EMPLOYMENT CONTRACTS Mr. Lay entered into an employment agreement with Enron in September, 1989. The agreement was renewed for an additional five years in February, 1994, and provides for (i) a fixed annual salary of $990,000 and (ii) a stock option grant of 1,200,000 shares of Common Stock pursuant to the Enron Corp. 1991 Stock Plan. Mr. Lay has the option to terminate the agreement as of February 8, 1997. Mr. Kinder entered into an employment agreement with Enron in September, 1989. The agreement was renewed for an additional five years in February, 1994 and provides for (i) a minimum annual salary of $660,000 and (ii) a stock option grant of 1,000,000 shares of Common Stock pursuant to the Enron Corp. 1991 Stock Plan. Mr. Kinder has the option to terminate the agreement as of February 8, 1997. The stock option grants provided to Messrs. Lay and Kinder pursuant to the 1991 Stock Plan in the above described employment agreements vest 20% on the date of grant and 100% after 6 years and 10 months from the date of grant. However, if 15% annual earnings per share growth targets are achieved, the options granted under the 1991 Stock Plan vest 20% on the date of grant and the 22 25 remaining vest 33 1/3% on each of the first, second, and third anniversaries from the date of grant. If Mr. Lay or Mr. Kinder leaves Enron prior to full vesting of the options granted under the 1991 Stock Plan, then no further vesting will occur, but all vested options will be exercisable through February 7, 2001. Pursuant to the terms of his original 1989 employment agreement, Mr. Lay received an advance of $5 million to be used to purchase shares of Common Stock (which shares are pledged as collateral) and a loan commitment of $2.5 million. Pursuant to the terms of his original 1989 employment agreement, Mr. Kinder received an advance of $3 million to be used to purchase shares of Common Stock (which shares are pledged as collateral) and a loan commitment of $1.5 million. Under the terms of the advances, Messrs. Lay and Kinder were also entitled to receive payments to equalize the increased value and dividends that would have been realized based on the number of shares of Common Stock they agreed to buy at a fixed price of $12.50 per share and the number of shares they were actually able to buy in the open market at varying prices above $12.50. Such payments were made in 1993. Messrs. Lay and Kinder each received the full principal amounts of their respective advances and loans in 1989. The advances and loans bear interest (during 1994, at an average annual rate of 6.54%) and are collateralized with Common Stock and personal property. During 1994, the balance of Mr. Lay's advance was $4,999,975. Under the terms of Mr. Lay's renewed agreement, on March 25, 1994, Mr. Lay repaid all outstanding advances and loans, including principal and interest. Mr. Lay was then provided with a new non-collateralized, interest bearing line of credit (during 1994, at an average annual rate of interest of 6.54%) in an aggregate amount not to exceed $4 million at any time. During 1994, the highest amount of Mr. Lay's outstanding loan balance was $4,000,000. As of February 28, 1995, the balance on such loan was $1,893,000. Mr. Lay paid Enron $297,402 as interest in 1994 pursuant to his advance and loan agreements. During 1994, the balance of Mr. Kinder's advance and loan remained at $1,553,086 and $1,500,000 respectively. Interest in the amount of $106,679 and $98,188 accrued in 1994 on Mr. Kinder's advance and loan, respectively. Unpaid interest continues to accrue and is payable on or before February 8, 1999. The loans and advances mature on February 8, 1999, and if the shares of Common Stock pledged as collateral for the advances are insufficient to cover the amount of the advance and accrued interest outstanding, then Mr. Kinder is liable for up to one-third of the advance as well as unpaid interest. In the event of Mr. Kinder's death or permanent disability, his obligation to repay the advance is forgiven. Enron has purchased insurance on Mr. Kinder, with Enron as the owner and beneficiary, which will allow Enron to recover any outstanding advances in the event of the death or permanent disability of Mr. Kinder. Mr. Kinder's renewed agreement provides that, as of February 8, 1997, if mutually satisfactory terms pertaining to his future employment with Enron have not been agreed to by Mr. Kinder and Enron, then the outstanding principal and interest balances of his loan and advance will be forgiven. If severance remuneration payable under the agreements is held to constitute "excess parachute payments" and Messrs. Lay or Kinder become liable for any tax penalties imposed thereon, Enron will make a cash payment to them in an amount equal to the tax penalties plus an amount equal to any additional tax for which they will be liable as a result of their receipt of the payment for such tax penalties and payment for such reimbursement for additional tax. Messrs. Lay and Kinder have agreed to noncompete provisions until the end of the term of their employment agreements if