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 Filed by the Registrant /X/ Filed by a Party other than the Registrant / / Check the appropriate box: / / Preliminary Proxy Statement / / Confidential, for Use of the Commission Only (as permitted by Rule 14a-6(e)(2)) /X/ Definitive Proxy Statement / / Definitive Additional Materials / / Soliciting Material Pursuant to sec. 240.14a-11(c) or sec. 240.14a-12 ENRON CORP. -------------------------------------------------------------------------------- (Name of Registrant as Specified in its Charter) -------------------------------------------------------------------------------- (Name of Person(s) Filing Proxy Statement, if other than the Registrant) Payment of Filing Fee (Check the appropriate box): /X/ $125 per Exchange Act Rules 0-11(c)(1)(ii), 14a-6(i)(1), or 14a-6(i)(2) or Item 22(a)(2) of Schedule 14A. / / $500 per each party to the controversy pursuant to Exchange Act Rule 14a-6(i)(3). / / Fee computed on table below per Exchange Act Rules 14a-6(i)(4) and 0-11. (1) Title of each class of securities to which transaction applies: -------------------------------------------------------------------------------- (2) Aggregate number of securities to which transaction applies: -------------------------------------------------------------------------------- (3) Per unit price or other underlying value of transaction computed pursuant to Exchange Act Rule 0-11 (Set forth the amount on which the filing fee is calculated and state how it was determined): -------------------------------------------------------------------------------- (4) Proposed maximum aggregate value of transaction: -------------------------------------------------------------------------------- (5) Total fee paid: -------------------------------------------------------------------------------- / / Fee paid previously with preliminary materials. / / Check box if any part of the fee is offset as provided by Exchange Act Rule 0-11(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: -------------------------------------------------------------------------------- (2) Form, Schedule or Registration Statement No.: -------------------------------------------------------------------------------- (3) Filing Party: -------------------------------------------------------------------------------- (4) Date Filed: -------------------------------------------------------------------------------- 2 [ENRON CORP. LOGO] NOTICE OF ANNUAL MEETING OF STOCKHOLDERS May 2, 1995 TO THE STOCKHOLDERS: Notice is hereby given that the annual meeting of stockholders 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 2, 1995, for the following purposes: 1. To elect thirteen directors of Enron to hold office until the next annual meeting of stockholders and until their respective successors are duly elected and qualified; 2. To ratify the Board of Directors' appointment of Arthur Andersen LLP, independent public accountants, as Enron's auditors for the year ending December 31, 1995; 3. To approve the Enron Corp. Amended and Restated Performance Unit Plan; and 4. 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 6, 1995, will be entitled to notice of and to vote at the meeting or any adjournment(s) thereof. Stockholders 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 27, 1994 3 [ENRON CORP. LOGO] 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 stockholders 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 2, 1995. 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 stockholders of Enron on approximately March 27, 1995. Any stockholder 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. Stockholders attending the meeting may revoke their proxies and vote in person. Holders of record at the close of business on March 6, 1995, of Enron's Common Stock, $.10 par value (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 6, 1995, of Enron's Cumulative Second Preferred Convertible Stock, $1 par value (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 6, 1995, the record date, there were outstanding and entitled to vote at the annual meeting of stockholders 251,397,384 shares of Common Stock and 1,398,979 shares of Preferred Convertible Stock. Included in the number of shares of outstanding Common Stock are 7,500,000 shares of Common Stock held by the Enron Corp. Flexible Equity Trust to be used for future employee benefits and compensation. Such shares are not included in the calculation of earnings per share under generally accepted accounting principles until such shares are released to fund employee benefits. No such shares were released at December 31, 1994. There are no other voting securities outstanding. Common Stock and Preferred Convertible Stock are collectively referred to herein as "Voting Stock". All references in this proxy statement to Common Stock reflect the 2-for-1 stock split made on August 16, 1993. Enron's annual report to stockholders for the year ended December 31, 1994, including financial statements, is being mailed herewith to all stockholders 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, thirteen directors are to be elected to hold office until the next succeeding annual meeting of the stockholders and until their respective successors have been elected and qualified. All of the nominees are currently directors of Enron. 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 Delaware law and Enron's Restated Certificate of Incorporation and 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. Stockholders may not cumulate their votes in the election of directors. 4 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. ------------------------------------------------------------------------------------------------------------------ [PHOTO] ROBERT A. BELFER, 59 Director since 1983 Mr. Belfer's principal occupation is oil and gas investments. Prior to his resignation in April, 1986 from Belco Petroleum Corporation ("Belco"), a wholly owned subsidiary of Enron, Mr. Belfer was President and then Chairman of Belco. Mr. Belfer is also a director of EOTT Energy Corp. (the general partner of EOTT Energy Partners, L.P.), NAC Re Corporation and Smith Barney World Funds Inc. ------------------------------------------------------------------------------------------------------------------ [PHOTO] NORMAN P. BLAKE, JR., 53 Director since 1993 Since November, 1990, Mr. Blake has been Chairman, President and CEO of USF&G Corporation, a holding company for United States Fidelity and Guaranty Company, a large property and casualty insurer. Before joining USF&G, Mr. Blake was Chairman and CEO of Heller International Corporation, a wholly owned subsidiary of The Fuji Bank, Ltd. of Tokyo, Japan. Mr. Blake is also a director of Owens-Corning Fiberglass Corporation. ------------------------------------------------------------------------------------------------------------------ [PHOTO] JOHN H. DUNCAN, 67 Director since 1985 Mr. Duncan lives in Houston, Texas, and since 1990, his principal occupation has been investments. Mr. Duncan is also a director of EOTT Energy Corp. (the general partner of EOTT Energy Partners, L.P.), Texas Commerce Bank National Association and King Ranch, Inc. ------------------------------------------------------------------------------------------------------------------ 2 5 ------------------------------------------------------------------------------------------------------------------ [PHOTO] JOE H. FOY, 68 Director since 1985 Mr. Foy is a former President of Houston Natural Gas Corporation (a predecessor of Enron) and is a retired partner of Bracewell & Patterson L.L.P., in 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. ------------------------------------------------------------------------------------------------------------------ [PHOTO] WENDY L. GRAMM, 50 Director since 1993 Dr. Gramm is currently self employed as a consultant on economic issues. 