ITEM 4. APPROVAL OF THE ENRON CORP. PERFORMANCE UNIT PLAN Enron currently maintains the Enron Corp. Performance Unit Plan (the "Performance Unit Plan"), the purpose of which is to advance the interests of Enron and its subsidiaries and their stockholders by providing long-term incentive compensation tied to increases in stockholder value to those key executive employees who are in a position to make substantial contributions to the long-term financial success of Enron and its subsidiaries. The following summary description of the Performance Unit Plan is qualified in its entirety by reference to the full text of the Plan which is attached to this Proxy Statement as Exhibit A. Employees of Enron and its subsidiaries who are participants in the Enron Executive Compensation Program (currently, approximately 65 people) are eligible to participate in the Performance Unit Plan, which is administered by the Compensation Committee of the Board of Directors (the "Committee"). Prior to the beginning of each calendar year, the Committee designates which eligible employees will receive an award of Performance Units for that year, and the number of Performance Units granted to each recipient. In no event may any individual receive a grant of more than 3,000,000 Performance Units in a calendar year. A Performance Unit has a Performance Period which is four consecutive calendar years (16 quarters) beginning with and including the calendar year in which the Performance Unit is granted. Bookkeeping accounts are maintained for Participants who received grants of Performance Units. Each Performance Unit granted has an initial value of $1.00. The payment value of a Performance Unit, referred to as the Adjusted Value or Pro-rated Adjusted Value, as of a Valuation Date will be determined according to the following schedule and is based on Enron's Total Shareholder Return Ranking Position during an applicable Performance Period to the Valuation Date compared to that of the Performance Peer Group: COMPANY'S TOTAL SHAREHOLDER ADJUSTED RETURN RANKING POSITION VALUE - --------------------------- -------- 1...................................................... $2.00 2...................................................... 1.50 3...................................................... 1.00 4...................................................... 0.75 5...................................................... 0.50 6...................................................... 0.25 7 through 12................................................ 0.00 26 29 If Enron's cumulative Total Shareholder Return percentage for the applicable Performance Period as of a Valuation Date, does not exceed the cumulative percentage return for 90-day U.S. Treasury Bills, the Performance Unit will have no value regardless of Enron's Total Shareholder Return Ranking Position. The method to be used to calculate Total Shareholder Return and cumulative percentage return for 90-day U.S. Treasury Bills and the determination of which companies are to be included in the Performance Peer Group are established by the Committee prior to the beginning of an applicable Performance Period or such later date as permitted by the Internal Revenue Code or applicable regulations. The Performance Peer Group is comprised of twelve companies, including Enron. If any company in the applicable Performance Peer Group ceases to be a freestanding publicly-held company during an applicable Performance Period, the Committee will substitute another publicly-held company to be used for the remainder of the Performance Period, and the Total Shareholder Return of both companies will be combined into one Total Shareholder Return for the purpose of determining Enron's comparative ranking for the Performance Period. A Valuation Date occurs whenever payments with respect to Performance Units become payable. The regular Valuation Date is the last day of the Performance Period of a Performance Unit. A Valuation Date can occur at other times such as termination of employment or upon the Committee's determination to make interim benefit payments prior to the expiration of the Performance Period. The Committee can decide to make interim benefit payments to any Participant with respect to Performance Units granted for any particular Performance Period. An interim benefit payment may be provided for during either the ninth (9th) or thirteenth (13th) quarter of a Performance Period, but not both. The interim benefit payment will be based upon the Adjusted Value of the Performance Units credited to the Participant's Account for the applicable Performance Period, and the amount of any such payment shall not exceed 40 percent (40%) of such Adjusted Value. The Valuation Date for determining such Adjusted Value is the last day of the Performance Period quarter immediately preceding the date of the interim benefit payment. Interim benefit payments will only be made to those Participants who have remained an Employee continuously from the date of the grant of the applicable Performance Units until the payment date of the interim benefit payments relating to such Performance Units. The amount of any final benefit payment to a Participant with respect to Performance Units granted for any particular Performance Period will be reduced by the amount of any interim benefit payment. However, if the interim benefit payment exceeds the amount of the final benefit payment, no reimbursement by the Participant will be required. When benefit payments with respect to Performance Units, with the approval of the Committee, are made at a time earlier than the end of the applicable Performance Period because of a Participant's termination of employment due to Retirement, Death, Disability or Involuntary Termination, such payments will be based on the Pro-Rated Adjusted Value of the Performance Units. The Pro-Rated Adjusted Value is the product of the Adjusted Value of a Performance Unit multiplied by a proration factor, which is determined by dividing the number of completed quarters during the applicable Performance Period for the Performance Unit by the number 16. The Valuation Date for determining such payment is the last day of the Plan Year quarter coincident with or immediately preceding the date of such termination of employment. If a Participant voluntarily terminates employment or if Enron terminates a Participant's employment in a Termination for Cause, all Performance Units credited to the Participant's account are canceled and no benefit payments are made to the Participant. 27 30 Benefit payments for Performance Units will be made in a single sum, and may be made in cash, Enron Common Stock, or a combination thereof as the Committee in its sole discretion may determine. Cash payments may be deferred by a Participant under the Enron Corp. Deferral Plan. Benefit payments under the Performance Unit Plan will be paid from the general assets of Enron. No fund or trust is established or maintained under the Performance Unit Plan for the payment of benefits. The Enron Board of Directors, or the Committee acting on behalf of the Board, may amend or modify the Performance Unit Plan at any time as long as it does not impair the rights of the recipient of a grant previously made without the consent of such recipient. Also, no such amendment or modification may be made without the approval of the stockholders of Enron that would: (i) change the class of Eligible Employees who may be designated to receive an award of Performance Units under the Plan; (ii) change the criteria used to determine the Adjusted Value to a performance measure other than Total Shareholder Return; (iii) change the schedule used to determine the Adjusted Value; (iv) increase the maximum grant of Performance Units that any individual may receive in a Plan Year; or (v) otherwise modify the material terms of the Plan. Stockholder approval of the Performance Unit Plan is required if payments from the Performance Unit Plan are to be tax deductible as performance-based compensation under Section 162(m) of the Internal Revenue Code, 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 Performance Unit Plan by the stockholders of Enron is also advisable in order for the Performance Unit 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 stockholders do not approve the Performance Unit Plan, the plan will continue to be maintained, but payments made on or after January 1, 1994 will not be tax deductible by Enron for executives whose compensation exceeds $1 million. UNITS GRANTED UNDER THE PLAN The following units were granted under the Performance Unit Plan in 1994: NUMBER NAME OF UNITS(1) ---- ----------- Kenneth L. Lay................................................ 756,000 Richard D. Kinder............................................. 