they are 23 26 involuntarily terminated and for two years from the date of any other termination of their employment. In 1994, Messrs. Lay and Kinder entered into agreements with Enron under which they forfeited certain executive supplemental benefits in exchange for payment of life insurance premiums. Mr. Lay forfeited post-retirement survivor benefits and supplemental retirement benefits in exchange for payment by Enron of nine annual premiums on a split-dollar life insurance policy. Mr. Kinder forfeited post-retirement survivor benefits in exchange for payment by Enron for nine years to be applied to premiums on life insurance policies already held by Mr. Kinder. An independent firm has certified that the exchanges are cost neutral to Enron on a present value basis. Mr. Burns entered into an employment agreement with Enron in July, 1989, which, as amended, provides for a minimum annual salary of $245,000, and contains a loan commitment provision which allows Mr. Burns to borrow up to an aggregate of $1,000,000 from Enron. Mr. Burns received the full principal amount of this loan in August, 1991. The loan bears interest (during 1994, at an average annual rate of 6.54%) and is collateralized with pledged personal properties. Mr. Burns paid $70,000 as interest in 1994 pursuant to this loan agreement. In May, 1994 Mr. Burns' agreement was extended two years, and he was granted 200,000 stock options with vesting tied to ECT earnings performance. These options will vest 20% immediately and 100% eight years from the date of grant. Vesting can be accelerated so that 20% would vest at the end of 1994, 1995, 1996 and 1997 if earnings targets are met. In the event of his involuntary termination, he will receive amounts prescribed in such agreement through the term of the agreement, which expires on August 31, 1998. The employment agreement contains noncompete provisions in the event of Mr. Burns' termination of employment. Mr. Segner entered into an employment agreement with Enron in October, 1991, which, as amended, provides for a minimum annual salary of $230,000. In May, 1994, Mr. Segner's agreement was extended two years and he was granted 150,000 stock options with vesting tied to Enron earnings performance. These options will vest 20% immediately and 100% eight years from the date of grant. Vesting can be accelerated so that 20% would vest at the end of 1994, 1995, 1996 and 1997 if earnings targets are met. In the event of his involuntary termination, he will receive amounts prescribed in such agreement through the term of the agreement, which expires on September 30, 1998. The employment agreement contains noncompete provisions in the event of Mr. Segner's termination of employment. Mr. Gray entered into an employment agreement with Enron in July, 1993, which provides for a minimum annual salary of $350,000. It also includes the following provisions: (i) The potential to receive 65,800 shares of restricted stock, contingent upon Enron International, a predecessor of ECT, meeting the Board approved earnings target for the previous calendar year, according to the following grant schedule: in February, 1994, 9,400 shares if the 1993 earnings target was met; in February, 1995, 18,800 shares if the 1994 earnings target was met; in February, 1996, 18,800 shares if the 1995 earnings target was met; and in December, 1996, 18,800 shares if the 1996 earnings target was met. If a grant is not made because the previous year's earnings target was missed, the grant can be made in a following February if the earnings target for the year is exceeded by at least the amount of the underage from a previous year. All shares will vest on December 31, 1996. If the value of the 65,800 shares, including accrued dividends, is less than $3,000,000 on December 31, 1996, the difference (prorated for shares not granted) will be made up by Enron. (ii) A grant of 128,000 stock options with a 10 year term vesting 100% eight years from date of grant. Vesting may be accelerated under the following schedule: in February, 1994, one-seventh if the 1993 earnings target was met; in February, 1995, two-sevenths if the 1994 earnings target was met; in February, 1996, two-sevenths if the 1995 earnings target was met; 24 27 in December, 1996, two-sevenths if the 1996 earnings target was met. Vesting of stock options has the same carry back provision, relative to missed earning targets as the restricted shares. (iii) No performance unit grants will be made during the term of the agreement. (iv) Payment of annual bonuses during the term of the agreement are at the sole discretion of the Compensation Committee. In May, 1994, Mr. Gray's agreement was extended one year, and he was granted 200,000 stock options with vesting tied to Enron International earnings performance. These options will vest 20% immediately and 100% eight years from the date of grant. Vesting can be accelerated so that 20% would vest at the end of 1994, 1995, 1996 and 1997 if earnings targets are met. Mr. Gray received a personal executive loan from Enron in the amount of $250,000 on August 1, 1994. The