EXECUTIVE COMPENSATION The following table summarizes certain information regarding compensation paid or accrued during each of Enron's last three fiscal years to Enron's Chief Executive Officer and each of Enron's four other most highly compensated executive officers (the "Named Officers"): SUMMARY COMPENSATION TABLE ANNUAL COMPENSATION LONG-TERM COMPENSATION ----------------------------------- -------------------------------------- OTHER SECURITIES ALL OTHER ANNUAL RESTRICTED UNDERLYING LTIP COMPENSATION NAME & PRINCIPAL SALARY BONUS COMPENSATION STOCK OPTIONS/ PAYOUTS -------------- POSITION YEAR $ $ ($)(1) AWARDS($)(2) SARS (#) ($) ($)(4) - ------------------- ---- -------- ---------- -------- ---------- --------- -------- -------------- Kenneth L. Lay..... 1995 $990,000 $1,440,000 $220,316 $ 0 156,955 $421,875 $ 281,058 Chairman of the Board and......... 1994 $990,000 $1,200,000 $296,630 $ 69,680 1,416,615 $930,000 $ 311,837 Chief Executive Officer........... 1993 $960,000 $1,040,000 $375,232 $1,283,250 648,000 $900,000 $1,137,035 Richard D. Kinder............ 1995 $720,015 $1,040,000 $ 81,465 $ 0 126,270 $281,250 $ 121,886 President and Chief............. 1994 $660,044 $ 840,000 $124,366 $ 42,210 1,161,125 $680,000 $ 87,872 Operating Officer........... 1993 $640,044 $ 720,000 $218,410 $ 853,688 433,233 $550,044 $ 404,913 Edmund P. Segner, III............... 1995 $373,333 $ 372,000 $ 10,500 $ 0 41,980 $ 93,750 $ 793 Executive Vice President......... 1994 $350,000 $ 300,000 $ 10,500 $ 16,583 225,895 $200,000 $ 31,572 and Chief of Staff............. 1993 $297,500 $ 260,000 $ 8,450 $ 511,125 240,000 $ 70,070 $ 41,907 Rodney L. Gray..... 1995 $366,667 $ 382,500 $ 10,500 $ 554,600 13,295 $ 65,625 $ 793 Managing Director, Enron............. 1994 $350,000 $ 288,000 $ 10,500 $ 331,483 375,895(3) $175,000 $ 31,572 Development Corp.............. 1993 $287,292 $ 260,000 $ 6,250 $ 266,438 252,950 $ 84,150 $ 41,907 and Chairman, President and Chief Executive Officer, Enron Global Power & Pipelines L.L.C. James V. Derrick, Jr................ 1995 $340,001 $ 300,000 $ 13,439 $ 0 40,710 $129,375 $ 793 Senior Vice President......... 1994 $320,004 $ 232,000 $ 16,110 $ 14,070 181,795 $345,000 $ 31,572 and General Counsel........... 1993 $311,671 $ 200,000 $ 14,198 $ 255,563 160,000 $ 0(5) $ 41,907 (1) Includes "Perquisites and Other Personal Benefits" if value is greater than the lesser of $50,000 or 10% of reported salary and bonus. Personal plane usage of $132,829, $147,919 and $130,154 has been reported for Mr. Lay in 1993, 1994 and 1995, respectively. Also, Enron maintains three deferral plans for key employees under which payment of base salary, annual bonus and long-term incentive awards may be deferred to a later specified date. Under the 1985 Deferral Plan, interest is credited on amounts deferred based on 150% of Moody's seasoned corporate bond yield index with a minimum rate of 12%, which for 1993 was 12.825%, for 1994 was the minimum of 12.0%, and for 1995 was 12.39%. Interest in excess of 120% of the December, 1994 long-term Applicable Federal Rate ("AFR") (9.91%) has been reported as Other Annual Compensation for 1995, interest in excess of 120% of December, 1993 long- term AFR (7.29%) has been reported as Other Annual Compensation for 1994, interest in excess of 120% of the December, 1992 long-term AFR (8.5%) has been reported as Other Annual Compensation for 1993. No interest has been reported as Other Annual Compensation under the 1992 Deferral Plan, which credits interest at Enron's mid-term borrowing rate, since the crediting rates for 1993, 1994 and 1995 of 7.06%, 6.0%, and 8.5% respectively, did not exceed 120% of the AFR. No interest has been reported as Other Annual Compensation under the 1994 Deferral Plan during 1994, because none of the Named Officers participated in this plan during 1994. No interest has been reported as Other Annual Compensation under the 1994 Deferral Plan during 1995 for the participating Named Officers because the crediting rate during 1995 was 9% and did not exceed 120% of the AFR. Other Annual Compensation also includes cash perquisite allowances. (2) Restricted stock awards to the Named Officers on February 9, 1993 vest 20% per year beginning February 9, 1994 and ending February 9, 1998. Restricted stock awards to the Named Officers on February 7, 1994, were