1 SCHEDULE 14A (RULE 14A-101) INFORMATION REQUIRED IN PROXY STATEMENT SCHEDULE 14A INFORMATION PROXY STATEMENT PURSUANT TO SECTION 14(A) OF THE SECURITIES EXCHANGE ACT OF 1934 (AMENDMENT NO. ) Filed by the Registrant /X/ Filed by a Party other than the Registrant / / Check the appropriate box: / / 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 Section 240.14a-11(c) or Section 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 7, 1996 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 7, 1996, 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, 1996; and 3. 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 11, 1996, 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 25, 1996 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 7, 1996. 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 25, 1996. 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 11, 1996, 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 11, 1996, 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 11, 1996, the record date, there were outstanding and entitled to vote at the annual meeting of stockholders 251,462,963 shares of Common Stock and 1,374,556 shares of Preferred Convertible Stock. Included in the number of shares of outstanding Common Stock are 4,302,474 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. There are no other voting securities outstanding. Common Stock and Preferred Convertible Stock are collectively referred to herein as "Voting Stock". Enron's annual report to stockholders for the year ended December 31, 1995, 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, 60 Director since 1983 Mr. Belfer's principal occupation is Chairman, President and Chief Executive Officer of Belco Oil & Gas Corp., a company formed in 1992. Prior to that time, his principal occupation was diversified investments. Prior to his resignation in April, 1986 from Belco Petroleum Corporation ("BPC"), a wholly owned subsidiary of Enron, Mr. Belfer was President and then Chairman of BPC. Mr. Belfer is also a director of EOTT Energy Corp. (the general partner of EOTT Energy Partners, L.P.) and NAC Re Corporation. - ------------------------------------------------------------------------------------------------------------------ [PHOTO] NORMAN P. BLAKE, JR., 54 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, one of the nation's largest property and casualty insurers. 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 Fiberglas Corporation. - ------------------------------------------------------------------------------------------------------------------ [PHOTO] JOHN H. DUNCAN, 68 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.) and Texas Commerce Bank National Association. - ------------------------------------------------------------------------------------------------------------------ 2 5 - ------------------------------------------------------------------------------------------------------------------ [PHOTO] JOE H. FOY, 69 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, 51 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, 67 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, 51 Director since 1988 For over five years, Mr. Kinder has been President and Chief Operating Officer of Enron. 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.), Sonat Offshore Drilling Inc. and Baker Hughes Incorporated. - ------------------------------------------------------------------------------------------------------------------ [PHOTO] KENNETH L. LAY, 53 Director since 1985 For over five years, Mr. Lay has been Chairman of the Board and Chief Executive Officer of Enron. Mr. Lay is also a director of Eli Lilly and Company, Compaq Computer Corporation, 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, 72 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, 67 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, 64 Director since 1994 Lord Wakeham is the retired former U.K. Secretary of State for Energy and Leader of the Houses of Commons and Lords. He served as a Member of Parliament from 1974 until his retirement from the House of Commons in April, 1992. Prior to his government service, Lord Wakeham managed a large private practice as a chartered accountant. In the U.K. he is currently Chairman of the Press Complaints Commission and chairman or director of a number of publicly traded U.K. companies. - ------------------------------------------------------------------------------------------------------------------ [PHOTO] CHARLS E. WALKER, 72 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. He is also Adjunct Professor of Finance and Public Affairs at The University of Texas at