loan bears interest at the short-term Applicable Federal Rate compounded semi-annually, which during 1994 was 6.04% and is collateralized with 7,960 shares of Common Stock. Interest in the amount of $6,330 accrued in 1994 on the loan. In the event of his involuntary termination, he will receive amounts prescribed in such agreement through the term of the agreement, which expires on December 31, 1997. The employment agreement contains noncompete provisions in the event of Mr. Gray's termination of employment. Subsequent to the formation of ECT through the combination of Enron International and Enron Gas Services, Mr. Gray's employment agreement was assigned to ECT, with contingent grants and acceleration of vesting based on the earnings targets of ECT's international operations. In addition, subsequent to the formation of EPP, of which Mr. Gray is President and Chief Executive Officer, Mr. Gray entered into a separate employment agreement with EPP, which provides that EPP will pay up to two-thirds ( 2/3) of his total base salary, dependent upon the amount of time he dedicates to activities of EPP, and allows for Mr. Gray to receive payments from the EPP Annual Incentive Plan and grants from the EPP 1994 Share Option Plan. CERTAIN TRANSACTIONS During 1994, Enron paid Walker/Potter Associates (formerly Walker/Free Associates), of which Dr. Walker is Chairman, approximately $39,750 in fees relating to governmental relations and tax consulting. The services to be performed by Walker/Potter Associates pursuant to its consulting arrangement do not include, and are in addition to, Mr. Walker's duties as a director of Enron, and the above compensation is in addition to the remuneration payable to Mr. Walker as a member of the Board of Directors. Effective August 1, 1991, Enron, Enron Power Corp. (a wholly owned subsidiary of Enron) and John A. Urquhart entered into a Consulting Services Agreement which, as amended, extends through December 31, 1995. Pursuant to the terms of the agreement, Mr. Urquhart serves as Vice Chairman of the Board of Enron and consults with Enron regarding the development and implementation of an integrated strategic international business plan and other matters concerning international business and operations. The Consulting Services Agreement, as amended, contains a retainer fee of $40,000 per month for providing up to 120 days consulting services annually. To the extent that consulting services exceed 120 days, Mr. Urquhart will be paid a daily rate of $4,000. Mr. Urquhart will also be paid for all reasonable out-of-pocket expenses incurred under the agreement. In addition, prior to the amendments described below, Mr. Urquhart was entitled to receive the following incentive compensation: (i) 84,000 Enron Corp. phantom shares valued at $15.25 per share, (ii) a $300,000 consulting services completion bonus, payable upon the earlier of July 31, 1995, or the date no phantom units remain exercisable, reduced by all phantom unit payments received, and (iii) a grant of phantom equity of .1% in Enron Power Corp., pursuant to the provisions of the Enron Power Corp. Executive Compensation 25 28 Plan, which shall vest at the end of the term of the Consulting Services Agreement. The Consulting Services Agreement was amended in February 1993 to replace the .1% phantom equity in Enron Power Corp. with 92,000 phantom shares in Enron at a grant price of $28.125. Upon exercise of phantom shares, Mr. Urquhart will receive the difference between the grant price and the fair market value of a phantom share on the date of exercise, defined as the closing price for one share of Common Stock, times the number of phantom shares exercised. The phantom shares will vest 100% one year from date of grant and will expire on August 1, 1995. In return for waiving his phantom equity, Mr. Urquhart will receive cash payments totaling $1,160,000, one-third of which was paid upon execution of the amendment and an additional one-third of which will be paid on each of the first and second anniversaries of execution. The Consulting Services Agreement was further amended in May 1994 to extend the term of both grants of phantom shares to December 31, 1995 and to rescind the $300,000 completion bonus. The services to be performed by Mr. Urquhart pursuant to the Consulting Services Agreement do not include, and are in addition to, his duties as a director of Enron, and the above compensation is in addition to the remuneration payable to Mr. Urquhart as a member of the Board of Directors of Enron. During 1994, Enron paid Mr. Urquhart $596,354 for services rendered (including reimbursement of expenses) under the Consulting Services Agreement. In addition, Mr. Urquhart exercised 56,000 of the 84,000 Enron Corp. phantom shares granted at $15.25 per share. Based on the fair market value on the date of exercise of $31.875, Mr. Urquhart received a cash payment of $931,000. Houston Pipe Line Company ("HPL"), a subsidiary of Enron, in the ordinary course of its business, entered into a master gas storage agreement on April 1, 1994, with Bruin