provided to compensate for lost benefits due to statutory earnings limits and became 50% vested on August 7, 1994, and 100% vested on February 7, 1995. Grants made to Mr. Gray in 1994 and 1995 under the terms of his employment agreement will vest 100% on December 31, 1996. Dividend equivalents for all restricted stock awards accrue from date of grant and are paid upon vesting. The following is the aggregate total of shares in unreleased restricted stock holdings and their value as of December 31, 1995, for each of the Named Officers: Mr. Lay, 28,320 shares valued at $1,079,700; Mr. Kinder, 18,840 shares valued at $718,275; Mr. Segner, 11,280 shares valued at $430,050; Mr. Gray, 34,080 shares valued at $1,299,300; and Mr. Derrick, 5,640 shares valued at $215,025. (3) Options granted to Mr. Gray in 1994 include options for 150,000 common shares of Enron Global Power & Pipelines L.L.C. ("EPP") granted on November 15, 1994, at EPP's initial public offering price of $24 per share. (4) The amounts shown include the value, as of year-end 1993, 1994, and 1995 of Enron Common Stock allocated during those years to employees' savings and special subaccounts under Enron's Employee Stock Ownership Plan. Included in 1994 is a special allocation (Notes continued on following page) 16 19 made in February, 1994 to employees' savings subaccounts under Enron's Employee Stock Ownership Plan in lieu of a merit increase in 1994 and a special allocation made in December, 1994 to a special allocation subaccount. Included in 1995 is a special allocation made in December, 1995 to a special allocation subaccount. Included in 1994 and 1995 for Mr. Lay is $1,944 and $3,252, respectively, that is attributable to term life insurance coverage pursuant to a split-dollar life insurance arrangement. Also included in 1994 and 1995 for Mr. Lay is $278,321 and $277,013, respectively, which represents the remainder of the annual premium that was provided in exchange for forfeiture by Mr. Lay of post-retirement executive supplemental survivor benefits and executive supplemental retirement benefits. Included in 1994 for Mr. Kinder is a cash payment of $56,300 and in 1995 a cash payment of $121,245 which were provided for payment of life insurance premiums on policies already held by Mr. Kinder in exchange for forfeiture by Mr. Kinder of post-retirement executive supplemental survivor benefits. An independent firm certified that both of the benefit exchanges were cost neutral to Enron. Also included in 1993 are cash payments to Messrs. Lay and Kinder of $1,095,128 and $363,006, respectively, that were made pursuant to the terms of their advances which were used to purchase Common Stock in 1989. (5) Mr. Derrick was employed in June, 1991 and did not receive a grant of performance units until the 1991 grant which was paid in 1994. STOCK OPTION GRANTS DURING 1995 The following table sets forth information with respect to grants of stock options pursuant to Enron's stock plans to the Named Officers reflected in the Summary Compensation Table. No stock appreciation rights were granted during 1995. INDIVIDUAL GRANTS ------------------------------------ NUMBER OF SECURITIES POTENTIAL REALIZABLE VALUE AT UNDERLYING % OF TOTAL ASSUMED ANNUAL RATES OF OPTIONS/ OPTIONS/SARS EXERCISE STOCK PRICE APPRECIATION SARS GRANTED TO OR BASE FOR OPTION TERM(5) GRANTED EMPLOYEES IN PRICE EXPIRATION ------------------------------------------ NAME (#)(1) FISCAL YEAR ($/SH) DATE 0%(4) 5% 10% - --------------------- -------- ------------ -------- ---------- ----- ------------- -------------- Kenneth L. Lay....... 55,385(2) 1.88% $29.5000 01/25/00 $0 $ 451,405 $ 997,486 101,570(3) 3.45% $38.1250 12/29/05 $0 $ 2,435,304 $ 6,171,539 Richard D. Kinder.... 38,770(2) 1.32% $29.5000 01/25/00 $0 $ 315,987 $ 698,249 87,500(3) 2.97% $38.1250 12/29/05 $0 $ 2,097,953 $ 5,316,625 Edmund P. Segner, III................ 13,850(2) 0.47% $29.5000 01/25/00 $0 $ 112,882 $ 249,439 28,130(3) 0.95% $38.1250 12/29/05 $0 $ 674,462 $ 1,709,219 Rodney L. Gray....... 13,295(2) 0.45% $29.5000 01/25/00 $0 $ 108,358 $ 239,444 James V. Derrick, Jr................. 10,710(2) 0.36% $29.5000 01/25/00 $0 $ 87,290 $ 192,888 30,000(3) 1.02% $38.1250 12/29/05 $0 $ 719,298 $ 1,822,843 All Employee and Director Optionees.......... 