Austin. - ------------------------------------------------------------------------------------------------------------------ 5 8 - ------------------------------------------------------------------------------------------------------------------ [PHOTO] HERBERT S. WINOKUR, JR., 52 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. and Capricorn Investors II, L.P., private investment partnerships 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. and DynCorp. - ------------------------------------------------------------------------------------------------------------------ SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS As of January 31, 1996, 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 5,720,428(1)(13) 692,886(2) 12,666(12)(14) -- 2.52 Preferred 767 Fifth Avenue Convertible New York, NY 10153 323,673(3) 23,052(4) -- -- 25.21 Common Mr. and Mrs. Lawrence Ruben 5,020,772(5) 948,293(6) -- -- 2.34 Preferred 600 Madison Avenue Convertible New York, NY 10022 290,387(7) 16,275(8) -- -- 22.30 Common Jack Saltz 1,466,872(9) 817,103(10) -- -- * Preferred 767 Fifth Avenue Convertible New York, NY 10153 75,731 58,900(11) -- -- 9.79 Common Enron Corp. -- -- -- 19,769,152(15) 7.89 Preferred Employee Stock Convertible Ownership Plan -- -- -- -- 1400 Smith Street Houston, TX 77002 Common Enron Corp. -- -- -- 8,910,369(16) 3.54 Preferred Savings Plan Convertible -- -- -- 70,000(16) 5.09 - --------------- * Less than 1 percent. (1) Includes 15,726 shares held by trusts of which Mr. Belfer is trustee, in all of which shares Mr. Belfer disclaims beneficial ownership. Also includes 4,418,784 shares that would be acquired upon the conversion of the Preferred Convertible Stock shown in the table as being beneficially owned by Mr. Belfer with sole voting and investment power. (2) 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. (Notes continued on following page) 6 9 (3) Includes 61,870 shares held by trusts of which Mr. Belfer is trustee, in all of which shares Mr. Belfer disclaims beneficial ownership. (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 9,513 shares held as trustee or co-trustees for their children and 61,200 shares held by Mrs. Ruben as trustee for a charitable trust. Also includes 3,964,364 shares that would be acquired upon the conversion of the Preferred Convertible Stock. (6) Includes 171,696 shares held by Mrs. Ruben as co-trustee for her children; 183,131 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 39,000 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, 53,330 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 1,033,880 shares that would be issued upon the conversion of the Preferred Convertible Stock. (10) Includes 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) 17,304 shares of Common Stock are subject to stock options exercisable within 60 days after January 31, 1996, 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. (16) Pursuant to the terms of Enron's Savings Plan, shares allocated to employee accounts are voted by the respective employees. If the trustee receives no voting directions from the respective employees, then all such shares are to be voted by the trustee in the same proportion as the allocated shares that are voted by employees. Includes 955,640 shares that would be acquired upon the conversion of the Preferred Convertible Stock. 7 10 STOCK OWNERSHIP OF MANAGEMENT AND BOARD OF DIRECTORS AS OF JANUARY 31, 1996 AMOUNT AND NATURE OF BENEFICIAL OWNERSHIP -------------------------------------------- SOLE SHARED SOLE VOTING VOTING VOTING AND LIMITED AND AND OR NO INVESTMENT INVESTMENT INVESTMENT PERCENT TITLE OF CLASS NAME POWER(2) POWER POWER(1)(3) OF CLASS - --------------------- --------------------------------------- ---------- ---------- ------------ -------- Enron Corp. Common Stock Robert A. Belfer....................... 5,720,428 (4) 692,886(5) 12,666 2.52 Norman P. Blake, Jr.................... 5,802 -- 1,482 * John H. Duncan......................... 107,198 -- 1,626 * Joe H. Foy............................. 17,304 12,934(12) 1,626 * Wendy L. Gramm......................... 2,586 -- 1,130 * Robert K. Jaedicke..................... 17,478 -- 1,626 * Richard D. Kinder...................... 2,199,197 -- 51,098 * Kenneth L. Lay......................... 2,996,638 (13) 7,552(10) 75,070 1.22 Charles A. LeMaistre................... 18,270 800 1,626 * John A. Urquhart....................... 12,852 -- 1,626 * John Wakeham........................... 460 -- 450 * Charls E. Walker....................... 16,422 6,088(11) 1,626 * Herbert S. Winokur, Jr................. 51,798 3,500(14) 1,626 * Edmund P. Segner, III.................. 313,855 -- 22,560 * Rodney L. Gray......................... 417,423 -- 55,424 * James V. Derrick, Jr. ................. 