501,000 Ronald J. Burns............................................... 225,000 Edmund P. Segner, III......................................... 225,000 Rodney L. Gray................................................ 0 All Executive Officers........................................ 2,587,000 All Non-Employee Directors.................................... 0 All Non-Executive Officer Employees........................... 2,312,500 - --------------- (1) Performance units shown were granted at $1. The payout value is not determinable until the end of a 4-year performance period, but ranges from $0 to $2 per unit. 28 31 REQUIRED VOTE AND RECOMMENDATION The approval of the Performance Unit Plan shall be effective upon receiving the affirmative vote of the holders of a majority of the Voting Stock present or represented by proxy and entitled to vote at the Annual Meeting. Under Delaware law, an abstention would have the same legal effect as a vote against this proposal, but a broker non-vote would not be counted for purposes of determining whether a majority had been achieved. 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 Enron Corp. Performance Unit Plan. THE BOARD OF DIRECTORS RECOMMENDS VOTING "FOR" THIS PROPOSAL. ITEM 5. 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 Plan which is attached to this Proxy Statement as Exhibit B. Employees of Enron and its subsidiaries are eligible to receive awards under the Annual Incentive Plan, which will be administered by the Compensation Committee of the Board of Directors (the "Committee"). Annually, before January 1 of each calendar year for which awards will be paid, or such later date as permitted under the Internal Revenue Code or applicable regulations, the Committee will establish an award fund, expressed as a percent of after-tax net income of Enron, for each calendar year. For 1994, the award fund must be established by the Committee prior to April 1, 1994. 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. The maximum amount of compensation that can be paid to any individual for a calendar year is one-half of one percent (.5%) of the after-tax net income of Enron for such 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 Enron Common Stock. The Committee may modify or terminate the Plan at any time without prior notice to or consent of employees; provided that, without the approval of the stockholders of Enron, no such amendment shall be made that would change the class of employees eligible to receive awards under the Plan, base the award fund on a performance measure other than after-tax net income, increase the maximum individual target award level under the Plan, or modify any other material terms of the Plan. Stockholder approval is required if payments from the Annual Incentive Plan are to be tax deductible as performance-based compensation under Section 162(m) of the Internal Revenue Code, enacted in 1993. Section 162(m) generally disallows a tax deduction for compensation over $1 million 29 32 paid to a Named Officer, unless it qualifies as performance-based. Approval of the Annual Incentive Plan by the stockholders 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 stockholders do not approve the Annual Incentive Plan, the plan will continue to be maintained, but payments made on or after January 1, 1994 will not be tax deductible by Enron for executives whose compensation exceeds $1 million and payments made in Common Stock, if any, would not be exempt under Rule 16-b3. AMOUNTS GRANTED UNDER THE PLAN FOR 1993 The benefits to be received for 1994 performance under the Annual Incentive Plan are not determinable, since funding will be based on 1994 after-tax net income. However, actual payments under the Annual Incentive Plan made in 1994 for 1993 performance are shown below. The maximum payout that could have been paid to any individual, based on .5% of 1993 after-tax net income was $1,932,500. ANNUAL INCENTIVE PLAN NAME PAYMENTS ---- ----------- Kenneth L. Lay....................................................... $ 1,040,000 Richard D. Kinder.................................................... $ 720,000 Ronald J. Burns...................................................... $ 320,000 Edmund P. Segner, III................................................ $ 260,000 Rodney L. Gray....................................................... $ 260,000 All Executive Officers............................................... $ 3,565,600 All Non-Employee Directors........................................... $ 0 All Non-Executive Officer Employees.................................. $20,934,400 REQUIRED VOTE AND RECOMMENDATION The approval of the Annual Incentive Plan shall be effective upon receiving the affirmative vote of the holders of a majority of the Voting Stock present or represented by proxy and entitled to vote at the Annual Meeting. Under Delaware law, an abstention would have the same legal effect as a vote against this proposal, but a broker non-vote would not be counted for purposes of determining whether a majority had been achieved. 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 Enron Corp. Annual Incentive Plan. THE BOARD OF DIRECTORS RECOMMENDS VOTING "FOR" THIS PROPOSAL. 30 33 ITEM 6. APPROVAL OF AN AMENDMENT TO THE ENRON CORP. 1991 STOCK PLAN The stockholders approved the Enron Corp. 1991 Stock Plan at the 1991 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 requirements of Section 422 of the Internal Revenue Code and stock options with a grant price that is discounted from the fair market value to be used only in lieu of cash bonus payments, (ii) stock appreciation rights ("SAR's") and (iii) restricted stock, any of which may be granted separately or together. Grants may be made to any employee, officer or employee-director of Enron or its affiliates as well as to individuals who are non-employee directors of Enron or an affiliate. The 1991 Stock Plan is administered by the Compensation Committee of the Board of Directors, which 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 Enron 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 an SAR is entitled to receive the excess of the fair market value on the date of exercise over the grant price of the SAR. Restricted stock may provide the recipient all of the rights of an Enron stockholder, including the right to vote the shares and receive any dividends, however the stock may not be transferred by the recipient until certain restrictions, such as time, lapse. The Board of Directors of Enron desires to amend the 1991 Stock Plan to increase the number of shares authorized for granting awards under the plan, which requires stockholder approval. Amendment of several provisions is also required so that certain awards under the plan will qualify as performance-based compensation under Section 162(m) of the Internal Revenue Code. 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 this Proxy Statement as Exhibit C. CHANGES TO THE 1991 STOCK PLAN Among the changes effected by the proposed amendment to the 1991 Stock Plan, is an increase, effective May 3, 1994, in the number of shares of Enron Common Stock available for granting Awards. The number of shares authorized for granting Awards when the 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% being granted as restricted stock. Less than 1,500,000 remain available for grant. The proposed amendment will increase the total shares available for grant to 10,000,000 shares of Enron Common Stock effective May 3, 1994, with no more than 25% being granted as restricted stock. The proposed amendment places a limit of 1,000,000 shares on the number of options or stock appreciation rights that can be granted to any individual in a calendar year. The purchase price of an Option will not be less than the fair market value of a share on the date of grant. The proposed amendment would also permit grants of performance-based restricted stock which is either issued or becomes vested based on the attainment of pre-established net income and/or cash flow criteria 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. 