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. and the Chicago Mercantile Exchange. ------------------------------------------------------------------------------------------------------------------ [PHOTO] ROBERT K. JAEDICKE, 66 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 faculty since 1961 and served as Dean from 1983 until 1990. Dr. Jaedicke is also a director of Homestake Mining Co., Boise Cascade Corporation, Wells Fargo & Company, California Water Service Company, GenCorp, Inc. and State Farm Insurance Co. ------------------------------------------------------------------------------------------------------------------ 3 6 ------------------------------------------------------------------------------------------------------------------ [PHOTO] RICHARD D. KINDER, 50 Director since 1988 Since October, 1990, Mr. Kinder has been President and Chief Operating Officer of Enron. From December, 1988 until October, 1990, he served Enron as Vice Chairman of the Board. For over five years prior to his election as Vice Chairman, Mr. Kinder served in various management and legal positions with Enron and its affiliates. Mr. Kinder is also a director of Enron Global Power & Pipelines L.L.C., Enron Oil & Gas Company, EOTT Energy Corp. (the general partner of EOTT Energy Partners, L.P.), Enron Liquids Pipeline Company (the general partner of Enron Liquids Pipeline, L.P.), Sonat Offshore Drilling Inc. and Baker Hughes Incorporated. ------------------------------------------------------------------------------------------------------------------ [PHOTO] KENNETH L. LAY, 52 Director since 1985 For over five years, Mr. Lay has been Chairman of the Board and Chief Executive Officer of Enron. From February, 1989 until October, 1990, he also served as President of Enron. Mr. Lay is also a director of Eli Lilly and Company, Compaq Computer Corporation, Enron Oil & Gas Company, EOTT Energy Corp. (the general partner of EOTT Energy Partners, L.P.) and Trust Company of the West. ------------------------------------------------------------------------------------------------------------------ [PHOTO] CHARLES A. LEMAISTRE, 71 Director since 1985 For over fifteen years, Dr. LeMaistre has been President of The University of Texas M. D. Anderson Cancer Center in Houston, Texas. ------------------------------------------------------------------------------------------------------------------ 4 7 ------------------------------------------------------------------------------------------------------------------ [PHOTO] JOHN A. URQUHART, 66 Director since 1990 Since August, 1991, Mr. Urquhart has been Vice Chairman of the Board of Enron. Since January, 1991, Mr. Urquhart has also been President of John A. Urquhart Associates, a management consulting firm in Fairfield, Connecticut. From 1982 through 1990, he served General Electric Company in the roles of Senior Vice President of Industrial and Power Systems and as Executive Vice President of two of General Electric Company's sectors -- International and Power Systems. He also serves as a director of Aquarion Company, TECO Energy, Inc., Hubbell, Inc. and The Weir Group, PLC. ------------------------------------------------------------------------------------------------------------------ [PHOTO] JOHN WAKEHAM, 63 Director since 1994 Lord Wakeham is the retired former U.K. Secretary of State for Energy and Leader of the House of 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. ------------------------------------------------------------------------------------------------------------------ [PHOTO] CHARLS E. WALKER, 71 Director since 1985 For two decades, Dr. Walker has been Chairman of Walker/Potter Associates, previously Walker/Free Associates, Inc., a governmental relations consulting firm, in Washington, D.C. Dr. Walker is also a director of Potomac Electric Power Company. ------------------------------------------------------------------------------------------------------------------ 5 8 ------------------------------------------------------------------------------------------------------------------ [PHOTO] HERBERT S. WINOKUR, JR., 51 Director since 1985 Since 1987, Mr. Winokur has been President of Winokur & Associates, Inc., an investment and management services firm, and Managing General Partner of Capricorn Investors, L.P., a private investment partnership concentrating on investments in restructure situations. Prior to his current appointment, Mr. Winokur was Senior Executive Vice President and Director of Penn Central Corporation. Mr. Winokur is also a director of NAC Re Corporation, NHP, Inc., DynCorp and Marine Drilling Companies. ------------------------------------------------------------------------------------------------------------------ SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS As of January 31, 1995, Enron knows of no one who beneficially owns in excess of five percent 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 5,735,174(1)(13) 692,886(2) 12,722(12)(14) -- 2.52 Preferred 767 Fifth Avenue Convertible New York, NY 10153 325,173(3) 23,052(4) -- -- 24.82 Common Mr. and Mrs. Lawrence Ruben 4,880,702(5) 1,099,658(6) -- -- 2.34 Preferred 600 Madison Avenue Convertible New York, NY 10022 297,057(7) 16,275(8) -- -- 22.33 Common Jack Saltz 1,466,772(9) 804,103(10) -- -- * Preferred 767 Fifth Avenue Convertible New York, NY 10153 76,046 58,900(11) -- -- 9.62 Common Enron Corp. -- -- -- 26,763,314(15) 10.66 Preferred Employee Stock Convertible Ownership Plan -- -- -- -- 1400 Smith Street Houston, TX 77002 --------------- * Less than 1 percent. (1) 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 4,439,262 shares that would be issued 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) Includes 372,000 shares held by a trust of which Mr. Belfer's wife is co-trustee and 6,180 shares held by Mr. Belfer's wife. Also includes 314,706 shares that would be issued 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. (3) Includes 63,370 shares held by trusts of which Mr. Belfer is trustee, in all of which shares Mr. Belfer disclaims beneficial ownership. (Notes continued on following page) 6 9 (4) Includes 22,000 shares held by a trust of which Mr. Belfer's wife is co-trustee, 625 shares held by Mr. Belfer's wife and 427 shares held by trusts of which Mr. Belfer is a trustee, in all of which shares Mr. Belfer disclaims beneficial ownership. (5) Includes 9,480 shares held as co-trustees for their children and 61,200 shares held by Mrs. Ruben as trustee for a charitable trust. Also includes 4,055,422 shares that would be issued upon the conversion of the Preferred Convertible Stock. (6) Includes 235,696 shares held by Mrs. Ruben as co-trustee for her children; 179,696 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 129,800 shares held by the Selma and Lawrence Ruben Foundation in which shares Mr. and Mrs. Ruben have no pecuniary interest. Also includes 222,186 shares that would be issued upon the conversion of the Preferred Convertible Stock. (7) Includes 960 shares held as co-trustees for their children, 60,000 shares held by Mrs. Ruben as trustee for her children