generally disallows a tax deduction to public companies for compensation over
$1,000,000 paid to a company's CEO and four other most highly compensated
executive officers, as reported in its proxy statement. Qualifying performance
based compensation is not subject to the deduction limit if certain requirements
are met. Enron has structured the performance based portion of the compensation
for most of its executive officers (which currently consists of stock options
grants, performance based restricted stock grants and annual incentive awards)
in a manner that complies with the statute. The Amended and Restated 1991 Stock
Plan, the Amended and Restated Performance Unit Plan, and the Annual Incentive
Plan were presented to and approved by shareholders at the 1997, 1995 and 1994
Annual Meetings of Shareholders, respectively. The Annual Incentive Plan is
being presented to shareholders for approval in 1999, which is required every
five years under Section 162(m) when no funding formula has been specified. The
recommended changes are to establish a specific funding formula as a percentage
of recurring after-tax net income, to specify Section 16 officers as
participants, and to specify an individual limit for payouts.
Occasionally, Enron may grant restricted stock with time based vesting for
specific reasons which would not qualify as performance based compensation.
Also, the ECT Phantom Stock Unit Plan has not been submitted to shareholders for
approval and therefore does not qualify as performance based compensation under
Section 162(m).
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Summary
Executive compensation at Enron is taken seriously by the Committee, the
Board of Directors and senior management. The Committee believes that there has
been a strong link between the success of the shareholder and the rewards of the
executives. This success is evidenced by the increase in shareholder value from
1989 to 1998, during which time a shareholder who invested $100 in the Common
Stock would have received $715, or a 715% increase in value, compared to 468%
for the S&P 500 and 319% for industry peers. The Committee believes that with
the present plan designs, management will continue to strive to increase
shareholder value.
Compensation and Management Development Committee
Charles A. LeMaistre (Chairman)
Norman P. Blake
John H. Duncan
Robert K. Jaedicke
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COMPARATIVE STOCK PERFORMANCE
As required by applicable rules of the Securities and Exchange Commission
(the "SEC"), the graph below was prepared based upon the following assumptions:
1. $10,000 was invested in Enron Common Stock, the S&P 500, and the peer
group as referenced below on December 31, 1993.
2. The current peer group investments are weighted based on the market
capitalization of each individual company within the peer group at
the beginning of each year and the trading activity of the stock of
each individual company during the year.
3. Dividends are reinvested on the ex-dividend dates.
The companies that comprise Enron's current peer group are as follows:
Amoco Corporation; British Gas PLC; The Coastal Corp.; Columbia Gas Systems,
Inc.; Consolidated Natural Gas Co.; Duke Energy Corporation; Occidental
Petroleum Corp.; El Paso Energy Corporation; Sonat Inc.; Dynegy, Inc.; and The
Williams Companies, Inc.
Although this method of calculating shareholder return differs from the
method that Enron uses for purposes of its Performance Unit Plan, it does
display a similar trend.
COMPARISON OF FIVE-YEAR CUMULATIVE TOTAL RETURN
Enron Corp., S&P 500 and Peer Group
(Performance Results Through December 31, 1998)
[PERFORMANCE GRAPH]
Measurement Period Peer Group
(Fiscal Year Covered) Enron Corp. S&P 500 -Current
1993 10000 10000 10000
1994 10781 10123 9980
1995 13763 13885 12897
1996 15880 17034 18443
1997 15641 22672 23608
1998 21836 29098 24288
1997
1998
On a ten-year basis, $10,000 invested in Common Stock on December 31, 1988
would provide a return to shareholders of 715% through December 31, 1998, as
compared to an investment in the S&P 500, which would yield a return of 468%, or
Enron's peer group which would yield a return of 319% for the same time period.
(1) During 1997, Enron recorded a non-recurring charge to earnings of $675
million primarily reflecting the impact of Enron's amended J-Block contract
in the United Kingdom.
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EXECUTIVE COMPENSATION
The following table summarizes certain information regarding compensation
paid or accrued during each of Enron's last three fiscal years to Enron's Chief
Executive Officer and each of Enron's four other most highly compensated
executive officers (the "Named Officers"):
SUMMARY COMPENSATION TABLE
ANNUAL COMPENSATION LONG-TERM COMPENSATION
-------------------------------------- ----------------------------------------
OTHER RESTRICTED SECURITIES
ANNUAL STOCK UNDERLYING LTIP
SALARY BONUS COMPENSATION AWARDS OPTIONS/ PAYOUTS
NAME & PRINCIPAL POSITION YEAR $ $ ($)(1) ($)(2) SARS (#) ($)(14)
------------------------- ---- ---------- ---------- ------------ ------------ ---------- ----------
Kenneth L. Lay 1998 $1,266,667 $3,150,000 $ 160,292 $ 3,883,503(4) 374,815 $ --
Chairman of the Board and 1997 $1,200,000 $ 475,000 $ 228,847 $ -- 950,460(13) $ --
Chief Executive Officer, Enron 1996 $ 990,000 $1,620,864 $ 162,399 $ -- 920,660(13) $ --
Jeffrey K. Skilling 1998 $ 816,667 $2,250,000 $ 23,949 $ 1,764,544(4) 293,165 $ --
President and Chief 1997 $ 750,000 $ 450,000 $ 22,525 $10,230,268(5) 1,000,000(13) $ --
Operating Officer, Enron 1996 $ 423,333 $ 800,000 $ 15,061 $ 5,999,989(6) 358,905(13) $ --
Rebecca P. Mark 1998 $ 660,833 $1,750,000 $1,733,562 $ 298,450(7) 450,000 $3,924,481
Vice Chairman, Enron and 1997 $ 506,252 $ 184,500 $ 91,859 $ 7,079,783(8) 432,322(8) $1,747,172
Chairman and Chief 1996 $ 423,342 $ 100,000 $ 14,054 $ 3,945,869(9) 125,000(9) $2,098,340
Executive Officer, Azurix
Joseph W. Sutton 1998 $ 512,084 $1,212,250 $ 13,500 $ -- 274,390 $2,940,860
Chairman, President, Chief 1997 $ 442,709 $1,089,500 $ 8,100 $ 4,354,423(8) 285,483(8) $1,303,479
Executive and Operating Officer, 1996 $ 370,000 $ 50,000 $ 19,820 $ 2,951,060(9) 100,000(9) $1,399,975
Enron International Inc.
Kenneth D. Rice 1998 $ 362,500 $1,100,000 $ 9,000 $ 2,503,766(10) 248,775 $ --
Chairman and Chief 1997 $ 300,000 $ 850,000 $ 2,400 $ 111,740(11) 160,351(13) $ --
Executive Officer, 1996 $ 300,000 $ 425,000 $ 12,556 $ 6,199,982(12) 71,800(13) $ --
Enron Capital & Trade Resources Corp.
ALL OTHER
COMPENSATION
------------
NAME & PRINCIPAL POSITION ($)(3)
------------------------- ------------
Kenneth L. Lay $ 554,904
Chairman of the Board and $ 545,264
Chief Executive Officer, Enron $ 281,368
Jeffrey K. Skilling $ 114,055
President and Chief $ 107,673
Operating Officer, Enron $ 1,103
Rebecca P. Mark $ 70,051
Vice Chairman, Enron and $ 90,453
Chairman and Chief $ 101,984
Executive Officer, Azurix
Joseph W. Sutton $ 116,088
Chairman, President, Chief $ 47,415
Executive and Operating Officer, $ 55,935
Enron International Inc.
Kenneth D. Rice $ 4,342
Chairman and Chief $ 250,612
Executive Officer, $ 501,715
Enron Capital & Trade Resources Corp.
- ---------------
(1) Includes perquisites and other personal benefits if value is greater than
the lesser of $50,000 or 10% of reported salary and bonus. Personal plane
usage of $116,712, $192,847, and $107,548 has been reported for Mr. Lay in
1996, 1997 and 1998, respectively. Personal plane usage of $78,759 and
$62,419 has been reported for Ms. Mark in 1997 and 1998, respectively.
Also, Enron maintains three deferral plans for key employees under which
payment of base salary, annual bonus, and long-term incentive awards may be
deferred to a later specified date. Under the 1985 Deferral Plan, interest
is credited on amounts deferred based on 150% of Moody's seasoned corporate
bond yield index with a minimum rate of 12%, which for 1996, 1997 and 1998
was the minimum rate of 12%. No interest has been reported as Other Annual
Compensation under the 1985 Deferral Plan for participating Named Officers
because the crediting rates during 1996, 1997, and 1998, did not exceed
120% of the long-term Applicable Federal Rate ("AFR") of 14.38% in effect
at the time the 1985 Deferral Plan was implemented. Beginning January 1,
1996, the 1994 Deferral Plan credits interest based on fund elections
chosen by participants. Since earnings on deferred compensation invested in
third-party investment vehicles, comparable to mutual funds, need not be
reported, no interest has been reported as Other Annual Compensation under
the 1994 Deferral Plan during 1996, 1997 and 1998. Other Annual
Compensation also includes cash perquisite allowances and cash paid for
benefits lost due to statutory and/or plan earnings limits. Includes loan
forgiveness for Rebecca Mark.
(2) The following is the aggregate total number of shares in unreleased
restricted stock holdings and their value as of December 31, 1998 for each
of the Named Officers: Mr. Lay, 68,057 shares valued at $3,883,503; Mr.
Skilling, 206,361 shares valued at $11,775,475; Ms. Mark, 144,979 shares
valued at $8,272,864; Mr. Sutton, 89,088 shares valued at $5,083,584; and
Mr. Rice, 108,182 shares valued at $6,173,135. In accordance with the
provisions of the 1991 Stock Plan, in the event of a "change of control,"
outstanding grants of restricted stock shall become fully vested. Dividend
equivalents for all restricted stock awards accrue from date of grant and
are paid upon vesting.
(3) The amounts shown include the value, as of year-end 1996 and 1998, of
Common Stock allocated during those years to employees' special subaccounts
under the Enron Corp. Employee Stock Ownership Plan, and 1998 matching
contributions on employees' Enron Corp. Savings Plan account. Included in
1996, 1997 and 1998 for Mr. Lay is $3,775, $4,388, and $5,109,
respectively, that is attributable to term life insurance coverage pursuant
to split-dollar life insurance arrangements. Also included in 1996, 1997
and 1998 for Mr. Lay is $276,490, $275,877, and $280,265, respectively,
which represents the remainder of the annual premium that was provided in
exchange for forfeiture by Mr. Lay of post-retirement executive
supplemental survivor benefits and executive supplemental retirement
benefits. Additionally, included in 1997 and 1998 for Mr. Lay is $14,999
and $16,170, respectively, of imputed income that is attributable to a
split-dollar life insurance premium of $250,000 (also included) which is
paid annually by
(Notes continued on following page)
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Enron on a life insurance policy already owned by Mr. Lay, with recovery of
the cost of such premiums upon Mr. Lay's death. Included in 1997 and 1998
for Mr. Skilling is a cash payment by Enron of $107,673 and $110,192,
respectively, attributable to term life insurance coverage pursuant to a
split-dollar life insurance arrangement with recovery of the cost of such
premiums upon Mr. Skilling's death. Pursuant to Mr. Rice's employment
agreement, he received retention payments of $500,000 in August 1996, and
$250,000 in January 1997.
(4) Represents performance based restricted stock which was granted in lieu of
performance units for the 1999-2002 performance period. Assuming continuous
employment with the Company, the award will become vested and will be
released January 31, 2002 as follows: (a) 33 1/3% of the total number of
shares granted will vest and be released if earnings targets, as set by the
Board of Directors at its sole discretion, are met in any one year of the
three-year period 1999, 2000 and 2001, (b) 66 2/3% of the total number of
shares granted will vest and be released if earnings targets, as set by the
Board of Directors at its sole discretion, are met in any two years of the
three-year period 1999, 2000 and 2001, and (c) 100% of the total number of
shares granted will vest and be released if earnings targets, as set by the
Board of Directors at its sole discretion, are met in each of the three
years or cumulatively over the three-year period 1999, 2000 and 2001.
Shares of restricted stock which do not become vested according to the
above provisions will be canceled.
(5) Restricted stock and options awarded to Mr. Skilling on October 13, 1997.
Restricted stock vested 33 1/3% on October 13, 1998, and the remainder will
vest on October 13, 1999 and October 13, 2000.
(6) Restricted stock was awarded to Mr. Skilling on January 23, 1996, as a
result of the termination of the Enron Corp. Gas Services ("EGS") Amended
and Restated Executive Compensation Plan (the "EGS Executive Compensation
Plan") and his rights related thereto, and became 66.7% vested on July 23,
1996, and 100% vested on December 1, 1996.
(7) Restricted stock was awarded to Ms. Mark on January 19, 1998 which was to
vest 33 1/3% on each January 31 of 1999, 2000 and 2001 with an accelerated
vesting feature allowing for the vesting and release of 100% of the total
number of shares if in 1998 Enron's actual recurring diluted earnings per
share ("EPS") exceeded its actual 1997 recurring diluted EPS performance.
The shares were vested and released on January 31, 1999 as Enron exceeded
its 1997 EPS performance in 1998.
(8) Restricted stock and options were granted to Ms. Mark and Mr. Sutton on
February 10, 1997 as a buyout of their fixed participation interests in the
Enron Development Corp. Project Participation Plan (the "Project
Participation Plan"). The restricted stock was to vest 20% at grant and 20%
per year on each of the first four anniversaries if EI met its earnings
targets each year as established by the Board of Directors and appeared to
be on target, in the opinion of the Compensation and Management Development
Committee, to achieve net income targets through the year 2000, as stated
in the 1997-2001 five-year plan. In consideration of promotions and
contract extensions initiated during 1998 for Ms. Mark and Mr. Sutton, the
vesting schedule was revised such that 60% of the shares granted would vest
50% on January 31, 1999 and 50% on January 31, 2000. Ms. Mark's shares will
continue to vest regardless of EI earnings performance and employment
status or reason for termination. Mr. Sutton's shares will vest contingent
upon continued employment. Options were to vest 20% at grant and 20% on
each anniversary date thereafter. To provide further consideration for
contract extension, the vesting was accelerated by 12 months, such that the
remaining 60% of the options granted would vest 50% on January 1, 1999 and
50% on January 1, 2000, regardless of employment status. In the event of
termination, for any reason, prior to January 1, 2000, the unvested options
shall become fully vested.
(9) Restricted stock and options were granted to Ms. Mark and Mr. Sutton on
February 12, 1996 in consideration of contract executions and to replace
variable project participation interests under the Project Participation
Plan. The restricted shares were to vest conditioned upon meeting certain
Enron after-tax net income and EI aggregate project net present value
targets. In consideration of promotions and contract extensions, a revised
vesting schedule was approved, which provides that unvested shares would
vest January 31, 1999 and January 31, 2000 tied to EI meeting earnings
targets in 1998 and 1999. The stock options were to vest 25% at grant and
75% on February 12, 2001 with an acceleration feature on the condition that
Enron met the EPS targets set by the Board of Directors for 1996, 1997 and
1998 with 25% vesting on February 1, 1997, February 1, 1998, and February
1, 1999, respectively. In consideration of promotions and contract
extensions initiated during 1998 for Ms. Mark and Mr. Sutton, the vesting
schedule was revised such that 50% of the shares granted would vest 50% on
January 1, 1999 and 50% on January 1, 2000 with vesting no longer tied to
EPS targets or employment. In the event of termination, for any reason,
prior to January 1, 2000, the unvested options shall become fully vested.
(10) Mr. Rice received a grant of 40,051 restricted shares in lieu of cash
compensation which vest based upon the ratio of ECT actual earnings to
target earnings that are achieved for the year ending on December 31, 1998
and each subsequent December 31 ending on or before December 31, 2002.
Shares will be released on January 31, following the end of the calendar
year as follows: 0% if ECT earnings ratio is less than 80%; 15% if ratio is
more than 80% but less than 95%; 20% if more than 95% but less than 105%;
33 1/3% if more than 105%, but less than 120%; and 40% if more than 120%.
On January 31, 1999, 33 1/3% of the shares became vested, and were
released. Mr. Rice also received a separate grant of 13,240 phantom shares
in lieu of 50% of his 1997 cash bonus.
(11) Represents award of performance based restricted shares which vest three
years from date of grant contingent upon ECT meeting earnings objectives.
(12) Represents restricted stock awarded to Mr. Rice on January 23, 1996, as a
result of the termination of the EGS Executive Compensation Plan. As of
January 1, 1999, 84.47% have vested and the remainder will vest January 1,
2000.
(13) The following executives elected to receive or received on a mandatory
basis, stock options in lieu of a portion of their cash bonus payments as
follows: Mr. Lay received grants of 73,850 options in 1996, and 56,545
options in 1997; Mr. Skilling received grants of 9,440 options in 1996, and
27,910 options in 1997; and Mr. Rice received grants of 31,800 options in
1996, and 19,280 options in
(Notes continued on following page)
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1997. Additionally, Mr. Skilling received a grant of 972,090 stock options
October 13, 1997 which vested 20% on the date of grant and the remainder
which were to vest 20% on each grant date anniversary thereafter until 100%
vested.
(14) Reflects project completion bonus payments through the Project
Participation Plan. Included for Mr. Sutton are buyout payments of $147,200
paid in 1996 and 1997, representing buyout value for Mr. Sutton's Enron
Power Corp. phantom appreciation grant.
STOCK OPTION GRANTS DURING 1998
The following table sets forth information with respect to grants of stock
options pursuant to the Enron 1991 Stock Plan to the Named Officers reflected in
the Summary Compensation Table. No stock appreciation rights ("SARs") were
granted during 1998.
INDIVIDUAL GRANTS
------------------------------------
NUMBER OF
SECURITIES POTENTIAL REALIZABLE VALUE AT
UNDERLYING % OF TOTAL ASSUMED ANNUAL RATES OF
OPTIONS/ OPTIONS/SARS EXERCISE STOCK PRICE APPRECIATION
SARS GRANTED TO OR BASE FOR OPTION TERM(1)
GRANTED EMPLOYEES IN PRICE EXPIRATION -----------------------------------------
NAME (#)(2) FISCAL YEAR ($/SH) DATE 0%(3) 5% 10%
---- ---------- ------------ -------- ---------- ----- -------------- --------------
Kenneth L. Lay....... 79,490(4) 1.01% $40.1250 1/19/05.. $0 $ 1,298,462 $ 3,025,968
295,325(5) 3.76% $57.0625 12/31/05 $0 $ 6,860,450 $ 15,987,765
Jeffrey K.