31 34 A maximum of 100,000 shares of performance-based restricted stock can be granted to any individual in a calendar year. The proposed amendment would permit grants of Awards to non-employee contractors performing services for Enron or its affiliates. Discounted options in lieu of cash bonus payments will no longer be permitted, and provisions of the 1991 Stock Plan pertaining to discounted options are being revised or deleted as appropriate. The proposed amendment authorizes the Board of Directors of Enron to amend the 1991 Stock Plan, without stockholder approval, to authorize additional shares of Enron Common Stock for granting Awards in lieu of other compensation or benefits, such as cash bonus payments or Enron contributions to the Enron Corp. Savings Plan, to persons who are not subject to the short swing profit prohibitions of Section 16(b) of the Exchange Act. The Board of Directors cannot authorize additional shares for granting Awards to persons who are subject to Section 16 of the Exchange Act, increase the maximum number of options or restricted stock that may be granted to any individual in any calendar year or modify the material terms of the 1991 Stock Plan, without obtaining stockholder approval. Approval of the amendment to the 1991 Stock Plan by the stockholders of Enron is required in order for the 1991 Stock Plan to continue 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 acquisition of stock options, transactions relating to certain stock appreciation rights, restricted stock grants, and the use of already owned shares as payment for the exercise price of stock options. Stockholder approval of the amendment is also required so that certain awards under the Plan will qualify as performance-based compensation under Section 162(m) of the Internal Revenue Code. AWARDS UNDER THE PROPOSED AMENDMENT Benefits payable or amounts that will be granted after the effective date of the proposed amendment to the 1991 Stock Plan are not determinable at this time. REQUIRED VOTE AND RECOMMENDATION The approval of the amendment to the 1991 Enron Corp. Stock Plan shall be effective upon receiving the affirmative vote of the holders of a majority of the Voting Stock present or represented by proxy and entitled to vote at the Annual Meeting. Under Delaware law, an abstention would have the same legal effect as a vote against this proposal, but a broker non-vote would not be counted for purposes of determining whether a majority had been achieved. 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 Enron Corp. Stock Plan. THE BOARD OF DIRECTORS RECOMMENDS VOTING "FOR" THIS PROPOSAL. 32 35 STOCKHOLDER PROPOSALS AND DIRECTOR NOMINATIONS Stockholders may propose matters to be presented at stockholders' meetings and may also nominate persons to be Directors. Formal procedures have been established for those proposals and nominations. PROPOSALS FOR 1995 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 Stockholders of Enron to be held in 1995 must be received by Enron, addressed to Peggy B. Menchaca, Vice President and Secretary, 1400 Smith Street, Houston, Texas 77002, no later than November 25, 1994, 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 by-laws provide that for business to be properly brought before the Annual Meeting of Stockholders, 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 stockholder of Enron who is a stockholder 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 stockholder of Enron, the stockholder must have given timely notice in writing of the business to be brought before an Annual Meeting of Stockholders of Enron to the Secretary of Enron. TO BE TIMELY, A STOCKHOLDER'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 FEBRUARY 2, 1995. A stockholder's notice to the Secretary shall set forth as to each matter the stockholder 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, of the stockholder 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 stockholder, (iv) any material interest of the stockholder in such business and (v) a representation that the stockholder intends to appear in person or by proxy at the meeting to bring the proposed business before the meeting. Notwithstanding the foregoing by-law provisions, a stockholder 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 by-law provisions. Notwithstanding anything in Enron's by-laws to the contrary, no business shall be conducted at the annual meeting except in accordance with the procedures outlined above. PROPOSALS FOR 1994 ANNUAL MEETING The date for delivery to, or receipt by, Enron of any notice from a stockholder of Enron regarding business to be brought before the 1994 Annual Meeting of Stockholders of Enron was February 3, 1994. With respect to business to be brought before the 1994 Annual Meeting of Stockholders, Enron has not received any notices from its stockholders that Enron is required to include in this proxy statement. 33 36 NOMINATIONS FOR 1995 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 stockholders (a) by or at the direction of the Board of Directors or (b) by any stockholder of Enron who is a stockholder 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 STOCKHOLDER'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 STOCKHOLDERS OF ENRON, OR BEFORE FEBRUARY 2, 1995, AND (II) WITH RESPECT TO AN ELECTION TO BE HELD AT A SPECIAL MEETING OF STOCKHOLDERS OF ENRON FOR THE ELECTION OF DIRECTORS, NOT LATER THAN THE CLOSE OF BUSINESS ON THE 10TH 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 stockholder's notice to the Secretary shall set forth (a) as to each person whom the stockholder 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 stockholder giving the notice, (i) the name and address, as they appear on Enron's books, of such stockholder, and (ii) the class and number of shares of capital stock of Enron which are beneficially owned by the stockholder. In the event a person is validly designated as nominee to the Board and shall thereafter become unable or unwilling to stand for election to the Board of Directors, the Board of Directors or the stockholder who proposed such nominee, as the case may be, may designate a substitute nominee. Notwithstanding the foregoing by-law provisions, a stockholder 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 by-law provisions. NOMINATIONS FOR 1994 ANNUAL MEETING The date for delivery to, or receipt by, Enron of any notice from a stockholder of Enron regarding nominations for directors to be elected at the 1994 Annual Meeting of Stockholders of Enron was February 3, 1994. Enron has not received any notices from its stockholders regarding nominations for directors to be elected at the 1994 Annual Meeting of Stockholders. 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 34 37 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 other than with respect to Item 3 and will pay a fee of approximately $6,000.00 plus reimbursement of expenses. By Order of the Board of Directors PEGGY B. MENCHACA Vice President and Secretary Houston, Texas March 25, 1994 35 38 EXHIBIT A ENRON CORP. PERFORMANCE UNIT PLAN I. PURPOSE Enron Corp. ("Company") hereby establishes a performance unit plan for key executive employees of the Company and its participating Subsidiaries, which plan as amended from time to time shall be known as the "Enron Corp. Performance Unit Plan" ("Plan"). The purpose of the Plan is to advance the interests of the Company, its subsidiaries and their stockholders by providing long-term incentive compensation tied to increases in shareholder value to those key executive employees of the Company who are in a position to make substantial contributions to the long-term financial success of the Company and its Subsidiaries. II. DEFINITIONS Whenever used in the Plan, the following terms shall have the respective meanings set forth below unless otherwise expressly provided: A:. "Account" means the separate account maintained with respect to each Participant. B. "Adjusted Value" means the dollar amount value of Performance Units determined as of a Valuation Date. C. "Beneficiary" means the person, persons, trust or other entity designated by a Participant. D. "Board" means the Board of Directors of the Company. E. "Code" means the Internal Revenue Code of 1986, as amended from time to time. F. "Committee" means the Compensation Committee of the Board, which Committee is