Interests, L.L.C. ("Bruin"), of which Mark K. Lay owns a 33 1/3% equity interest. Mark K. Lay is a son of Kenneth L. Lay, Chairman of the Board and Chief Executive Officer of Enron. Bruin (or an assignee of its interest under the agreement) had the right to inject a predetermined quantity of natural gas into an underground storage facility owned by HPL, and thereafter has the right to withdraw such stored natural gas. At the time of execution of the master agreement, Bruin gained the right, through a contemporaneously executed confirmation, to inject up to 8 billion cubic feet of natural gas into the storage facility from April to August of 1994, and to withdraw such gas during the months of December, 1994 and January, 1995. The consideration for such storage service was an $800,000 prepayment to HPL and an obligation to make certain payments to HPL upon withdrawal of the natural gas from the storage facility. The amount of the withdrawal payments depended in part on then prevailing market prices for natural gas. HPL had the option to purchase the natural gas held in storage at an index price for natural gas at the beginning of a given month. Shortly after execution Bruin advised HPL that it desired to assign its interest in the master storage agreement (together with the 8 billion cubic feet transaction confirmation) to a party unaffiliated with Bruin or Enron and that in consideration for such assignment Bruin would receive a portion of the assignee's profits, if any, from its activities associated with the gas storage agreement. HPL consented to such transaction and the assignment was finalized in late April, 1994. Bruin's assignee and HPL have confirmed or are confirming a series of transactions since the assignment in April, 1994 involving the storage of an aggregate of approximately 8.35 billion cubic feet of gas for aggregate fees of approximately $1.16 million. It is anticipated that HPL and either Bruin or one of its affiliates will pursue similar transactions during 1995. HPL and Bruin are currently finalizing a transportation agreement, which Enron understands will facilitate possible gas storage transactions between Bruin and Enron. The transportation agreement will provide for interruptible transportation of up to 80,000 million British Thermal Units ("MMBtu") of gas per day. The rates for any gas transportation service under such agreement 26 29 will be the standard and discounted rates that are available to HPL's customers generally, and it is estimated that the aggregate transportation fees for the four months beginning June 1, 1995 will range from $30,000 to $90,000, depending on the receipt points utilized. Enron believes that the terms of the existing and proposed agreements involving HPL and Bruin are comparable to those available to unaffiliated third parties, and Enron does not intend to engage in any transaction with Bruin except on terms that Enron believes are comparable to those available to unaffiliated third parties. Section 16(a) of the Securities Exchange Act of 1934 (the "Exchange Act") requires Enron's executive officers and directors, and persons who own more than 10% of a registered class of Enron's equity securities, to file reports of ownership and changes in ownership with the SEC and the New York Stock Exchange. Based solely on its review of the copies of such reports received by it, or written representations from certain reporting persons that no Forms 5 were required for those persons, Enron believes that during 1994, its executive officers, directors and greater than ten percent stockholders complied with all applicable filing requirements, except that Thomas E. White failed to timely file one report for one transaction. COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION At December 31, 1994, the Compensation Committee consisted of Messrs. LeMaistre, Belfer, Duncan and Foy. Mr. William A. Anders served on the Compensation Committee until March 14, 1994, at which time Mr. Anders resigned from Enron's Board of Directors and all committees on which he served. Until April 1986, Mr. Belfer was an officer of Belco Petroleum Corporation, a wholly owned subsidiary of Enron. During 1994 and 1995, Belco Oil & Gas Corp. ("BOGC") entered into natural gas commodity swap agreements and option agreements with Enron Risk Management Services Corp., a wholly owned subsidiary of Enron ("ERMS"). BOGC is wholly owned by Mr. Belfer and members of his family. These agreements were entered into in the ordinary course of business of ERMS, and are on terms that ERMS believes are no less favorable than the terms of similar arrangements with third parties. Pursuant to the terms of these agreements, BOGC has paid ERMS a net amount of approximately $154,000 with respect to 1994. The amount of future payments (as well as whether payments are made by ERMS to BOGC or vice versa) is affected by fluctuations in energy commodity prices. Enron believes that BOGC and ERMS will continue to enter into similar arrangements throughout 1995. Enron retains the law firm of Bracewell & Patterson L.L.P. for legal services. During the last fiscal year, Enron and its subsidiaries paid Bracewell & Patterson L.L.P., from which Mr. Foy is a retired partner, legal fees which Enron believes to be reasonable for the services rendered. Until 1979, Mr. Foy was President of Houston Natural Gas Corporation, a predecessor of Enron. ITEM 2. RATIFICATION OF APPOINTMENT OF AUDITORS Pursuant to the recommendation of the Audit Committee, the Board of Directors appointed Arthur Andersen LLP, independent public accountants, to audit the consolidated financial statements of Enron for the year ending December 31, 1995. 