Skilling........... 102,565(4) 1.31% $40.0000 1/5/08 $0 $ 2,580,104 $ 6,538,488
56,415(4) 0.72% $40.1250 1/19/05 $0 $ 921,534 $ 2,147,566
134,185(5) 1.71% $57.0625 12/31/05 $0 $ 3,117,141 $ 7,264,262
Rebecca P. Mark...... 100,000(6) 1.27% $50.0625 5/4/08 $0 $ 3,148,404 $ 7,978,674
350,000(7) 4.46% $50.0625 5/4/08 $0 $ 11,019,414 $ 27,925,357
Joseph W. Sutton..... 100,000(7) 1.27% $49.6250 6/22/08 $0 $ 3,120,890 $ 7,908,947
100,000(8) 1.27% $49.6250 6/22/08 $0 $ 3,120,890 $ 7,908,947
74,390(9) 0.95% $57.0625 12/31/08 $0 $ 2,669,582 $ 6,765,245
Kenneth D. Rice...... 100,000(10) 1.27% $49.2500 8/10/08 $0 $ 3,097,307 $ 7,849,182
148,775(10) 1.89% $57.0625 12/31/08 $0 $ 5,338,985 $ 13,530,035
All Employee and
Director
Optionees.......... 7,854,054(11) 100% $49.9120(12) N/A $0 $ 246,534,043(13) $ 624,765,648(13)
All Shareholders..... N/A N/A N/A N/A $0 $10,386,143,976(13) $26,320,527,193(13)
Optionee Gain as % of
Gain............... N/A N/A N/A N/A N/A 2.37% 2.37%
- ---------------
(1) The dollar amounts under these columns represent the potential realizable
value of each grant of options assuming that the market price of Common
Stock appreciates in value from the date of grant at the 5% and 10% annual
rates prescribed by the SEC and therefore are not intended to forecast
possible future appreciation, if any, of the price of Common Stock.
(2) If a "change of control" (as defined in the 1991 Stock Plan) were to occur
before the options become exercisable and are exercised, the vesting
described below will be accelerated and all such outstanding options shall
be surrendered and the optionee shall receive a cash payment by Enron in an
amount equal to the value of the surrendered options (as defined in the
1991 Stock Plan).
(3) An appreciation in stock price, which will benefit all shareholders, is
required for optionees to receive any gain. A stock price appreciation of
0% would render the option without value to the optionees.
(4) Represents stock options awarded on January 5, 1998, or January 19, 1998.
Options vested 20% on date of grant, and will vest 20% on each grant date
anniversary thereafter.
(5) Represents stock options awarded under the Long-Term Incentive Program for
1999. Stock options awarded on December 31, 1998 became 25% vested on the
date of grant with an additional 25% vesting on the anniversary of the date
of grant until 100% vested on December 31, 2001.
(6) Represents stock options awarded on May 4, 1998, which vested 33 1/3% on
January 1, 1999, and will vest 33 1/3% on each grant date anniversary
thereafter.
(7) Represents stock options awarded on May 4, 1998 for Ms. Mark and June 22,
1998 for Mr. Sutton, which will vest 33 1/3% on May 4, 1999, and 33 1/3% on
each grant date anniversary thereafter.
(8) Represents stock options awarded on June 22, 1998, which vested 25% on
December 31, 1998, and will vest 25% on each December 31 thereafter.
(9) Represents stock options awarded on December 31, 1998, which vest 25% on
December 31, 1999, and 25% on each grant date anniversary thereafter.
(Notes continued on following page)
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(10) Represents 100,000 stock options awarded on August 10, 1998, which vest in
20% increments of 20% on December 31 of each of the next five years.
Represents 148,775 stock options awarded on December 31, 1998, which vest
20% on the date of grant, and 20% each anniversary of the date of grant for
four years.
(11) Includes shares acquired on December 31, 1998 under the All Employee Stock
Option Program to employees hired during 1998.
(12) Weighted average exercise price of all Enron stock options granted to
employees in 1998.
(13) Appreciation for All Employee and Director Optionees is calculated using
the maximum allowable option term of ten years, even though in some cases
the actual option term is less than ten years. Appreciation for all
shareholders is calculated using an assumed ten-year option term, the
weighted average exercise price for All Employee and Director Optionees
($49.9120) and the number of shares of Common Stock acquired and
outstanding on December 31, 1998.
AGGREGATED STOCK OPTION/SAR EXERCISES DURING 1998 AND STOCK OPTION/SAR
VALUES AS OF DECEMBER 31, 1998
The following table sets forth information with respect to the Named
Officers concerning the exercise of SARs and options during the last fiscal year
and unexercised options and SARs held as of the end of the fiscal year:
NUMBER OF SECURITIES VALUE OF UNEXERCISED
UNDERLYING UNEXERCISED IN-THE-MONEY
OPTIONS/SARS AT OPTIONS/SARS AT
SHARES DECEMBER 31, 1998 DECEMBER 31, 1998
ACQUIRED ON VALUE --------------------------- ---------------------------
NAME EXERCISE(#) REALIZED($) EXERCISABLE UNEXERCISABLE EXERCISABLE UNEXERCISABLE
- ---- ----------- ----------- ----------- ------------- ----------- -------------
Kenneth L. Lay........... 347,900 $13,094,776 3,155,462 1,264,043 $66,384,312 $15,031,658
Jeffrey K. Skilling...... 187,298 $ 2,886,028 655,751 1,102,284 $11,627,090 $19,602,307
Rebecca P. Mark.......... 40,919 $ 464,332 207,403 775,115 $ 3,467,078 $ 8,588,037
Joseph W. Sutton......... -- $ -- 198,530 473,013 $ 3,193,590 $ 5,054,586
Kenneth D. Rice.......... 16,620 $ 341,086 195,257 306,999 $ 3,113,772 $ 2,769,976
LONG-TERM INCENTIVE PLAN -- AWARDS IN 1998
The following table provides information concerning Long-Term Incentive
Plan awards for the 1998-2001 performance period:
PERFORMANCE
NUMBER OF OR OTHER ESTIMATED FUTURE PAYOUTS
SHARES, UNITS PERIOD UNTIL UNDER NON-STOCK PRICE-BASED PLANS
OR OTHER MATURATION --------------------------------------
NAME RIGHTS(#) PAYOUT THRESHOLD($) TARGET($) MAXIMUM($)
- ---- ------------- ------------ ------------ ---------- ----------
Kenneth L. Lay.................. 2,500,000(1) 4 years $ -- $2,500,000 $5,000,000
Jeffrey K. Skilling............. 1,000,000(1) 4 years $ -- $1,000,000 $2,000,000
- ---------------
(1) Represents performance units awarded under the Performance Unit Plan of
Enron for the 1998-2001 performance period. Grants were made at the
beginning of the fiscal year 1998 and each unit was assigned a value of
$1.00. The units are subject to a four-year performance period, at the end
of which Enron's total shareholder return is compared to that of the 11 peer
companies included in the current peer group. At that time, the units are
assigned a value ranging from $0 to $2.00 based on the rank of Enron's
shareholder return within the current peer group. To be valued at the
maximum of $2.00, Enron must rank first, and to be valued at the target of
$1.00, Enron must rank third. Regardless of Enron's rank, Enron's
shareholder return must be above the return on 90-day U.S. Treasury Bills
over the same performance period in order for any value to be assigned.
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RETIREMENT AND SUPPLEMENTAL BENEFIT PLANS
Enron maintains the Enron Corp. Cash Balance Plan (the "Cash Balance Plan")
which is a noncontributory defined benefit plan to provide retirement income for
employees of Enron and its subsidiaries. Through December 31, 1994, participants
in the Cash Balance Plan with five years or more of service were entitled to
retirement benefits in the form of an annuity based on a formula that uses a
percentage of final average pay and years of service. In 1995, the Board of
Directors adopted an amendment to and restatement of the Cash Balance Plan
changing the plan's name from the Enron Corp. Retirement Plan to the Enron Corp.
Cash Balance Plan. In connection with a change to the retirement benefit
formula, all employees became fully vested in retirement benefits earned through
December 31, 1994. The formula in place prior to January 1, 1995 was suspended
and replaced with a benefit accrual in the form of a cash balance of 5% of
annual base pay beginning January 1, 1996. Under the Cash Balance Plan, each
employee's accrued benefit will be credited with interest based on ten-year
treasury bond yields. Directors who are not employees are not eligible to
participate in the Cash Balance Plan.
Enron also maintains a noncontributory employee stock ownership plan
("ESOP") which covers all eligible employees. Allocations to individual
employees' retirement accounts within the ESOP offset a portion of benefits
earned under the Cash Balance Plan. December 31, 1993 was the final date on
which ESOP allocations were made to employees' retirement accounts.
In addition, Enron has a supplemental retirement plan that is designed to
assure payments to certain employees of that retirement income that would be
provided under the Cash Balance Plan except for the dollar limitation on accrued
benefits imposed by the Internal Revenue Code of 1986, as amended (the "Code")
and a pension program for deferral plan participants that provides supplemental
retirement benefits equal to any reduction in benefits due to deferral of salary
into Enron's Deferral Plans.
The following table sets forth the estimated annual benefits payable under
normal retirement at age 65, assuming current remuneration levels without any
salary projection and participation until normal retirement at age 65, with
respect to the Named Officers under the provisions of the foregoing retirement
plans:
ESTIMATED
CURRENT CREDITED CURRENT ESTIMATED
CREDITED YEARS OF COMPENSATION ANNUAL BENEFIT
YEARS OF SERVICE COVERED PAYABLE UPON
NAME SERVICE AT AGE 65 BY PLANS RETIREMENT
---- -------- --------- ------------ --------------
Kenneth L. Lay.......................... 21.9 30.2 $1,266,667 $473,556
Jeffrey K. Skilling..................... 8.4 28.3 $ 816,667 $277,226
Rebecca P. Mark......................... 15.7 36.3 $ 660,833 $295,283
Joseph W. Sutton........................ 6.5 20.2 $ 512,084 $100,731
Kenneth D. Rice......................... 18.0 42.6 $ 362,500 $215,446
NOTE: The estimated annual benefits payable are based on the straight life
annuity form without adjustment for any offset applicable to a
participant's retirement subaccount in the ESOP.
Mr. Skilling participates in the Executive Supplemental Survivor Benefit
Plan (the "Survivor Benefit Plan"). Mr. Lay has waived his participation in lieu
of life insurance premiums. In the event of death after retirement, the Survivor
Benefit Plan provides an annual benefit to the participant's spouse equal to 50%
of the participant's annual base salary at retirement, paid for ten years. The
Survivor Benefit Plan also provides that in the event of death before
retirement, the participant's spouse receive an annual benefit equal to 30% of
the participant's annual base salary at death, paid for the life of the
participant's spouse (but for no more than 20 years in some cases). Mr. Lay has
an agreement which was entered into with Houston Natural Gas Corporation ("HNG")
for an annual benefit equal to 30% of his annual base salary upon death before
retirement, paid for the life of his spouse.
SEVERANCE PLANS
Enron's Severance Pay Plan, as amended, provides for the payment of
benefits to employees who are terminated for failing to meet performance
objectives or standards or who are terminated due to reorganization
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or economic factors. The amount of benefits payable for performance related
terminations is based on length of service and may not exceed six weeks of pay.
For those terminated as the result of reorganization or economic circumstances,
the benefit is based on length of service and amount of pay up to a maximum
payment of 26 weeks of base pay. If the employee signs a Waiver and Release of
Claims Agreement, the employee may receive an additional severance benefit equal
to the severance benefit described above. Under no circumstances will the total
severance benefit paid under Enron's Severance Pay Plan exceed 52 weeks of pay.
Under Enron's Change of Control Severance Plan, in the event of an unapproved
change of control of Enron, any employee who is involuntarily terminated within
two years following the change of control will be eligible for severance
benefits equal to two weeks of base pay multiplied by the number of full or
partial years of service, plus one month of base pay for each $10,000 (or
portion of $10,000) included in the employee's annual base pay, plus one month
of base pay for each 5% of annual incentive award opportunity under any approved
plan. The maximum an employee can receive is 2.99 times the employee's average
W-2 earnings over the past five years.
EMPLOYMENT CONTRACTS
Mr. Lay entered into an employment agreement with Enron in December, 1996,
which provides for a minimum salary effective January 1, 1997, of $1,200,000. To
preserve tax deductibility, any base salary in excess of $1,000,000 must be
deferred into Enron's 1994 Deferral Plan. The agreement provides for a grant of
1,275,000 stock options, 50% granted in December, 1996 and 50% granted in
January, 1997, at market value on each date of grant. The stock options vested
20% on date of grant and will be 100% vested on November 1, 2003. However, the
vesting schedule may be accelerated if Enron's total shareholder return equals
or exceeds 120% of the S&P 500 in calendar years 1997, 1998, and 1999. The
agreement also provides for a split-dollar life insurance arrangement, whereby
Enron will pay five annual premiums of $250,000 on a life insurance policy
already owned by Mr. Lay, with recovery of the cost of such premiums upon Mr.
Lay's death. Benefits payable under Enron's Deferral Plans and the HNG Deferral
Plan in the event of Mr. Lay's termination of employment will be paid as if Mr.
Lay had retired from Enron, regardless of the reason for termination. In
addition, the maturity date on Mr. Lay's $4,000,000 interest bearing line of
credit was extended to December 31, 2001 under the agreement. The highest
outstanding principal balance on the line of credit during 1998 was $2,215,000,
which was repaid on February 25, 1998. Loans totaling $1,775,000 were issued
during the period beginning June 18, 1998 through September 4, 1998. Total
accrued interest on the loan in 1998 was $60,522, calculated at an average
interest rate of 5.44% (representing the mid-term AFR), and such interest has
been repaid by Mr. Lay. In the event of his involuntary termination, Mr. Lay
will receive amounts prescribed in the agreement, offset against amounts payable
under the severance plan maintained by Enron, through the term of the agreement,
which expires on December 31, 2001. If severance remuneration payable under the
agreement is held to constitute an "excess parachute payment" and Mr. Lay
becomes liable for any tax penalties imposed thereon, Enron will make a cash
payment to him in an amount equal to the tax penalties plus an amount equal to
any additional tax for which he will be liable as a result of receipt of the
payment for such tax penalties and payment for such reimbursement for additional
tax. The employment agreement contains noncompete provisions in the event of Mr.
Lay's termination of employment.
Mr. Skilling entered into an employment agreement with Enron in January,
1996, which, as amended, provides for a minimum annual salary of $750,000. In
January, 1997, the agreement was amended to reflect Mr. Skilling's enhanced
duties as President and Chief Operating Officer of Enron. The amended agreement
provides for a revision of the vesting schedule on 500,000 stock options granted
on August 29, 1994, such that one-third of the options will vest on each May 1
in 1997, 1998, and 1999. In the event of his involuntary termination, Mr.
Skilling will receive amounts prescribed in the agreement through the term of
the agreement. In order to tie Mr. Skilling's compensation more closely to Enron
stock performance as opposed to any one Enron operating company, in October,
1997, his contract was renegotiated and extended through December 31, 2001. As a
result, Mr. Skilling received on October 13, 1997, a grant of 972,090 Enron
stock options with standard vesting of 20% at grant and 20% on each of the
following four anniversary dates, a grant of 263,158 shares of restricted stock
to vest 33 1/3% on each of the first three grant date anniversaries and a
$4,000,000 loan to accrue interest at the October, 1997 mid-term AFR of 6.24%
compounded semiannually
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until maturity date of December 31, 2001. The terms of the contract specify that
if Mr. Skilling fully performs all the duties and responsibilities expected of
him in his position and under his employment agreement through December 31,
2001, then 50% of the loan amount will be forgiven and the remaining 50% shall
be repaid to Enron by Mr. Skilling. Mr. Skilling is responsible for 100% of the
loan interest. Through September, 1998, the loan accrued interest totaling
$215,664 which has been repaid by Mr. Skilling. If Mr. Skilling voluntarily
terminates employment, or is terminated for cause prior to December 31, 2001,
the entire loan amount and interest is due and payable. The loan is
collateralized with Enron Common Stock, Enron Oil & Gas Common Stock and 1994
Deferral Plan benefits. As an additional benefit to Mr. Skilling, Enron has
entered into an agreement with Mr. Skilling to provide split-dollar life
insurance whereby Enron will pay a portion of the annual premiums on a life
insurance policy owned by Mr. Skilling, with recovery of the cost of such
premiums upon Mr. Skilling's death. In 1998, the insurance premium paid by Enron
was $110,192 which generates no imputed income as Mr. Skilling contributes an
amount equal to the annual cost of current life insurance as measured by the
insurer's current minimum premium rate for standard risks. The employment
agreement contains noncompete provisions in the event of Mr. Skilling's
termination of employment.
Effective May, 1998, Ms. Mark entered into an employment agreement with
Enron through December 31, 2001 as Chairman of EI and Vice Chairman, Enron. The
employment agreement was further amended when it was assigned to, and assumed by
both Enron and Azurix Corp. ("Azurix") effective February 1, 1999, when Ms. Mark
assumed the role as Chairman and CEO, Azurix, in addition to her
responsibilities as Vice Chairman, Enron. The agreement with Enron and Azurix
provides for an annual salary of not less than $710,000. Under the terms of the
agreement, in May, 1998, Ms. Mark was granted 100,000 Enron stock options that
have a ten-year term and vest 33 1/3% on each of January 1, 1999, January 1,
2000 and January 1, 2001, and 350,000 Enron Corp. stock options which have a
ten-year term that vest 33 1/3% on each of May 4, 1999, May 4, 2000, and May 4,
2001. The agreement also stipulated Ms. Mark's 1998 bonus target to be one
percent (1%) of EI's after-tax net income or EPS multiplied by the number of EI
shares subject to adjustment in the sole discretion of Enron's Chairman and CEO
taking into consideration after-tax net income and funds flow targets set each
year by the Board of Directors, as well as other performance criteria. The
agreement further stipulates that bonus calculations for 1999 through 2001 would
be determined prospectively. Further, the agreement provides that Ms. Mark is
eligible to participate in either the Enron Corp. executive compensation
long-term incentive plan or the Azurix equity plan. During the term of this
agreement, Ms. Mark was granted 2,000,000 Azurix stock options from the Azurix
Corp. 1999 Stock Plan, effective February 2, 1999, which will vest 25% per year
over the next four-year period. The agreement also provides for full vesting of
specific grants and awards made to Ms. Mark under long term incentive plans
maintained by Enron in the event of involuntary termination, death or disability
and, as amended in February, 1999, precludes full vesting of long term grants
made under the Azurix Corp. 1999 Stock Plan in the event of involuntary
termination or termination due to death or disability. The agreement as amended
provides 100% base pay and unpaid bonuses through the contract term in the event
of involuntary termination. The employment agreement contains noncompete
provisions in the event of Ms. Mark's termination of employment.