responsible for the administration of the Plan. G. "Eligible Employee" means an Employee of the Company or its Subsidiaries who is a participant in the Enron Executive Compensation Program. H. "Employee" means any individual who is employed by the Company or a Subsidiary. I. "Employer" means the Company or Subsidiary adopting the Plan. J. "Participant" means an Eligible Employee who has received a grant of Performance Units under the Plan. K. "Performance Peer Group" means those publicly-held companies (as hereinafter defined) against which the Company's common stock performace during the Performance Period is ranked to determine the Adjusted Value of Performance Units under the Plan. L. "Performance Period" means a period of four consecutive Plan Years with respect to which Performance Units are granted to Eligible Employees. A separate Performance Period shall begin as of the first day of each Plan Year. Each Performance Period shall consist of sixteen (16) quarterly periods of three calendar months each. 39 M. "Performance Unit" means a unit of long-term incentive compensation granted to an Eligible Employee with respect to a particular Performance Period. N. "Plan Year" means a consecutive twelve (12) month period beginning January 1 and ending December 31. O. "Pro-Rated Adjusted Value" means the dollar amount value of Performance Units determined as of a Valuation Date which is earlier than the end of a Performance Period. P. "Subsidiary" means a corporation or non-corporate entity affiliated with the Company which the Committee determines to be eligible to adopt the Plan. Q. "Total Shareholder Return" means the sum of the appreciation or depreciation in the price of a share of a company's common stock and the dividends paid, expressed on a percentage basis, as calculated in a manner determined by the Committee. R. "Total Shareholder Return Ranking Position" means the relative placement of the Company's common stock performance compared to the other companies in the Performance Peer Group, with a ranking of first (1st) corresponding to the company with the highest Total Shareholder Return. S. "Valuation Date" means the date as of which the Adjusted Value or Pro-Rated Adjusted Value of Performance Units are determined. III. PARTICIPANTS A. Designation. The designation of which "Eligible Employees" are to receive an award of Performance Units under the Plan shall be made with respect to each separate Plan Year, and shall be determined as follows: 1. In December prior to the beginning of each Plan Year, the Office of the Chairman of the Company shall present a nomination list to the Committee of those Eligible Employees (if any) recommended to the Committee for consideration as recipients of Performance Unit awards for the Plan Year. 2. After giving due consideration to the nomination list described above, the Committee, in its sole discretion, shall designate, prior to the beginning of each Plan Year, which of the Eligible Employees will receive an award of Performance Units for the subject Plan Year. The Eligible Employees so designated by the Committee for the subject Plan Year may include any, all or none of the Eligible Employees included on such nomination list, and may also include such other Eligible Employees as the Committee shall deem appropriate. All such determinations and designations by the Committee shall be final and binding on all Employees. The Committee shall provide each designated Eligible Employee for a Plan Year with a written notice of any Performance Units granted to such Eligible Employee during such Plan Year. Such notice may be given at such time and in such manner as the Committee may determine from time to time. Such a designation shall be limited to the Plan Year for which it is made, and shall not create any right in the Eligible Employee to be designated as a recipient of a Performance Unit award for any subsequent Plan Year. 2 40 B. Participation. Each Eligible Employee who has received a grant of Performance Units under the Plan and has Performance Units credited to his Account under the Plan shall be a Participant under the Plan, and shall continue as a Participant so long as there are Performance Units credited to his Account under the Plan. IV. GRANT OF PERFORMANCE UNITS The number of Performance Units to be granted to an Eligible Employee shall be determined by the Committee in accordance with the provisions of the Plan. Each such grant of Performance Units shall be made with respect to the Performance Period commencing with the Plan Year during which such grant is made, and such Performance Units shall thereafter be identified by reference to the Plan Year in which such Performance Units are granted. For example, Performance Units granted to a Participant for the 1994 Plan Year for the Performance Period beginning January 1, 1994 and ending December 31, 1997, shall be identified as 1994 Performance Units. In no case shall any Eligible Employee receive more than 3,000,000 Performance Units in a Plan Year. All determinations with respect to the grant of Performance Units under the Plan shall be in the sole discretion of the Committee and shall be final and binding on all Employees. V. VALUATION OF PERFORMANCE UNITS A. Participant Accounts. The Committee shall maintain, or cause to be maintained, an Account for each Participant for the purpose of accounting for the Participant's Performance Unit interest under the Plan. Such Account shall reflect the Performance Units granted to the Participant under the Plan and all adjustments to reflect charges against such Account. Since Performance Units are granted to Participants with respect to separate Performance Periods, the Committee shall also maintain within each Participant's Account such subaccounts as may be necessary to identify Performance Units granted with respect to each particular Performance Period (such as the 1994 Performance Units, the 1995 Performance Units, the 1996 Performance Units, etc. subaccounts with respect to the applicable Performance Periods for which such Performance Units were granted). In addition to the foregoing bookkeeping subaccounts maintained for such Participant, the Committee may maintain, or cause to be maintained, such other accounts, subaccounts, records or books as it deems necessary to properly provide for the maintenance of Accounts under the Plan, and to carry out the intent and purposes of the Plan. B. Adjustment of Accounts. Each Participant's Account shall be adjusted to reflect all Performance Units credited to the Participant's Account and all payments charged to the Participant's Account. Performance Units granted to a Participant shall be credited to the Participant's Account as of the date of the grant of such Performance Units and shall be credited to the applicable Performance Period subaccount within such Account to which they relate. Charges to a Participant's Account to reflect payments with respect to Performance Units shall be made as of the date of such payments. C. Valuation of Performance Units. All Performance Units granted to Participants under the Plan shall be valued as follows: 1. Initial and Continuing Value. Each Performance Unit shall have an initial value of one dollar ($1.00) as of the date of the grant of the Performance Unit. Except where the Adjusted Value of Performance Units is determined as provided under Section V.C.2., each Performance 3 41 Unit shall continue to have a dollar value of one dollar ($1.00) on each date subsequent to the date of the grant of the Performance Unit. 2. Adjusted Value. Sections VI.A.1. and VI.A.3. provide for benefit payments to be made with respect to Performance Units under the circumstances described in such Sections. Such payments are based on the Adjusted Value of the Performance Units as of the Valuation Date applicable to the subject payment. The determination of the Adjusted Value of Performance Units for benefit payments under said Sections as of any relevant Valuation Date shall be made based on the Company's Total Shareholder Return Ranking Position for the applicable Performance Period compared to the Performance Peer Group, based on the following schedule: COMPANY'S TOTAL SHAREHOLDER ADJUSTED RETURN RANKING POSITION VALUE --------------------------- -------- 1...................................................... $2.00 2...................................................... 1.50 3...................................................... 