27 30 Ratification of this appointment 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 Board of Directors recommends ratification by the stockholders of this appointment. In the event the appointment is not ratified, the Board of Directors will consider the appointment of other independent auditors. A representative of Arthur Andersen LLP is expected to be present at the Annual Meeting of Stockholders on May 2, 1995, will be offered the opportunity to make a statement if such representative desires to do so and will be available to respond to appropriate questions. THE BOARD OF DIRECTORS RECOMMENDS VOTING "FOR" THIS PROPOSAL. ITEM 3. APPROVAL OF AMENDED AND RESTATED PERFORMANCE UNIT PLAN GENERAL Stockholder approval of the amended and restated 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), enacted in 1993 and effective for the 1994 and subsequent tax years. Section 162(m) generally disallows a tax deduction for compensation over $1 million paid to a Named Officer, unless it qualifies as performance-based. Upon approval by Enron's stockholders, the Performance Unit Plan will be considered effective for grants made on or after January 1, 1994. In the event stockholders do not approve the Performance Unit Plan, the plan will not be continued and grants made in 1994 and 1995 will be cancelled. The Compensation Committee believes long-term incentive compensation is an important element of compensation in order to attract and retain highly qualified executive talent and to motivate these executives to achieve long-term financial objectives that create value for stockholders. The amended and restated Performance Unit Plan that is subject to stockholder approval is substantially the same plan for which stockholder approval was obtained by more than 80% of the votes at Enron's 1994 Annual Meeting of Stockholders, 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. Because the Internal Revenue Service had not yet finalized its regulations and was still soliciting comments at the time of the 1994 Annual Meeting of Stockholders, there was some ambiguity as to the scope of the $1 million deduction limitation and what was required from stockholders with respect to their approval of Enron's compensation plans. Therefore, in the proxy statement for the 1994 annual meeting, Enron did not explain that stockholder approval is required not only for Enron to claim a tax deduction, but also to allow it to make payments to eligible employees under the Performance Unit Plan. Upon further guidance from legal counsel after consultation with the Internal Revenue Service, the clarification contained herein now complies with the Internal Revenue Service's interpretation of this provision. 28 31 The purpose of the Performance Unit Plan 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 amended and restated 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. Key executive employees of Enron and its subsidiaries who are selected by the Compensation Committee of the Board of Directors (the "Committee") for participation in the Enron Executive Compensation Program (currently, approximately 65 people) are eligible to participate in the Performance Unit Plan, which is administered by 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 Prorated 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 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 29 32 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 termination of the Plan. When benefit payments with respect to Performance Units 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 Prorated Adjusted Value of the Performance Units. The Prorated 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 Performance Period 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. The Plan will automatically terminate upon the occurrence of a merger, consolidation or acquisition where Enron is not the surviving corporation. In such event, all uncancelled Performance Units will become immediately payable as if the full Performance Period (16 quarters) had been completed, and payments will be based on the Adjusted Value of the Performance Unit for the applicable Performance Period. The Board of Directors, or the Committee acting on behalf of the Board of Directors, may terminate the Performance Unit Plan at any time. If the Performance Unit Plan is terminated by the Board of Directors or the Committee, all uncanceled Performance Units will become immediately payable as if the full Performance Period (16 quarters) had been completed, and payments will be based on the Adjusted Value of the Performance Unit for the applicable Performance Period; provided, however, that the Committee may, in its sole discretion, determine that the benefit payment with respect to uncanceled Performance Units will be based on the Prorated Adjusted Value (determined as described in the preceding paragraph using the number of completed quarters during the applicable Performance Period as of the date of the Performance Unit Plan termination). The Valuation Date for determining any payment upon the Performance Unit Plan termination is the last day of the Performance Period quarter immediately preceding the date of such Performance Unit Plan termination. 