Ms. Mark received a personal executive loan from Enron in the amount of
$900,000 on May 7, 1997. The principal and accrued interest totaling $955,343 on
the outstanding loan as evidenced by a note dated May 7, 1997, was forgiven in
May, 1998. Due to revised vesting provisions tied to the February 10, 1997 Enron
restricted stock grant, which triggered constructive receipt for income tax
purposes, a $2.5 million loan was approved which was collateralized with Enron
stock and which accrues interest compounded semiannually on the unpaid principal
and interest of the loan at the short-term AFR in effect during each month that
the loan is outstanding. As required in the loan agreement, Ms. Mark has repaid
$1.25 million of the principal as of February 28, 1999, a portion of which was
repaid through loan forgiveness. As per the terms of the loan agreement, the
remaining principal balance of $1.25 million plus 100% of the accrued interest
is to be repaid as of January 31, 2000. Accrued interest through December 31,
1998 was $84,617.13 which was accrued at an average rate of 5.23% for 1998.
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Effective June, 1998, Mr. Sutton entered into an employment agreement with
Enron through June 30, 2003. The agreement provides for an annual salary of not
less than $535,000. Pursuant to the terms of the agreement, Mr. Sutton was
granted 100,000 Enron stock options on June 22, 1998, that have a ten-year term
and that vests 33 1/3% on each of May 4, 1999, May 4, 2000 and May 4, 2001, and
an additional 100,000 Enron stock options on June 22, 1998, that have a ten-year
term and vests 25% on December 31, 1998, December 31, 1999, December 31, 2000
and December 31, 2001. Mr. Sutton received a grant of 74,390 stock options on
December 31, 1998 and will also receive grants of stock options in years 1999,
2000, and 2001 valued at $1,060,000 which will vest, conditioned on continued
employment, in 25% increments on December 31 of the four years following the
date of grant. Mr. Sutton received a grant of 16,061 shares of restricted stock
on January 31, 1999 and will also receive grants of restricted stock in January
2000, 2001, 2002 and 2003, or in January of a subsequent year but no subsequent
year later than January, 2003, if the following cumulative provisions apply,
each grant having a value of $1,060,000, conditioned upon EI meeting at least
80% of its 1998 after tax net income target; such that 80% target shall be a
cumulative percentage over a five-year period beginning with 1998 so that if Mr.
Sutton misses a target in any single year, he shall have the ability to receive
such grant in a future year based on a cumulative year average. Such grants of
restricted stock will vest, conditioned on Mr. Sutton's continued employment
with EI, in 25% increments each year beginning on the anniversary date of each
date of grant. Mr. Sutton's agreement further stipulated a 1998 bonus amount
equivalent to .75% of EI's after-tax net income through June 30, 1998, plus a
$500,000 annual bonus target for the last six months of 1998. In addition, the
agreement stipulates that if the Enron Wholesale Group met its financial
targets, Mr. Sutton would be eligible for an additional $300,000 bonus target.
As a result of the increased emphasis on long-term performance and long-term
compensation as part of the total compensation mix, for 1999 forward through the
remainder of the term, Mr. Sutton will have a $500,000 annual bonus target based
on achievement of EI's financial targets plus an additional $300,000 annual
bonus target based on the Enron Wholesale Group meeting its financial targets.
All targets are established by Enron Board of Directors. The employment
agreement contains noncompete provisions in the event of Mr. Sutton's
termination of employment.
Effective January 31, 1998, Mr. Rice entered into an employment agreement
with Enron for a three-year term ending January 31, 2001 which provides for an
annual salary of not less than $400,000, as of June 1, 1998. In the current
employment agreement, Mr. Rice was granted 100,000 Enron stock options that have
a ten-year term and vests in increments of 20% on December 31 of each of the
next five years, and 40,051 restricted shares that vest based upon the ratio of
ECT's actual earnings to ECT's target earnings achieved for the year ending on
December 31, 1998 and each subsequent December 31 ending on or before December
31, 2002, and will be released on January 31 following the end of the calendar
year as follows: 0% if earnings ratio is less than 80%, 15% if ratio is more
than 80% but less than 95%; 20% if more than 95% but less than 105%; 33 1/3% if
more than 105%, but less than 120%; and 40% if more than 120%. On January 31,
1999, 33 1/3% of the shares became vested and were released. In both 1999 and
2000, Mr. Rice will be granted stock options having a grant value of $2,120,000
for each year. These options were granted on December 31, 1998 for 1999 and will
be granted on December 31, 1999 for 2000, and shall vest 20% on the date of
grant and 20% on December 31 of each of the next four years following the date
of grant. As a result of the increased emphasis on long-term performance and
long-term compensation as part of the total compensation mix, Mr. Rice shall be
eligible for annual bonuses, with an annual target of $500,000 based on
achievement of ECT's financial targets, plus an additional $300,000 annual bonus
target based on Enron Wholesale Group meeting its financial targets. All targets
are established by the Enron Board of Directors. In the event of Mr. Rice's
voluntary or involuntary termination, Mr. Rice will receive amounts prescribed
in the agreement through the term of the agreement which expires on January 31,
2001. The employment agreement contains noncompete provisions in the event of
Mr. Rice's termination of employment. In the event of involuntary termination,
all grants, excluding the grant made to Mr. Rice under the All Employee Stock
Option Program, shall continue to vest during the ninety-day period following
the date of Mr. Rice's termination.
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CERTAIN TRANSACTIONS
Effective August 1, 1991, Enron, Enron Power Corp. (a wholly owned
subsidiary of Enron) and John A. Urquhart entered into a Consulting Services
Agreement which has been amended several times, the latest of which amendments
was effective as of December 31, 1998, to provide for an extension of the
agreement through December 31, 1999. Pursuant to the terms of the agreement, Mr.
Urquhart serves as Senior Advisor to the Chairman and consults with Enron
regarding the development and implementation of an integrated strategic
international business plan and other matters concerning international business
and operations. The amendment provides for a retainer fee of $33,075 per month
for providing up to 90 days of consulting services annually and a daily rate of
$4,410 for days in excess of 90 days annually. In August, 1995, the agreement
was amended to provide for a grant of 50,000 Enron phantom stock options at a
grant price equal to the December 29, 1995 Enron closing stock price, or
$38.125. The phantom shares vested 50% on June 29, 1996, and 50% on December 29,
1996, and were to expire on December 31, 1999. With the extension of Mr.
Urquhart's Consulting Services Agreement through December 31, 1998, the
expiration date of the 50,000 Enron phantom stock options granted on December
29, 1995 was extended to December 31, 2000. Mr. Urquhart is reimbursed for all
reasonable out-of-pocket expenses incurred in performing services under the
agreement. The services to be performed by Mr. Urquhart pursuant to the
Consulting Services Agreement do not include, and are in addition to, his duties
as a director of Enron, and the above compensation is in addition to the
remuneration payable to Mr. Urquhart as a member of the Board of Directors of
Enron. During 1998, Enron paid Mr. Urquhart $410,106 for services rendered
(including reimbursement of expenses) under the Consulting Services Agreement.
Mr. Urquhart is a member of the Managing Board of Amoco/Enron Solar
Partnership, Chairman and Chief Executive Officer of Enron Solar Energy Inc. and
a director of Enron Renewable Energy Corp. ("EREC"). On January 2, 1997, Mr.
Urquhart was awarded 67,495 EREC stock options at a grant price of $15.00,
granted in tandem with 23,750 Enron stock options with an exercise price of
$42.625, both of which were awarded at fair market value on the date of grant.
The options became 20% vested on the date of grant and will become 20% vested on
each anniversary of the date of grant through January 2, 2001. The exercise of
either the EREC or Enron options will cancel the tandem options of the other
security. These stock options will expire on January 2, 2007.
Effective September 30, 1996, a monthly retainer of $6,000 was approved for
payment to Lord John Wakeham in consideration of his services to Enron and its
affiliates relating to his advice and counsel on matters relating specifically
to European business and operations. The services to be performed by Lord
Wakeham pursuant to this monthly retainer arrangement do not include, and are in
addition to, his duties as a director of Enron, and the above compensation is in
addition to the remuneration payable to Lord Wakeham as a member of the Board of
Directors of Enron. During 1998, Enron paid Lord Wakeham $90,000 for services
rendered to Enron Europe Limited during 1998 and 1997. Of this amount, $60,000
was paid for services performed in 1998 and the remainder for services in 1997.
Enron Property & Services Corp., a subsidiary of Enron, and Lay/Wittenberg
Travel Agency in the Park, Inc. ("TAP") are parties to an Agreement for Services
under which TAP provides travel arrangements for Enron and its affiliates'
employees. The agreement will expire on March 31, 2001. TAP is owned 50% by
Sharon Lay, sister of Kenneth L. Lay, Chairman of the Board and Chief Executive
Officer of Enron. During 1998, TAP received gross commissions in the amount of
$2,504,781 attributable to approximately $30,300,000 of Enron employee travel
costs and expenses.
Herbert S. Winokur, Jr., a director of Enron, is an affiliate of National
Tank Company ("NATCO"), a privately owned company that is a provider of wellhead
equipment, systems and services used in the production of oil and gas. During
the calendar years ended December 31, 1997 and 1998, Natco recorded revenues of
$1,035,000 and $643,793, respectively, from sales to subsidiaries of Enron of
oilfield equipment, services and spare parts in the ordinary course of business
on terms that Enron believes are no less favorable than the terms of similar
arrangements with third parties. Mr. Winokur's affiliation with Natco arises out
of his indirect management of two funds that own Natco's indirect parent. In
addition, Mr. Winokur is a minority limited partner of such funds. Enron
believes that its subsidiaries and Natco will continue to enter into similar
arrangements throughout 1999.
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COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION
Until April 1986, Mr. Belfer was an officer of Belco Petroleum Corporation,
a wholly owned subsidiary of Enron. During 1996, Belco Oil & Gas Corp. ("BOGC")
entered into natural gas and crude oil commodity swap agreements and option
agreements with ECT. BOGC is a publicly traded corporation, approximately 77% of
the outstanding common stock of which is owned by Mr. Belfer and members of his
family. These agreements were entered into in the ordinary course of business of
ECT and are on terms that ECT believes are no less favorable than the terms of
similar arrangements with third parties. Pursuant to the terms of these
agreements, Enron received from BOGC a net amount of approximately $1,682,110 in
1998. The amount of future payments (as well as whether payments are made by ECT
to BOGC or vice versa) is affected by fluctuations in energy commodity prices.
Enron believes that BOGC and ECT will continue to enter into similar
arrangements throughout 1999.
On November 26, 1997, BOGC acquired Coda Energy, Inc. ("Coda"), 98.5% of
the common stock of which was owned by a joint venture in which Enron
participates. The acquisition was effected pursuant to a merger agreement
whereby Coda merged with and into a newly formed subsidiary of BOGC so that
after the merger Coda became a wholly owned subsidiary of BOGC. As announced by
BOGC, it paid $149,000,000 in cash in the merger, assumed approximately
$175,000,000 of Coda's debt, and issued three-year warrants to purchase
1,666,667 shares of BOGC's common stock at an exercise price of $27.50 per
share. The Board of Directors of Coda received a fairness opinion from an
investment banker that the merger consideration was fair, from a financial point
of view, to the shareholders of Coda.
Enron retains the law firm of Bracewell & Patterson L.L.P. for certain
legal services. During the last fiscal year, Enron and its subsidiaries paid
Bracewell & Patterson L.L.P., from which Mr. Foy is a retired partner, legal
fees which Enron believes to be reasonable for the services rendered. Until
1979, Mr. Foy was President of HNG, a predecessor of Enron.
SECTION 16(A) BENEFICIAL OWNERSHIP REPORTING COMPLIANCE
Section 16(a) of the Securities Exchange Act of 1934, as amended (the
"Exchange Act"), requires Enron's officers, directors and persons who own more
than 10% of the Common Stock or the Preferred Convertible Stock to file reports
of ownership and changes in ownership concerning the Common Stock or the
Preferred Convertible Stock with the SEC and to furnish Enron with copies of all
Section 16(a) forms they file. Based upon Enron's review of the Section 16(a)
filings that have been received by Enron, Enron believes that all filings
required to be made under Section 16(a) during 1998 were timely made, except
that Lawrence Ruben did not timely file two reports relating to a total of six
transactions and Kenneth D. Rice did not timely file his Initial Statement of
Beneficial Ownership.
ITEM 2.
APPROVAL OF THE ENRON CORP. ANNUAL INCENTIVE PLAN
Enron currently maintains the Enron Corp. Annual Incentive Plan (the
"Annual Incentive Plan") which is designed to recognize, motivate and reward
exceptional accomplishment toward annual corporation objectives; to attract and
retain quality employees; and to be market competitive. The following summary
description of the Annual Incentive Plan is qualified in its entirety by
reference to the full text of the Annual Incentive Plan which is attached to
Enron's proxy statement as Exhibit A.
Employees who are Section 16 officers are eligible to receive awards under
the Annual Incentive Plan, which will be administered by the Compensation and
Management Development Committee of the Board of Directors (the "Committee"). An
award fund, five percent (5%) of recurring after-tax net income of Enron, has
been established and recommended for approval by shareholders. Depending on
facts and circumstances, the Committee has the discretion to reduce the amount
of an award fund previously established. The Committee may not increase the
amount of the award fund.
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The maximum amount of compensation that can be paid to any individual for a
calendar year is one percent (1%) of the recurring after-tax net income of Enron
for any calendar year.
Awards payable under the Annual Incentive Plan will be paid from the
general assets of Enron. No fund or trust is established or maintained under the
Annual Incentive Plan for the payment of such awards. Enron may elect to pay
awards in cash or other property having equivalent value, including shares of
Common Stock.
The Committee may modify or terminate the Annual Incentive Plan at any time
without prior notice to or consent of participants; provided that, without the
approval of the shareholders of Enron, no such amendment shall be made that
would change the class of participants eligible to receive awards under the
Annual Incentive Plan, fund total payouts at a level greater than five percent
(5%) of recurring after-tax net income, base the award fund on a performance
measure other than recurring after-tax net income, increase the maximum
individual target award level under the Annual Incentive Plan or modify any
other material terms of the Annual Incentive Plan.
Shareholder approval is required if payments from the Annual Incentive Plan
are to be tax deductible as performance-based compensation under Section 162(m),
enacted in 1993. Section 162(m) generally disallows a tax deduction for
compensation over $1 million paid to a Named Officer, unless it qualifies as
performance-based. Approval of the Annual Incentive Plan by the shareholders of
Enron is also advisable in order for the Annual Incentive Plan to comply with
Rule 16b-3 under the Exchange Act. Rule 16b-3 provides an exemption from the
operation of the "short-swing profit" recovery provisions of Section 16(b) of
the Exchange Act, with respect to qualifying employee benefit plans. In the
event shareholders do not approve the Annual Incentive Plan, the Annual
Incentive Plan will continue to be maintained, but payments made on or after
March 1, 1999, will not be tax deductible by Enron for executives whose
compensation exceeds $1 million and payments made in Common Stock, if any, may
not be exempt under Rule 16b-3 unless another exemption is satisfied.
AMOUNTS GRANTED UNDER THE PLAN FOR 1998
The benefits to be received for 1999 performance under the Annual Incentive
Plan are not determinable, since funding will be based on 1999 recurring
after-tax net income. However, actual payments under the Annual Incentive Plan
made in 1999 for 1998 performance are shown below. The maximum payout that could
have been paid to any individual, based on .5% of 1998 recurring after-tax net
income, was $3,485,000.
ANNUAL INCENTIVE
NAME PLAN PAYMENTS
---- -----------------
Kenneth L. Lay.............................................. $ 3,150,000
Jeffrey K. Skilling......................................... $ 2,250,000
Rebecca P. Mark............................................. $ 1,750,000
Joseph W. Sutton............................................ $ 1,212,250
Kenneth D. Rice............................................. $ 1,100,000
Section 16 Officers......................................... $14,000,000
Corporate and Operating Company Officers (Including Section
16 Officers).............................................. 70,492,200
All Employees (Including all Officers)...................... 163,300,200
REQUIRED VOTE AND RECOMMENDATION
The Annual Incentive Plan will be approved at the Annual Meeting if the
number of votes cast in favor of the Annual Incentive Plan exceeds the number of
votes cast opposing it. Under Oregon law, abstentions and broker non-votes will
not be counted for or against this proposal.
The shares represented by the proxies solicited by the Board of Directors
will be voted as directed on the form of proxy or, if no direction is indicated,
will be voted "FOR" the approval of the Annual Incentive Plan.
THE BOARD OF DIRECTORS RECOMMENDS VOTING "FOR" THIS PROPOSAL.
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ITEM 3
APPROVAL OF AMENDED AND RESTATED 1991 STOCK PLAN
The shareholders approved the Enron Corp. 1991 Stock Plan (the "1991 Stock
Plan") at the 1991 Annual Meeting, approved an amendment to the 1991 Stock Plan,
effective May 3, 1994, at the 1994 Annual Meeting and approved an amended and
restated 1991 Stock Plan, effective May 6, 1997, at the 1997 Annual Meeting. The
1991 Stock Plan is intended to provide individual participants with an
opportunity to acquire a proprietary interest in Enron and give them an
additional incentive to use their best efforts for Enron's long-term success.