384,637 -- 12,806 * All directors and executive officers as a group (23 in number)............... 13,444,627 (4) 723,760(5) 496,535 5.61 Enron Corp. Preferred Con- vertible Stock Robert A. Belfer....................... 323,673 (6) 23,052(7) -- 25.21 All directors and executive officers as a group (23 in number)............... 323,673 23,052 -- 25.21 Enron Global Power & Pipelines L.L.C. Common Shares Robert A. Belfer....................... 3,000 -- -- * Norman P. Blake, Jr.................... 2,000 -- -- * Richard D. Kinder...................... 10,000 -- -- * Kenneth L. Lay......................... 5,000 -- -- * Edmund P. Segner, III.................. 2,000 -- -- * James V. Derrick, Jr. ................. 500 -- -- * Rodney L. Gray......................... 4,000 -- -- * All directors and executive officers as a group (23 in number)............... 27,500 -- -- * Enron Liquids Pipeline L.P. Common Units Joe H. Foy............................. 1,800 1,000 -- * Richard D. Kinder...................... 25,000 -- -- * All directors and executive officers as a group (23 in number)............... 26,800 1,000 -- * (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) CLASS - --------------------- ------------------------------------------------- ------- ------ ------ ------ Enron Oil & Gas Company Common Stock Robert A. Belfer................................. -- 20,600(8) -- * Norman P. Blake, Jr.............................. 2,000 -- -- * John H. Duncan................................... 35,000 5,000 -- * Joe H. Foy....................................... -- 2,000 -- * Rodney L. Gray................................... 11,220 -- -- * Richard D. Kinder................................ 13,738(9) 20,500(15) -- * Kenneth L. Lay................................... 50,000(9) 1,200(10) -- * John A. Urquhart................................. --(9) -- -- * Charls E. Walker................................. 4,000 2,000 -- * All directors and executive officers as a group (23 in number)................................. 122,221(9) 51,300 -- * EOTT Energy Partners, L.P. Common Units Robert A. Belfer................................. 11,500 23,000(16) -- * Norman P. Blake, Jr.............................. 1,000 -- -- * John H. Duncan................................... 8,500 -- -- * Joe H. Foy....................................... -- 2,000 -- * Richard D. Kinder................................ 15,000 -- -- * Kenneth L. Lay................................... 5,000 -- -- * All directors and executive officers as a group (23 in number)................................. 41,400 25,000 -- * Northern Border Partners, L.P Common Units Robert A. Belfer................................. 30,000 17,500(17) -- * Norman P. Blake.................................. 1,500 -- -- * Joe H. Foy....................................... -- 4,650 -- * Richard D. Kinder................................ 15,000 -- -- * All directors and executive officers as a group (23 in number)................................. 48,600 22,150 -- * - --------------- * 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, 1996, which number is included in the number of shares shown as beneficially owned as of such date, is as follows: Mr. Belfer, 17,304 shares; Mr. Blake, 3,704 shares; Mr. Duncan, 22,264 shares; Mr. Foy, 17,304 shares; Dr. Gramm, 2,296 shares; Dr. Jaedicke, 11,344 shares; Mr. Kinder, 1,974,385 shares; Mr. Lay, 2,058,264 shares; Dr. LeMaistre, 13,336 shares; Mr. Urquhart, 8,664 shares; Lord Wakeham, 360 shares; Dr. Walker, 8,936 shares; Mr. Winokur, 22,264 shares; Mr. Segner, 284,077 shares; Mr. Gray, 397,705 shares; Mr. Derrick, 380,457 shares; and all directors and executive officers as a group, 5,964,770 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 ESOP. (4) Includes 15,726 shares held by trusts of which Mr. Belfer is trustee, in all of which shares Mr. Belfer disclaims beneficial ownership. Also includes 4,418,784 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 61,870 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 is co-trustee or his wife is trustee for their children and 600 shares held by his daughter, in all of which shares Mr. Belfer disclaims beneficial ownership. (9) Does not include 96,950,000 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 7,552 shares with respect to Enron Common Stock and 1,200 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) Includes 2,496 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) Shares held in a charitable foundation in which Mr. Kinder has no pecuniary interest. (16) Includes 17,000 shares held in a charitable foundation in which Mr. Belfer has no pecuniary interest and 6,000 shares held in trusts in which Mr. Belfer or his son is trustee. (17) Includes 17,000 shares held in trusts in which Mr. Belfer's son or wife is trustee or in which Mr. Belfer is trustee or a co-trustee and 500 shares held in a charitable foundation in which Mr. Belfer has no pecuniary interest. BOARD OF DIRECTORS AND COMMITTEES The Board of Directors held five regularly scheduled meetings and one special meeting during the year ended December 31, 1995. 