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 Enron's deferral plans. 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 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 30 33 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 Performance Unit Plan. In addition to satisfying applicable requirements of Section 162(m), 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 not be continued. UNITS GRANTED UNDER THE PLAN The following units were granted under the Performance Unit Plan in 1994 and 1995: NUMBER OF UNITS(1) ----------------------- NAME 1994 1995 ------------------------------------------------------ --------- --------- Kenneth L. Lay........................................ 756,000 812,500 Richard D. Kinder..................................... 501,000 700,000 Ronald J. Burns....................................... 225,000 225,000 Edmund P. Segner, III................................. 225,000 225,000 Rodney L. Gray........................................ -0- -0- All Executive Officers................................ 2,587,000 2,717,500 All Non-Employee Directors............................ -0- -0- All Non-Executive Officer Employees................... 2,312,500 2,412,500 --------------- (1) Performance units shown were granted at $1. The payout value is not determinable until the end of a four-year performance period, but ranges from $0 to $2 per unit. REQUIRED VOTE AND RECOMMENDATION The approval of the amended and restated 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 amended and restated Performance Unit Plan. THE BOARD OF DIRECTORS RECOMMENDS VOTING "FOR" THIS PROPOSAL. 31 34 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 1996 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 1996 must be received by Enron, addressed to Peggy B. Menchaca, Vice President and Secretary, 1400 Smith Street, Houston, Texas 77002, no later than November 28, 1995, to be included in the Enron proxy statement and form of proxy relating to that meeting. In addition to the SEC rules described in the preceding paragraph, Enron's bylaws provide that for business to be properly brought before the Annual Meeting of 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, 1996. 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 bylaw 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 bylaw provisions. Notwithstanding anything in Enron's bylaws to the contrary, no business shall be conducted at the annual meeting except in accordance with the procedures outlined above. PROPOSALS FOR 1995 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 1995 Annual Meeting of Stockholders of Enron was February 2, 1995. With respect to business to be brought before the 1995 Annual Meeting of Stockholders, Enron has not received any notices from its stockholders that Enron is required to include in this proxy statement. 32 35 NOMINATIONS FOR 1996 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, 1996, 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 bylaw 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 bylaw provisions. NOMINATIONS FOR 1995 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 1995 Annual Meeting of Stockholders of Enron was February 2, 1995. Enron has not received any notices from its stockholders regarding nominations for directors to be elected at the 1995 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 33 36 other custodians, nominees and fiduciaries for the forwarding of material to and solicitation of proxies from the beneficial owners of Voting Stock held of record by such persons, and Enron will reimburse such brokerage firms, custodians, nominees and fiduciaries for reasonable out of pocket expenses incurred by them in connection therewith. In addition, Enron has retained a proxy soliciting firm, Corporate Investor Communications, Inc. to assist in the solicitation of proxies and will pay a fee of approximately $6,000 plus reimbursement of expenses. By Order of the Board of Directors PEGGY B. MENCHACA Vice President and Secretary Houston, Texas March 27, 1995 34 37 EXHIBIT A ENRON CORP. PERFORMANCE UNIT PLAN (AS AMENDED AND RESTATED EFFECTIVE MAY 2, 1995) 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 performance 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. A-1 38 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. "Prorated 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 Prorated 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. A-2 39 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 A-3 40 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. Section VI.A.1. 