2,971,210(6) 100% $34.2800(7) N/A $0 64,054,831(8) 162,327,602(8) All Stockholders..... N/A N/A N/A N/A $0 5,277,342,489(8) 13,373,828,926(8) Optionee Gain as % of All Stockholders Gain............... N/A N/A N/A N/A N/A 1.21% 1.21% - --------------- (1) If a "change of control" (as defined in the 1991 Stock Plan) were to occur before the options become exercisable and are exercised, the vesting described below will be accelerated and all such outstanding options shall be surrendered and the optionee shall receive a cash payment by Enron in an amount equal to the value of the surrendered options (as defined in the 1991 Stock Plan). (2) Represents bonus stock options that are five year grants and became 100% vested on July 25, 1995. (3) Represents the stock option grant under the Long-Term Incentive Program for 1996. Grants under this program are granted on the last trading day of the prior year, due to regulations under Section 162(m). Options will become 20% vested on June 29, 1996 and will first be exercisable on that date with an additional 20% becoming exercisable on the anniversary of the date of grant until December 29, 1999. (Notes continued on following page) 17 20 (4) An appreciation in stock price, which will benefit all stockholders, is required for optionees to receive any gain. A stock price appreciation of zero percent would render the option without value to the optionees. (5) The dollar amounts under these columns represent the potential realizable value of each grant of options assuming that the market price of Common Stock appreciates in value from the date of grant at the 5% and 10% annual rates prescribed by the SEC and therefore are not intended to forecast possible future appreciation, if any, of the price of Common Stock. (6) Includes shares issued to employees on December 29, 1995 under the All Employee Stock Option Program to employees hired during 1995. (7) Weighted average exercise price of all Enron stock options granted in 1995. (8) Appreciation for All Employee and Director Optionees is calculated using the maximum allowable option term of 10 years, even though in some cases the actual option term is less than 10 years. Appreciation for all stockholders is calculated using an assumed ten-year option term, the weighted average exercise price for All Employee and Director Optionees ($34.28) and the number of shares of Common Stock outstanding on December 31, 1995, excluding 6,450,597 shares held by the Enron Corp. Flexible Equity Trust. AGGREGATED STOCK OPTION/SAR EXERCISES DURING 1995 AND STOCK OPTION/SAR VALUES AS OF DECEMBER 31, 1995 The following table sets forth information with respect to the Named Officers concerning the exercise of SARs and options during the last fiscal year and unexercised options and SARs held as of the end of the fiscal year: NUMBER OF SECURITIES UNDERLYING UNEXERCISED VALUE OF UNEXERCISED OPTIONS/SARS AT IN-THE-MONEY OPTIONS/ SHARES DECEMBER 31, 1995 SARS AT DECEMBER 31, 1995 ACQUIRED ON VALUE ------------------------------ -------------------------------- NAME EXERCISE (#) REALIZED ($) EXERCISABLE UNEXERCISABLE EXERCISABLE UNEXERCISABLE - --------------------------------- ------------ ------------ ----------- ------------- ----------- ------------- Kenneth L. Lay................... 213,600 $4,936,600 1,563,964 1,157,506 $19,015,511 $7,017,812 Richard D. Kinder................ 60,000 $1,387,500 1,591,586 908,042 $24,473,757 $5,194,751 Edmund P. Segner, III............ 78,892 $ 828,343 192,737 263,586 $ 1,798,327 $2,287,202 Rodney L. Gray -- Enron Corp. ... 0 $ 0 290,305 260,075 $ 3,407,067 $2,398,658 EPP.............. 0 $ 0 0 150,000 $ 0 $ 131,250 James V. Derrick, Jr. ........... 0 $ 0 326,457 216,048 $ 4,983,240 $1,875,116 LONG-TERM INCENTIVE PLAN -- AWARDS IN 1995 The following table provides information concerning awards of performance units under Enron's Performance Unit Plan during 1995. Grants are made at the beginning of each fiscal year and each unit is assigned a value of $1.00. The units are subject to a four-year performance period, at the end of which Enron's total stockholder return is compared to that of the 11 peer companies included in the Current Peer Group. At that time, the units are assigned a value ranging from $0 to $2.00 based on the rank of Enron's stockholder return within the Current Peer Group. To be valued at the maximum of $2.00, Enron must rank first, and to be valued at the target of $1.00, Enron must rank third. Regardless of Enron's rank, Enron's stockholder return 18 21 must be above the return on 90-day U.S. Treasury Bills over the same performance period in order for any value to be assigned. NUMBER PERFORMANCE OF OR OTHER ESTIMATED FUTURE PAYOUTS SHARES, PERIOD UNDER NON-STOCK PRICE-BASED PLANS UNITS OR UNTIL -------------------------------------------- OTHER MATURATION THRESHOLD TARGET MAXIMUM NAME RIGHTS (#) PAYOUT ($) ($) ($) ---- ---------- ----------- --------- -------- --------- Kenneth L. Lay......................... 812,500 4 years $ 0 $812,500 $1,625,000 Richard D. Kinder...................... 