1.00 4...................................................... 0.75 5...................................................... 0.50 6...................................................... 0.25 7 through 12................................................ 0.00 Notwithstanding any other provision of the Plan, in the event the Company's cumulative Total Shareholder Return percentage does not exceed the cumulative percentage return for 90-day U.S. Treasury Bills, a Performance Unit will have no value regardless of the Company's Performance Peer Group ranking. The method to be used to calculate Total Shareholder Return and cumulative percentage return for 90-day U.S. Treasury Bills and determination of the companies to be included in the Performance Peer Group shall be established by the Committee prior to the beginning of the applicable Performance Period, or such later date as permitted under the Code or applicable regulations. The Performance Peer Group to which the foregoing schedule relates shall be comprised of twelve companies, including the Company. If any company in the applicable Performance Peer Group ceases to be a publicly-held company, defined as having an outstanding class of common equity securities registered under Section 12 of the Securities Exchange Act of 1934, as amended, during the applicable Performance Period the Committee shall substitute another publicly-held company to be used for the remainder of the Performance Period and shall combine the Total Shareholder Return of both companies into one Total Shareholder Return to determine Company's ranking for the Performance Period. 3. Pro-Rated Adjusted Value. Section VI.A.2. provides for benefit payments to be made with respect to Performance Units under the circumstances described in such Section. Such payments are based on the Pro-Rated Adjusted Value of the Performance Units as of the Valuation Date applicable to the subject payment. The Pro-Rated Adjusted Value of Performance Units as of any relevant Valuation Date for benefit payments under said Section shall be determined as follows: a. The Adjusted Value of the Performance Units with respect to each Performance Period, as provided for in Section V.C.2. above, shall be separately determined. 4 42 b. The "proration fraction" applicable to the Performance Units for each such Performance Period shall be determined. c. The Pro-Rated Adjusted Value is the product of the Adjusted Value of the Performance Units with respect to each separate Performance Period multiplied by the proration fraction applicable to such Performance Units. The "proration fraction" applicable to the Performance Units for a particular Performance Period shall be determined by dividing the number of "completed quarters" during such Performance Period by the number 16. For this purpose, "completed quarters" shall be the number of elapsed quarters from the first day of the Performance Period to the Valuation Date for valuing such Performance Units. For example, a Participant who received a grant of 1995 Performance Units in December, 1994 and who retires on July 31, 1997, shall have 10 "completed quarters" for the relevant Performance Period (measured from January 1, 1995 to the Valuation Date on June 30, 1997) and a "proration fraction" of 10/16ths to be multiplied by the Adjusted Value of the 1995 Performance Units determined as of the Valuation Date. D. Account Statements. The Committee shall provide each Participant with a statement of the status of his Account under the Plan. The Committee shall provide such statement annually or at such other times as the Committee may determine from time to time, and such statement shall be in the format as prescribed by the Committee. VI. PAYMENT OF BENEFITS Participants shall be eligible to receive benefit payments with respect to Performance Units under the circumstances described in Section VI.A. Such benefit payments, at the sole discretion of the Committee, may be made in cash, Enron Corp. Common Stock or a combination of the two, and shall be made in the form of a single payment. Benefit payments to a Participant or Beneficiary shall be payable with respect to the Performance Units granted for each separate Performance Period, and the benefit payment with respect to the Performance Units for each such Performance Period shall be paid by the Employer who is the Employer of the Participant on the date of the payment of the subject Performance Units. A. Eligibility for Benefit Payments. Benefit payments with respect to Performance Units shall be paid under the following circumstances: 1. Expiration of Performance Period. Upon the expiration of each Performance Period, all uncancelled Performance Units granted with respect to such Performance Period shall mature and benefit payments with respect to such Performance Units shall become payable. A Participant who has remained an Employee continuously from the date of the grant of the Performance Units for a Performance Period through the last day of such Performance Period shall be eligible to receive a benefit payment equal to the Adjusted Value, as provided for in Section V.C.2., of the Performance Units (the "Primary Benefit") credited to his Account with respect to and as of the close of such Performance Period. The Valuation Date for determining such Adjusted Value shall be the last day of the applicable Performance Period. The amount of any benefit payment payable with respect to Performance Units shall be reduced by the amount of any interim benefit payments made pursuant to Section VI.A.3. with respect to such Performance Units. If the interim benefit payments exceed the Primary Benefit payment, no payment shall be made. 5 43 2. Certain Terminations of Employment. A Participant who has remained an Employee continuously from the date of the grant of the Performance Units credited to his Account until a termination of employment due to one of the following events shall be eligible for a benefit payment with respect to such Performance Units according to the provisions of this subsection (2), provided the Committee approves such payment. a. Retirement: The Participant terminates employment as an Employee at a time when he is eligible to receive an early or normal retirement benefit under the "Enron Corp. Retirement Plan". b. Death: The Participant's employment terminates by reason of death. Any benefit payable under this Plan by reason of such death shall be paid to the Participant's Beneficiary. c. Disability: The Participant's employment terminates by reason of a disability which qualifies him for a disability benefit under the "Enron Corp. Long-Term Disability Plan". d. Involuntary Termination: The Participant's employment as an Employee is terminated by the Company, provided that such termination is not Termination for Cause, death or disability. The benefit payment payable to or with respect to a Participant who incurs a termination of employment under this Section VI.A.2. shall be equal to the Pro-Rated Adjusted Value of the Performance Units, as provided for in Section V.C.3., credited to the Participant's Account as of such termination of employment. The Valuation Date for determining such Pro-Rated Adjusted Value shall be the last day of the Plan Year quarter coincident with or immediately preceding the date of the subject termination of employment. The amount of any benefit payment payable with respect to Performance Units shall be reduced by the amount of any interim benefit payments made pursuant to Section VI.A.3. with respect to such Performance Units. 3. Interim Benefit Payments. The Committee may in its sole discretion provide for an interim benefit payment to be made to a Participant with respect to Performance Units granted for any particular Performance Period. An interim benefit payment may be provided for during either the ninth (9th) or thirteenth (13th) quarter of a Performance Period, but not both. The interim benefit payment shall be based upon the Adjusted Value of the Performance Units, as provided for in Section V.C.2., credited to the Participant's Account for the applicable Performance Period, and the amount of any such payment shall not exceed 40 percent (40%) of such Adjusted Value. The Valuation Date for determining such Adjusted Value shall be the last day of the Performance Period quarter immediately preceding the date of the interim benefit payment. Interim benefit payments shall only be made to those Participants who have remained Employees continuously from the date of the grant of the applicable Performance Units until the payment date of the interim benefit payments relating to such Performance Units. The amount of any benefit payment payable with respect to Performance Units pursuant to Section VI.A.1. and VI.A.2. shall be reduced by the amount of any interim benefit payment made pursuant to this Section VI.A.3. 