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 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 Section 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. Prorated 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 A-4 41 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. b. The "proration fraction" applicable to the Performance Units for each such Performance Period shall be determined. c. The Prorated 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 credited to his Account with respect to and as of the close of such Performance Period. A-5 42 The Valuation Date for determining such Adjusted Value shall be the last day of the applicable Performance Period. 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). 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 Prorated 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 Prorated 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. 3. 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 Section IX.B., uncancelled Performance Units granted to Participants will 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.; provided, however, that (a) the Committee may, in its sole discretion, determine that the benefit payment with respect to uncancelled Performance Units shall be equal to the Prorated Adjusted Value as provided for in Section V.C.3. based on the actual Performance Period quarters completed and (b) no payment shall be made with respect to Performance Units granted for Performance Periods beginning on or after January 1, 1994 if such Termination of the Plan is a result of the failure of the stockholders of the Company to approve the Plan. The Valuation Date for determining the Adjusted Value or Prorated Adjusted Value shall be the last day of the Performance Period quarter immediately preceding the date of the Termination of the Plan. A-6 43 B. Time of Payment. A benefit payment made to or with respect to a Participant pursuant to the provisions of Section VI.A. shall be made as soon as practicable following the date of the event giving rise to such benefit payment. 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 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. The Committee shall certify in writing prior to the payment of any benefit hereunder that the performance goal associated with the grant of Performance Units giving rise to such payment was in fact satisfied. For purposes of the A-7 44 preceding sentence, approved minutes of the Committee meeting in which the certification is made shall be treated as a written certification. 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 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, A-8 45 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 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. A-9 46 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. G. Effective Date of Plan. Upon approval by the stockholders of the Company at the 1995 annual meeting, the Plan shall be considered effective for Performance Periods beginning on or after January 1, 1994. In the event that the Plan is not approved by the stockholders of the Company at the 1995 annual meeting, all Performance Units granted prior to such meeting with respect to Performance Periods beginning on or after January 1, 1994, shall be cancelled without the payment of any amount to the holders thereof and no Performance Units shall thereafter be granted under the Plan. A-10 47 [ENRON CORP. LOGO] 48 /X/ PLEASE MARK YOUR VOTES AS IN THIS 7398 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 AND 3. -------------------------------------------------------------------------------- THE BOARD OF DIRECTORS RECOMMENDS A VOTE FOR PROPOSALS 1, 2 AND 3. -------------------------------------------------------------------------------- 1. Election of Directors. (see reverse) FOR / / WITHHELD / / For, except vote withheld from the following nominee(s): -------------------------------------------------------------------------------- 2. Ratification of appointment of FOR / / AGAINST / / ABSTAIN / / independent accountants. 3. Approval of the Amended and FOR / / AGAINST / / ABSTAIN / / Restated Performance Unit Plan. 4. In the discretion of the proxies named FOR / / AGAINST / / ABSTAIN / / 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 -------------------------------------------------------------------------------- O FOLD AND DETACH HERE O [ENRON CORP. LOGO] THIS IS YOUR PROXY. YOUR VOTE IS IMPORTANT. NEED ASSISTANCE IN ANY OF THE FOLLOWING AREAS: o DIVIDEND CHECKS - ADDRESS CHANGES - LEGAL TRANSFERS o DIRECT DEPOSIT - HAVE YOUR ENRON CORP. QUARTERLY DIVIDENDS ELECTRONICALLY DEPOSITED INTO YOUR CHECKING OR SAVINGS ACCOUNT ON DIVIDEND PAYMENT DATE. (No more worries about late or lost dividend checks.) o 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 THE SHARES AND A FEE OF $10 PLUS 12 CENTS PER SHARE TO SELL SHARES. (There is no charge to have shares delivered to you in certificate form.) o CONSOLIDATION OF ACCOUNTS - ELIMINATE MULTIPLE ACCOUNTS FOR ONE HOLDER AND CERTAIN DUPLICATE STOCKHOLDER MAILINGS GOING TO ONE ADDRESS. (Dividend checks, annual reports and proxy materials would continue to be mailed to each stockholder.) JUST CALL OUR TRANSFER AGENT'S TELEPHONE RESPONSE CENTER: (800) 446-2617 OR (201) 324-0498 OR WRITE TO: FIRST CHICAGO TRUST COMPANY OF NEW YORK P. O. BOX 2500 JERSEY CITY, NJ 07303-2500 49 PROXY [ENRON CORP. LOGO] PROXY SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS OF ENRON CORP. FOR ANNUAL MEETING ON MAY 2, 1995 The Undersigned hereby appoints Kenneth L. Lay, James V. Derrick, Jr. 