and 3,600 shares held by Mrs. Ruben as trustee for a charitable trust. (8) Includes 5,224 shares held by Mrs. Ruben as co-trustee for her children and 11,051 shares held by Mr. Ruben as co-trustee for his nieces and nephews, in which shares Mr. Ruben has no pecuniary interest. (9) Includes 1,038,180 shares that would be issued upon the conversion of the Preferred Convertible Stock. (10) Represents 804,103 shares that would be issued upon the conversion of the Preferred Convertible Stock. (11) Held by Mr. Saltz's wife as trustee for their children. (12) Includes restricted shares of Common Stock held under Enron's 1988 and 1991 Stock Plans. Participants in those Plans have sole voting power and no investment power for restricted shares awarded under the Plan until such shares vest in accordance with Plan provisions. After vesting, the participant has sole investment and voting powers. (13) 14,776 shares of Common Stock are subject to stock options exercisable within 60 days after January 31, 1995, which number is included in the number of shares shown as beneficially owned as of such date. (14) Includes shares held under Enron's Savings Plan. Participants in the Savings Plan have sole voting power and limited investment power with respect to shares in the Plan. (15) Pursuant to the terms of Enron's Employee Stock Ownership Plan ("ESOP"), shares allocated to employee accounts are voted by the respective employees. The ESOP administrative committee has the power to vote Enron's Common Stock that has not been allocated to any employee accounts. If the ESOP trustee receives no voting directions from the ESOP administrative committee as to unallocated shares or from the respective employees as to allocated shares, then all such shares are to be voted by the trustee in the same proportion as the allocated shares that are voted by employees. 7 10 STOCK OWNERSHIP OF MANAGEMENT AND BOARD OF DIRECTORS AS OF JANUARY 31, 1995 AMOUNT AND NATURE OF BENEFICIAL OWNERSHIP --------------------------------------------- SOLE SHARED SOLE VOTING VOTING VOTING AND LIMITED AND AND OR NO PERCENT INVESTMENT INVESTMENT INVESTMENT OF TITLE OF CLASS NAME POWER(2) POWER POWER(1)(3) CLASS --------------------- ----------------------------------------- ---------- ---------- ----------- ----- Enron Corp. Common Stock Robert A. Belfer......................... 5,735,174(4) 692,886(5) 12,722 2.518 Norman P. Blake, Jr...................... 2,392 -- 490 * John H. Duncan........................... 103,944 -- 1,902 * Joe H. Foy............................... 29,448 2,496(12) 1,902 * Wendy L. Gramm........................... 1,256 -- 874 * Robert K. Jaedicke....................... 14,224 -- 1,902 * Richard D. Kinder........................ 1,832,841 -- 57,410 * Kenneth L. Lay........................... 1,861,920 738,951(10)(13) 84,632 1.062 Charles A. LeMaistre..................... 15,016 800 1,902 * John A. Urquhart......................... 9,758 -- 1,718 * Charls E. Walker......................... 6,408 12,848(11) 1,902 * Herbert S. Winokur, Jr................... 48,544 3,500(14) 1,902 * John Wakeham............................. -- -- -- Ronald J. Burns.......................... 771,587 -- 38,729 * Edmund P. Segner, III.................... 266,858 -- 26,340 * Rodney L. Gray........................... 295,734 -- 48,042 * All directors and executive officers as a group (23 in number)................... 12,231,929(4) 1,478,481(5) 383,583 5.395 Enron Corp. Preferred Con- vertible Stock Robert A. Belfer......................... 325,173(6) 23,052(7) -- 24.816 All directors and executive officers as a group (23 in number)................... 325,173(6) 23,052(7) -- 24.816 Enron Global Power & Pipelines L.L.C. Common Shares Robert A. Belfer......................... 6,000(15) 3,000 -- * Norman P. Blake, Jr...................... 2,000 -- -- * John H. Duncan........................... 2,000 -- -- * Richard D. Kinder........................ 10,000 -- -- * Edmund P. Segner, III.................... 2,000 -- -- * Rodney L. Gray........................... 4,000 -- -- * All directors and executive officers as a group (23 in number)................... 37,000 3,000 -- * Enron Liquids Pipeline L.P. Common Units Joe H. Foy............................... 1,800 -- -- * Richard D. Kinder........................ 25,000 -- -- * Ronald J. Burns.......................... 1,900 -- -- * All directors and executive officers as a group (23 in number)................... 28,700 -- -- * (Table continued on following page) 8 11 AMOUNT AND NATURE OF BENEFICIAL OWNERSHIP --------------------------------------------- SOLE SHARED SOLE VOTING VOTING VOTING AND LIMITED AND AND OR NO PERCENT INVESTMENT INVESTMENT INVESTMENT OF TITLE OF CLASS NAME POWER(2) POWER POWER(1)(3) CLASS --------------------- ----------------------------------------- ---------- ---------- ----------- ------ Enron Oil & Gas Company Common Stock Robert A. Belfer......................... -- 20,000(8) -- * Norman P. Blake, Jr...................... 2,000 -- -- * John H. Duncan........................... 40,000 1,480 -- * Joe H. Foy............................... 2,000 -- -- * Richard D. Kinder........................ 13,738(9) 22,500(16) -- * Kenneth L. Lay........................... --(9) 31,600(10) -- * John A. Urquhart......................... --(9) -- -- * Charls E. Walker......................... -- 4,000 -- * Ronald J. Burns.......................... 5,000 -- -- * All directors and executive officers as a group (23 in number)................... 68,262(9) 79,580(8)(10) -- * EOTT Energy Partners, L.P. Common Units Robert A. Belfer......................... 31,500 -- -- * Norman P. Blake, Jr...................... 1,000 -- -- * John H. Duncan........................... 8,500 -- -- * Richard D. Kinder........................ 15,000 -- -- * Kenneth L. Lay........................... -- 5,000 -- * All directors and executive officers as a group (23 in number)................... 62,000 5,000 -- * Northern Border Partners, L.P Common Units Norman P. Blake.......................... 1,500 -- -- * Richard D. Kinder........................ 15,000 -- -- * Ronald J. Burns.......................... 3,100 -- -- * All directors and executive officers as a group (23 in number)................... 21,700 -- -- * --------------- * Less than 1 percent. (1) Includes restricted shares of Common Stock held under Enron's 1988 and 1991 Stock Plans for certain individuals. Participants in those Plans have sole voting power and no investment power for restricted shares awarded under the Plan until such shares vest in accordance with Plan provisions. After vesting, the participant has sole investment and voting powers. (2) The number of shares of Enron Common Stock subject to stock options exercisable within 60 days after January 31, 1995, which number is included in the number of shares shown as beneficially owned as of such date, is as follows: Mr. Belfer, 14,776 shares; Mr. Blake, 392 shares; Mr. Duncan, 19,736 shares; Mr. Foy, 19,736 shares; Dr. Gramm, 1,160 shares; Dr. Jaedicke, 8,816 shares; Mr. Kinder, 1,614,939 shares; Mr. Lay, 1,732,985 shares; Dr. LeMaistre, 10,808 shares; Mr. Urquhart, 6,136 shares; Dr. Walker, 6,408 shares; Mr. Winokur, 19,736 shares; Mr. Burns, 645,195 shares; Mr. Segner, 254,850 shares; Mr. Gray, 287,526 shares; and all directors and executive officers as a group, 5,447,637 shares. (3) Includes shares held under Enron's Savings Plan and/or the ESOP. Participants in the Savings Plan have sole voting power and limited investment power