4. Payment in the Event of Termination of the Plan. In the event of Termination of the Plan under Section IX.C., all uncancelled Performance Units granted to Participants shall become immediately payable as if the Performance Period (16 quarters) had been completed, and benefit payments will be made to Participants equal to the Adjusted Value as provided for in Section V.C.2. In the event of Termination of the Plan by the Board, or the Committee, under 6 44 Section IX.B., uncancelled Performance Units will become immediately payable, and the Board has the discretion to (a) make a benefit payment equal to the Adjusted Value as provided for in Section V.C.2. as if the Performance Period (16 quarters) had been completed, or (b) make a benefit payment equal to the Pro-Rated Adjusted Value as provided for in Section V.C.3. based on the actual Performance Period quarters completed. The Valuation Date for determining the Adjusted Value or Pro-Rated Adjusted Value shall be the last day of the Performance Period quarter immediately preceding the date of the Termination of the Plan. The amount of any benefit payment payable with respect to Performance Units shall be reduced by the amount of any interim benefit payments made pursuant to Section VI.A.3. with respect to such Performance Units. B. Time of Payment. A benefit payment made to or with respect to a Participant pursuant to the provisions of Sections VI.A.1., VI.A.2. or VI.A.4. shall be made as soon as practicable following the date of the event giving rise to such benefit payment. Interim benefit payments authorized by the Committee pursuant to the provisions of Section VI.A.3. shall be made on the earliest practicable payment date within the ninth (9th) or thirteenth (13th) quarter of the applicable Performance Period, as the case may be. C. Deferral of Payment. Benefit payments made in cash pursuant to the provisions of Section VI.A. may be deferred by a Participant according to the terms of the Enron Corp. Deferral Plan. D. Cancellation of Performance Units. Performance Units credited to Participants' accounts under the Plan shall be cancelled whenever they are paid. If a Participant incurs a termination of employment for any reason other than the events described in Section VI.A.2., including if the Company terminates a Participant's employment in a Termination for Cause, all Performance Units credited to the Participant's account under the Plan shall be cancelled and the Participant shall not be entitled to receive any payment with respect thereto. "Termination for Cause" shall mean the Company's termination of Employee's employment because of Employee's (i) conviction of a felony relating to or in connection with the Company or the Company's business (which, through lapse of time or otherwise, is not subject to appeal); (ii) willful refusal without proper legal cause to perform Employee's duties and responsibilities; (iii) willfully engaging in conduct which Employee has reason to know is materially injurious to the Company, its affiliates or subsidiaries; or (iv) failure to meet the performance objectives or standards established for Employee's position. Such termination shall be effected by notice thereof delivered by Employee's Employer to Employee and shall be effective as of the date of such notice; provided, however, that Employee's Employer shall consult in good faith with Employee and provide an opportunity for Employee to be heard prior to effecting such termination, and that failure to do so shall constitute Involuntary Termination and not Termination for Cause. Following the cancellation of Performance Units pursuant to this Section VI.D., no benefit payments shall be payable with respect to such cancelled Performance Units. VII. ADMINISTRATION A. Plan Administration. The Committee shall be the "plan administrator" for the Plan and, as such, shall administer the Plan and shall have the authority to exercise the powers and discretion conferred on it by the Plan. The Committee shall also have such other powers and authority necessary or proper for the administration of the Plan, as shall be determined from time to time by the 7 45 Committee. Notwithstanding the foregoing, the day-to-day administration of the Plan shall be handled by the Company's Vice President of Human Resources, who in carrying out such day-to-day administrative activities shall be acting as the Committee's delegate. The Committee may also delegate to any agent, attorney, accountant, or other person selected by it, any power or duty vested in, imposed upon, or granted to it under the Plan. The Committee may adopt such rules and regulations for the administration of the Plan as it shall consider necessary and appropriate and shall have full power and authority to enforce, construe, interpret, and administer the Plan. All interpretations under the Plan and all determinations of fact made in good faith by the Committee shall be final and binding on all Employees, Participants, Beneficiaries and all other interested persons. Only the Committee shall determine who shall be a Participant in the Plan and make decisions concerning the timing, pricing and amount of Performance Units granted under the Plan. B. Notification of Eligible Employees. The Committee shall provide the Eligible Employees with such communications or descriptions of the terms and conditions of the Plan as it deems appropriate, or as may be required by law. C. Finality of Determinations. All determinations of the Committee as to any matter arising under the Plan, including questions or construction and interpretation, shall be final, binding and conclusive upon all interested parties. D. Indemnification. To the extent permitted by law, Employees, the members of the Committee, and all agents, delegates and representatives of the Committee and Employers, shall be indemnified by the Employers, and saved harmless against any claims, and the expenses of defending against such claims, resulting from any of their individual action or conduct relating to the administration of the Plan, except claims arising from gross negligence, willful neglect, or willful misconduct. E. Expenses of Administration. The expenses relating to the administration of the Plan shall be paid by the Employers, and such expenses shall be allocated among such Employers as determined by the Committee. F. Rights of the Company to Inspect the Records of the Plan. The Company may at its own expense at any time cause an examination of the books and records of the Plan to be made by such attorneys, accountants, auditors, or other agents as it shall select for that purpose, and may cause a report of such examination to be made. VIII. FUNDING It is intended that the Employers are under an obligation to make the benefit payments provided for under the Plan, if and when such payments become due and payable to their respective Employees under the terms of the Plan. All amounts paid under the Plan shall be paid either in cash, in stock or a combination of the two from the general assets of the Employers. Performance Units shall be reflected on the accounting records of the Company, as provided for under the Plan, but such records shall not be construed to create, or require the creation of, a trust, custodial or escrow account with respect to any Participant. No Participant shall have any right, title or interest whatsoever in or to any assets, investment reserves, accounts or funds that the Employers may purchase, establish or accumulate to aid in providing the benefit payments described in the Plan. Nothing contained in the Plan, and no action taken pursuant to its provisions, shall create or be construed to create a trust or a fiduciary relationship of any kind between the Employers and a Participant or any other person. Participants 8 46 and Beneficiaries shall not acquire any interest under the Plan greater than that of an unsecured general creditor of the Employers. IX. AMENDMENT; TERMINATION; MERGER A. Amendment