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 sec. 240.14a-11(c) or sec. 240.14a-12 ENRON CORP. - -------------------------------------------------------------------------------- (Name of Registrant as Specified in its Charter) - -------------------------------------------------------------------------------- (Name of Person(s) Filing Proxy Statement, if other than the Registrant) Payment of Filing Fee (Check the appropriate box): [X] No fee required. [ ] Fee computed on table below per Exchange Act Rules 14a-6(i)(l) 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 LOGO] ENRON CORP. NOTICE OF ANNUAL MEETING OF STOCKHOLDERS May 6, 1997 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 6, 1997, for the following purposes: 1. To elect fourteen 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 approve the Amended and Restated Enron Corp. 1991 Stock Plan; 3. To ratify the Board of Directors' appointment of Arthur Andersen LLP, independent public accountants, as Enron's auditors for the year ending December 31, 1997; 4. To consider a stockholder proposal to adopt a policy of cumulative voting for all elections of directors by stockholders; and 5. 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 10, 1997, 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 24, 1997 3 [ENRON LOGO] ENRON CORP. 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 6, 1997. 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 24, 1997. 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 10, 1997, 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 10, 1997, 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 10, 1997, the record date, there were outstanding and entitled to vote at the annual meeting of stockholders 255,946,951 shares of Common Stock and 1,370,265 shares of Preferred Convertible Stock. Included in the number of shares of outstanding Common Stock are 4,085,069 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, 1996, 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, fourteen 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 corporate 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, 61 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., 55 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] RONNIE C. CHAN, 47 Director since 1996 For over five years, Mr. Chan has been Chairman of Hang Lung Development Group, a publicly traded Hong Kong based company involved in property development and investment as well as hotel development and management. Mr. Chan also founded and manages Morningside/Springfield Group, which invests in private industrial companies internationally. Mr. Chan is also Chairman of Springfield Bank and Trust Limited of Gibraltar. He serves on the boards of Standard Chartered Bank PLC and Jusco Stores (Hong Kong) Co., Ltd. - ------------------------------------------------------------------------------------- 2 5 - ------------------------------------------------------------------------------------- [PHOTO] JOHN H. DUNCAN, 69 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. - ------------------------------------------------------------------------------------- [PHOTO] JOE H. FOY, 70 Director since 1985 Mr. Foy is a former President of Houston Natural Gas Corporation ("HNG") (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, 52 Director since 1993 Dr. Gramm is an economist. 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., the Chicago Mercantile Exchange and Kinetic Concepts, Inc. - ------------------------------------------------------------------------------------- 3 6 - ------------------------------------------------------------------------------------- [PHOTO] ROBERT K. JAEDICKE, 68 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. - ------------------------------------------------------------------------------------- [PHOTO] KENNETH L. LAY, 54 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, 73 Director since 1985 For eighteen years, Dr. LeMaistre served as President of The University of Texas M. D. Anderson Cancer Center in Houston, Texas, and now holds the position of President Emeritus. - ------------------------------------------------------------------------------------- 4 7 - ------------------------------------------------------------------------------------- [PHOTO] JEFFREY K. SKILLING, 43 Since January 1, 1997, Mr. Skilling has served as President and Chief Operating Officer of Enron Corp. From June, 1995 until December, 1996, he served as Chief Executive Officer and Managing Director of Enron Capital & Trade Resources Corp. ("ECT"). From August, 1990 until June, 1995, Mr. Skilling served ECT in a variety of managerial positions. - ------------------------------------------------------------------------------------- [PHOTO] JOHN A. URQUHART, 68 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, 65 