700,000 4 years $ 0 $700,000 $1,400,000 Edmund P. Segner, III.................. 225,000 4 years $ 0 $225,000 $ 450,000 Rodney L. Gray(1)...................... 0 0 $ 0 $ 0 $ 0 James V. Derrick, Jr. ................. 172,500 4 years $ 0 $172,500 $ 345,000 - --------------- (1) Pursuant to Mr. Gray's employment agreement, he does not receive performance units (See "Employment Contracts" on page 22.) RETIREMENT AND SUPPLEMENTAL BENEFIT PLANS For many years, Enron has maintained the Enron Corp. Retirement Plan (the "Retirement Plan") to provide retirement income for employees of Enron and its subsidiaries. Accrual of benefits under the Retirement Plan was temporarily suspended effective December 31, 1994 in connection with conversion of the plan's benefit formula from a final average pay formula (the "Pre-1995 Formula") to a career average pay, cash balance formula (the "Post-1994 Formula"). The Pre-1995 Formula was designed to provide monthly retirement income for each covered employee in an amount equal to 1.45% of an employee's final average pay multiplied by such employee's years of accrual service not in excess of 25 years, plus .45% of final average pay multiplied by accrual service in excess of 25 years up to a maximum of 10 years, plus .45% of final average pay in excess of the integration level multiplied by accrual service not in excess of 35 years, plus 1% of final average pay multiplied by accrual service in excess of 35 years. Final average pay is the average of an employee's monthly compensation either for any period of sixty consecutive months that occurs during the last 120 months of vesting service and for which such employee's average monthly compensation is the highest, or for the period of such employee's vesting service if less than 60 months. The integration level is the lesser of 125% of compensation covered by Social Security for an employee attaining the Social Security retirement age, or the FICA taxable wage base in effect, in the Plan year in which the employee terminates employment. Benefits accrued under the Retirement Plan after 1986 and before 1995 are offset by the value of Common Stock allocated to an employee's retirement subaccount in Enron's Employee Stock Ownership Plan. In 1995, Enron's Board of Directors adopted an amendment to and restatement of the Retirement Plan changing the Plan's name to the Enron Corp. Cash Balance Plan (the "Cash Balance Plan") and changing the benefit accrual formula to the Post-1994 Formula, under which covered employees will accrue an annual benefit equal to an account balance of 5% of base pay. Each employee's accrued benefit will be credited with interest based on 10-year Treasury Bond yields. Benefit accrual under the Post-1994 Formula commenced in Plan year 1996. Directors who are not employees are not eligible to participate in the Cash Balance Plan. In addition, Enron has a Supplemental Retirement Plan that is designed to assure payments to certain employees of that retirement income that would be provided under the Cash Balance Plan except for the dollar limitation on accrued benefits imposed by the Internal Revenue Code of 1986, as amended, and a 19 22 Pension Program for Deferral Plan Participants that provides supplemental retirement benefits equal to any reduction in benefits due to deferral of salary into Enron's Deferral Plans. The following table sets forth the estimated annual benefits payable under normal retirement at age 65, assuming current remuneration levels without any salary projection and participation until normal retirement at age 65, with respect to the Named Officers under the provisions of the foregoing retirement plans: ESTIMATED CURRENT CREDITED CURRENT ESTIMATED CREDITED YEARS OF COMPENSATION ANNUAL BENEFIT YEARS OF SERVICE COVERED PAYABLE UPON SERVICE AT AGE 65 BY PLANS RETIREMENT -------- --------- ------------ -------------- Mr. Lay.................................... 18.9 30.2 $990,000 $437,813 Mr. Kinder................................. 