The 1991 Stock Plan permits the granting of (i) stock options, including
incentive stock options meeting the requirement of the Code, (ii) stock
appreciation rights ("SARs"), (iii) phantom stock units and (iv) restricted
stock, any of which may be granted separately or together. Grants may be made to
any employee or officer of Enron or any of its affiliates, nonemployee directors
and nonemployee contractors performing services for Enron or any of its
affiliates. The 1991 Stock Plan is administered by the Compensation and
Management Development Committee of the Board of Directors (the "Committee"),
each of the members of which meet the definition of nonemployee director in Rule
16b-3 of the Exchange Act. The Committee has the authority to establish
administrative rules, to designate individuals to receive awards and the size of
such awards, and to set the terms and conditions of awards.
Stock options permit the recipient to purchase shares of Common Stock,
commonly referred to as exercising their option, at a fixed price, determined on
the date of grant, regardless of the fair market value on the date of exercise.
The holder of a SAR is entitled to receive the excess of the fair market value
on the date of exercise over the grant price of the SAR. Upon the vesting of the
phantom stock units, the holder is entitled to payment in shares of Common Stock
at the rate of one share of Common Stock for each such unit, plus dividends
accrue credits for such number of shares of Common Stock from the date of grant
to the vesting date. Restricted stock may provide the recipient all of the
rights of an Enron shareholder including the right to vote the shares and accrue
any dividends from the date of grant to the vesting date. However, the stock may
not be transferred by the recipient until certain restrictions, such as time,
lapse.
The 1991 Stock Plan contains several provisions so that certain awards
under the plan qualify as performance-based compensation under Section 162(m).
No individual can be granted more than 1,000,000 stock options or SARs in a
calendar year. The purchase price of a stock option or SAR cannot be less than
the fair market value of a share on the date of grant. As of March , 1999, the
closing price for Common Stock was $[ ] per share. The 1991 Stock Plan
permits the grant of performance-based restricted stock which is either issued
or becomes vested based on the attainment of pre-established after tax net
income and/or cash flow criteria, at the company or subsidiary level, or is
issued in lieu of cash payments under the Enron Corp. Annual Incentive Plan or
Enron Corp. Performance Unit Plan, based on attainment of the performance
criteria established under those plans. A maximum of 100,000 shares of
performance-based restricted stock can be granted to any individual in a
calendar year.
The Board of Directors cannot increase the number of shares authorized for
granting awards under the 1991 Stock Plan, increase the maximum number of
options, SARs or performance-based restricted stock that may be granted to any
individual in a calendar year, change the minimum option price, extend the
maximum period during which awards may be granted, change the class of
participants eligible to receive awards or modify the material terms of the 1991
Stock Plan, without obtaining shareholder approval.
CHANGES TO THE 1991 STOCK PLAN
The Board of Directors desires to amend the 1991 Stock Plan to increase the
number of shares authorized for granting awards under the Plan and change the
class of participants eligible to receive awards under the Plan, which requires
shareholder approval. Amendment of several additional provisions is also
presented for approval by shareholders. The following summary description of the
proposed amendment to the 1991 Stock Plan is qualified in its entirety by
reference to the full text of the amendment which is attached to Enron's proxy
statement as Exhibit B.
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Among the changes effected by the proposed amendment and restatement of the
1991 Stock Plan is an increase, effective May 4, 1999, in the number of shares
of Common Stock available for granting awards under the 1991 Stock Plan. The
number of shares authorized for granting awards when the 1991 Stock Plan was
first approved in 1991 was 11,000,000 shares (2,750,000 shares adjusted for
stock splits in December 1991 and August 1993), with no more than 25% to be
granted as restricted stock. Effective May 3, 1994 and May 6, 1997, 10,000,000
shares were authorized for granting awards under the 1991 Stock Plan, again with
no more than 25% to be granted as restricted stock. Less than 1,300,000 shares
remain available for grant. The proposed amendment and restatement will
authorize 10,000,000 shares of Common Stock for granting awards under the 1991
Stock Plan effective May 4, 1999, with no more than an aggregate of 25% to be
granted as restricted stock and phantom stock units.
Other changes to the 1991 Stock Plan being submitted to the shareholders
for approval include: (i) changing the eligibility provisions of Section 4 to
include only employees who are members of the Enron Management Committee,
nonemployee directors and employees of Enron, its subsidiaries and affiliates
who are residents of the United Kingdom; (ii) deleting provisions for the grant
of SARs; (iii) changing the performance criteria for performance-based
restricted stock granted pursuant to the provisions of Section 5.3(vi) of the
1991 Stock Plan; (iv) increasing the number of shares pursuant to options
granted annually to each nonemployee director by 3,000 shares; and (v) to
provide that in the event a nonemployee director resigns his or her directorship
with the advance approval of the Committee, the Committee shall have discretion
to fully vest grants of shares of restricted stock made to such nonemployee
director and to extend up to 12 months from the effective date of resignation,
the director's right to exercise options granted to such director, but only as
to the vested portion of such grant as of the effective date of resignation.
The recommended amendment and restatement of the 1991 Stock Plan also
incorporates amendments which have been approved by the Board of Directors since
May, 1997 which did not require shareholder approval: (i) to provide that unless
shares of restricted stock are granted in lieu of cash compensation or to
compensate for benefits lost due to statutory and/or plan earnings limits,
restrictions placed on awards of performance-based restricted stock will not
lapse in less than one year for performance-based awards, and will not lapse in
less than three years for other awards of restricted stock; and (ii) to permit
nonemployee directors whose ownership of Common Stock would result in a material
conflict of interest for business, employment or professional purposes, to
submit an opinion of counsel of such fact to the Committee with a request that
such nonemployee director not be eligible to receive further grants under the
1991 Stock Plan and to forfeit all outstanding grants made to such nonemployee
director.
Approval of the amendment and restatement of the 1991 Stock Plan by the
shareholders of Enron is required in order for the plan to continue to comply
with Section 162(m) with respect to stock options and performance-based
restricted stock.
AWARDS UNDER THE PROPOSED AMENDMENT
Benefits payable or amounts that will be granted after the effective date
of the proposed amendment and restatement of the 1991 Stock Plan are not
determinable at this time. Currently, there are approximately 15,500 employees
and other persons eligible to receive awards under the 1991 Stock Plan. The
proposed amendment and restatement would decrease the number of eligible
employees and other persons to approximately 500 individuals.
UNITED STATES FEDERAL INCOME TAX ASPECTS OF THE 1991 STOCK PLAN
With respect to non-statutory stock options and SARs, as a general rule, no
federal income tax is imposed on the optionee upon the grant of a non-statutory
stock option (an option other than an incentive stock option, which is described
below). In addition, Enron is not entitled to a tax deduction by reason of such
a grant. Generally, upon the exercise of a non-statutory stock option, the
optionee will be treated as receiving compensation taxable as ordinary income in
the year of exercise in an amount equal to the excess of the fair market value
of the shares on the date of exercise over the option price paid for such
shares.
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Upon the exercise of a non-statutory stock option, Enron may claim a
deduction for compensation paid at the same time and in the same amount as
compensation income is recognized to the award recipient assuming any federal
income tax withholding requirements are satisfied. Upon a subsequent disposition
of the shares received upon exercise of a non-statutory stock option, any
appreciation after the date of exercise should qualify as a capital gain.
Incentive Stock Options. The incentive stock options under the 1991 Stock
Plan are intended to constitute "incentive stock options" within the meaning of
Section 422 of the Internal Revenue Code. Incentive stock options are subject to
special federal income tax treatment. No federal income tax is imposed on the
optionee upon the grant or exercise of incentive stock options if the optionee
does not dispose of shares acquired pursuant to the exercise within the two-year
period beginning on the date the option was granted or within the one-year
period beginning on the date the option was exercised (collectively, the
"holding period"). If these conditions are met and no tax is imposed on the
optionee, then Enron would not be entitled to any deduction for federal income
tax purposes in connection with the grant or exercise of the option or the
disposition of the underlying shares. With respect to an incentive stock option,
the difference between the fair market value of the stock on the date of
exercise and the exercise price generally must be included in the optionee's
alternative minimum taxable income.
Upon disposition of the shares received upon exercise of an incentive stock
option after the holding period, the difference between the amount realized and
the exercise price should constitute a long-term capital gain or loss. If an
optionee disposes of shares acquired pursuant to his or her exercise of an
incentive stock option prior to the end of the holding period, the optionee will
be treated as having received, at the time of disposition, compensation taxable
as ordinary income. In such event, Enron may claim a deduction for compensation
paid at the same time and in the same amount as compensation is treated as
received by the optionee. The amount treated as compensation is the excess of
the fair market value of the shares at the time of exercise (or in the case of a
sale in which a loss would be recognized, the amount realized on the sale if
less) over the exercise price, and any amount realized in excess of the fair
market value of the shares at the time of exercise would be treated as
short-term or long-term capital gain, depending on the holding period of the
shares.
Restricted Stock. An individual who has been granted stock under the 1991
Stock Plan will not realize taxable income at the time of grant, and Enron will
not be entitled to a deduction at that time, assuming that the restrictions
constitute a substantial risk of forfeiture for federal income tax purposes.
Upon expiration of the forfeiture restrictions (i.e., as shares become vested),
the holder will realize ordinary income in an amount equal to the excess of the
fair market value of the shares at such time over the amount, if any, paid for
such shares, and, subject to the application of Section 162(m), Enron will be
entitled to a corresponding deduction. Dividend equivalents accrued and paid to
the holder during the period that the forfeiture restrictions apply will also be
treated as compensation income to the holder and deductible as such by Enron.
However, the recipient of restricted stock may elect to be taxed at the
time of grant of the restricted stock based upon the fair market value of the
shares on the date of the award. If the recipient makes this election, (a) Enron
will be entitled to a deduction at the same time and in the same amount (subject
to the limitations contained in Section 162(m), (b) dividends paid to the
recipient during the period the forfeiture restrictions apply will be taxable as
dividends and will not be deductible by Enron, and (c) there will be no further
federal income tax consequences when the forfeiture restrictions lapse.
Phantom Stock Units. A recipient of phantom stock units under the 1991
Stock Plan will generally not realize taxable income at the time of grant, and
Enron will not be entitled to a deduction at that time. At the time phantom
stock units are settled in shares of Common Stock, the recipient will have
taxable compensation income and, subject to Section 162(m) as discussed below,
Enron will receive a corresponding deduction. The measure of this income and
deduction will be the fair market value of the shares at the time the phantom
stock units are settled, plus any accrued dividend equivalents; provided,
however, that, with respect to a recipient subject to Section 16 of the Exchange
Act, unless such recipient elects otherwise, such fair market value will be
measured at the time any restrictions imposed with respect to such shares under
Section 16 of the Exchange Act subsequently lapse.
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Section 162(m) of the Internal Revenue Code. Section 162(m) precludes a
public corporation from taking a deduction for compensation in excess of $1
million paid to its chief executive officer or any of its four other
highest-paid officers. However, compensation that qualifies under Section 162(m)
as "performance-based" is specifically exempt from the deduction limit. Based on
Section 162(m) and the regulations issued thereunder, Enron believes that the
income generated in connection with the exercise of stock options and SARs
granted under the 1991 Stock Plan should qualify as performance-based
compensation and, accordingly, Enron's deductions for such compensation should
not be limited by Section 162(m). The 1991 Stock Plan has been designed to
provide flexibility with respect to whether restricted stock awards will qualify
as performance-based compensation under Section 162(m). Enron believes that
certain awards of restricted stock under the 1991 Stock Plan will so qualify and
Enron's deductions with respect to such awards should not be limited by Section
162(m). However, certain awards of restricted stock and all awards of phantom
stock units will not qualify as performance-based compensation and, therefore,
Enron's compensation expense deductions relating to such awards will be subject
to the Section 162(m) deduction limitation.
The 1991 Stock Plan is not qualified under section 401(a) of the Internal
Revenue Code.
REQUIRED VOTE AND RECOMMENDATION
The amendment and restatement of the 1991 Stock Plan will be approved at
the Annual Meeting if the number of votes cast in favor of the amendment exceeds
the number of votes cast opposing it. Under Oregon law, abstentions and broker
non-votes will not be counted for or against this proposal.
The shares represented by the proxies solicited by the Board of Directors
will be voted as directed on the form of proxy or, if no direction is indicated,
will be voted "FOR" the approval of the amendment to the 1991 Stock Plan.
THE BOARD OF DIRECTORS RECOMMENDS VOTING "FOR" THIS PROPOSAL.
ITEM 4
RATIFICATION OF APPOINTMENT OF AUDITORS
Pursuant to the recommendation of the Audit and Compliance Committee, the
Board of Directors appointed Arthur Andersen LLP, independent public
accountants, to audit the consolidated financial statements of Enron for the
year ending December 31, 1999.
The appointment of Arthur Andersen LLP as auditors of Enron will be
ratified at the Annual Meeting if the number of votes cast in favor of
ratification exceeds the number of votes cast opposing it. Under Oregon law,
abstentions and broker non-votes will not be counted for or against this
proposal.
The shares represented by the proxies solicited by the Board of Directors
will be voted as directed on the form of proxy or, if no direction is indicated,
will be voted "FOR" ratification of Arthur Andersen LLP as the auditors of
Enron.
In the event the appointment is not ratified, the Board of Directors will
consider the appointment of other independent auditors. A representative of
Arthur Andersen LLP is expected to be present at the Annual Meeting of
Shareholders on May 4, 1999, will be offered the opportunity to make a statement
if such representative desires to do so and will be available to respond to
appropriate questions.
THE BOARD OF DIRECTORS RECOMMENDS VOTING "FOR" THIS PROPOSAL.
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ITEM 5
AMENDMENT OF AMENDED AND RESTATED ARTICLES OF INCORPORATION
TO INCREASE AUTHORIZED NUMBER OF SHARES OF COMMON STOCK
The Board of Directors of Enron from time to time considers the possibility
of declaring a stock split of the Enron Common Stock. However, as described
below, Enron does not have a sufficient number of authorized shares of Common
Stock to permit the Board of Directors to implement a -for- stock split.
Therefore, at the Annual Meeting of Shareholders, there will be submitted for
shareholder approval the resolutions described below that would, contingent upon
a stock split of at least -for- being declared on or before May 4, 2001 amend
Enron's Amended and Restated Articles of Incorporation to increase the
authorized number of shares of Common Stock that Enron has authority to issue
from 600,000,000 shares to 1,200,00,000 shares (the "Charter Amendment").
Shareholder approval of the following resolutions is necessary in order to
effect the Charter Amendment:
RESOLVED, that the Amended and Restated Articles of Incorporation of
Enron Corp. are hereby amended by amending the first paragraph of Article
IV thereof to read in its entirety as follows:
The total number of shares of all classes of stock which this
Corporation shall have authority to issue is 1,216,500,000 shares of
capital stock, of which 16,500,000 shares are Preferred Stock (the
"Preferred Stock"), and 1,200,000,000 shares are Common Stock (the
"Common Stock").
FURTHER RESOLVED, that the officers of Enron are hereby authorized,
notwithstanding the authorization of the foregoing amendments by the
shareholders of Enron, to file with the Secretary of State of the State of
Oregon the Articles of Amendment relating to such proposed amendment only
if after , 1999 and on or before May 4, 2001 Enron shall
declare a -for- stock split effected as a dividend of shares
of Common Stock for each outstanding shares of Common Stock or a
greater stock split effected as a dividend of shares of Common Stock on
outstanding shares of Common Stock.
If the Charter Amendment is adopted by the required vote of shareholders,
it will become effective when the appropriate Articles of Amendment to Enron's
Amended and Restated Articles of Incorporation are filed with the Secretary of
State of the State of Oregon. However, no Articles of Amendment will be filed
unless on or prior to May 4, 2001 the Board of Directors declares at least a
-for- stock split effected as a dividend.
If such a stock split is effected, each holder of record of Common Stock on
the record date established by the Board of Directors will be entitled to
receive a certificate representing the additional shares of Common Stock
issuable pursuant to the stock split, and the Common Stock certificates
outstanding prior to the stock split will remain outstanding, without any need
for shareholders to return certificates to Enron or to the transfer agent.
Enron has been advised by tax counsel that a stock split effected as a
dividend on the Common Stock would result in no gain or loss or realization of
taxable income to holders of Common Stock under existing federal income tax
laws. Each shareholder's basis would be allocated on a pro rata basis among the
shares held on the record date for the stock split and the new shares issued in
the stock split, and the holding period for the new shares would be deemed to be
the same as the holding period for the shares held on the record date. Enron
shareholders subject to taxation in jurisdictions other than the United States
should consult their tax advisers regarding the tax treatment of stock splits in
such jurisdictions.
In accordance with the terms of Enron's convertible securities and various
stock option and incentive plans, in the event of a stock split, appropriate
adjustments will be made in the number of shares of Common Stock issuable and
any applicable conversion or exercise price.
REASONS FOR THE INCREASE IN NUMBER OF AUTHORIZED SHARES
The Board of Directors believes that an increase in the number of
authorized shares of Common Stock is beneficial in the event a -for- or
greater stock split is declared. Enron is currently authorized to issue
600,000,000 shares of Common Stock, of which were issued and outstanding
and were reserved for issuance at the close of business on March , 1999.
As a result, Enron currently does not have enough authorized shares of Common
Stock to effect a -for- stock split.
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Although the Charter Amendment will increase the total number of authorized
shares of Common Stock by an amount substantially greater than that necessary to
effect a -for- stock split, the existing relative proportion of issued
and reserved shares to unissued shares will not change materially in the case of
a -for- stock split. The Charter Amendment will therefore ensure that
Enron will continue to have additional shares available for future issuance form
time to time for proper corporate purposes, including possible future
acquisitions, stock option or other employee incentive plans or future stock
splits effected as dividends.
The additional shares could potentially be issued at times and under
circumstances that could have a dilutive effect on earnings per shares and on
the equity ownership and voting power of the present holders of Common Stock.
Although the flexibility of the Board of Directors to issue additional Common
Stock could enhance the board's ability to negotiate on behalf of the
shareholders in a takeover situation and also could be used by the incumbent
Board of Directors to make a change of control more difficult, the Board of
Directors has no present intention of issuing any shares of Common Stock for any
anti-takeover purpose.