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. - ------------------------------------------------------------------------------------- 5 8 - ------------------------------------------------------------------------------------- [PHOTO] CHARLS E. WALKER, 73 Director since 1985 Dr. Walker is currently Chairman of Walker & Walker, LLC, a consulting firm in Potomac, Maryland. For two decades prior to establishing Walker & Walker LLC, Dr. Walker was Chairman of Walker/Potter Associates, a governmental relations consulting firm, in Washington, D.C. He is also Adjunct Professor at The University of Texas at Austin and Georgetown University in Washington, D.C. Dr. Walker, a former Deputy Secretary of the Treasury, is chairman of the American Council for Capital Formation. - ------------------------------------------------------------------------------------- [PHOTO] HERBERT S. WINOKUR, JR., 53 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. - ------------------------------------------------------------------------------------- 6 9 SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS As of February 15, 1997, 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 5,723,172(1)(13) 464,898(2) 12,235(12)(14) 2.36 Preferred 767 Fifth Avenue Convertible New York, NY 10153 323,673(3) 6,352(4) 24.08 Common Mr. and Mrs. Lawrence Ruben 4,923,813(5) 945,949(6) 2.27 Preferred 600 Madison Avenue Convertible New York, NY 10022 289,387(7) 16,275(8) 22.30 Common Jack Saltz 1,457,074(9) 817,103(10) * Preferred 767 Fifth Avenue Convertible New York, NY 10153 73,585 58,900(11) 9.67 Common Enron Corp. 15,296,249(15) 5.98 Preferred Employee Stock Convertible Ownership Plan 1400 Smith Street Houston, TX 77002 Common Enron Corp. 8,474,659(16) 3.30 Preferred Savings Plan Convertible 70,000(16) 5.11 - --------------- * 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 86,718 shares that would be issued upon the conversion of the Preferred Convertible Stock shown in the table as being beneficially owned by Mr. Belfer with shared voting and investment power. (3) Includes 61,870 shares held by trusts of which Mr. Belfer is trustee, in all of which shares Mr. Belfer disclaims beneficial ownership. (4) Includes 5,300 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 3,950,711 shares that would be acquired upon the conversion of the Preferred Convertible Stock. (6) Includes 120,696 shares held by Mrs. Ruben as co-trustee for her children; 226,787 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 44,000 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 1,004,582 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. 7 10 (12) Includes restricted shares of Common Stock held under Enron's 1991 Stock Plan. Participants in that Plan 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) 19,416 shares of Common Stock are subject to stock options exercisable within 60 days after February 15, 1997, 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. 8 11 STOCK OWNERSHIP OF MANAGEMENT AND BOARD OF DIRECTORS AS OF FEBRUARY 15, 1997 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................. 5,723,172(4) 464,898(5) 12,235 2.36 Norman P. Blake, Jr.............. 10,126 654 * Ronnie C. Chan................... 500 * John H. Duncan................... 105,917 994 * Joe H. Foy....................... 25,526 2,496(12) 994 * Wendy L. Gramm................... 4,390 846 * Robert K. Jaedicke............... 20,222 994 * Kenneth L. Lay................... 3,034,487 763,242(10)(13) 57,073 1.49 Charles A. LeMaistre............. 21,014 800 994 * Jeffrey K. Skilling.............. 618,804 2,843 * John A. Urquhart................. 81,145 994 * John Wakeham..................... 1,294 360 * Charls E. Walker................. 19,166 6,088(11) 994 * Herbert S. Winokur, Jr........... 54,602 3,500(14) 994 * Richard D. Kinder(15)............ 1,020,117 16,520 * Edmund P. Segner, III............ 255,839 15,237 * Thomas E. White.................. 473,639 14,060 * All directors and executive officers as a group (23 in number)........................ 11,937,945(4) 1,241,024(5) 282,370 5.07 Enron Corp. Preferred Con- vertible Stock Robert A. Belfer................. 323,673(6) 6,352(7) 24.08 All directors and executive officers as a Group (23 in number)........................ 323,672 6,352 24.08 Enron Global Power & Pipelines L.L.C. Common Shares Robert A. Belfer................. 3,000 * Norman P. Blake, Jr.............. 2,000 * Kenneth L. Lay................... 5,000 * Richard D. Kinder (15)........... 10,000 * Edmund P. Segner, III............ 2,000 * All directors and executive officers as a group (23 in number)........................ 13,500 5,000 * (Table continued on following page) 9 12 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 OF CLASS -------------- ---- ---------- ---------- ----------- -------- Enron Oil & Gas Company Common Stock Robert A. Belfer........................... 