with respect to shares in the Plan. Participants in the ESOP have sole voting power and no investment power prior to distribution of shares from the Plan. (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 4,439,262 shares that would be issued 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. (Notes continued on following page) 9 12 (5) Includes 372,000 shares held by a trust of which Mr. Belfer's wife is co-trustee and 6,180 shares held by Mr. Belfer's wife. Also includes 314,706 shares that would be issued 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 63,370 shares held by trusts of which Mr. Belfer is trustee, in all of which shares Mr. Belfer disclaims beneficial ownership. (7) Includes 22,000 shares held by a trust of which Mr. Belfer's wife is co-trustee, 625 shares held by Mr. Belfer's wife and 427 shares held by trusts of which Mr. Belfer is a trustee, in all of which shares Mr. Belfer disclaims beneficial ownership. (8) Includes 20,000 shares held by trusts of which Mr. Belfer's wife is trustee for their children, in all of which shares Mr. Belfer disclaims beneficial ownership. (9) Does not include 128,000,000 shares owned by Enron in which each of Messrs. Lay, Urquhart and Kinder, in their capacities as Chairman of the Board, Vice Chairman of the Board and President, respectively, of Enron, has sole voting and investment power pursuant to the provisions of Enron's bylaws. (10) Includes 7,530 shares with respect to Enron Common Stock and 1,600 shares with respect to Enron Oil & Gas Company Common Stock held by Mr. Lay's children and stepchildren in which Mr. Lay has shared voting and investment power. (11) Includes 6,088 shares owned by Dr. Walker's wife and in which Dr. Walker disclaims beneficial ownership. (12) Shares held in a charitable foundation in which Mr. Foy has no pecuniary interest. (13) Includes 100,000 shares held in a charitable foundation in which Mr. Lay has no pecuniary interest. (14) Shares held in a charitable foundation in which Mr. Winokur has no pecuniary interest. (15) Includes 3,000 shares held in a charitable foundation in which Mr. Belfer has no pecuniary interest. (16) Shares held in a charitable foundation in which Mr. Kinder has no pecuniary interest. 10 13 BOARD OF DIRECTORS AND COMMITTEES The Board of Directors held five regularly scheduled meetings during the year ended December 31, 1994. 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, 1994, the Executive Committee met six times. The Executive Committee is currently composed of Messrs. Duncan (Chairman), Belfer, Foy, Kinder, Lay, LeMaistre and Winokur. The Board of Directors uses working committees with functional responsibility in the more complex recurring areas where disinterested oversight is required. The Audit Committee serves as the overseer of Enron's financial reporting process and internal controls. At three meetings during the year ended December 31, 1994, the Audit 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 Committee reviews the scope and fees related to the audit, the accounting policies and reporting practices, contract and internal auditing and internal control, compliance with Enron's policies regarding business conduct and other matters as deemed appropriate. The Audit Committee is currently composed of Messrs. Jaedicke (Chairman), Blake and Wakeham and Dr. Gramm. The Compensation 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 practice and the requirements of appropriate regulatory bodies. In meeting eleven times during the year ended December 31, 1994, the Compensation Committee also continued to monitor and approve awards earned pursuant to Enron's comprehensive executive compensation program. The Compensation Committee is currently composed of Messrs. LeMaistre (Chairman), Belfer, Duncan and Foy. The Finance Committee serves as a monitor of Enron's financial activities. In meeting three times during the year ended December 31, 1994, the Finance Committee reviewed the financial plans and proposals of management, as well as recommended action with regard thereto to the Board of Directors. The Finance Committee is currently composed of Messrs. Winokur (Chairman), Blake, Jaedicke, Urquhart and Walker. The Nominating Committee has oversight for recruiting and recommending candidates for election to the Board of Directors and evaluation of director performance. In meeting three times during the year ended December 31, 1994, the Committee reviewed information regarding proposed nominees to the Board. The Nominating Committee is currently composed of Messrs. Walker (Chairman), Urquhart and Wakeham and Dr. Gramm. During the year ended December 31, 1994, each Director attended at least 75% of the total number of meetings of the Board and the committees on which the Director served. 11 14 COMPENSATION OF DIRECTORS AND EXECUTIVE OFFICERS DIRECTOR COMPENSATION During 1994, each non-employee director of Enron received a fee of $22,000 for serving as a director. Each non-employee director was also paid $4,000 annually for each committee on which such director served. Chairs of the committees received an additional $2,000 annually. Meeting fees were $1,250 for each Board meeting attended and $1,000 for each committee meeting attended. Total directors' fees paid or deferred in 1994 were $481,002. Directors' fees can be deferred to a later specified date under Enron's 1985 Deferral Plan and 1994 Deferral Plan. Under the 1985 Deferral Plan, interest is credited on amounts deferred based on 150% of Moody's seasoned corporate bond yield index, which for 1994 was 12%. Interest was credited at 9% under the 1994 Deferral Plan. One director participated in the 1985 Deferral Plan during 1994 and four Directors participated in the 1994 Deferral Plan. Directors also participated in the Enron Corp. 1988 and 1991 Stock Plans. During 1994, each non-employee director received 490 shares of restricted stock (valued at $29.75 per share on the date of grant) and options to purchase 1,960 shares (with an exercise price of $29.75 per share) pursuant to the 1991 Stock Plan. REPORT FROM THE COMPENSATION COMMITTEE REGARDING EXECUTIVE COMPENSATION The Compensation Committee (the "Committee") of the Board of Directors is responsible for developing Enron's 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 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 stockholder 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 annually 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 annual compensation surveys. Base salaries are targeted at the median of an industry comparator group, comparable to the peer group reflected in the proxy performance graph. Annual Incentive Awards The annual incentive plan is funded as a percent of after-tax net income as approved by the Committee each year based upon company performance and competitive industry practice. Downward adjustment of the fund is at the sole discretion of the Committee based on performance against other goals such as cash flow, strengthening the balance sheet and total stockholder 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 Enron's performance goal is net income, the fund increases or decreases based on Enron's earnings performance. All decisions regarding individual incentive awards are made based upon individual performance as 12 15 measured against pre-established individual objectives and competitive practice as measured by annual compensation surveys, but in no event will an individual incentive award exceed a specified percent of after-tax net income as pre-established annually by the Committee. 