REQUIRED VOTE AND RECOMMENDATION
The Charter Amendment will be approved at the Annual Meeting if the number
of votes cast in favor of the Charter Amendment exceeds the number of votes cast
opposing it. Under Oregon law, abstentions and broker non-votes will not be
counted for or against this proposal.
The shares represented by the proxies solicited by the Board of Directors
will be voted as directed on the form of proxy or, if no direction is indicated,
will be voted "FOR" the approval of this proposal.
THE BOARD OF DIRECTORS RECOMMENDS VOTING "FOR" THIS PROPOSAL.
SHAREHOLDER PROPOSALS AND DIRECTOR NOMINATIONS
Shareholders may propose matters to be presented at shareholders' meetings
and may also nominate persons to be directors. Formal procedures have been
established for those proposals and nominations.
PROPOSALS FOR 2000 ANNUAL MEETING
Pursuant to various rules promulgated by the SEC, any proposals of holders
of Voting Stock of Enron intended to be presented to the Annual Meeting of
Shareholders of Enron to be held in 2000 must be received by Enron, addressed to
Rebecca Carter, Senior Vice President, Board Communications ("the Secretary"),
1400 Smith Street, Houston, Texas 77002, no later than November 25, 1999, to be
included in the Enron proxy statement and form of proxy relating to that
meeting.
In addition to the SEC rules described in the preceding paragraph, Enron's
bylaws provide that for business to be properly brought before the Annual
Meeting of Shareholders, it must be either (a) specified in the notice of
meeting (or any supplement thereto) given by or at the direction of the Board of
Directors, (b) otherwise brought before the meeting by or at the direction of
the Board of Directors or (c) otherwise properly brought before the meeting by a
shareholder of Enron who is a shareholder of record at the time of giving of
notice hereinafter provided for, who shall be entitled to vote at such meeting
and who complies with the following notice procedures. In addition to any other
applicable requirements, for business to be brought before an annual meeting by
a shareholder of Enron, the shareholder must have given timely notice in writing
of the business to be brought before an Annual Meeting of Shareholders of Enron
to the Secretary of Enron. To be timely, a shareholder's notice must be
delivered to or mailed and received at Enron's principal executive offices, 1400
Smith Street, Houston, Texas 77002, on or before November 25, 1999. A
shareholder's notice to the Secretary shall set forth as to each matter the
shareholder proposes to bring before the annual meeting (i) a brief description
of the business desired to be brought before the annual meeting and the reasons
for conducting such business at the annual meeting, (ii) the name and address,
as they appear on Enron's books,
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of the shareholder proposing such business, (iii) the acquisition date, the
class and the number of shares of Voting Stock of Enron which are owned
beneficially by the shareholder, (iv) any material interest of the shareholder
in such business and (v) a representation that the shareholder intends to appear
in person or by proxy at the meeting to bring the proposed business before the
meeting. Notwithstanding the foregoing bylaw provisions, a shareholder shall
also comply with all applicable requirements of the Exchange Act, and the rules
and regulations thereunder with respect to the matters set forth in the
foregoing bylaw provisions. Notwithstanding anything in Enron's bylaws to the
contrary, no business shall be conducted at the annual meeting except in
accordance with the procedures outlined above.
PROPOSALS FOR 1999 ANNUAL MEETING
The date for delivery to, or receipt by, Enron of any notice from a
shareholder of Enron regarding business to be brought before the 1999 Annual
Meeting of Shareholders of Enron was November 25, 1998. Enron has not received
any notices from its shareholders that Enron is required to include in this
proxy statement.
NOMINATIONS FOR 2000 ANNUAL MEETING AND FOR ANY SPECIAL MEETINGS
Only persons who are nominated in accordance with the following procedures
shall be eligible for election as directors. Nominations of persons for election
to Enron's Board of Directors may be made at a meeting of shareholders (a) by or
at the direction of the Board of Directors or (b) by any shareholder of Enron
who is a shareholder of record at the time of giving of notice hereinafter
provided for, who shall be entitled to vote for the election of directors at the
meeting and who complies with the following notice procedures. Such nominations,
other than those made by or at the direction of the Board of Directors, shall be
made pursuant to timely notice in writing to the Secretary of Enron. To be
timely, a shareholder's notice shall be delivered to or mailed and received at
Enron's principal executive offices, 1400 Smith Street, Houston, Texas 77002,
(i) with respect to an election to be held at the Annual Meeting of Shareholders
of Enron, or before November 25, 1999, and (ii) with respect to an election to
be held at a special meeting of shareholders of Enron for the election of
directors, not later than the close of business on the tenth day following the
date on which notice of the date of the meeting was mailed or public disclosure
of the date of the meeting was made, whichever first occurs. Such shareholder's
notice to the Secretary shall set forth (a) as to each person whom the
shareholder proposes to nominate for election or re-election as a director, all
information relating to the person that is required to be disclosed in
solicitations for proxies for election of directors, or is otherwise required,
pursuant to Regulation 14A under the Exchange Act (including the written consent
of such person to be named in the proxy statement as a nominee and to serve as a
director if elected); and (b) as to the shareholder giving the notice, (i) the
name and address, as they appear on Enron's books, of such shareholder, and (ii)
the class and number of shares of capital stock of Enron which are beneficially
owned by the shareholder. In the event a person is validly designated as nominee
to the Board of Directors and shall thereafter become unable or unwilling to
stand for election to the Board of Directors, the Board of Directors or the
shareholder who proposed such nominee, as the case may be, may designate a
substitute nominee. Notwithstanding the foregoing bylaw provisions, a
shareholder shall also comply with all applicable requirements of the Exchange
Act and the rules and regulations thereunder with respect to the matters set
forth in the foregoing bylaw provisions.
NOMINATIONS FOR 1999 ANNUAL MEETING
The date for delivery to, or receipt by, Enron of any notice from a
shareholder of Enron regarding nominations for directors to be elected at the
1999 Annual Meeting of Shareholders of Enron was November 25, 1998. Enron has
not received any notices from its shareholders regarding nominations for
directors to be elected at the 1999 Annual Meeting of Shareholders.
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GENERAL
As of the date of this proxy statement, the management of Enron has no
knowledge of any business to be presented for consideration at the meeting other
than that described above. If any other business should properly come before the
meeting, it is intended that the shares represented by proxies will be voted
with respect thereto in accordance with the judgment of the persons named in
such proxies.
The cost of any solicitation of proxies will be borne by Enron. In addition
to solicitation by use of the mails, certain officers and regular employees of
Enron may solicit the return of proxies by telephone, telegraph or personal
interview. Arrangements may also be made with brokerage firms and other
custodians, nominees and fiduciaries for the forwarding of material to and
solicitation of proxies from the beneficial owners of Voting Stock held of
record by such persons, and Enron will reimburse such brokerage firms,
custodians, nominees and fiduciaries for reasonable out-of-pocket expenses
incurred by them in connection therewith. In addition, Enron has retained a
proxy soliciting firm, Corporate Investor Communications, Inc., to assist in the
solicitation of proxies and will pay a fee of approximately $7,000 plus
reimbursement of expenses.
By Order of the Board of Directors
PEGGY B. MENCHACA
Vice President and Secretary
Houston, Texas
March , 1999
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EXHIBIT A
ENRON CORP.
ANNUAL INCENTIVE PLAN
I. PURPOSE
The Annual Incentive Plan (the "Plan") is designed to recognize, motivate,
and reward exceptional accomplishment toward annual corporation objectives; to
attract and retain quality employees; and to be market competitive.
II. ELIGIBILITY
Only officers of the Company who are subject to the provisions of Section
16 of the Securities Exchange Act of 1934, as amended, and the requirements of
Rule 16b-3, are eligible to receive awards under this Plan.
III. ADMINISTRATION
The Plan shall be administered by the Compensation and Management
Development Committee of the Board of Directors of Enron Corp. (the
"Committee"), which shall have the sole discretion to interpret the Plan;
approve (a) pre-established, objective, annual performance measure(s), certify
the level to which the performance measure(s) was (were) attained prior to any
payment under the Plan, approve the amount of awards made under the Plan, and
determine who shall receive any payments under the Plan. All decisions and
determinations of the Committee on all matters relating to the Plan shall be
conclusive. Members of the Committee shall not be liable for any action taken or
decision made in good faith relating to the Plan or any award thereunder. Only
the Committee shall determine who shall receive an award under the Plan and make
decisions concerning the timing, pricing, and amount of any award granted under
the Plan.
IV. AWARD FUND
The Plan shall have an annual award fund of five percent (5%) of recurring
after-tax net income of the Company. "Recurring after-tax net income" means
after-tax net income subject to downward adjustment by the Committee in its sole
discretion for what the Committee considers unordinary or nonrecurring items of
after-tax net income and other items or events, including, but not limited to
financial impact on the Company resulting from changes in law and/or regulation
pertaining to federal taxes imposed on corporations.
V. INDIVIDUAL TARGET AWARD LEVELS
For eligible participants subject to Internal Revenue Code Section 162(m)
("IRC 162(m)"), as amended from time to time, or applicable regulations, an
individual target award level, expressed as a percentage of recurring after-tax
net income, will be established by the Committee. The maximum individual target
award level that may be established under the Plan is one percent (1%) of the
recurring after-tax net income of the Company in any given Plan year.
The establishment of an individual award level for any participant shall
not give any participant the right to receive any payment under this Plan.
VI. PAYMENT OF AWARDS
At the end of each Plan year, the Committee will verify the actual
recurring after-tax net income of the Company, if any, and the resulting award
fund, if any, taking into consideration any downward adjustments that the
Committee may make at its sole discretion, prior to authorizing any payments
under the Plan.
The Committee will then determine which participants will receive payments
under the Plan, and the amount of such payments, if any.
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For participants subject to IRC 162(m), downward adjustment of the actual
award level from the target award level may be made at the sole discretion of
the Committee. Discretionary upward adjustment of the actual award level above
the target award level shall not be allowed.
For participants not subject to IRC 162(m), actual individual award levels
shall be determined based on the participants attainment of Company, subsidiary
and/or individual objectives.
Payments made under this Plan may be made in cash or other property having
equivalent value, including shares of Enron Common Stock, at the sole discretion
of the Committee, provided, however, the Committee may not authorize or make any
payment in shares of Enron Common Stock if such payment would result in more
than 1% of the then outstanding shares being issued on a cumulative basis as
payments under this Plan. Cash payments made under this Plan may be deferred
according to the terms of the Enron Corp. Deferral Plan.
VII. UNFUNDED NATURE OF PLAN
This Plan shall constitute an unfunded mechanism for the Company to pay
incentive compensation to participants from its general assets. No fund or trust
is created with respect to the Plan, and no participant shall have any security
or other interest in the assets of the Company.
VIII. COMPENSATION FOR BENEFIT PLAN PURPOSES
Awards made under this Plan shall not be used to determine benefit amounts
under the Company's benefit programs.
IX. PROHIBITION AGAINST ASSIGNMENT OR ENCUMBRANCE
No right, title, interest, or benefit hereunder shall ever be subject to
any tort liability, or obligations of a participant, or be subject to seizure by
any creditor of a participant or any person claiming under a participant. No
participant nor any person claiming under a participant shall have the power to
sell, transfer, pledge, anticipate, or dispose of any right, title, interest, or
benefit hereunder in any manner until the same shall have been actually
distributed free and clear of the terms of the Plan.
X. PLAN NOT AN EMPLOYMENT CONTRACT
The Plan does not give any participant the right to be continued in
employment, and all participants remain subject to change of salary, transfer,
change of job, discipline, layoff, discharge or any other change of employment
status.
XI. SEVERABILITY
In the event any provision of the Plan shall be held invalid or illegal for
any reason, any illegality or invalidity shall not affect the remaining parts of
the Plan, but the Plan shall be construed and enforced as if the illegal or
invalid provision had never been inserted, and the Company shall have the
privilege and opportunity to correct and remedy such questions or illegality or
invalidity by amendment as provided in the Plan.
XII. WITHHOLDING OF TAXES
The Company shall have the right to deduct from any payment made under the
Plan any federal, state, or local taxes required by law to be withheld with
respect to such awards.
XIII. APPLICABLE LAW
The Plan shall be governed and construed in accordance with the laws of the
State of Texas, except to the extent such laws are preempted by an applicable
federal law.
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XIV. EFFECTIVE DATE OF PLAN
Upon approval by the shareholders of the Company at the 1999 Annual
Meeting, the Plan shall be considered effective as of January 1, 1999.
XV. AMENDMENT AND TERMINATION OF THE PLAN
The Committee may modify or terminate the Plan at any time without prior
notice to or consent of participants; provided that, without the approval of the
shareholders of the Company, no such amendment shall be made that would change
the class of participants eligible to receive awards under the Plan, fund total
payouts at a level greater than 5% of recurring after-tax net income, base the
award fund on a performance measure other than recurring after-tax net income,
increase the maximum individual target award level under the Plan, or modify any
other material terms of the Plan.
Executed as of the 4th day of May, 1999.
ENRON CORP.
By:
------------------------------------
Title:
------------------------------------
ATTEST:
- ------------------------------------------------------
Vice President and Secretary
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EXHIBIT B
ENRON CORP. 1991 STOCK PLAN
(AS AMENDED AND RESTATED EFFECTIVE MAY 4, 1999)
SECTION 1. PURPOSE
The purposes of this Enron Corp. 1991 Stock Plan (the "Plan") are to
encourage selected persons employed by Enron Corp. (together with any successor
thereto, the "Company") and its Affiliates and other eligible persons to develop
a proprietary interest in the growth and performance of the Company, to generate
an increased incentive to contribute to the Company's future success and
prosperity, thus enhancing the value of the Company for the benefit of its
stockholders, and to enhance the ability of the Company and its Affiliates to
attract and retain key individuals who are essential to the progress, growth and
profitability of the Company.
SECTION 2. ADMINISTRATION
2.1 The Plan shall be administered by the Committee. A majority of the
Committee shall constitute a quorum, and the acts of a majority of the members
present at any meeting at which a quorum is present, or acts approved in writing
by all members of the Committee, shall be deemed the acts of the Committee.
2.2 Subject to the terms of the Plan and applicable law, the Committee
shall have sole power, authority and discretion to: (i) designate Participants;
(ii) determine the types of Awards to be granted to a Participant under the
Plan; (iii) determine the number of Shares to be covered by or with respect to
which payments, rights, or other matters are to be calculated in connection with
Awards; (iv) determine the terms and conditions of any Award; (v) determine
whether, to what extent, under what circumstances and how Awards may be settled
or exercised in cash, Shares, other securities, other Awards, or other property,
or may be canceled, forfeited, or suspended; (vi) determine whether, to what
extent, and under what circumstances cash, Shares, other securities, other
Awards, other property, and other amounts payable with respect to an Award under
the Plan shall be deferred either automatically or at the election of the holder
thereof or of the Committee; (vii) interpret, construe and administer the Plan
and any instrument or agreement relating to an Award made under the Plan; (viii)
establish, amend, suspend, or waive such rules and regulations and appoint such
agents as it shall deem appropriate for the proper administration of the Plan;
(ix) make a determination as to the right of any person to receive payment of an
Award or other benefit; and (x) make any other determination and take any other
action that the Committee deems necessary or desirable for the administration of
the Plan.
2.3 Unless otherwise expressly provided in the Plan, all designations,
determinations, interpretations, and other decisions with respect to the Plan or
any Award shall be within the sole discretion of the Committee, may be made at
any time, and shall be final, conclusive, and binding upon all Persons,
including the Company, any Affiliate, any Participant, any holder or beneficiary
of any Award, any stockholder, and any employee of the Company or of any
Affiliate.
2.4 The provisions of this Section 2 with respect to decisions made by,
and authority of, the Committee shall be subject to the controlling provisions
of Section 6.
SECTION 3. SHARES AVAILABLE FOR AWARDS
3.1 Shares Available
(i) Calculation of Number of Shares Available. Effective May 4, 1999,
the number of Shares available for granting Awards under the Plan shall be
10 million (10,000,000) Shares, subject to adjustment as provided in
Section 3.2.
Further, if after the effective date of the Plan, any Shares covered
by an Award granted under the Plan, or to which an Award relates, are
forfeited, or if an Award otherwise terminates without the delivery of
Shares or of other consideration, then the Shares covered by such Award (or
to which such Award relates, or the number of Shares otherwise counted
against the aggregate number of Shares available
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under the Plan with respect to such Award, to the extent of any such
forfeiture or termination) shall again be available for granting Awards
under the Plan.
(ii) Accounting for Awards. For purposes of this Section 3, if an
Award is denominated in Shares, the number of Shares covered by such Award,
or to which such Award relates, shall be counted on the date of grant of
such Award against the aggregate number of Shares available for granting
Awards under the Plan; provided, however, Awards that operate in tandem
with (whether granted simultaneously with or at a different time from)
other Awards may be counted or not counted under procedures adopted by the
Committee in order to avoid double counting.
(iii) Sources of Shares Deliverable Under Awards. Any shares delivered
pursuant to an Award may consist, in whole or in part, of authorized and
unissued Shares or of treasury Shares.
3.2 Adjustments
(i) In the event that the Committee shall determine that any dividend
or other distribution (whether in the form of cash, Shares, other
securities or other property), recapitalization, stock split, reverse stock
split, reorganization, merger, consolidation, split-up, spin-off,
combination, repurchase or exchange of Shares or other securities of the
Company, issuance of warrants or other rights to purchase Shares or other
securities of the Company (or other similar corporate transaction or event)
affects the Shares such that an adjustment is determined by the Committee
to be appropriate in order to prevent dilution or enlargement of the
benefits or potential benefits intended to be made available under the
Plan, then the Committee may, subject to Section 3.2(ii), in such manner as
it may deem equitable, adjust any or all of (a) the number and type of
Shares (or other securities or property) which thereafter may be made the
subject of Awards, (b) the number and type of Shares (or other securities
or property) subject to outstanding Awards, and (c) the grant, purchase, or
exercise price with respect to any Award, or, if deemed appropriate, make
provision for a cash payment to the holder of an outstanding Award;
provided, however, that with respect to Awards of Incentive Stock Options,
no such adjustment shall be authorized to the extent that such adjustment
would cause the Plan to violate Section 422(b)(1) of the Code or any
successor provision thereto; and provided further, that the number of
Shares subject to any Award denominated in Shares shall always be a whole
number.