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, 1995, the Executive Committee met seven 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, 1995, 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 six times during the year ended December 31, 1995, 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. 10 13 The Finance Committee serves as a monitor of Enron's financial activities. In meeting four times during the year ended December 31, 1995, 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 one time during the year ended December 31, 1995, 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, 1995, each Director attended at least 75% of the total number of meetings of the Board and the committees on which the Director served. COMPENSATION OF DIRECTORS AND EXECUTIVE OFFICERS DIRECTOR COMPENSATION Each non-employee director of Enron receives an annual service fee of $40,000 (increased from $22,000 effective May 2, 1995) for serving as a director. The annual fee for serving on a committee, which was $4,000 per committee, was eliminated effective May 2, 1995. Each non-employee director currently serves on two committees. Chairs of the committees receive an additional $5,000 annually (increased from $3,000 effective May 2, 1995). Meeting fees are $1,250 for each Board meeting attended and $1,000 for each committee meeting attended. Total director's fees paid or deferred in 1995 were $600,750. Directors can elect to receive fees in cash, defer receipt of their fees to a later specified date under Enron's 1994 Deferral Plan, or receive their fees in a combination of restricted stock and stock options in lieu of cash under the 1991 Stock Plan. Under Enron's 1994 Deferral Plan, interest was credited, during 1995, at 9%. Five directors elected to defer fees into Enron's 1994 Deferral Plan. Prior to 1994, Directors were able to defer their fees under Enron's 1985 Deferral Plan, which continues to credit interest on account balances based on 150% of Moody's seasoned corporate bond yield index, which for 1995 was 12.39%. One Director elected to receive his fees in a combination of restricted stock and stock options in lieu of cash according to the terms of the 1991 Stock Plan. During 1995, each non-employee director received 450 shares of restricted stock (valued at $34.75 per share on the date of grant) and options to purchase 1,800 shares (with an exercise price of $34.75 per share) according to the terms of 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. 11 14 Base Salary All decisions regarding base salary are made based upon individual performance as measured against pre-established individual objectives and competitive practice as measured by periodic compensation surveys. 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 measured against pre-established individual objectives and competitive practice as measured by 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. Under the annual incentive plan, awards can be made in any combination of cash, stock and stock options. Annual incentive awards are intended to result in total direct compensation (base plus annual incentive) at the top quartile of the industry comparator group, given top quartile performance. Based 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, three significant elements in the employee benefit package, the All-Employee Stock Option Program and the Employee Stock Ownership Plan and the Enron Corp. Savings Plan (which together own almost 12% of Common Stock as of January 31, 1996), are driven by increasing 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 approximately double the size of annual incentives. We 12 15 believe this feature provides Enron management with a long-term strategic incentive that will encourage the continued creation of stockholder value. In addition, the Committee has approved stock ownership guidelines which provide that each member of the Office of the Chairman is required to own Enron stock having a value at least equal to five times his or her annual base salary, each Management Committee member is required to own Enron stock having a value at least equal to two times his or her annual