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 on the last compensation survey, this objective was met. Long-Term Incentive Grants Long-term incentive grants are made annually to each executive and are targeted at the top quartile of the industry comparator group. One-half of the grants' intended value is made in performance units under Enron's performance unit plan and one-half is made in stock options. Aggregate stock holdings of the executives have no bearing on the size of long-term incentive grants. Occasionally, restricted stock is granted for specific reasons, such as: (i) individual performance, (ii) company performance, (iii) to accommodate special situations such as promotions, (iv) in lieu of other benefits or (v) to remain market competitive. Enron's long-term incentive program is focused on increasing stockholder value. For example, performance units compare Enron's total stockholder return versus peer group performance over a four-year period. In order for top quartile compensation to be realized, Enron's total stockholder return must rank at least third among the peer group of 12 companies. Stock options are granted at market price. Thus, for any compensation to be realized pursuant to stock options, the market price of Common Stock must increase. Total Compensation Approximately 70% of the total compensation of Enron's most senior executives is "at risk", based strictly upon the performance of Enron and return to the stockholders. Also, two significant elements in the employee benefit package, the ESOP and Enron Corp. Savings Plan (which together own almost 14% of Common Stock), are driven by increasing stockholder value. Scheduled allocations of shares of Common Stock to participants in the ESOP ended with the 1994 allocation. As a means of continuing to link a portion of compensation to the value of Common Stock, all eligible employees received a stock option grant, under the new All Employee Stock Option Program, on December 30, 1994. This grant is intended to replace the allocation of shares of Common Stock to the ESOP savings subaccount for the next six years and is aimed at continuing to build upon our existing strong employee/stockholder alignment, which we believe continues to be a key factor in creating long term stockholder value. Inherent in this "at-risk" component is a heavy weighting toward long-term performance. At Enron, long-term incentives for the most senior executives are more than double the size of annual incentives. We believe this feature provides Enron management with a long-term strategic incentive that will encourage the continued creation of stockholder value. In addition, the executives who are employees and are listed in Enron's annual report to stockholders are each expected to hold Enron stock having a value of at least their annual salary. The Committee has access to Hewitt Associates, a national consulting firm experienced in executive compensation, other nationally recognized compensation consulting firms, national compensation surveys and Enron's financial records. Each year the Committee reviews each element of 13 16 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. In the last review, the Committee confirmed that the executive compensation program was meeting 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 Chief Executive Officer and the other executives. Mr. Lay did not receive an increase to his base salary during 1994, as a result of a decision by management that no merit increases would be given in 1994 due to a special Enron stock allocation, using previously existing ESOP shares, to the ESOP savings subaccount for all employees. In recognition of Enron's superior performance relative to its peer group, Mr. Lay received a cash annual incentive award of $1,200,000 and a stock option grant, at market value, of 55,385 shares. The Committee determined the amount of the annual incentive award taking into consideration the annual performance report presented by management, which reflected Enron's 17.2% increase in net income and, omitting special one-time items, an increase in earnings from operations of 14.8%. In addition, Enron's total stockholder return for 1994 was 7.8% as compared to the S&P 500 annual return of 1.2% and a negative 4.3% annual return for industry peers. Mr. Lay also received a cash payment of $930,000 under the Performance Unit Plan for the 1991-1994 performance period. Payments are made under the Performance Unit Plan only if Enron's total stockholder returns are greater than returns stockholders would have received if they invested in stock of industry peers. The payout for the measurement period from 1991-1994 reflected Enron's return to its stockholders of 103.55% compared with 13.92% for industry peers, 46.70% for the S&P 500, and 16.07% for 90-day U.S. Treasury Bills. This performance earned Enron a ranking of Number 1 and valued the units at $2.00. During 1994, grants of stock options and performance units were made to Mr. Lay, consistent with the design of the long-term incentive program. In addition, Mr. Lay received a grant of stock options on December 30, 1994, under the All Employee Stock Option Program mentioned above. On February 8, 1994, Mr. Lay received a grant of 1,200,000 stock options, at market value, coincident with renewing his employment contract through February 8, 1999. The special stock option award has performance-based vesting features, provided Enron achieves its aggressive target of 15% annual compounded growth in earnings per share. The special performance-based vesting feature for 1994 was triggered due to Enron achieving a 16.1% increase in earnings per share. The Committee believes this significant stock option grant provides the necessary linkage between stockholder return and management rewards. Also during 1994, Mr. Lay waived certain post-retirement executive supplemental benefits in exchange for split dollar life insurance. An independent firm certified that the exchange is cost neutral to Enron on a present value basis. Compliance with Internal Revenue Code Section 162(m) Section 162(m) of the Internal Revenue Code ("Section 162(m)"), enacted in 1993, generally disallows a tax deduction to public companies for compensation over $1 million paid to a company's Chief Executive Officer and four other most highly compensated executive officers, as reported in its 14 17 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 of its executive officers (which currently consists of stock option grants, certain restricted stock grants, performance unit grants and annual incentive awards) in a manner that complies with the statute. The Amended and Restated 1991 Stock Plan, the Annual Incentive Plan and the Performance Unit Plan were presented to and approved by stockholders at the 1994 annual meeting. Due to the need to make a technical clarification, the Performance Unit Plan is being re-submitted to stockholders for approval in the 1995 Proxy Statement. The amended and restated Performance Unit Plan is substantially the same plan for which stockholder approval was obtained by more than 80% of the vote at the 1994 annual meeting, except that it is now made clear that failure of the stockholders to approve the plan precludes Enron from making any payment to employees eligible under such plan with respect to grants made on or after January 1, 1994. Occasionally, Enron may grant restricted stock for specific reasons which would not qualify as performance-based compensation. 