(ii) If, and whenever, prior to the expiration of a grant theretofore
made, the Company shall effect a subdivision or consolidation of Shares or
the payment of a stock dividend on Shares without receipt of consideration
by the Company, the number of Shares with respect to which such grant may
thereafter be vested or exercised (a) in the event of an increase in the
number of outstanding Shares shall be proportionately increased, and if the
grant is an Option the purchase price per Share shall be proportionately
reduced, and (b) in the event of a reduction in the number of outstanding
Shares shall be proportionately reduced, and if the grant is an Option the
purchase price per Share shall be proportionately increased.
SECTION 4. ELIGIBILITY
Any Employee (i) who is a resident of the United Kingdom, or (ii) who is a
member of the Management Committee of the Company, and any individual who is a
Director of the Company duly elected by stockholders of the Company who is not
an Employee at the time a grant is made, shall be eligible to be designated a
Participant. However, subject to the foregoing, the only Employees who shall be
eligible to receive grants of Incentive Stock Options under the Plan shall be
those Employees who are Employees of the Company within the meaning of Section
424(e) or (f) of the Code. Grants may be made to the same individual on more
than one occasion. For purposes of this Section 4, "Management Committee" shall
mean the group of individuals who are appointed by the Chairman and either of
the Chief Executive Officer, or President of Enron Corp., to serve on such
committee.
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SECTION 5. AWARDS
5.1 Options. The Committee is hereby authorized to grant Options to
Participants with the following terms and conditions and with such additional
terms and conditions, which are not inconsistent with the provisions of the
Plan, as the Committee shall determine:
(i) Exercise Price. The per Share purchase price of an Option shall
not be less than the Fair Market Value of a Share on the date of grant of
such Option and in no event less than the par value of a Share.
(ii) Time and Method of Exercise. Subject to the provisions contained
in the Plan and in a Participant's Award Agreement, unexercised vested
Shares under an Option may be exercised in whole or in part from time to
time by request to the Company. Payment of the exercise price and any
applicable tax withholding amounts must be made at the time of exercise, in
whole or in part, by delivery of a cashier's check, Shares of Stock, other
awards, other property or any combination thereof having a fair market
value equal to such amount or part thereof provided that the fair market
value of Stock so delivered shall be equal to the closing price of the
Stock as reported in the "NYSE -- Composite Transaction" section of the
Midwest Edition of the Wall Street Journal on the date of actual receipt by
the Company of the notice exercising the Option or, if no prices are so
reported on such day, on the last preceding day on which such prices of
Stock are so reported. An Option may be exercised through a broker financed
exercise pursuant to the provisions of Regulation T of the Federal Reserve
Board. If the Company receives payment of the purchase price for the
exercise of the Option through a broker financed exercise before the end of
the third business day following the broker's execution of the sale of
Stock for the financed exercise, the exercise shall be effective at the
time of such sale. Otherwise, the exercise shall be effective when the
Company receives payment of the purchase price.
(iii) Incentive Stock Options. The terms of any Incentive Stock Option
granted under the Plan shall comply in all respects with the provisions of
Section 422 of the Code, or any successor provision thereto, and any
regulations promulgated thereunder.
(iv) Option Agreement. Each grant of Options shall be evidenced by an
Award Agreement which shall specify the term of the Option as well as
vesting and termination provisions.
(v) Limit on Size of Option Grants. No individual shall be granted
Options totaling more than 1,000,000 shares in any single calendar year.
(vi) Status as shareholder. Unless and until a certificate or
certificates representing such Shares shall have been issued by the Company
to the Participant, the Participant (or the person permitted to exercise an
Option in the event of the Participant's death or incapacity) shall not be
or have any of the rights or privileges of a shareholder of the Company
with respect to the Shares acquirable upon an exercise of an Option.
5.2 Restricted Stock
(i) Issuance. The Committee is hereby authorized to grant Awards of
Restricted Stock to Participants, which Awards shall be evidenced by Award
Agreements, which shall specify vesting and termination provisions.
Notwithstanding the foregoing, the number of Shares of Restricted Stock
which may be granted shall be limited to not more than twenty-five percent
(25%) of the total number of Shares available for grant under the Plan.
(ii) Restrictions. Shares of Restricted Stock shall be subject to such
restrictions as the Committee may impose (including, without limitation,
any limitation on the right to vote a Share of Restricted Stock), which
restrictions may lapse separately or in combination at such time or times,
in such installments or otherwise as the Committee may deem appropriate.
Notwithstanding the foregoing, unless Shares of Restricted Stock are
granted in lieu of cash compensation or to compensate for benefits lost due
to statutory and/or plan earnings limits, restrictions placed on Awards
granted under Section 5.2(vi)
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herein shall lapse in not less than one year for performance-based Awards,
and other Awards granted under this Section 5.2 shall not lapse in total in
less than three years."
(iii) Certificates and Dividends. All dividends and distributions, or
cash equivalent thereof (whether cash, stock or otherwise), on unvested
Shares of Restricted Stock shall be withheld from the respective
Participant and credited by the Company for the Participant's account. At
such time as a Participant becomes vested in a portion of the Award of
Restricted Stock Shares, the restrictions thereon imposed by this Section
5.2(iii) shall lapse and certificates representing such vested shares shall
be delivered to the Participant along with all accumulated credits for
dividends and distributions, or cash equivalent thereof attributable to
such vested shares. Interest shall not be paid on any dividends or
distributions or cash equivalent thereof, credited by the Company for the
account of a Participant. The Company shall have the option of paying such
credits for accumulated dividends or distributions or cash equivalent
thereof, in Shares of the Company rather than in cash. (If payment is made
in Shares, the conversion to Shares shall be at the average Fair Market
Value for the five trading days preceding the date of payment.) Dividends
and distributions, or cash equivalent thereof credited on non-vested
Restricted Stock shall be forfeited in the same manner and at the same time
as the respective shares of Restricted Stock to which they are attributable
are forfeited, except that such forfeited credits for dividends and
distributions or cash equivalent thereof shall be canceled and shall not be
available for future distribution under this Plan.
(iv) Payment. A Participant shall not be required to make any payment
for Awards of Restricted Stock, except to the extent otherwise required by
law.
(v) Forfeiture. Unless the Committee decides otherwise, Shares of
non-vested Restricted Stock awarded to a Participant will be forfeited if
the Participant terminates employment or service for any reason other than
death, Disability, Retirement or Involuntary Termination. At the time and
on the date of a Participant's death, Disability, Retirement or Involuntary
Termination during the Participant's employment or service, prior to the
date the Participant otherwise becomes fully vested in all the Restricted
Stock awarded to the Participant, all restrictions placed on each share of
Restricted Stock awarded to the Participant shall lapse and the non-vested
Restricted Stock will become fully vested Released Securities. From and
after such date the Participant or the Participant's estate, personal
representative or beneficiary, as the case may be, shall have full rights
of transfer or resale with respect to such Restricted Stock subject to
applicable state and federal regulations.
(vi) Performance-Based Restricted Stock. The Committee is hereby
authorized to grant Awards of Restricted Stock which qualify as
performance-based compensation under Code Section 162(m), such that a) the
issuance is contingent upon attainment of pre-established performance
criteria; b) restrictions lapse contingent upon attainment of
pre-established performance criteria; or c) the issuance is in lieu of cash
payments under the Enron Corp. Annual Incentive Plan or the Enron Corp.
Performance Unit Plan, based upon attainment of the performance criteria
established under the terms of those stockholder approved plans. The
performance criteria to be used with such Awards shall be recurring
after-tax net income and/or cash flow, at the Company and/or subsidiary
level, and earnings per share and/or total shareholder return, at the
Company level, as determined at the sole discretion of the Committee.
Performance criteria will be established by the Committee prior to the
beginning of each performance period, defined as January 1 of each year, or
such later date as permitted under the Code, or applicable regulations.
Notwithstanding any other provision of the Plan, no individual shall be
granted Awards of Restricted Stock under this Section 5.2(vi) totaling more
than 100,000 shares in any single calendar year. "Recurring after-tax net
income" means after-tax net income subject to adjustment by the Committee
in its sole discretion for what the Committee considers an unordinary or
nonrecurring items of after tax net income.
(vii) Phantom Stock Units. Notwithstanding any other provision of the
Plan to the contrary, wherever under the Plan, a provision is made for the
grant to a Director of the Company of Shares of Restricted Stock, whether
such grant is discretionary or non-discretionary (as in Section 6), such
grant shall be made in an equivalent number of Phantom Stock Units instead
of Shares of Restricted Stock. An
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Award of Phantom Stock Units granted under Section 6 shall be subject to
the provisions therein that apply to a grant of Shares of Restricted Stock.
Additionally, the Committee is authorized to grant Awards of Phantom Stock
Units to eligible persons other than Directors of the Company. Awards of
Phantom Stock Units shall be evidenced by Award Agreements. Except as
provided in Section 6, paragraphs (ii), (iii), (iv) and (v) of this Section
5.2 shall apply to Awards of Phantom Stock Units in similar manner as they
apply to Shares of Restricted Stock, as interpreted by the Committee,
provided, however, the limitation in paragraph (i) above on the number of
Shares of Restricted Stock which may be granted shall apply to total
aggregate Awards of Shares of Restricted Stock and Phantom Stock Units. A
Phantom Stock Unit is a contractual obligation of the Company equal in
value to one Share of the Company, which until paid is an unfunded
bookkeeping credit on the records of the Company. Such credit shall be
increased by the dividends per Share of the Company after the date of the
Award. The portion of such credit attributable to Phantom Stock Units shall
be paid under paragraph (iii) above in Shares of the Company.
5.3 General
(i) No Cash Consideration for Awards. Except as otherwise provided in
the Plan, awards shall be granted for no cash consideration or for such
minimal cash consideration as may be required by applicable law.
(ii) Awards May be Granted Separately or Together. Awards, at the
discretion of the Committee, may be granted either alone or in addition to,
or in tandem with any other Award or any award granted under any other plan
of the Company or any Affiliate. Awards granted in addition to or in tandem
with other Awards, or in addition to or in tandem with awards granted under
any other plan of the Company or any Affiliate, may be granted either at
the same time as or at a different time from the grant of such other Awards
or awards.
(iii) Limits on Transfer of Awards. No Award (other than Released
Securities) and no right under any such Award shall be assignable,
alienable, saleable or transferable by a Participant other than:
(a) by will or by the laws of descent and distribution;
(b) pursuant to a "domestic relations order" as defined in Section
414 of the Code or Section 206 of the Employee Retirement Income
Security Act of 1974, as amended;
(c) by transfer by an eligible Participant, subject to such rules
as the Committee may adopt to preserve the purposes of the Plan
(including limiting such transfer to Participants who are directors or
senior executives), to:
(I) a member of his or her Immediate Family,
(II) a trust solely for the benefit of the Participant and his
or her immediate Family, or
(III) a partnership or limited liability company whose only
partners or shareholders are the Participant and his or her Immediate
Family members,
(d) by designation, in a manner established by the Committee, of a
beneficiary or beneficiaries to exercise the rights of the Participant
and to receive any property distributable with respect to any Award upon
the death of the Participant.
Each transferee described in (b) and (c) above is hereafter referred to as
a "Permitted Transferee", provided that the Committee is notified in writing of
the terms and conditions of any transfer intended to be described in (b) or (c)
and the Committee determines that the transfer complies with the requirements of
the Plan and the applicable Award Agreement. Any purported assignment,
alienation, pledge, attachment, sale, transfer or encumbrance that does not
qualify under (a), (b), (c) or (d) shall be void and unenforceable against the
Company. "Immediate Family" means, with respect to a particular Participant, the
Participant's spouse, children or grandchildren (including adopted and
stepchildren and grandchildren).
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The terms and provisions of an Award Agreement shall be binding upon the
beneficiaries, executors and administrators of the Participant and on the
Permitted Transferees of the Participant (including the beneficiaries, executors
and administrators of the Permitted Transferees), except that Permitted
Transferees shall not reassign any Award other than by will or by the laws of
descent and distribution. An Award shall be exercised only by the Participant
(or his or her attorney in fact or guardian) (including, in the case of a
transferred Award, by a Permitted Transferee), or, in the case of the
Participant's death, by the Participant's executor or administrator (including,
in the case of a transferred Award, by the executor or administrator of the
Permitted Transferee), and all exercises of an Award shall be accompanied by
sufficient payment, as determined by the Company, to meet its withholding tax
obligation on such exercise or by other arrangements satisfactory to the
Committee to provide for such payment.
(iv) Term of Awards. The term of each Award shall be for such period
as may be determined by the Committee; provided, however, that in no event
shall the term of any Option or Stock Appreciation Right exceed a period of
ten (10) years from the date of its grant.
(v) Rule 16b-3. It is intended that the Plan and any Award made to a
Person subject to Section 16 of the Securities Exchange Act of 1934, as
amended, meet all of the requirements of Rule 16b-3. If any provision of
the Plan or any such Award would disqualify the Plan or such Award under,
or would otherwise not comply with, Rule 16b-3, such provision or Award
shall be construed or deemed amended to conform to Rule 16b-3.
(vi) Status of Stock. The Company intends to register for issue under
the Securities Act of 1933, as amended ("The Act"), the Shares of Stock
acquirable pursuant to Awards under the Plan, and to keep such registration
effective throughout the period any Awards are in effect. In the absence of
such effective registration or an available exemption from registration
under the Act, delivery of Shares of Stock acquirable pursuant to Awards
under the Plan shall be delayed until registration of such Shares is
effective or an exemption from registration under the Act is available. The
Company intends to use its best efforts to ensure that no such delay will
occur. In the event exemption from registration under the Act is available,
Participant (or Participant's estate or personal representative in the
event of the Participant's death or incapacity), if requested by the
Company to do so, will execute and deliver to the Company in writing an
agreement containing such provisions as the Company may require to assure
compliance with applicable securities laws. No sale or disposition of
Shares of Stock acquired pursuant to an Award under the Plan by a
Participant shall be made in the absence of an effective registration
statement with respect to such shares under the Act unless an opinion of
counsel satisfactory to the Company that such sale or disposition will not
constitute a violation of the Act or any other applicable securities laws
is first obtained. In the event that a Participant proposes to sell or
otherwise dispose of Shares of Stock in such a manner that an exception
from the registration requirements of the Act is unavailable for such sale
or disposition, and upon request to the Company by the Participant, the
Company, at its sole cost and expense, shall cause a registration statement
to be prepared and filed with respect to such sale or disposition by the
Participant and shall use its best efforts to have such registration
statement declared effective, and, in connection therewith, shall execute
and deliver such documents as shall be necessary, including without
limitation, agreements providing for the indemnification of underwriters
for any loss or damage incurred in connection with such sale or
disposition.
(vii) Share Certificates. All certificates for Shares or other
securities delivered under the Plan pursuant to any Award or the exercise
thereof shall be subject to such stop transfer orders and other
restrictions as the Committee may deem advisable under the Plan or the
rules, regulations and other requirements of the Securities and Exchange
Commission, any stock exchange upon which such Shares or other securities
are then listed and any applicable Federal or state securities laws, and
the Committee may cause a legend or legends to be put on any such
certificates to make appropriate reference to such restrictions, including,
but not limited to, the provisions of Subsection 5.3(vi).
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SECTION 6. GRANTS TO NON-EMPLOYEE DIRECTORS
6.1 A. Subject to the limitation of the number of Shares and Restricted
Stock set forth in Section 3 and Section 5.2(i), each Director of the Company
who is not otherwise an employee of the Company or any Affiliate (a "nonemployee
Director"), effective during the term of the Plan on each Monday next following
the Director's election at the annual meeting of stockholders of the Company
(commencing with the 1992 annual meeting of stockholders), is hereby granted,
effective on such date, shares of Restricted Stock and an Option to purchase
Shares as determined by the provisions of the following paragraph. The Option
shall not be an Incentive Stock Option.
B. The number of shares of Restricted Stock hereby granted in each year to
each nonemployee Director shall be equal to fifty percent (50%) of "A," where
"A" is equal to (i) the average Retainer Fee, on an annualized basis, paid or
payable to a nonemployee Director in the prior fiscal year, divided by (ii) the
per share Fair Market Value of the Shares on the date of grant, rounded to the
next higher increment of ten. The average Retainer Fee, on an annualized basis,
paid to a nonemployee Director shall be determined by dividing the number of
nonemployee Directors serving on the Board in the previous fiscal year into the
aggregate annualized cash Retainer Fee paid to or entitled to be received by
(but for elections made by such Directors under Section 6.2 of the Plan) all
such nonemployee Directors during the Company's preceding fiscal year for
services rendered to the Company as Directors (including any deferred
compensation). "Retainer Fee" means the amount which a nonemployee Director
receives for serving as a Director, a member of a committee of the Board of
Directors of the Company or a chairperson of such a committee. The number of
Shares which is granted hereby in each year to each nonemployee Director
pursuant to an Option is equal to the sum of (i) the number of shares of
Restricted Stock granted hereby multiplied by the number four (4), and (ii)
three thousand (3,000).
6.2 A. Subject to the limitation of the total number of Shares and
Restricted Stock set forth in Section 3 and Section 5.2(i), on July 1 of each
year, each nonemployee Director, who on or prior to December 31 of the previous
year files with the Committee or its designate an irrevocable election to
receive a grant under this Section 6.2 in lieu of a portion or all of the cash
amount of the projected Retainer Fees plus meeting fees for six (6) regular
meetings of the Board of Directors, such Director will be entitled to receive in
the following year beginning January 1 and ending December 31, as determined at
the time of such election (the "Aggregate Fee"), is hereby granted on such July
1, shares of Restricted Stock and an Option to purchase a number of Shares, as
determined by the provisions of the following paragraph. In making such
election, the nonemployee Director may elect a vesting date applicable to the
grant of shares of Restricted Stock to be a date not earlier than six (6) months
and not later than five (5) years from the date of grant. The Options shall not
be Incentive Stock Options.