8,000 25,600(8) * Norman P. Blake, Jr........................ 2,000 * John H. Duncan............................. 35,000 5,000 * Joe H. Foy................................. 3,000 * Kenneth L. Lay............................. 20,000(9) 30,400(10) * Jeffrey K. Skilling........................ (9) * John A. Urquhart........................... (9) * Charls E. Walker........................... 6,000 * Richard D. Kinder(15)...................... 13,738 * Edmund P. Segner, III...................... 2,000 * All directors and executive officers as a group (23 in number)..................... 76,649(9) 61,000 * EOTT Energy Partners, L.P. Common Units Robert A. Belfer........................... 5,700 1,400(16) * Norman P. Blake, Jr........................ 1,000 * John H. Duncan............................. 8,500 * Joe H. Foy................................. 2,000 * Robert K. Jaedicke......................... 2,200 * Kenneth L. Lay............................. 5,000 * Richard D. Kinder(15)...................... 4,500 * All directors and executive officers as a group (23 in number)..................... 19,400 6,400 * Northern Border Partners, L.P. Common Units Robert A. Belfer........................... 34,000 27,000(17) * Norman P. Blake............................ 1,500 * Joe H. Foy................................. 5,650 * Richard D. Kinder(15)...................... 4,500 * All directors and executive officers as a group (23 in number)..................... 41,150 27,000 * - --------------- * Less than 1 percent. (1) Includes restricted shares of Common Stock held under Enron's 1991 and 1994 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 February 15, 1997, which number is included in the number of shares shown as beneficially owned as of such date, is as follows: Mr. Belfer, 19,416 shares; Mr. Blake, 7,200 shares; Mr. Duncan, 24,376 shares; Mr. Foy, 14,456 shares; Dr. Gramm, 3,816 shares; Dr. Jaedicke, 13,456 shares; Mr. Lay, 2,755,938 shares; Dr. LeMaistre, 15,448 shares; Mr. Skilling, 301,122 shares; Mr. Urquhart, 75,025 shares; Lord Wakeham, 1,104 shares; Dr. Walker, 11,048 shares; Mr. Winokur, 24,376 shares; Mr. Kinder, 1,012,917 shares; Mr. Segner, 192,844 shares; Mr. White, 340,138 shares and all directors and executive officers as a group (23 in number), 5,164,962 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. (Notes continued on following page) 10 13 (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. (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 86,718 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 5,300 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 and 5,000 shares held in a charitable foundation in which Mr. Belfer has no pecuniary interest. (9) Does not include 84,940,000 shares owned by Enron in which each of Messrs. Lay, Urquhart and Skilling, 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 1,821 shares with respect to Enron Common Stock and 400 shares with respect to Enron Oil & Gas Company Common Stock held by Mr. Lay's daughter in which Mr. Lay has shared voting and investment power. (11) Shares owned by Dr. Walker's wife and in which Dr. Walker disclaims beneficial ownership. (12) Shares held in a charitable foundation in which Mr. Foy has no pecuniary interest. (13) Includes 130,000 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) Effective December 31, 1996, Mr. Kinder resigned as an officer, director and member of executive committees of Enron and its subsidiaries and affiliated companies. (16) Shares held in trusts in which Mr. Belfer or his son is trustee, in all of which shares Mr. Belfer disclaims beneficial ownership. (17) Includes 21,000 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, 3,000 shares held by Mr. Belfer's wife and 3,000 shares held in a charitable trust in which Mr. Belfer has no pecuniary interest. BOARD OF DIRECTORS AND COMMITTEES The Board of Directors held five regularly scheduled meetings and two special meetings during the year ended December 31, 1996. 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, 1996, the Executive Committee met nine times. The Executive Committee is currently composed of Messrs. Duncan (Chairman), Belfer, Foy, 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, 1996, 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), Chan, Foy, 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 twelve times during the year ended 11 14 December 31, 1996, 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), Blake, Duncan and Jaedicke. The Finance Committee serves as a monitor of Enron's financial activities. In meeting three times during the year ended December 31, 1996, 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), Belfer, Blake, Chan, Urquhart and Walker. The Nominating Committee has oversight for recruiting and recommending candidates for election to the Board of Directors and evaluation of director independence and