15.1 28.9 $750,000 $276,521 Mr. Segner................................. 7.9 30.7 $385,000 $165,743 Mr. Gray................................... 7.8 29.1 $375,000 $151,551 Mr. Derrick................................ 4.5 18.6 $350,000 $ 71,851 NOTE: The estimated annual benefits payable are based on the straight life annuity form without adjustment for any offset applicable to a participant's retirement subaccount in Enron's Employee Stock Ownership Plan. Messrs. Segner and Gray participate in the Executive Supplemental Survivor Benefit Plan. Both Messrs. Lay and Kinder have waived their participation in lieu of life insurance premiums. In the event of death after retirement, the Plan provides an annual benefit to the participant's beneficiary equal to 50 percent of the participant's annual base salary at retirement, paid for 10 years. The Plan also provides that in the event of death before retirement, the participant's beneficiary receives an annual benefit equal to 30% of the participant's annual base salary at death, paid for the life of the participant's spouse (but for no more than 20 years in some cases). Mr. Lay has an agreement which was entered into with Houston Natural Gas Corporation for an annual benefit equal to 30% of his annual base salary upon death before retirement, paid for the life of his spouse. Mr. Kinder has an agreement which was entered into with Houston Natural Gas Corporation for an annual benefit equal to 30% of his annual base salary upon death before retirement, paid for the life of his spouse and an agreement with Houston Natural Gas Corporation which will provide Mr. Kinder with an annual retirement benefit increase of 5% for up to 13 years or until his total retirement benefit, as supplemented, equals 60% of his annual base salary at retirement after reaching age 60. SEVERANCE PLANS Enron's Severance Pay Plan, as amended, provides for the payment of benefits to employees who are terminated for failing to meet performance objectives or standards or who are terminated due to reorganization or economic factors. The amount of benefits payable for performance related terminations is based on length of service and may not exceed six weeks' pay. For those terminated as the result of reorganization or economic circumstances, the benefit is based on length of service and amount of pay up to a maximum payment of 26 weeks of base pay. If the employee signs a Waiver and Release of Claims Agreement, the employee may receive an additional severance benefit equal to the severance benefit described above. Under no circumstances will the total severance benefit paid under Enron's Severance Pay Plan exceed 52 weeks of pay. Under Enron's Change of Control Severance Plan, in the event of an unapproved change of control of Enron, any employee who is involuntarily terminated within two years following the change of control will be eligible for 20 23 severance benefits equal to two weeks of base pay multiplied by the number of full or partial years of service, plus one month of base pay for each $10,000 (or portion of $10,000) included in the employee's annual base pay, plus one month of base pay for each five percent of annual incentive award opportunity under any approved plan. The maximum an employee can receive is 2.99 times the employee's average annual base pay over the past five years. 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 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 were 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 were 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 1995, at an average annual rate of 6.8%) and are collateralized with Common Stock and personal property. 