B. The number of Shares of Restricted Stock which is hereby granted on each
July 1 to a nonemployee Director making such an election is equal to fifty
percent (50%) of "A", where "A" is equal to (i) the cash amount of the portion
of such projected Aggregate Fee selected by the nonemployee Director, divided by
(ii) the per share Fair Market Value of a Share on the date of grant, rounded to
the next higher increment of ten. The number of Shares for which an Option is
hereby granted on each July 1 to such nonemployee Director is equal to the
number of shares of Restricted Stock granted hereby multiplied by the number
four (4).
6.3 The following provisions are applicable to Options granted pursuant to
Sections 6.1 and 6.2:
A. Options shall be exercisable according to the following provisions:
(i) An Option granted pursuant to Section 6.1 shall become exercisable
for twenty percent (20%) of the Shares covered thereby on the date of
grant, and thereafter, for twenty percent (20%) of the Shares covered
thereby on each of the first, second, third and fourth anniversaries of the
grant thereof.
(ii) An Option granted pursuant to Section 6.2 shall be exercisable in
full on the date of grant.
B. The purchase price of a Share covered under an Option granted under
Sections 6.1 or 6.2 shall be the Fair Market Value of a Share on the date of
grant, but not less than the par value of a Share.
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C. Each Option shall expire ten (10) years from the date of grant thereof,
but shall be subject to earlier termination as follows. Options, to the extent
exercisable as of the date a nonemployee Director optionee ceases to serve as a
Director of the Company, must be exercised within three months of such date
unless such event results from death, Disability or Retirement, in which case
such Options may be exercised by the optionee, the optionee's legal
representative, heir or devisee, as the case may be, within one (1) year from
the date of death, Disability or Retirement; provided, however, that no such
event shall extend the normal expiration date of such Options.
D. Upon exercise of the Option, delivery of a certificate for fully paid
and nonassessable Shares shall be made at the corporate office of the Company in
Houston, Texas to the optionee exercising the Option either at such time during
ordinary business hours after fifteen (15) days but not more than thirty (30)
days from the date of receipt of the notice by the Company as shall be
designated in such notice, or at such time, place and manner as may be agreed
upon by the Company and the optionee exercising the Option.
E. That portion of Options granted under Section 6.2 to a nonemployee
Director which is attributable to a portion of the Director's Aggregate Fee
which would not have been earned due to termination of service as a Director or
a change in the Director's membership on a committee(s) of the Board of
Directors automatically shall be canceled upon such an event.
6.4 The following provisions are applicable to grants of Restricted Stock
made pursuant to Sections 6.1 or 6.2, as the case may be:
A. A recipient of a Restricted Stock grant made pursuant to Section 6.1
shall obtain without cost to the recipient a vested right in the Restricted
Stock so granted based on the recipient's consecutive full years of service
completed as a Director of the Company after the date of the grant in accordance
with the following table:
COMPLETED YEARS OF SERVICE PERCENT OF SHARES OF
AFTER DATE OF GRANT STOCK GRANT VESTED
- -------------------------- --------------------
Less than 1.............................................................. 0%
1.............................................................. 20%
2.............................................................. 40%
3.............................................................. 60%
4.............................................................. 80%
5.............................................................. 100%
B. All shares of Restricted Stock, upon vesting, shall be deemed to be
fully paid and nonassessable.
C. Shares of non-vested Restricted Stock awarded to a nonemployee Director
will be forfeited if the Director terminates service as a Director for any
reason other than death, Disability or Retirement.
D. At the time and on the date of a nonemployee Director's death,
Disability or Retirement during the Director's service as a Director prior to
the date the Director otherwise becomes fully vested in all the Restricted Stock
awarded to the Director, all restrictions placed on each share of Restricted
Stock awarded to the Director shall lapse and the non-vested Restricted Stock
will become fully vested Released Securities. From and after such date, the
Director or the Director's legal representative, heir or devisee, as the case
may be, shall have full rights of transfer or resale with respect to such
Restricted Stock subject to applicable state and federal regulations.
6.5 A nonemployee Director shall be ineligible to receive a grant provided
for in Sections 6.1 and 6.2 if as of the date of such grant the Director (i) is
an employee of the Company or any Affiliate or (ii) has been an employee of the
Company or any Affiliate for any part of the calendar year preceding the
calendar year in which such a grant is to be made.
6.6 In the event that the number of Shares available for grants under the
Plan is insufficient to make all grants provided for in this Section 6 hereby
made on the applicable date, then all nonemployee Directors who are entitled to
a grant on such date shall share ratably in the number of Shares then available
for grant under
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the Plan, and shall have no right to receive a grant with respect to the
deficiencies in the number of available Shares.
6.7 Except as expressly provided in this Section 6, grants made pursuant
to this Section 6 shall be subject to the terms and conditions of the Plan;
however, if there is a conflict between the terms and conditions of the Plan and
this Section 6, then the terms and conditions of this Section 6 shall control.
6.8 All Options and grants of Restricted Stock under this Section 6 shall
be evidenced by Award Agreements.
6.9 In the event a nonemployee Director, as a result of employment,
business or professional interests of such nonemployee Director or Director's
spouse, becomes subject to restrictions on direct or indirect ownership of
shares of Company stock arising from participation in the Plan, and submits to
the Committee a written opinion of counsel in a form satisfactory to the
Committee that his or her continued participation in the Plan would be deemed to
be a material conflict of interest for business, employment or professional
purposes for the nonemployee Director or Director's spouse, then at the written
request to the Committee by such nonemployee Director invoking the provisions of
this Section 6.9, in a format acceptable to the Committee, such nonemployee
Director will not be eligible to receive any further grant under this general
Section 6 of the Plan until such time as the Committee is satisfied that said
restrictions have been removed or no longer apply, and as of the last day of the
month in which such written request is received by the Committee, all
outstanding grants made to such nonemployee Director under this general Section
6 of the Plan shall be forfeited and cancelled.
6.10 In the event a nonemployee director resigns his or her directorship
with the Company with the advance approval of the Committee, the Committee in
giving such approval shall have discretion to fully vest grants of Restricted
Stock made to such director and to extend up to twelve months from the effective
date of such resignation the director's right to exercise Options granted to
such director, but only as to the vested portion of such Options as of the
effective date of resignation.
SECTION 7. AMENDMENT AND TERMINATION
Except to the extent prohibited by applicable law and unless otherwise
expressly provided in an Award Agreement or in the Plan:
7.1 Amendments to the Plan. The Board of Directors at its discretion may
terminate the Plan at any time with respect to any Shares for which a grant has
not theretofore been made. The Board of Directors shall have the right to alter
or amend the Plan or any part thereof from time to time; provided, that no
change in any grant theretofore made may be made which would impair the rights
of the recipient of a grant without the consent of such recipient; and provided
further, that notwithstanding any other provision of the Plan or any Award
Agreement, without the approval of the stockholders of the Company no such
amendment or alteration shall be made that would:
(i) increase the total number of Shares available for Awards under the
Plan, except as provided in Section 3 hereof;
(ii) change the minimum Option price;
(iii) change the class of Participants eligible to receive Awards;
(iv) extend the maximum period during which Awards may be granted
under the Plan;
(v) increase the maximum number of Options that may be granted under
Section 5.1 or Shares of performance-based Restricted Stock that may be
granted under Section 5.2(vi) to any individual in any calendar year; or
(vi) otherwise modify the material terms of the Plan.
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7.2 Adjustments of Awards upon the Occurrence of Certain Unusual or
Nonrecurring Events
A. Subject to the provisions of Section 7.2B, C and D below, if a
transaction occurs which is not approved or recommended by a majority of the
Board of Directors of the Company in actions taken prior to, and with respect
to, such transaction in which either (i) the Company merges or consolidates with
any other corporation (other than one of the Company's wholly owned
subsidiaries) and is not the surviving corporation (or survives only as the
subsidiary of another corporation), (ii) the Company sells all or substantially
all of its assets to any other person or entity, or (iii) the Company is
dissolved, or if (iv) any third person or entity (other than the trustee or
committee of any qualified employee benefit plan of the Company), together with
its Affiliates and Associates shall be, directly or indirectly, the Beneficial
Owner of at least thirty percent (30%) of the Voting Stock of the Company, or
(v) the individuals who constitute the members of Company's Board of Directors
on the date hereof (the "Incumbent Board") cease for any reason to constitute at
least a majority thereof, provided that any person becoming a Director
subsequent to the date hereof whose election or nomination for election by the
Company's stockholders was approved by a vote of at least eighty percent (80%)
of the Directors comprising the Incumbent Board (either by a specific vote or by
approval of the proxy statement of the Company in which such person is named as
a nominee for Director, without objection to such nomination) shall be, for
purposes of this clause (v), considered as though such person were a member of
the Incumbent Board, then within (a) ten days of the approval by the
stockholders of the Company of such merger, consolidation, sale of assets or
dissolution as described in clause (i), (ii) or (iii) of this Section 7.2A, or
(b) thirty (30) days of the occurrence of such change of Beneficial Ownership or
Directors as described in clause (iv) or (v) of this Section 7.2A., then with
respect to outstanding grants of Restricted Stock made under Section 5.2, each
recipient thereof shall have a fully vested right in all Restricted Stock
granted to the recipient and then outstanding, and with respect to outstanding
grants of Options made under Section 5.1, all such outstanding Options,
irrespective of whether they are then exercisable, shall be surrendered (at such
time as may be necessary to comply with Rule 16b-3) to the Company by each
grantee thereof and such Options shall thereupon be canceled by the Company, and
the grantee shall receive a cash payment by the Company in an amount equal to
the number of Shares subject to the Options held by such grantee multiplied by
the difference between (x) and (y) where (y) equals, in the case of Options, the
purchase price per Share covered by the Option and (x) equals (1) the per share
price offered to stockholders of the Company in any such merger, consolidation,
sale of assets or dissolution transaction, (2) the per share price offered to
stockholders of the Company in any tender offer or exchange offer whereby any
such change of Beneficial Ownership or Directors takes place, or (3) the Fair
Market Value of a Share on the date determined by the Committee (as constituted
prior to any change described in clause (iv) or (v)) to be the date of
cancellation and surrender of such Options if any such change of Beneficial
Ownership or Directors occurs other than pursuant to a tender or exchange offer,
whichever is appropriate. In the event that the consideration offered to
stockholders of the Company in any transaction described in this Section 7.2A
consists of anything other than cash, the Committee (as constituted prior to
such transaction) shall determine the fair cash equivalent of the portion of the
consideration offered which is other than cash.
B. Except as otherwise expressly provided herein, the issuance by the
Company of shares of stock of any class or securities convertible into shares of
stock of any class, for cash, property, labor or services, upon direct sale,
upon the exercise of rights or warrants to subscribe therefor, or upon
conversion of shares or obligations of the Company convertible into such shares
or other securities, and in any case whether or not for fair value, shall not
affect, and no adjustment by reason thereof shall be made with respect to, the
number of Shares subject to Restricted Stock or Options theretofore granted or
the purchase price or grant price per share, if applicable.
C. Any adjustment provided for in Section 3.2 or Section 7.2 shall be
subject to any required stockholder action.
7.3 Correction of Defects, Omissions and Inconsistencies. The Committee
may correct any defect, supply any omission, or reconcile any inconsistency in
the Plan or any Award in the manner and to the extent it shall deem desirable in
the establishment or administration of the Plan.
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SECTION 8. GENERAL PROVISIONS
8.1 No Rights to Awards. No Employee, Participant or other Person shall
have any claim to be granted any Award under the Plan, and there is no
obligation for uniformity of treatment of Employees, Participants, or holders or
beneficiaries of Awards under the Plan. The terms and conditions of Awards need
not be the same with respect to each Participant.
8.2 Withholding. The Company or any Affiliate is authorized and directed
(i) to withhold from any Award granted or any payment due or any transfer made
under any Award or under the Plan the amount (in cash, Shares, other securities,
other Awards, or other property) of withholding taxes due in respect of an
Award, its exercise, or any payment or transfer under such Award or under the
Plan, and (ii) to take such other action, including but not limited to,
acceptance of already owned Shares (including Shares acquired from the exercise
of an Option or vesting of Shares of Restricted Stock), as may be necessary to
satisfy all obligations for the payment of such taxes.
8.3 No Limit on Other Compensation Arrangements. Nothing contained in the
Plan shall prevent the Company or any Affiliate from adopting or continuing in
effect other or additional compensation arrangements and such arrangements may
be either generally applicable or applicable only in specific cases.
8.4 No Right to Employment. The grant of an Award shall not be construed
as giving a Participant the right to be retained in the employ of the Company or
any Affiliate. Further, the Company or an Affiliate may at any time dismiss a
Participant from employment, free from any liability or any claim under the Plan
unless otherwise expressly provided in the Plan or in any Award Agreement.
8.5 Governing Law. The validity, construction and effect of the Plan and
any rules and regulations relating to the Plan shall be determined in accordance
with applicable Federal law, and to the extent not preempted thereby, with the
laws of the State of Texas.
8.6 Severability. If any provision of the Plan or any Award is or becomes
or is deemed to be invalid, illegal or unenforceable in any jurisdiction, or as
to any person or Award, or would disqualify the Plan or any Award under any law
deemed applicable by the Committee, such provision shall be construed or deemed
amended to conform to applicable laws. If it cannot be so construed or deemed
amended without, in the determination of the Committee, materially altering the
intent of the Plan or the Award, such provision shall be stricken as to such
jurisdiction, Person or Award and the remainder of the Plan and any such Award
shall remain in full force and effect.
8.7 No Trust or Fund Created. Neither the Plan nor any Award shall create
or be construed to create a trust or separate fund of any kind or a fiduciary
relationship between the Company or any Affiliate and a Participant or any other
Person. To the extent that any Person acquires a right to receive payments from
the Company or any Affiliate pursuant to an Award, such right shall be no
greater than the right of any unsecured general creditor of the Company or any
Affiliate.
8.8 No Fractional Shares. No fractional Shares shall be issued or
delivered pursuant to the Plan or any Award, and the Committee shall determine
whether cash, other securities, or other property shall be paid or transferred
in lieu of any fractional Shares, or whether such fractional Shares or any
rights thereto shall be canceled, terminated or otherwise eliminated. In
addition, no fractional Shares shall be accepted by the Company in payment of
the exercise price of an Option.
8.9 Headings. Headings are given to the Sections and Subsections of the
Plan solely as a convenience to facilitate reference. Such headings shall not be
deemed in any way material or relevant to the construction or interpretation of
the Plan or any provision thereof.
8.10 No Limitation. The existence of the Plan and the grants of Awards
made hereunder shall not affect in any way the right or power of the Board of
Directors or the stockholders of the Company (or stockholders of any Affiliate,
as applicable) to make or authorize any adjustment, recapitalization,
reorganization or other change in the capital structure or business of the
Company or any Affiliate, any merger or consolidation of the Company or any
Affiliate, any issue of debt or equity securities ahead of or affecting Shares
or the rights thereof or pertaining thereto, the dissolution or liquidation of
the Company or any Affiliate
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or any sale or transfer of all or any part of Company or any Affiliate's assets
or business, or any other corporate act or proceeding.
8.11 No Right to Retention. Neither the Plan, nor any Award granted
pursuant to the Plan, is a contract or agreement that the Company will retain
the services of a Director or Non-employee Contractor for any period of time, or
at any particular rate of compensation, nor does it affect a right of a Director
or the Company to resign or be removed, as the case may be, from the Company's
Board of Directors.
8.12 Securities Laws. Each Award granted under the Plan shall be subject
to the requirement that if at any time the Board of Directors shall determine,
in its discretion, that the listing, registration or qualification of the shares
subject to such grant upon any securities exchange or under any state or federal
law, or that the consent or approval of any government regulatory body, is
necessary or desirable as a condition of, or in connection with, such grant or
the issue or purchase of shares thereunder, such grant shall be subject to the
condition that such listing, registration, qualification, consent or approval
shall have been effected or obtained free of any conditions not acceptable to
the Board of Directors.
SECTION 9. EFFECTIVE DATE OF THE PLAN
The Plan shall be effective as of the date of its approval by the
stockholders of the Company.
SECTION 10. TERM OF THE PLAN
No Award shall be granted under the Plan after the earlier of (i) ten (10)
years from the date of approval of the Plan by the stockholders of the Company
pursuant to Section 9 or (ii) termination of the Plan pursuant to Section 7.1.
However, unless otherwise expressly provided in the Plan or in an applicable
Award Agreement, any Award theretofore granted may extend beyond such date, and
any authority of the Committee to amend, alter, suspend, discontinue or
terminate any such Award, or to waive any conditions or rights under any such
Award, and the authority of the Board of Directors of the Company to amend the
Plan, shall extend beyond such date.
SECTION 11. DEFINITIONS
As used in the Plan, the following terms shall have the meanings set forth
below:
(a) "Affiliate" shall mean (i) any entity that directly or through one
or more intermediaries is controlled by the Company, (ii) any entity in
which the Company has a significant equity interest as determined by the
Committee, (iii) with respect to matters relating to Rule 16b-3, as the
term "affiliate" is used in Rule 16b-3 and (iv) as used in Section 7.2 and
in the term "Associate," as the term "affiliate" is defined in Rule 12b-2
under the Securities Exchange Act of 1934, as amended, or any successor
rule or regulation.
(b) "Associate" is used to indicate a relationship with a specified
person and shall mean (i) any corporation, partnership or other
organization to which such specified person is an officer or partner or is,
directly or indirectly, the Beneficial Owner of ten percent (10%) or more
of any class of equity securities, (ii) any trust or other estate in which
such specified person has a substantial beneficial interest or as to which
such specified person serves as trustee or in a similar fiduciary capacity,
(iii) any relative or spouse of such specified person, or any relative of
such spouse, who has the same home as such specified person or who is a
Director or officer of the Company or any of its parents or Affiliates, and
(iv) any person who is a director or officer of such specified person or
any of its parents or Affiliates (other than the Company or any wholly
owned subsidiary of the Company).
(c) "Award" shall mean any Option, Restricted Stock or Phantom Stock
Unit granted under the Plan.
(d) "Award Agreement" shall mean any written agreement, contract or
other instrument or document evidencing any Award granted under the Plan.