performance. In meeting one time during the year ended December 31, 1996, the Committee recommended that the mandatory retirement age for Directors be waived for one year with respect to two Directors and that the incumbent slate of Directors be approved by the Board of Directors for submission to the Enron stockholders at the 1997 Annual meeting of Stockholders. The Nominating Committee is currently composed of Messrs. Walker (Chairman), Wakeham and Dr. Gramm. During the year ended December 31, 1996, each Director attended at least 75% of the total number of meetings of the Board and the committees on which the Director served except Mr. Chan. COMPENSATION OF DIRECTORS AND EXECUTIVE OFFICERS DIRECTOR COMPENSATION Each non-employee director of Enron receives an annual service fee of $40,000 for serving as a director. No additional fees are paid for serving on committees, except that committee chairs receive an additional $5,000 annually. Meeting fees are $1,250 for each Board meeting attended and $1,000 for each committee meeting attended. Total directors' fees paid in cash, deferred under Enron's 1994 Deferral Plan or received in a combination of phantom stock units and stock options in lieu of cash under Enron's 1991 Stock Plan in 1996 were $700,700, or an average of $58,392 per non-employee director. 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 phantom stock units and stock options in lieu of cash under Enron's 1991 Stock Plan. Beginning January 1, 1996, participants in Enron's 1994 Deferral Plan may elect to invest their deferrals among six different investment choices. For calendar years 1994 and 1995, interest was credited at 9%. During 1996, five directors elected to defer fees under 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 with a minimum rate of 12.0%, which for 1996 was the minimum rate of 12.0%. One Director elected to receive his fees in a combination of phantom stock units and stock options in lieu of cash according to the terms of Enron's 1991 Stock Plan. During 1996, each non-employee director received 480 shares of phantom stock units (valued at $40.875 per share on the date of grant) and options to purchase 1,920 shares (with an exercise price of $40.875 per share) according to the terms of Enron's 1991 Stock Plan. Beginning January 1, 1997, non-employee directors are required to defer 50% of their annual service fee into the Enron Phantom Stock account under Enron's 1994 Deferral Plan. 12 15 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 (the "CEO") and each of the other executive officers. The basic philosophy behind executive compensation at Enron is to reward the executive's performance that creates long-term stockholder value. This pay-for-performance tenet is embedded in most aspects of an executive's total compensation package. Salary increases, annual incentive awards and long-term incentive grants are reviewed annually to ensure consistency with Enron's total compensation philosophy. Base Salary All decisions regarding base salary are made based upon individual performance as measured against pre-established individual objectives and competitive practice as measured by periodic compensation surveys. Base salaries are targeted at the median of a comparator group that includes peer group companies, similar to those reflected in the proxy performance graph, and general industry companies similar in size to Enron. Annual Incentive Awards The annual incentive plan is funded as a percentage 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 earnings per share, 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 percentage 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 13 16 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 75% 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 Employee Stock Ownership Plan and Enron Corp. Savings Plan (which together own approximately 9.2% of Common Stock as of January 31, 1997), and the All-Employee Stock Option Program 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 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. For purposes of these guidelines, ownership includes grants of restricted stock but does not include grants of stock options. The Committee consults from time to time with Hewitt Associates and Towers Perrin, two consulting firms 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 CEO and the other executives. Mr. Lay did not receive an increase to his base salary during 1996, as specified in his employment agreement. In recognition of Enron's performance during 1996, Mr. Lay received an annual incentive award consisting of $1,620,864 in cash and a grant of stock options, at market value on the date of grant, to acquire 56,545 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 12.4% increase in net income, an increase in earnings per share of 11.6%, a stockholder return of 15.4%, the sixth consecutive year common