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 stockholder and the rewards of the executives. This success is evidenced by the increase in stockholder value from 1989 to 1994, during which time a stockholder who invested $100 in Enron Common Stock would have received $249.59, or a 150% increase in value, compared to 52% for the S&P 500 and a negative 16% for industry peers. The Committee believes that with the present plan designs, management will continue to strive to increase stockholder value. Compensation Committee Charles A. LeMaistre (Chairman) Robert A. Belfer John H. Duncan Joe H. Foy 15 18 COMPARATIVE STOCK PERFORMANCE The performance graph shown below was prepared by Value Line, Inc., for use in this proxy statement. As required by applicable rules of the Securities and Exchange Commission (the "SEC"), the graph was prepared based upon the following assumptions: 1. $100 was invested in Enron Common Stock, the S&P 500 and the Peer Group (as defined below) on December 31, 1989. 2. The Peer Group investment is weighted based on the market capitalization of each individual company within the Peer Group at the beginning of each year. 3. Dividends are reinvested on the ex-dividend dates. The companies that comprise Enron's Peer Group are as follows: Burlington Resources Inc.; Coastal Corp.; Columbia Gas Systems, Inc.; Consolidated Natural Gas Co.; NorAm Energy Corp.; Occidental Petroleum Corp.; Panhandle Eastern Corp.; Sonat Inc.; Tenneco, Inc.; Transco Energy Company; and The Williams Companies, Inc. Although this method of calculating stockholder return differs from the method that Enron uses for purposes of its Performance Unit Plan, it does display a similar trend. [PERFORMANCE GRAPH] Measurement Period (Fiscal Year Covered) Enron Corp. S&P 500 Peer Group 1989 100 100 100 1990 99.40 96.83 79.37 1991 132.21 126.41 68.08 1992 180.71 136.25 77.64 1993 231.28 150.00 90.89 1994 249.59 151.73 84.11 16 19 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 SECURITIES ALL OTHER ANNUAL RESTRICTED UNDERLYING LTIP COMPENSATION NAME & PRINCIPAL SALARY BONUS COMPENSATION STOCK OPTIONS/ PAYOUTS ------------ POSITION YEAR $ $ ($)(1) AWARDS($)(2) SARS (#) ($) ($)(4) ------------------- ---- -------- ---------- ------------ ------------ ---------- -------- ------------ Kenneth L. Lay........ 1994 $990,000 $1,200,000 $296,630 $ 69,680 1,416,615 $930,000 $ 311,837 Chairman of the Board 1993 $960,000 $1,040,000 $375,232 $1,283,250 648,000 $900,000 $1,137,035 and Chief Executive 1992 $875,000 $1,100,000 $326,709 $ 60,270 187,500 $739,200 $ 35,624 Officer Richard D. Kinder..... 1994 $660,044 $ 840,000 $124,366 $ 42,210 1,161,125 $680,000 $ 87,872 President and Chief 1993 $640,044 $ 720,000 $218,410 $ 853,688 433,233 $550,044 $ 404,913 Operating Officer 1992 $583,377 $ 750,000 $100,344 $ 32,646 125,000 $475,200 $ 35,624 Ronald J. Burns....... 1994 $445,000 $ 376,000 $ 80,735 $ 24,455 282,885 $375,000 $ 31,572 Managing Director, 1993 $433,333 $ 320,000 $129,212 $ 426,844 199,950 $216,810 $ 41,907 North American 1992 $368,021 $ 325,000 $ 46,089 $ 11,839 62,500 $208,440 $ 35,624 Operations, Enron Capital & Trade Resources Edmund P. Segner, III. 1994 $350,000 $ 300,000 $ 10,500 $ 16,583 225,895 $200,000 $ 31,572 Executive Vice 1993 $297,500 $ 260,000 $ 8,450 $ 511,125 240,000 $ 70,070 $ 41,907 President and Chief 1992 $195,631 $ 250,000 $ 8,400 $ -- 41,700 $ 67,376 $ 30,679 of Staff Rodney L. Gray........ 1994 $350,000 $ 288,000 $ 10,500 $ 331,483 375,895(3) $175,000 $ 31,572 Managing Director, 1993 $287,292 $ 260,000 $ 6,250 $ 266,438 252,950 $ 84,150 $ 41,907 International 1992 $187,545 $ 165,000 $ 5,100 $ -- 29,200 $ 80,904 $ 29,303 Operations, Enron Capital & Trade Resources ------------ (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 $147,919 has been reported for Mr. Lay. 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 1992 was 13.845%, for 1993 was 12.825% and for 1994 was the minimum of 12.0%. Interest in excess of 120% of the December, 1993 long-term Applicable Federal Rate ("AFR") (7.29%) has been reported as Other Annual Compensation for 1994, interest in excess of 120% of the December, 1992 long-term AFR (8.5%) has been reported as Other Annual Compensation for 1993, and interest in excess of 120% of the December, 1991 long-term AFR (9.5%) has been reported as Other Annual Compensation for 1992. No interest has been reported as Other Annual Compensation under the 1992 Deferral Plan, which credits interest at Enron's mid-term borrowing rate, since the crediting rates for 1992, 1993 and 1994 of 7.5%, 7.06%, and 6.0% respectively, did not exceed 120% of the AFR. No interest has been reported as Other Annual Compensation under the 1994 Deferral Plan, because none of the Named Officers participates in this plan. Other Annual Compensation also includes miscellaneous cash payments for items such as cash perquisite allowances and lost benefits due to statutory earnings limits. (2) Restricted stock awards granted to Messrs. Lay, Kinder and Burns on January 2, 1992, vested 100% on December 14, 1992. Vesting of all unvested restricted stock granted before December, 1992 was accelerated to December, 1992. Restricted stock awards to the Named Officers on February 7, 1994, were provided to compensate for lost benefits due to statutory earnings limits and became 50% vested on August 7, 1994, and 50% vested on February 7, 1995. Dividend equivalents accrued from date of grant and were paid upon vesting. The following is the aggregate total of shares in unreleased restricted stock holdings and their value as of December 31, 1994, for each of the Named Officers: Mr. Lay, 38,800 shares valued at $1,183,400; Mr. Kinder, 25,750 shares valued at $785,375; Mr. Burns, 12,925 shares valued at $394,213; Mr. Segner, 15,287 shares valued at $466,254; and Mr. Gray, 17,487 shares valued at $533,354. (3) Options granted to Mr. Gray in 1994 include options for 150,000 common shares of Enron Global Power & Pipelines L.L.C. ("EPP") granted on November 15, 1994, at EPP's initial public offering price of $24 per share. (Notes continued on following page) 17 20 (4) The amounts shown include the value, as of year-end 1992, 1993 and 1994 of Enron Common Stock allocated during those years to employees' savings subaccounts under Enron's Employee Stock Ownership Plan. Included in 1994 is a special allocation made in February, 1994 to employees' savings subaccounts under Enron's Employee Stock Ownership Plan in lieu of a merit increase in 1994 and a special allocation made in December, 1994 to a special allocation subaccount. Also included in 1994 for Mr. Lay is $1,944 that is attributable to term life insurance coverage pursuant to a split-dollar life insurance arrangement, and $278,321, representing 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. Also included in 1994 for Mr. Kinder is a cash payment of $56,300 provided for payment of life insurance premiums on policies already held by Mr. Kinder in exchange for forfeiture by Mr. Kinder of post-retirement executive supplemental survivor benefits. An independent firm has certified that both of the benefit exchanges are cost neutral to Enron. (See "Employment Contracts" on page 22 for explanation of the benefit exchanges.) Also included in 1993 are cash payments to Messrs. Lay and Kinder of $1,095,128 and $363,006, respectively, that were made pursuant to the terms of their advances which were used to purchase Common Stock in 1989. (See "Employment Contracts" on page 22.) STOCK OPTION GRANTS DURING 1994 The following table sets forth information with respect to grants of stock options pursuant to Enron's stock plans to the Named Officers reflected in the Summary Compensation Table. No stock appreciation rights were granted during 1994. INDIVIDUAL GRANTS ----------------------------------- % OF TOTAL NUMBER OF OPTIONS/SARS SECURITIES GRANTED POTENTIAL REALIZABLE VALUE AT UNDERLYING TO ASSUMED ANNUAL RATES OF OPTIONS/ EMPLOYEES EXERCISE STOCK PRICE APPRECIATION SARS IN OR BASE FOR OPTION TERM(10) GRANTED FISCAL PRICE EXPIRATION -------------------------------------------- NAME (#)(1) YEAR ($/SH) DATE 0%(9) 5% 10% ------------------------ --------- ------ -------- -------- ----- -------------- ---------------- Kenneth L. Lay.......... 84,000(2) 0.53% $33.5000 02/07/04 $ -- $ 1,769,709 $ 4,484,791 1,200,000(3) 7.59% $34.0000 02/08/01 $ -- $ 16,609,697 $ 38,707,658 90,280(4) 0.57% $30.5000 12/30/04 $ -- $ 1,731,688 $ 4,388,439 42,335(5) 0.27% $30.5000 12/30/04 $ -- 812,040 $ 2,057,870 Richard D. Kinder....... 