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 Stockholders of Enron corp. ("Enron") to be held at 10:00 a.m. Houston time on Tuesday, May 2, 1995, in the LaSalle Ballroom of the Doubletree Hotel at Allen Center, 400 Dallas St., Houston, Texas, or at any adjournment thereof, and to vote at such meeting the shares of stock of Enron the undersigned held of record on the books of Enron on the record date for the meeting. 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, John Wakeham, Charls E. Walker, Herbert S. ---------------------------------------- Winokur, Jr. ---------------------------------------- (If you have written in the above space, please mark the corresponding box on the reverse side of this card) YOU ARE ENCOURAGED TO SPECIFY YOUR CHOICES BY MARKING THE APPROPRIATE BOXES, SEE REVERSE SIDE, BUT YOU NEED NOT MARK ANY BOXES IF YOU WISH TO VOTE IN ACCORDANCE WITH THE BOARD OF DIRECTORS' RECOMMENDATIONS. THE PROXIES CANNOT VOTE YOUR SHARES UNLESS YOU SIGN AND RETURN THIS CARD. ___________ SEE REVERSE SIDE ___________ 50 /X/ PLEASE MARK YOUR VOTES AS IN THIS 7405 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 AND 3. ------------------------------------------------------------------------------- THE BOARD OF DIRECTORS RECOMMENDS A VOTE FOR PROPOSALS 1, 2 AND 3. ------------------------------------------------------------------------------- 1. Election of Directors. (see reverse) FOR / / WITHHELD / / For, except vote withheld from the following nominee(s): ------------------------------------------------------------------------------- 2. Ratification of appointment of independent accountants. FOR / / AGAINST / / ABSTAIN / / 3. Approval of the Amended and Restated Performance Unit Plan. FOR / / AGAINST / / ABSTAIN / / 4. In the discretion of the proxies named herein, the proxies are authorized to vote upon other matters as are properly brought before the meeting. FOR / / AGAINST / / ABSTAIN / / 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 ------------------------------------------------------------------------------- o FOLD AND DETACH HERE o [ENRON CORP LOGO] THIS IS YOUR PROXY. YOUR VOTE IS IMPORTANT. NEED ASSISTANCE IN ANY OF THE FOLLOWING AREAS: o DIVIDEND CHECKS - ADDRESS CHANGES - LEGAL TRANSFERS o DIRECT DEPOSIT - HAVE YOUR ENRON CORP. QUARTERLY DIVIDENDS ELECTRONICALLY DEPOSITED INTO YOUR CHECKING OR SAVINGS ACCOUNT ON DIVIDEND PAYMENT DATE. (No more worries about late or lost dividend checks.) o 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 THE SHARES AND A FEE OF $10 PLUS 12 CENTS PER SHARE TO SELL SHARES. (There is no charge to have shares delivered to you in certificate form.) o CONSOLIDATION OF ACCOUNTS - ELIMINATE MULTIPLE ACCOUNTS FOR ONE HOLDER AND CERTAIN DUPLICATE STOCKHOLDER MAILINGS GOING TO ONE ADDRESS. (Dividend checks, annual reports and proxy materials would continue to be mailed to each stockholder.) JUST CALL OUR TRANSFER AGENT'S TELEPHONE RESPONSE CENTER: (800) 446-2617 OR (201) 324-0498 OR WRITE TO: FIRST CHICAGO TRUST COMPANY OF NEW YORK P. O. BOX 2500 JERSEY CITY, NJ 07303-2500 51 PROXY [ENRON CORP. LOGO] PROXY SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS OF ENRON CORP. FOR ANNUAL MEETING ON MAY 2, 1995 The Undersigned hereby appoints Kenneth L. Lay, James V. Derrick, Jr. 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 Stockholders of Enron Corp. ("Enron") to be held at 10:00 a.m. Houston time on Tuesday, May 2, 1995, in the LaSalle Ballroom of the Doubletree Hotel at Allen Center, 400 Dallas St., Houston, Texas, or at any adjournment thereof, and to vote at such meeting the shares of stock of Enron the undersigned held of record on the books of Enron on the record date for the meeting. 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, John Wakeham, Charls E. Walker, Herbert S. ---------------------------------------- Winokur, Jr. ---------------------------------------- (If you have written in the above space, please mark the corresponding box on the reverse side of this card) YOU ARE ENCOURAGED TO SPECIFY YOUR CHOICES BY MARKING THE APPROPRIATE BOXES, SEE REVERSE SIDE, BUT YOU NEED NOT MARK ANY BOXES IF YOU WISH TO VOTE IN ACCORDANCE WITH THE BOARD OF DIRECTORS' RECOMMENDATIONS. THE PROXIES CANNOT VOTE YOUR SHARES UNLESS YOU SIGN AND RETURN THIS CARD. ___________ SEE REVERSE SIDE ___________