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 1995, at an average annual rate of interest of 6.8%) in an aggregate amount not to exceed $4 million at any time. During 1995, the highest amount of Mr. Lay's outstanding loan balance was $2,605,000. During 1995, Mr. Lay made certain principal payments on the loan, and as of February 29, 1996, the balance on such loan was $250,000. Mr. Lay paid Enron $155,472 as interest in 1995 pursuant to his advance and loan agreements. During 1995, the balance of Mr. Kinder's advance and loan remained at $1,553,086 and $1,500,000 respectively. Interest in the amount of $118,451 and $109,023 accrued in 1995 on Mr. Kinder's advance and loan, respectively. Unpaid interest continues to accrue and is payable on or before February 8, 1999. The loans 21 24 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 involuntarily terminated and for two years from the date of any other termination of their 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 vested 20% immediately and will vest 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 Enron Capital & Trade Resources Corp. ("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; 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 vested 22 25 20% immediately and will vest 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, Mr. Gray will receive amounts prescribed in the employment 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. 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 1995 was 6.8% and is collateralized with 7,960 shares of Common Stock. Interest in the amount of $16,082 accrued in 1995 on the loan. 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 Chairman, 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 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. In 1995, Mr. Gray's employment and compensation agreement were assigned to Enron Development Corp. ("EDC"), with contingent grants and acceleration of vesting based 50% on Enron Corp. earnings per share targets and 50% based on EPP earnings per share targets. Mr. Derrick entered into an employment agreement with Enron in June, 1991, which provides for a minimum annual salary of $275,000, a minimum annual grant of 20,000 stock options, a minimum annual grant of 172,500 performance units, and annual cash compensation of not less than $400,000. In May, 1994, Mr. Derrick's agreement was extended three years, and he was granted 100,000 stock options with a four (4) year vesting schedule. 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, 1997. The employment agreement contains noncompete provisions in the event of Mr. Derrick's termination of employment. CERTAIN TRANSACTIONS Effective August 1, 1991, Enron, Enron Power Corp. (a wholly owned subsidiary of Enron) and John A. Urquhart entered into a Consulting Services Agreement which, as amended, extends through December 31, 1997. 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. Effective January 1, 1996, the retainer will be increased to $42,000 per month, and the daily rate will be increased to $4,200. Effective January 1, 1997, the retainer will be increased to $44,100 per month and the daily rate will be increased to $4,410. 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 Plan, which would vest at the end of the term of 23 26 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 would 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 vested 100% one year from date of grant and were to expire on August 1, 1995. In return for waiving his phantom equity, Mr. Urquhart received cash payments totaling $1,160,000, one-third of which was paid upon execution of the amendment and an additional one-third of which was 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 Consulting Services Agreement was further amended in August, 1995, to provide for a grant of 50,000 Enron Corp. phantom shares at a grant price equal to the December 29, 1995 Enron Corp. closing stock price, or $38.125. The phantom shares will vest 50% on June 29, 1996, and 50% on December 29, 1996, and will expire on December 31, 1998. 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 1995, Enron paid Mr. Urquhart $592,989 for services rendered (including reimbursement of expenses) under the Consulting Services Agreement. In addition, in 1995 Mr. Urquhart exercised 92,000 Enron Corp. phantom shares granted at $28.125 per share. Based on the fair market value on the date of exercise of $34.375, Mr. Urquhart received a cash payment of $575,000. Houston Pipe Line Company ("HPL"), a subsidiary of Enron, in the ordinary course of its business, entered into a master gas storage agreement (the "Master 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 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 