55,670(2) 0.35% $33.5000 02/07/04 $ -- $ 1,172,854 $ 2,972,242 1,000,000(3) 6.33% $34.0000 02/08/01 $ -- $ 13,841,414 $ 32,256,381 77,780(4) 0.49% $30.5000 12/30/04 $ -- $ 1,491,922 $ 3,780,824 27,675(5) 0.18% $30.5000 12/30/04 $ -- 530,842 $ 1,345,260 Ronald J. Burns......... 14,770(6) 0.09% $33.5000 02/07/99 $ -- $ 136,703 $ 302,077 25,000(2) 0.16% $34.0000 02/08/04 $ -- $ 534,560 $ 1,354,681 200,000(7) 1.27% $29.3750 05/02/04 $ -- $ 3,694,756 $ 9,363,237 25,000(4) 0.16% $30.5000 12/30/04 $ -- $ 479,533 $ 1,215,230 18,115(5) 0.11% $30.5000 12/30/04 $ -- 347,469 $ 880,556 Edmund P. Segner, III... 12,000(6) 0.08% $33.5000 02/07/99 $ -- $ 111,065 $ 245,425 25,000(2) 0.16% $34.0000 02/08/04 $ -- $ 534,560 $ 1,354,681 150,000(7) 0.95% $29.3750 05/02/04 $ -- $ 2,771,067 $ 7,022,428 25,000(4) 0.16% $30.5000 12/30/04 $ -- $ 479,533 $ 1,215,230 13,895(5) 0.09% $30.5000 12/30/04 $ -- 266,524 $ 675,424 Rodney L. Gray.......... 12,000(6) 0.08% $33.5000 02/07/99 $ -- $ 111,065 $ 245,425 200,000(7) 1.27% $29.3750 05/02/04 $ -- $ 3,694,756 $ 9,363,237 13,895(5) 0.09% $30.5000 12/30/04 $ -- $ 266,524 $ 675,424 150,000(8) 23.66%(8) $24.0000 11/15/04 $ -- $ 2,264,025 $ 5,737,470 All Employee and Director Optionees.... 15,805,680(11) 100% $31.1896(12) N/A $ -- $ 310,028,413(13) $ 785,671,903(13) All Stockholders........ N/A N/A N/A N/A $ -- $4,936,601,889(13) $12,510,303,030(13) Optionee Gain as % of All Stockholders Gain.................. N/A N/A N/A N/A N/A 6.28% 6.28% (Footnotes begin on following page) 18 21 --------------- (1) 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). (2) Options granted to Messrs. Lay and Kinder on February 7, 1994 and Messrs. Burns and Segner on February 8, 1994 represent the 1994 stock option grant under the Long-Term Incentive Program. The options became 20% vested on August 7 and 8, 1994, respectively, and were first exercisable on those dates, with an additional 20% becoming exercisable on the anniversary of the date of grant until February 7 and 8, 1998, respectively. (3) Represents options granted pursuant to renewal of employment contracts. These options became 20% vested on August 8, 1994 and were first exercisable on that date, with the remaining 80% becoming vested on December 8, 2000. Based on attainment of 15% annual growth in earnings per share, the vesting may be accelerated such that one-third of remaining shares would vest at year-end 1994, 1995 and 1996. One-third of the shares became vested at year-end 1994 due to Enron achieving a 16.1% increase in earnings per share. (4) Represents the 1995 stock option grant under the Long-Term Incentive Program. Beginning with 1995 grants, the grant date has been changed from early February to the last trading day of the prior year, due to regulations under Section 162(m). Therefore, 1994 was the transition year, resulting in two long-term incentive grants being awarded. Options will become 20% vested on June 30, 1995 and will first be exercisable on that date with an additional 20% becoming exercisable on the anniversary of the date of grant until December 30, 1998. (5) Represents options granted under the All Employee Stock Option Program. Options will become 20% vested on June 30, 1995 and will first be exercisable on that date with an additional 20% becoming exercisable on the anniversary of the first vesting until June 30, 1999. (6) Represents bonus stock options that are five year grants and became 100% vested on August 7, 1994. (7) Represents options granted pursuant to extensions of employment contracts. These options became 20% vested on November 2, 1994 and were first exercisable on that date with the remaining 80% becoming vested on May 2, 2002. Vesting for these grants can be accelerated based on attainment of individual company earnings targets so that 20% would vest at the end of 1994, 1995, 1996, and 1997 as follows: Mr. Burns for Enron Capital & Trade Resources ("ECT") performance; Mr. Segner for Enron Corp. performance; and Mr. Gray for ECT International Operations performance. The first 20% did vest at year-end 1994 based on attainment of company earnings targets. (8) Represents options to purchase EPP shares and shows the grant as a percentage of all EPP options granted (633,980). (9) An appreciation in stock price, which will benefit all stockholders, is required for optionees to receive any gain. A stock price appreciation of zero percent would render the option without value to the optionees. (10) 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. (11) Includes shares issued on December 30, 1994 under the All Employee Stock Option Program, which replaced allocations to the Employee Stock Ownership Plan savings subaccount for eligible employees for the years 1995 through 2000. Eligible employees are defined as regular full-time employees and regular part-time employees who have worked 1,000 hours, who are on the U.S. or Canadian payroll, excluding employees of Enron Oil & Gas and EOTT Energy. (12) Weighted average exercise price of all Enron stock options granted to employees in 1994. (13) Appreciation for All Employee and Director Optionees is calculated using the maximum allowable option term of 10 years, even though in some cases the actual option term is less than 10 years. Appreciation for all stockholders is calculated using an assumed ten-year option term, the weighted average exercise price for All Employee and Director Optionees ($31.1896) and the number of shares of Common Stock issued and outstanding on December 31, 1994 (251,674,835). 19 22 AGGREGATED STOCK OPTION/SAR EXERCISES DURING 1994 AND STOCK OPTION/SAR VALUES AS OF DECEMBER 31, 1994 The following table sets forth information with respect to the Named Officers concerning the exercise of SARs and options during the last fiscal year and unexercised options and SARs held as of the end of the fiscal year: SHARES ACQUIRED ON VALUE NAME EXERCISE (#) REALIZED ($) --------------------------------- ------------ ------------ Kenneth L. Lay................... 336,400 $6,653,025 Richard D. Kinder................ 48,000 $1,050,000 Ronald J. Burns.................. 80,000 $1,496,800 Edmund P. Segner, III............ 25,800 $ 426,413 Rodney L. Gray -- Enron Corp. ... -- $ -- EPP............ -- $ -- NUMBER OF SECURITIES UNDERLYING UNEXERCISED OPTIONS/SARS AT DECEMBER 31, 1994 ----------------------------- NAME EXERCISABLE UNEXERCISABLE --------------------------------- ----------- ------------- Kenneth L. Lay................... 1,152,100 1,626,015 Richard D. Kinder................ 