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(e) "Beneficial Owner" shall be defined by reference to Rule 13d-3
under the Securities Exchange Act of 1934, as amended, or any successor
rule or regulation; provided, however, and without limitation, any
individual, corporation, partnership, group, association or other person or
entity which has the right to acquire any Voting Stock at any time in the
future, whether such right is contingent or absolute, pursuant to any
agreement, arrangement or understanding or upon exercise of conversion
rights, warrants or options, or otherwise, shall be the Beneficial Owner of
such Voting Stock.
(f) "Code" shall mean the Internal Revenue Code of 1986, as amended
from time to time.
(g) "Committee" shall mean a committee of the Board of Directors of
the Company designated by such Board to administer the Plan and composed of
not less than two Non-Employee Directors, as defined in Rule 16b-3.
(h) "Disability" shall mean, with respect to an Employee of the
Company or one of its Affiliates, such total and permanent disability as
qualifies the Employee for benefits under the long-term or extended
disability plan of the Company or Affiliate covering the Employee at the
time. With respect to a nonemployee Director, Disability shall mean
inability to perform duties and services as a Director of the Company by
reason of a medically determinable physical or mental impairment supported
by medical evidence which in the opinion of the Committee can be expected
to result in death or which can be expected to last for a continuous period
of not less than twelve (12) months. With respect to a Non-employee
Contractor, Disability shall mean inability to perform duties and services
for the Company or an Affiliate by reason of a medically determinable
physical or mental impairment supported by medical evidence which in the
opinion of the Committee can be expected to result in death or which can be
expected to last for a continuous period of not less than twelve (12)
months.
(i) "Employee" shall mean any person employed by the Company or any
Affiliate.
(j) "Fair Market Value" shall mean, with respect to any property
(including, without limitation, any Shares or other securities), the value
of such property determined by such methods or procedures as shall be
established from time to time by the Committee; provided, that so long as
the closing price of Shares as reported in the "NYSE-Composite
Transactions" section of the Midwest edition of The Wall Street Journal is
reported, Fair Market Value with respect to Shares on a particular date
shall mean such closing price of Shares as so reported for such date (or,
if no prices are quoted for that date, as so quoted for the last preceding
date for which such prices were so quoted).
(k) "Incentive Stock Option" shall mean an option granted under
Section 5.1 of the Plan that is intended to meet the requirements of
Section 422 of the Code, or any successor provision thereto.
(l) "Involuntary Termination" shall mean termination of a
Participant's employment as an Employee or service as a Non-employee
Contractor with the Company or an Affiliate at the election of the Company
or Affiliate, provided that such termination is not Termination for Cause
and provided further, that in the case of a Non-employee Contractor, such
termination is not due to the election of the Company or an Affiliate not
to renew the Non-employee Contractor's contract upon its expiration.
Involuntary Termination shall not include a transfer of assignment or
location of a Participant where the Participant is employed by the Company
or an Affiliate both before and after the transfer.
(m) "Non-employee Contractor" shall mean a person who is not an
Employee as defined in this Section 11, who is performing services for the
Company or an Affiliate under a contractual arrangement either directly or
through a third party agency.
(n) "Non-Qualified Stock Option" shall mean an option granted under
Section 5.1 or Section 6 of the Plan that is not intended to be an
Incentive Stock Option.
(o) "Option" shall mean an Incentive Stock Option or a Non-Qualified
Stock Option.
(p) "Participant" shall mean an Employee or other individual described
in Sections 4.1 and 4.2 designated to be granted an Award under the Plan.
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(q) "Person" shall mean any individual, corporation, partnership,
association, joint-stock company, trust, unincorporated organization or
government or political subdivision thereof.
(r) "Phantom Stock Unit" shall mean an Award granted under Section
5.2(vii) of the Plan.
(s) "Released Securities" shall mean securities that were Restricted
Stock with respect to which all applicable restrictions have expired,
lapsed or been waived.
(t) "Restricted Stock" shall mean any Shares granted under Section 5.2
or Section 6.1 or Section 6.2 of the Plan.
(u) "Retirement" shall mean (i) with respect to an Employee of the
Company or one of its Affiliates, after attainment of age 55 with at least
5 years of service, the Employee's termination of employment and
eligibility to receive benefits under the Enron Corp. Cash Balance Plan,
and (ii) with respect to a Director of the Company, termination of service
as a Director or Honorary Director, after at least five (5) years of
continuous service, or upon or after the date the Director attains age 72.
(v) "Rule 16b-3" shall mean Rule 16b-3 promulgated by the Securities
and Exchange Commission under the Securities Exchange Act of 1934, as
amended from time to time.
(w) "Shares" shall mean the shares of Common Stock of the Company and
such other securities or property as may become the subject of Awards
pursuant to an adjustment made under Section 3.2 of the Plan.
(x) "Termination for Cause" shall mean termination of employment or
services at the election of the Company or an Affiliate because of the
Participant's (i) conviction of a felony (which, through lapse of time or
otherwise, is not subject to appeal); or (ii) willful refusal without
proper legal cause to perform the Participant's duties and
responsibilities; or (iii) willfully engaging in conduct which the
Participant has, or in the opinion of the Committee should have, reason to
know is materially injurious to the Company or an Affiliate. Such
termination of employment or services shall be effected by notice thereof
delivered by the Company or an Affiliate to the Participant and shall be
effective as of the date stated in such notice; provided, however, that if
(a) such termination of employment or services is because of the
Participant's willful refusal without proper cause to perform any one or
more duties and responsibilities and (b) within seven (7) days following
the date of such notice the Participant shall cease such refusal and shall
use all reasonable efforts to perform such obligations, the termination of
employment or services, if made, shall not be for cause.
(y) "Voting Stock" shall mean all outstanding shares of capital stock
of the Company entitled to vote generally in elections for directors,
considered as one class; provided, however, that if the Company has shares
of Voting Stock entitled to more or less than one vote for any such share,
each reference to a proportion of shares of Voting Stock shall be deemed to
refer to such proportion of the votes entitled to be cast by such shares.
(z) Any terms or provisions used herein which are defined in Sections
83, 421, 422 or 424 of the Code, or the regulations thereunder, or in Rule
16b-3 of the Securities Exchange Act of 1934, as amended, shall have the
meanings as therein defined.
SECTION 12. PURPOSE OF FOLLOWING SECTIONS
12.1 The purpose of these additional sections is to obtain Approved Share
Option Scheme status for UK Participants under the Plan. These sections are to
be read as a continuation of the Plan and modify the Options granted thereunder
only in relation to UK resident Participants who are granted Options under the
Plan with additional sections. They do not add to or modify the Plan in respect
of any other category of Participant.
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SECTION 13. DEFINITIONS AND CONSTRUCTION
13.1 The following additional capitalized definitions shall have the
respective meanings set forth below:
(a) "Act" shall mean the Income and Corporation Taxes Act 1988.
(b) "Approved Option" shall mean an Option granted under the Plan with
additional sections to a UK Participant while the Plan with additional
sections is approved by the UK Inland Revenue under the Act.
(c) "Limit" shall mean the greater of
(i) L100,000 or
(ii) if there were Relevant Emoluments for the preceding Year of
Assessment, four times the amount of the Relevant Emoluments for the
current or preceding Year of Assessment (whichever of those years gives
the greater amount) or
(iii) if there were no Relevant Emoluments for the preceding Year
of Assessment, four times the amount of the Relevant Emoluments for the
period of 12 months beginning with the first day during the current Year
of Assessment in respect of which there are Relevant Emoluments.
"Relevant Emoluments" shall mean such of the emoluments of the UK
Participant as are liable to be paid under deduction of PAYE income tax.
(d) "UK Participant" shall mean an Employee or director of the Company
or any participating Affiliate who satisfies the eligibility criteria in
Section 4 of the Plan (as modified by Section 15).
(e) "Year of Assessment" shall mean a year beginning on any 6 April
and ending on the following 5 April.
13.2 The following definitions in Section 11 shall be modified as set forth
below in relation to Approved Options only and shall be so construed throughout
the Plan:
(a) "Affiliate" shall mean any company which is both a Subsidiary of
the Company (as defined by Section 736 of the Companies Act 1985) and under
the Control of the Company (as defined by Section 840 of the Act) and which
is for the time being designated by the Committee as a participating
Affiliate.
(b) "Award" shall mean Options only.
(c) "Option" shall mean Non-Qualified Stock Options only.
(d) "Shares" shall mean shares of Common Stock of the Company which
satisfy the provisions of paragraph 10 to 14 inclusive of Schedule 9 to the
Act.
13.3 The following definitions in Section 11 shall be treated as having
been omitted therefrom in relation to Approved Options only and the Plan shall
accordingly be constructed throughout as if all references to such definitions
had been omitted:
(i) "Incentive Stock Option".
(ii) "Released Securities".
(iii) "Restricted Stock".
(iv) "Stock Appreciation Right".
(v) "Phantom Stock Unit'
SECTION 14. ADJUSTMENTS
14.1 Section 3.2 shall not apply to Approved Options.
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14.2 In the event of any variation of the share capital of the Company by
way of capitalization or rights issue, consolidation, subdivision or reduction
of capital or otherwise, the number of Shares subject to any Approved Option and
the Exercise Price for each of those Shares shall be adjusted in such manner as
the Committee decide to be fair and reasonable provided that:
(i) the aggregate amount payable on the exercise of an Approved Option
in full is not increased
(ii) the Exercise Price for a Share is not reduced below its par value
(iii) no adjustment shall be made without the prior approval of the
Board of Inland Revenue and
(iv) following the adjustment the Shares continue to satisfy the
conditions specified in paragraphs 10 to 14 inclusive of Schedule 9 to the
Act.
SECTION 15. ELIGIBILITY
Section 4.1 shall be modified in relation to Approved Options so that:
(a) only Directors of the Company or a participating Affiliate who are
required to devote substantially the whole of their time to their duties
and in any case not less than 25 hours per week (excluding meal breaks),
and
(b) Employees who are not Directors of the Company or a participating
Affiliate who are required to devote substantially the whole of their time
to their duties and in any case not less than 20 hours per week (excluding
meal breaks) who are not ineligible to participate in the Plan by virtue of
paragraph 8 of Schedule 9 to the Act (material interest in a close company)
shall be eligible to be designated a Participant.
SECTION 16. AWARDS
16.1 Options.
A. Exercise Price. The provisions of Section 5.1(i) of the Plan shall be
modified in relation to Approved Options as if the words: "and specified in the
Award Agreement" had been included immediately after the word "Committee" in
line 2 thereof.
B. Time and Method of Exercise. Section 5.1(ii) of the Plan shall be
modified in relation to Approved Options so that an Option may only be
exercised by a Participant giving notice to the Company in writing of the
number of Shares in respect of which he wishes to exercise the Option
accompanied by the appropriate payment either in cash or by the delivery of
irrevocable instructions to a broker to deliver promptly to the Company an
amount equal to the relevant exercise price. No Approved Option may be
exercised by a UK Participant who has become ineligible to participate in
the Plan by virtue of paragraph 8 of Schedule 9 to the Act (material
interest in a close company).
16.2 Restricted Stock. The provisions of Section 5.2 of the Plan shall not
apply to Approved Options.
16.3 General.
A. Further Limitations on the Amount of Awards. No Approved Options
shall be granted to UK Participants if at the relevant date of grant the
aggregate Exercise Price of all subsisting Approved Options granted under
the Plan and any other plan established by the Company or any associated
company of the Company and approved by the Inland Revenue under the
provisions of Schedule 9 to the Act (other than a savings-related share
option scheme) would exceed the Limit.
B. Limits on Transfer of Awards. Section 5.3(iii) of the Plan shall be
modified so that Approved Options will only be exercisable for the period
of 12 months following the death of the relevant UK Participant. The
provisions of Section 5.3(iii)(b) and Section 5.3(iii)(c) shall not apply
to Approved Options.
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C. Issue or Transfer of Shares. The appropriate number of Shares shall
be allotted or transferred (as the case may be) within 30 days following
the exercise of an Option.
SECTION 17. GRANTS TO NON-EMPLOYEE DIRECTORS
The provisions of Section 6 shall not apply to Approved Options.
SECTION 18. AMENDMENT AND TERMINATION
18.1 Amendments to the Plan. No amendments to the Plan which relate to an
Approved Option shall be effective unless they are approved by the UK Inland
Revenue.
18.2 Adjustments of Awards upon the Occurrence of Certain Unusual or
Nonrecurring Events. The provisions of Section 7.2A of the Plan shall not apply
to Approved Options.
Executed as of the
- ------ day of
- ------------ , 1999
ENRON CORP.
By:
------------------------------------
Title:
ATTEST:
- ------------------------------------------
Vice President and Secretary
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[ENRON LOGO]
59
ENRON CORP.
P [ENRON LOGO] PROXY SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS OF ENRON CORP.
FOR ANNUAL MEETING ON MAY 4, 1999
R
THE UNDERSIGNED hereby appoints Kenneth L. Lay, James V. Derrick, Jr., and Peggy B. Menchaca, or any of them, and any
O substitute or substitutes, to be the attorneys and proxies of the undersigned at the Annual Meeting of Shareholders of Enron
Corp. ("Enron") to be held at 10:00 a.m. Houston time on Tuesday, May 4, 1999, in the LaSalle Ballroom of the Doubletree Hotel
X at Allen Center, 400 Dallas St., Houston, Texas, or at any adjournment thereof, and to vote at such meeting the shares of stock
of Enron that the undersigned held of record on the books of Enron on the record date for the meeting.
Y
ELECTION OF DIRECTORS, NOMINEES: (change of address/comments)
Robert A. Belfer, Norman P. Blake, Jr., Ronnie C.
Chan, John H. Duncan, Joe H. Foy, Wendy L. Gramm, ----------------------------------------------------------------
Ken L. Harrison, Robert K. Jaedicke, Kenneth L. Lay,
Charles A. LeMaistre, John Mendelsohn, Jerome J. ----------------------------------------------------------------
Meyer, Jeffrey K. Skilling, John A. Urquhart, John
Wakeham, Herbert S. Winokur, Jr. ----------------------------------------------------------------
----------------------------------------------------------------
(If you have written in the above space, please mark the
corresponding box on the reverse side of this card)
YOU ARE ENCOURAGED TO SPECIFY YOUR CHOICES BY MARKING THE APPROPRIATE BOXES, SEE REVERSE SIDE, BUT YOU -------------
NEED NOT MARK ANY BOXES IF YOU WISH TO VOTE IN ACCORDANCE WITH THE BOARD OF DIRECTORS' RECOMMENDATIONS. SEE REVERSE
THE PROXIES CANNOT VOTE YOUR SHARES UNLESS YOU SIGN AND RETURN THIS CARD. SIDE
-------------
60
- --- Please mark your | 7405
X votes as in this |___
- --- example.
This proxy when properly executed will be voted in the manner directed herein.
If no direction is made, this proxy will be voted FOR proposals 1, 2, 3, 4
and 5.
- --------------------------------------------------------------------------------
The Board of Directors recommends a vote FOR proposals 1, 2, 3, 4 and 5.
- --------------------------------------------------------------------------------
FOR WITHHELD
1. Election of Directors. (see reverse) / / / /
For, except vote withheld from the following nominee(s):
- ------------------------------------------------------
FOR AGAINST ABSTAIN
2. Approval of the Enron Corp. Annual / / / / / /
Incentive Plan.
3. Approval of the Amended and / / / / / /
Restated 1991 Stock Plan.
4. Ratification of appointment / / / / / /
of independent accountants.
5. Approval of the Amendment to / / / / / /
Enron's Amended and Restated
Articles of Incorporation to
increase the total number of
authorized shares from
600,000,000 to ___________.
6. In the discretion of the proxies Change of Address/ / /
named herein, the proxies are Comments on
authorized to vote upon other Reverse Side
matters as are properly brought
before the meeting.
All as more particularly described in the Proxy Statement relating to such
meeting, receipt of which is hereby acknowledged.
Please sign exactly as name appears hereon. Joint owners should each sign.
When signing as attorney, executor, administrator, trustee or guardian,
please give full title as such.
________________________________________________________
________________________________________________________
SIGNATURE(S) DATE
- --------------------------------------------------------------------------------
- FOLD AND DETACH HERE -
THIS IS YOUR PROXY.
[LOGO] YOUR VOTE IS IMPORTANT.
ENRON CORP.
IF YOU NEED ASSISTANCE IN ANY OF THE FOLLOWING AREAS:
o DIVIDEND CHECKS - ADDRESS CHANGES - LEGAL TRANSFERS
o DIRECT DEPOSIT - HAVE YOUR ENRON CORP. QUARTERLY DIVIDENDS ELECTRONICALLY
DEPOSITED INTO YOUR CHECKING OR SAVINGS ACCOUNT ON DIVIDEND PAYMENT DATE.
(No more worries about late or lost dividend checks.) Call (800) 870-2340
to enroll.
o DIVIDEND REINVESTMENT - HAVE YOUR ENRON CORP. QUARTERLY DIVIDENDS
REINVESTED IN THE PURCHASE OF ADDITIONAL SHARES ON ENRON CORP. COMMON STOCK
WITH NO COMMISSION OR SERVICE CHARGE FOR THE PURCHASE OF THE SHARES FOR
RECORD HOLDERS AND A FEE OF $15 PLUS 12 CENTS PER SHARE TO SELL SHARES.
(There is no charge to have shares delivered to you in certificate form.)
o CONSOLIDATION OF ACCOUNTS - ELIMINATE MULTIPLE ACCOUNTS FOR ONE HOLDER AND
CERTAIN DUPLICATE SHAREHOLDER MAILINGS GOING TO ONE ADDRESS. (Dividend
checks, annual reports and proxy materials would continue to be mailed to
each shareholder.)
JUST CALL OUR TRANSFER AGENT'S TELEPHONE RESPONSE CENTER:
(800) 519-3111 OR (201) 324-1225
OR WRITE TO:
FIRST CHICAGO TRUST COMPANY OF NEW YORK
A DIVISION OF EQUISERVE
P.O. BOX 2500
JERSEY CITY, NJ 07303-2500
FOR EARNINGS INFORMATION, CALL (800) 808-0363