of the Plan. The Board, or the Committee acting on behalf of the Board, may amend or modify the Plan at any time and in any manner; 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, without the approval of the stockholders of the Company no such amendment or alteration shall be made that would: 1. change the class of Eligible Employees who may be designated to receive an award of Performance Units under the Plan; 2. change the criteria used to determine the Adjusted Value to a performance measure other than Total Shareholder Return; 3. change the schedule used to determine the Adjusted Value; 4. increase the maximum grant of Performance Units that any Eligible Employee may receive in a Plan Year; or 5. otherwise modify the material terms of the Plan. Amendments to the Plan shall be evidenced by a written instrument describing such amendments and the effective date of such amendments. B. Termination of the Plan. The Board, or the Committee acting on behalf of the Board, may terminate the Plan at any time. Any such termination may be as to the Plan as a whole, or as to any Employer's participation in the Plan. A Plan termination shall be evidenced by a written instrument describing any special provisions relating to the Plan termination and the effective date of the termination. C. Merger, Consolidation or Acquisition. In the event of a merger, consolidation or acquisition where the Company is not the surviving corporation, the Plan shall terminate at the time of such event. The Plan termination shall be evidenced by a written instrument describing any special provisions relating to the Plan termination and the effective date of the termination. X. GENERAL PROVISIONS A. Beneficiary Designation. A Participant shall be deemed to have designated as his Beneficiary to receive any benefit payable under Section VI.A.2.b. upon the death of the Participant, such person, persons, trust or other entity as he has designated as a beneficiary(ies) to receive any lump sum death benefit payment under the "Enron Corp. Employee Life Insurance Plan ("Life Plan"). If more than one beneficiary has been designated under the Life Plan, the benefit payments under this Plan under Section VI.A.2.b. shall be paid in the same distributive shares among such beneficiaries as is designated under the Life Plan. If the Participant is not covered under the Life Plan, or if he does not have a beneficiary designation in effect under such Plan, the Participant's Beneficiary under this Plan shall be 9 47 his estate. If the Participant wishes to designate a different Beneficiary than that under the Life Plan, then written notification to the Committee by the Participant is required. B. Nontransferability. Participants and Beneficiaries shall have no rights by way of anticipation or otherwise to assign, transfer, pledge or otherwise dispose of an interest under the Plan, nor shall rights be assigned or transferred by operation of law. C. Plan Not an Employment Contract. The Plan does not give to any person the right to be continued in employment, and all Employees remain subject to change of salary, transfer, change of job, discipline, layoff, discharge or any other change of employment status. D. Severability. In the event any provision of the Plan shall be held invalid or illegal for any reason, such provision 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 of illegality or invalidity by amendment as provided in the Plan. E. Withholding of Taxes. The Employers shall have the right to deduct from all payments made under the Plan any Federal, state or local taxes required by law to be withheld with respect to such payments. F. 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 any applicable Federal Law. 10 48 EXHIBIT B 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 All regular full-time and part-time employees ("Employees") of Enron Corp. (the "Company") and participating subsidiaries are eligible to receive awards under this Plan. III. ADMINISTRATION The plan shall be administered by the Compensation Committee of the Board of Directors of the Company (the "Committee"), which shall have the sole discretion to interpret the plan; approve a pre-established objective performance measure annually, certify the level to which the performance measure was attained prior to any payment under the Plan, approve the amount of awards made under the Plan, and determine who shall receive any payment under the Plan. The Committee may delegate authority to officers of the Company to approve the amount of awards made under the Plan to Employees who are not individuals whose compensation is disclosed in the Company's proxy statement. 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 An award fund, expressed as a percent of after-tax net income of the Company, will be established annually by the Committee prior to the beginning of the Plan year (defined as the calendar year during which the net income is reported), or such later date as permitted under the Internal Revenue Code of 1986, as amended from time to time, or applicable regulations. For the 1994 Plan year, the award fund must be established by the Committee prior to April 1. Downward adjustment of the award fund shall be at the sole discretion of the Committee. Discretionary upward adjustment of the award fund shall not be allowed. V. INDIVIDUAL TARGET AWARD LEVELS For Employees whose compensation is disclosed in the Company's proxy statement, prior to the beginning of the Plan year, or such later date as permitted under the Internal Revenue Code of 1986, as amended from time to time, or applicable regulations, an individual target award level, expressed as a percent of 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-half of one percent (.5%) of the after-tax net income of the Company in any given Plan year. 49 The establishment of an individual target award level for any Employee shall not give any Employee 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 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 Employees will receive payments under the Plan, and the amount of such payments, if any. For Employees whose compensation is required to be disclosed in the Summary Compensation Table of the Company's proxy statement, 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 actual award level above the target award level shall not be allowed. For Employees whose compensation is not required to be disclosed in the Summary Compensation Table of the Company's proxy statement, actual individual award levels shall be determined based on an Employee's attainment of subsidiary/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. 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 Employees from its general assets. No fund or trust is created with respect to the Plan, and no Employee 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 liable for or charged with any of the torts or obligations of an Employee, or be subject to seizure by any creditor or an Employee or any person claiming under an Employee. No Employee nor any person claiming under an Employee 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. 2 50 X. PLAN NOT AN EMPLOYMENT CONTRACT The Plan does not give any Employee the right to be continued in employment, and all Employees 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 of 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. XIV. EFFECTIVE DATE OF PLAN Upon approval by the stockholders of the Company at the 1994 Annual Meeting, the Plan shall be considered effective as of January 1, 1994. 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 Employees; provided that, without the approval of the stockholders of the Company, no such amendment shall be made that would change the class of Employees eligible to receive awards under the Plan, base the award fund on a performance measure other than after-tax net income, increase the maximum individual target award level under the Plan, or modify any other material terms of the Plan. 3 51 EXHIBIT C AMENDMENT TO ENRON CORP. 1991 STOCK PLAN WHEREAS, ENRON CORP. (the "Company") and the stockholders of the Company have heretofore approved and adopted the Enron Corp. 1991 Stock Plan (the "Plan"); and WHEREAS, the Company desires to amend the Plan to provide for the issuance of additional shares of Common Stock of the Company; NOW, THEREFORE, the Plan is amended as follows: 1. The Plan name will be changed to "ENRON CORP. 1991 STOCK PLAN (AS AMENDED AND RESTATED EFFECTIVE MAY 3, 1994)," and the Plan shall be restated to incorporate this and all prior amendments. 