1,170,570 1,262,788 Ronald J. Burns.................. 517,850 420,585 Edmund P. Segner, III............ 143,000 350,235 Rodney L. Gray -- Enron Corp. ... 160,991 376,094 EPP............. -- 150,000 VALUE OF UNEXERCISED IN-THE-MONEY OPTIONS/ SARS AT DECEMBER 31, 1994 ----------------------------- NAME EXERCISABLE UNEXERCISABLE --------------------------------- ----------- ------------- Kenneth L. Lay................... $11,457,900 $2,840,100 Richard D. Kinder................ $14,057,382 $1,926,890 Ronald J. Burns.................. $ 6,336,621 $1,769,276 Edmund P. Segner, III............ $ 351,750 $1,026,755 Rodney L. Gray -- Enron Corp. ... $ 889,282 $ 742,499 EPP............. $ -- $ -- LONG-TERM INCENTIVE PLAN -- AWARDS IN 1994 The following table provides information concerning awards of performance units under Enron's Performance Unit Plan during 1994. Grants are made at the beginning of each fiscal year and each unit is assigned a value of $1.00. The units are subject to a four-year performance period, at the end of which Enron's cumulative quarterly total stockholder return is compared to that of the 11 peer companies included in the Peer Group. At that time, the units are assigned a value ranging from $0 to $2.00 based on the rank of Enron's stockholder return within the Peer Group. To be valued at the maximum of $2.00, Enron must rank first, and to be valued at the target of $1.00, Enron must rank third. Regardless of Enron's rank, Enron's cumulative quarterly stockholder return must be above the cumulative return on 90-day U.S. Treasury Bills over the same performance period in order for any value to be assigned. NUMBER ESTIMATED FUTURE PAYOUTS OF PERFORMANCE UNDER NON-STOCK PRICE-BASED SHARES, OR OTHER PLANS UNITS OR PERIOD UNTIL --------------------------- OTHER MATURATION THRESHOLD TARGET NAME RIGHTS (#) PAYOUT ($ OR #) ($ OR #) ---------------------------------- ---------- ------------ ----------- ----------- Kenneth L. Lay.................... 756,000 4 years $ -- $ 756,000 Richard D. Kinder................. 501,000 4 years $ -- $ 501,000 Ronald J. Burns................... 225,000 4 years $ -- $ 225,000 Edmund P. Segner, III............. 225,000 4 years $ -- $ 225,000 Rodney L. Gray(1)................. -- -- $ -- $ -- MAXIMUM NAME ($ OR #) ---------------------------------- ---------- Kenneth L. Lay.................... $1,512,000 Richard D. Kinder................. $1,002,000 Ronald J. Burns................... $ 450,000 Edmund P. Segner, III............. $ 450,000 Rodney L. Gray(1)................. $ -- --------------- (1) Pursuant to Mr. Gray's employment agreement, he does not receive performance units, (See "Employment Contracts" on page 24.) RETIREMENT AND SEVERANCE PLANS For many years, Enron has maintained a Retirement Plan to provide retirement income for employees of Enron and its subsidiaries. Accrual of benefits under the Retirement Plan was temporarily suspended effective December 31, 1994 in connection with Enron's intent to convert the plan's benefit formula from a final average pay formula (the "Pre-1995 Formula") to a career average pay, cash balance formula (the "Post-1994 Formula"). 20 23 The Pre-1995 Formula is designed to provide monthly retirement income for each covered employee in an amount equal to 1.45% of an employee's final average pay multiplied by such employee's years of accrual service not in excess of 25 years, plus .45% of final average pay multiplied by accrual service in excess of 25 years up to a maximum of 10 years, plus .45% of final average pay in excess of the integration level multiplied by accrual service not in excess of 35 years, plus 1% of final average pay multiplied by accrual service in excess of 35 years. Final average pay is the average of an employee's monthly compensation either for any period of sixty consecutive months that occurs during the last 120 months of vesting service and for which such employee's average monthly compensation is the highest, or for the period of such employee's vesting service if less than 60 months. The integration level is the lesser of 125% of compensation covered by Social Security for an employee attaining the Social Security retirement age, or the FICA taxable wage base in effect, in the Plan year in which the employee terminates employment. Subject to adoption of an amendment to the Retirement Plan by Enron's Board of Directors, Enron intends to change the Plan's benefit accrual formula to the Post-1994 Formula, under which covered employees will accrue an annual benefit equal to an account balance of 5% of base pay. Each employee's accrued benefit will be credited with interest based on 10-year Treasury Bond yields. Benefit accrual under the Post-1994 Formula will commence in Plan year 1996. Directors who are not employees are not eligible to participate in the Retirement Plan. Benefits accrued under the Retirement Plan after 1986 and before 1995 are offset by the value of Common Stock allocated to an employee's retirement subaccount in Enron's Employee Stock Ownership Plan. 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 Retirement Plan except for the dollar limitation on accrued benefits imposed by the Internal Revenue Code of 1986, as amended, 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 SERVICE AT AGE 65 BY PLANS RETIREMENT -------- --------- ------------ -------------- Mr. Lay.................................. 17.9 30.2 $990,000 $437,813 Mr. Kinder............................... 14.1 28.9 $660,044 $264,317 Mr. Burns................................ 20.6 43.4 $445,000 $299,774 Mr. Segner............................... 6.9 30.7 $350,000 $154,755 Mr. Gray................................. 6.8 29.1 $350,000 $144,396 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 Enron's Employee Stock Ownership Plan. 21 24 ENRON'S SEVERANCE PAY PLAN 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 or economic factors. The amount of benefits payable for performance related terminations is based on length of service and may not exceed six weeks' 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 severance pay benefits are doubled. 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 five percent of annual incentive award opportunity under any approved plan. The maximum an employee can receive is 2.99 times the employee's average annual base pay over the past five years. Messrs. Burns, Segner and Gray participate in the Executive Supplemental Survivor Benefit Plan. Both Messrs. Lay and Kinder have waived their participation in lieu of life insurance premiums. In the event of death after retirement, the Plan provides an annual benefit to the participant's beneficiary equal to 50 percent of the participant's annual base salary at retirement, paid for 10 years. The Plan also provides that in the event of death before retirement, the participant's beneficiary receives 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 for an annual benefit equal to 30% of his annual base salary at death, paid for the life of his spouse. Mr. Kinder has an agreement which was entered into with Houston Natural Gas Corporation for an annual benefit equal to 30% of his annual base salary at death, paid for the life of his spouse and an agreement with Houston Natural Gas Corporation which will provide Mr. Kinder with an annual retirement benefit increase of 5% for up to 13 years or until his total retirement benefit, as supplemented, equals 60% of his annual base salary at retirement after reaching age 60.