stock dividends were increased, and the accomplishment of objectives which was highlighted by the proposed merger between Enron and Portland General. The proposed merger received approval from each company's stockholders, as well as approval by the Federal Energy Regulatory Commission, and is currently awaiting approval by the Oregon Public Utility Commission. In addition to the annual incentive award, during 1996 Mr. Lay received long-term incentive grants consisting of a grant of stock options, at market value on the date of grant, to acquire 209,310 shares, and a grant of 812,500 performance units, consistent with the design of the long-term incentive program. Also during 14 17 1996, the accelerated vesting provisions contained in Mr. Lay's May 2, 1994 stock option award were amended to be consistent with Enron's Plan 2000 goals, including at least double digit earnings per share growth annually. Mr. Lay did not receive a cash payment under the Performance Unit Plan for the 1993-1996 performance period. Payments are made under the Performance Unit Plan only if Enron's total stockholder return ranks at least 6th out of 12 industry peers for the 4-year performance period. During the measurement period from 1993-1996 Enron's return to its stockholders was 80.59% compared with 81.21% for industry peers, 65.62% for the S&P 500, and 17.29% for 90-day U.S. Treasury Bills. This performance earned Enron a ranking of Number 7, and the units therefore had no value. Renewed Employment Contract Mr. Lay's existing employment contract was scheduled to expire on February 8, 1999. However, Mr. Lay had the right to terminate his agreement as of February 8, 1997. The Committee and the Board of Directors believe that Mr. Lay is the top CEO in the industry, as evidenced by the fact that stockholder value increased by 371% from 1989 to 1996. In order to retain him, the Committee entered into contract renewal discussions with Mr. Lay during 1996. The Committee is pleased to announce that effective December 9, 1996, Mr. Lay entered into a new five-year employment contract that will expire on December 31, 2001. The Committee and Board of Directors agree that retaining and motivating Mr. Lay is critical if Enron is to achieve or exceed its stated goals of at least double digit earnings per share growth annually and long-term average growth in earnings per share of 15% per year. On January 1, 1997, Mr. Lay received a $210,000 increase in his base salary to $1,200,000 to reflect the accomplishment of objectives, top quartile performance relative to general industry companies similar in size to Enron, and the fact that his last base salary increase was almost four years ago. Also, to ensure that Mr. Lay's interests remain properly aligned with stockholder interests, the Committee granted a total of 1,275,000 stock options, 50% granted in December, 1996 and 50% granted in January, 1997, at market value on each date of grant. The stock options will be fully vested on November 1, 2003. However, the vesting schedule may be accelerated if Enron's total stockholder return equals or exceeds 120% of the S&P 500 in calendar years 1997, 1998 and 1999. The Committee believes these stock options and vesting provisions provide the necessary linkage between stockholder returns and management rewards. The Committee also agreed to pay five annual premiums of $250,000 each on a life insurance policy already owned by Mr. Lay. Under the terms of this split-dollar arrangement, Enron will recover the cost of all premiums paid by it upon Mr. Lay's death. Further details of the stock option grants and contract provisions are explained in the "Employment Contracts" section of this Proxy Statement. Compliance with Internal Revenue Code Section 162(m) Section 162(m), enacted in 1993, generally disallows a tax deduction to public companies for compensation over $1 million paid to a company's CEO 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 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 changed the composition of the Compensation 15 18 Committee in compliance with Section 162(m). As stated above, Mr. Lay's new base salary exceeds $1,000,000. To preserve tax deductibility, any base salary in excess of $1,000,000 is deferred into Enron's 1994 Deferral Plan. 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 1996, during which time a stockholder who invested $100 in Enron Common Stock would have received $471, or a 371% increase in value, compared to 167% for the S&P 500 and 82% 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) Norman P. Blake John H. Duncan Robert K. Jaedicke 16 19 COMPARATIVE STOCK PERFORMANCE The performance graph shown below was prepared by Value Line, Inc., for use in this proxy statement. As required by applicable rules of the Securities and Exchange Commission (the "SEC"), the graph was prepared based upon the following assumptions: 1. $100 was invested in Enron Common Stock, the S&P 500, and the Peer Group (as defined below) on December 31, 1991. 