eight 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 Master Agreement and the initial confirmation were subsequently assigned by Bruin to a third party; HPL consented to such assignment. The assignment expired on April 1, 1995, whereupon rights and obligations under the Master Agreement reverted to Bruin. Subsequent to expiration of the initial confirmation, a new confirmation was entered into between Bruin and HPL relating to the storage of up to approximately six billion cubic feet of natural gas during the period from June 1, 1995 to February 28, 1996. The consideration for such storage service was the payment to HPL of an injection fee equal to $0.159 per million British Thermal Units ("MMBtu") of gas injected, with a minimum payment of $954,000 due by the payment date for the October 1995 invoice if the requisite minimum quantity of natural gas had not been injected by Bruin into the storage facility prior to October 31, 1995. All of the gas stored during the period of the second confirmation has been withdrawn as of this date, except for certain minor imbalance amounts that do not total more than 100,000 MMBtu. As a complement to the storage transaction, during the period from June 1, 1995 to September 30, 1995, HPL provided transportation services for Bruin and charged Bruin transportation fees ranging from $.01 per MMBtu to $.03 per MMBtu. The transportation contract is now complete. There are no currently effective confirmations under the Master Agreement, nor are there any discussions relating to the conduct of further storage or transportation business between HPL and Bruin under the Master 24 27 Agreement; however, such agreement has not been terminated and could be used in the future as the contractual vehicle to document future storage transactions between Bruin and HPL. HPL believes that the terms of the existing Master Agreement are comparable to those available to unaffiliated third parties, and HPL does not intend to engage in or permit any affiliate to engage in any transactions with Bruin except on terms that HPL believes are comparable to those available to unaffiliated third parties. In January, 1996, ECT, United Media Corporation ("UMC") and certain other individuals, including Mark K. Lay, entered into a feasibility agreement (the "Feasibility Agreement") providing for the performance by UMC and ECT of a feasibility study relating to the fixed price purchase and sale of certain paper products. Under the terms of the Feasibility Agreement, ECT has agreed to advance to the project up to $300,000 (including certain internal costs and out of pocket expenses of ECT and UMC). ECT also has an option to increase its commitment by an additional $300,000. In connection with the feasibility analysis being performed, ECT and UMC have held preliminary discussions with third parties for the supply of paper and related arrangements, but it has not been determined whether any such arrangements would ultimately be entered into. The Feasibility Agreement provides that if the project proceeds, UMC would receive an equity interest not to exceed 49%. ECT has been informed that, if the project proceeds, Mark K. Lay would own 20% of UMC's interest in the project. Section 16(a) of the Securities Exchange Act of 1934 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 1995, its executive officers, directors and greater than ten percent stockholders complied with all applicable filing requirements, except Lawrence Ruben, who failed to file timely one report covering four transactions and Ronald J. Burns, who failed to file timely two reports covering four transactions. COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION At December 31, 1995, the Compensation Committee consisted of Messrs. LeMaistre, Belfer, Duncan and Foy. Until April 1986, Mr. Belfer was an officer of Belco Petroleum Corporation, a wholly owned subsidiary of Enron. During 1995 and 1996, Belco Oil & Gas Corp. ("BOGC") entered into natural gas and crude oil commodity swap agreements and option agreements with ECT. BOGC is wholly owned by Mr. Belfer and members of his family. These agreements were entered into in the ordinary course of business of ECT and are on terms that ECT believes are no less favorable than the terms of similar arrangements with third parties. Pursuant to the terms of these agreements, ECT paid BOGC a net amount of approximately $5,446,597 with respect to 1995. The amount of future payments (as well as whether payments are made by ECT to BOGC or vice versa) is affected by fluctuations in energy commodity prices. Enron believes that BOGC and ECT will continue to enter into similar arrangements throughout 1996. 