base salary, and other corporate and subsidiary officers named in the annual report are required to own Enron stock having a value at least equal to his or her annual base salary. The Committee consults from time to time with Hewitt Associates, a national consulting firm experienced in executive compensation, and has access to national compensation surveys and Enron's financial records. The Committee reviews each element of 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 1995, as specified in his employment agreement. In recognition of Enron's performance during 1995, Mr. Lay received an annual incentive award consisting of $1,440,000 in cash and a grant of stock options, at market value, to acquire 73,850 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 14.5% increase in net income, an increase in earnings per share of 15%, a stockholder return of 27.66% and an increase in credit rating by Standard & Poor's to BBB+ from BBB. In addition, 1995 was the eighth consecutive year Enron Corp. increased earnings per share by 15% or more (excluding the 1989 gain on the initial public offering of Enron Oil & Gas Company common stock and the effect on deferred taxes of the 1993 federal statutory tax rate increase from 34% to 35%) and the fifth consecutive year common stock dividends were increased. In addition to the annual incentive award, during 1995 Mr. Lay received long-term incentive grants consisting of a grant of stock options, at market value, to acquire 101,570 shares, and a grant of 812,500 performance units, consistent with the design of the long-term incentive program. Mr. Lay received a cash payment of $421,875 under the Performance Unit Plan for the 1992-1995 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 1992-1995 reflected Enron's return to its stockholders of 99.40% compared with 61.61% for industry peers, 51.92% for the S&P 500, and 14.54% for 90-day U.S. Treasury Bills. This performance earned Enron a ranking of Number 4 and valued the units at $0.75. 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 Proxy Statement. Qualifying performance-based compensation is not subject to the deduction limit if certain requirements are 13 16 met. Enron has structured the performance-based portion of the compensation of its executive officers (which currently consists of stock options grants, performance unit grants and annual incentive awards) in a manner that complies with the statute. The Amended and Restated 1991 Stock Plan and the Annual Incentive Plan were presented to and approved by stockholders at the 1994 annual meeting and the Performance Unit Plan was presented to and approved by stockholders at the 1995 annual meeting. Occasionally, Enron may grant restricted stock for specific reasons which would not qualify as performance-based compensation. Also, during 1996, Enron will change the composition of the Compensation Committee in compliance with Section 162(m). 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 1995, during which time a stockholder who invested $100 in Enron Common Stock would have received $469, or a 369% increase in value, compared to 153% for the S&P 500 and 65% 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 14 17 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, the Current Peer Group (as defined below) and the Original Peer Group (as defined below) on December 31, 1990. 2. The Original and Current Peer Groups investments are weighted based on the market capitalization of each individual company within the Peer Groups at the beginning of each year. 3. Dividends are reinvested on the ex-dividend dates. The companies that comprise Enron's Current Peer Group are as follows: British Gas PLC (which replaced Transco Energy Company effective April 28, 1995); Burlington Resources Inc.; Coastal Corp.; Columbia Gas Systems, Inc.; Consolidated Natural Gas Co.; NorAm Energy Corp.; Occidental Petroleum Corp.; PanEnergy Corp; Sonat Inc.; Tenneco, Inc. and The Williams Companies, Inc. The companies that comprise Enron's Original Peer Group are as follows: Burlington Resources Inc.; Coastal Corp.; Columbia Gas Systems, Inc.; Consolidated Natural Gas Co.; NorAm Energy Corp.; Occidental Petroleum Corp.; PanEnergy Corp; Sonat Inc.; Tenneco, Inc.; Transco Energy Company (until April 28, 1995, when it ceased to be publicly traded); 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. Measurement Period Current Peer Original Peer (Fiscal Year Covered) Enron Corp. S&P 500 Group Group 1990 100.00 100.00 100.00 100.00 1991 133.01 130.55 96.65 85.78 1992 181.81 140.72 103.71 97.82 1993 232.69 154.91 124.09 114.52 1994 251.10 157.39 117.94 105.98 1995 321.21 216.42 134.72 140.41 15 18