2. Under Section 3.1, "SHARES AVAILABLE," the first paragraph of Section 3.1(i) shall now read: "Calculation of Number of Shares Available. Effective May 3, 1994, the number of Shares available for granting Awards under the Plan shall be ten million (10,000,000) Shares, subject to adjustment as provided in Section 3.2." 3. Under Section 4, "ELIGIBILITY," the first sentence of Section 4.1 shall be changed to include non-employee contractors and shall now read: "Any Employee, including any officer or employee-director of the Company or of any Affiliate, who is not a member of the Committee, any individual who is a Director of the Company duly elected by stockholders of the Company or who is a member of the board of directors of an Affiliate, who is not an Employee at the time the grant is made, and any individual performing services for the Company as a non-employee contractor, shall be eligible to be designated a Participant." 4. Under Section 5.1, "OPTIONS," Subsection (i) shall now read: "(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. 5. Also under Section 5.1, "OPTIONS," Subsection (v), Discounted Options, shall be deleted and the following new Subsection (v) shall be substituted therefor: "(v) Limit on Size of Option Grants. No individual shall be granted Options totalling more than 1,000,000 Shares in any single calendar year." 6. Section 5.2, "STOCK APPRECIATION RIGHTS" shall be changed to delete references to Discounted Options and to place a limit on the size of grants, and shall now read: "STOCK APPRECIATION RIGHTS. Except as provided by Section 6, the Committee is hereby authorized to grant Stock Appreciation Rights to Participants. Each Stock Appreciation Right shall be evidenced by an Award Agreement which shall specify the term of the Stock Appreciation Right as well as vesting and termination provisions. Subject to the terms of the Plan, 52 a Stock Appreciation Right granted under the Plan shall confer on the holder thereof a right to receive, upon exercise thereof, the excess of (i) the Fair Market Value of one Share on the date of exercise over (ii) the grant price of the right, which shall not be less than the Fair Market Value of one Share on the date of grant of the Stock Appreciation Right and in no event less than the par value of one Share. The Committee may impose such conditions or restrictions on the exercise of any Stock Appreciation Right as it may deem appropriate; provided that the Committee shall retain final authority to determine whether (a) a Participant shall be permitted, or (b) to approve an election by a Participant, to receive cash in full or partial settlement of Stock Appreciation Rights. No individual shall be granted Stock Appreciation Rights totalling more than 1,000,000 Shares in any single calendar year." 7. Under Section 5.3, "RESTRICTED STOCK," the following new Subsection (vi) shall be added, which authorizes grants of performance-based Restricted Stock: "(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 after-tax net income and/or cash flow, at the Company and/or subsidiary 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 5.3(vi) totalling more than 100,000 Shares in any single calendar year. 8. Under Section 6, "GRANTS TO NON-EMPLOYEE DIRECTORS," Section 6.2 shall be changed to delete Election B, which permits a Non-employee Director to receive discounted Options, and shall now read: "6.2 A. Subject to the limitation of the total number of Shares and Restricted Stock set forth in Section 3 and Section 5.3(ii), on July 1 of each year, each non-employee 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 non-employee 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 non-employee Director making such an election is equal to fifty percent (50%) of "A", where "A" 2 53 is equal to (i) the cash amount of the portion of such projected Aggregate Fee selected by the non-employee 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 non-employee Director is equal to the number of shares of Restricted Stock granted hereby multiplied by the number four (4)." 9. Under Section 6.3, all references to discounted Options granted under Election B or Section 6.2C shall be deleted. 10. Section 7.1, "AMENDMENTS TO THE PLAN," shall now read: "7.1 AMENDMENTS TO THE PLAN. The Board of Directors in 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, including amending the Plan for the purpose of making additional shares available under the Plan for granting Awards in lieu of other compensation or benefits, such as cash bonus payments or Company contributions to the Enron Corp. Savings Plan, to persons who are not subject to Section 16 of the Securities Exchange Act of 1934; provided, that the provisions of Section 6 shall not be amended more than once every six months, other than to comport with changes in the Code, the Employee retirement income Security Act, or the rules and regulations thereunder; provided further, 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 nonwithstanding 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 to persons who are subject to Section 16 of the Securities Exchange Act of 1934, 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, Stock Appreciation Rights that may be granted under Section 5.2 or Shares of performance-based Restricted Stock that may be granted under Section 5.3(vi) to any individual in any calendar year; or (vi) otherwise modify the material terms of the Plan." 3 54 ENRON CORP 55 [LOGO] Proxy Solicited on Behalf of the Board of Directors of Enron Corp. for Annual Meeting on May 3, 1994 THE UNDERSIGNED hereby appoints Kenneth L. Lay, James V. Derrick, Jr. P and Peggy B. Menchaca, or any of them, and any substitute or substitutes, to be the attorneys and proxies of the undersigned at the Annual Meeting of R Stockholders of Enron Corp. ("Enron") to be held at 10:00 a.m. Houston time on Tuesday, May 3, 1994, in the LaSalle Ballroom of the Doubletree Hotel at O Allen Center, 400 Dallas St., Houston, Texas or at any adjournment thereof, and to vote at such meeting the shares of stock of Enron the undersigned X 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., John H. Duncan, Joe H. Foy, _________________________________ Wendy L. Gramm, Robert K. Jaedicke, _________________________________ Richard D. Kinder, Kenneth L. Lay, _________________________________ Charles A LeMaistre, John A. Urquhart, (If you have written in the above Charls E. Walker, Herbert S. Winokur, Jr. 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. The proxies cannot vote your shares unless you sign and return this card. SEE REVERSE SIDE 56 /X/ Please mark your 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, 5, and 6. The Board of Directors recommends a vote FOR proposals 1, 2, 3, 4, 5, and 6. FOR WITHHELD 1. Election of Directors. / / / / (see reverse) For, except vote withheld from the following nominee(s): 2. Ratification of appointment of independent accountants. FOR AGAINST ABSTAIN / / / / / / 3. Amendment of Restated Certificate of Incorporation. FOR AGAINST ABSTAIN / / / / / / 4. Approval of the Performance Unit Plan. FOR AGAINST ABSTAIN / / / / / / 5. Approval of the Annual Incentive Plan. FOR AGAINST ABSTAIN / / / / / / 6. Amendment of the 1991 Stock Plan. FOR AGAINST ABSTAIN / / / / / / 7. In the discretion of the proxies named herein, the proxies are authorized to vote upon other matters as are properly brought before the meeting. Change of Address/Comments on Reverse Side / / 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 [Logo] THIS IS YOUR PROXY. YOUR VOTE IS IMPORTANT. NEED STOCKHOLDER ASSISTANCE? # 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.) # DIVIDEND REINVESTMENT - HAVE YOUR ENRON CORP. QUARTERLY DIVIDENDS REINVESTED IN THE PURCHASE OF ADDITIONAL SHARES OF ENRON CORP. COMMON STOCK WITH NO COMMISSION OR SERVICE CHARGE FOR THE PURCHASE OF SHARES. # CONSOLIDATION OF ACCOUNTS - ELIMINATE MULTIPLE ACCOUNTS FOR ONE HOLDER AND CERTAIN DUPLICATE STOCKHOLDER MAILINGS GOING TO ONE ADDRESS. (Dividend checks, annual reports and proxy materials would continue to be mailed to each stockholder.) JUST CONTACT ENRON'S TRANSFER AGENT: FIRST CHICAGO TRUST COMPANY OF NEW YORK P.O. BOX 2500 JERSEY CITY, NJ 07303-2500 (201) 324-0498 or (800) 446-2617