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. 25 28 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, 1996. 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 7, 1996, 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. 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 1997 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 1997 must be received by Enron, addressed to Peggy B. Menchaca, Vice President and Secretary, 1400 Smith Street, Houston, Texas 77002, no later than November 25, 1996, 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 NOVEMBER 25, 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 26 29 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 1996 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 1996 Annual Meeting of Stockholders of Enron was February 2, 1996. With respect to business to be brought before the 1996 Annual Meeting of Stockholders, Enron has not received any notices from its stockholders that Enron is required to include in this proxy statement. NOMINATIONS FOR 1997 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 November 25, 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 1996 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 1996 Annual Meeting of Stockholders of Enron was February 2, 27 30 1996. Enron has not received any notices from its stockholders regarding nominations for directors to be elected at the 1996 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 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 25, 1996 28 31 | /X/ PLEASE MARK YOUR |7405 VOTES AS IN THIS ---- EXAMPLE. THIS PROXY WHEN PROPERLY EXECUTED WILL BE VOTED IN THE MANNER DIRECTED HEREIN. IF NO DIRECTION IS MADE, THIS PROXY WILL BE VOTED FOR PROPOSALS 1 AND 2. - -------------------------------------------------------------------------------- THE BOARD OF DIRECTORS RECOMMENDS A VOTE FOR PROPOSALS 1 AND 2. - -------------------------------------------------------------------------------- 1. Election of FOR WITHHELD 2. Ratification of FOR AGAINST ABSTAIN Directors. / / / / appointment of / / / / / / (see reverse) independent accountants. For, except vote withheld from the following nominee(s): ______________________________ 3. In the discretion of the proxies named Change of Address/ / / herein, the proxies are authorized Comments on to vote upon other matters as are Reverse Side properly brought before the meeting. All as more particularly described in the Proxy Statement relating to such meeting, receipt of which is hereby acknowledged. Please sign exactly as name appears hereon. Joint owners should each sign. When signing as attorney, executor, administrator, trustee or guardian, please give full title as such. ------------------------------------------ ------------------------------------------ Signature(s) Date - -------------------------------------------------------------------------------- FOLD AND DETACH HERE [ENRON CORP LOGO] THIS IS YOUR PROXY. YOUR VOTE IS IMPORTANT. FOR EARNINGS INFORMATION, CALL (800) 808-0363 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 $15 Plus 12 cents per share to sell shares. (There is no charge to have shares delivered to you in certificate form.) o CONSOLIDATION OF ACCOUNTS - Eliminate multiple accounts for one holder and certain duplicate 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) 519-3111 OR (201) 324-1225 OR WRITE TO: FIRST CHICAGO TRUST COMPANY OF NEW YORK P.O. BOX 2500 JERSEY CITY, NJ 07303-2500 32 [ENRON CORP LOGO] P PROXY SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS OF ENRON CORP. FOR ANNUAL MEETING ON MAY 7, 1996 R The Undersigned hereby appoints Kenneth L. Lay, James V. Derrick, Jr., and O 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 X Stockholders of Enron Corp. ("Enron") to be held at 10:00 a.m. Houston time on Tuesday, May 7, 1996, in the LaSalle Ballroom of the Doubletree Hotel at Y 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 SEE REVERSE YOUR SHARES UNLESS YOU SIGN AND RETURN THIS CARD. SIDE --------------