2. The Peer Group investments are weighted based on the market capitalization of each individual company within the Peer Group at the beginning of each year. 3. Dividends are reinvested on the ex-dividend dates. The companies that comprise Enron's Peer Group are as follows: British Gas PLC; Burlington Resources Inc.; The Coastal Corporation; Columbia Gas Systems, Inc.; Consolidated Natural Gas Company; NorAm Energy Corp.; Occidental Petroleum Corporation; PanEnergy Corp; Sonat Inc.; Tenneco Inc. 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. COMPARISON OF FIVE-YEAR CUMULATIVE TOTAL RETURN Enron Corp, S&P 500 and Peer Group (Performance Results Through December 31, 1996) Measurement Period (Fiscal Year Covered) Enron Corp. S&P 500 Peer Group 1991 100 100 100 1992 136.69 107.79 107.30 1993 174.93 118.66 128.39 1994 188.78 120.56 122.03 1995 241.49 165.78 139.38 1996 279.03 204.32 168.91 17 20 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 ALL OTHER ANNUAL COMPENSATION LONG-TERM COMPENSATION COMPENSATION ------------------------------------ --------------------------------------- ------------ OTHER SECURITIES ANNUAL RESTRICTED UNDERLYING LTIP SALARY BONUS COMPENSATION STOCK OPTIONS/ PAYOUTS NAME & PRINCIPAL POSITION YEAR $ $ ($)(1) AWARDS ($)(2) SARS (#) ($)(3) ($)(4) ------------------------- ---- -------- ---------- ------------ ------------- ---------- ---------- ------------ Kenneth L. Lay 1996 $990,000 $1,620,864 $278,155 $ -- 920,660 $ -- $ 281,368 Chairman of the Board and Chief 1995 $990,000 $1,440,000 $220,316 $ -- 156,955 $ 421,875 $ 281,058 Executive Officer, Enron 1994 $990,000 $1,200,000 $296,630 $ 69,680 1,416,615 $ 930,000 $ 311,837 Richard D. Kinder(5) 1996 $800,000 $1,500,000 $158,487 $ -- 53,335 $ -- $5,150,770 President and Chief 1995 $720,015 $1,040,000 $ 81,465 $ -- 126,270 $ 281,250 $ 122,038 Operating Officer, Enron 1994 $660,044 $ 840,000 $124,366 $ 42,210 1,161,125 $ 680,000 $ 87,872 Jeffrey K. Skilling 1996 $423,333 $ 800,000 $ 13,939 $5,999,989(6) 358,905 $ -- $ 1,103 Chairman of the Board and Chief 1995 $385,003 $ 184,000 $ 10,700 $ -- 7,385 $2,503,080 $ 793 Executive Officer, ECT 1994 $321,135 $ 160,000 $ 10,700 $ 9,715 511,195 $1,398,560 $ 31,572 Edmund P. Segner, III 1996 $405,000 $ 420,000 $ 11,600 $ -- 56,875 $ -- $ 1,103 Executive Vice President and 1995 $373,333 $ 372,000 $ 10,500 $ -- 41,980 $ 93,750 $ 793 Chief of Staff, Enron 1994 $350,000 $ 300,000 $ 10,500 $ 16,583 225,895 $ 200,000 $ 31,572 Thomas E. White 1996 $423,333 $ 360,000 $ 19,692 $ -- 48,875 $ -- $ 1,103 Co-Chairman of the Board and 1995 $391,667 $ 216,000 $ 11,300 $ 226,025 40,130 $1,199,000 $ 793 Chief Executive Officer, Enron 1994 $375,000 $ 260,000 $ 11,300 $ 119,260 173,500 $1,199,000 $ 31,572 Operations Corp. - --------------- (1) Includes "Perquisites and Other Personal Benefits" if value is greater than the lesser of $50,000 or 10% of reported salary and bonus. Personal plane usage of $147,919, $130,154 and $116,712 has been reported for Mr. Lay in 1994, 1995, and 1996, 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 1994 was the minimum rate of 12.0%, for 1995 was 12.39%, and for 1996 was the minimum rate of 12.0%. Interest in excess of 120% of the December, 1995 long-term Applicable Federal Rate ("AFR") (7.65%) has been reported as Other Annual Compensation for 1996, interest in excess of 120% of the December, 1994 long-term AFR (9.91%) has been reported as Other Annual Compensation for 1995, and interest in excess of 120% of the December, 1993 long-term AFR (7.29%) has been reported as Other Annual Compensation for 1994. 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 1994, 1995 and 1996 of 6.0%, 8.5%, and 6.5% respectively, did not exceed 120% of the AFR. Under the 1994 Deferral Plan interest was credited on amounts deferred at a fixed rate of 9% for 1994 and 1995. Interest in excess of 120% of the December, 1993 long-term AFR (7.29%) has been reported as Other Annual Compensation for 1994. Beginning January 1, 1996, the 1994 Deferral Plan credits interest based on fund elections chosen by participants. Since earnings on deferred compensation invested in third-party investment vehicles, comparable to mutual funds, need not be reported, no interest has been reported as Other Annual Compensation under the 1994 Deferral Plan during 1996. Other Annual Compensation also includes cash perquisite allowances, cash paid in lieu of vacation and cash paid for benefits lost due to statutory and/or plan earnings limits. (2) Restricted stock was awarded to the Named Officers on February 7, 1994, which became 50% vested on August 7, 1994, and 100% vested on February 7, 1995. Restricted stock was awarded to Mr. White on February 7, 1994, which became 50% vested on August 7, 1994, and 100% vested on February 7, 1995; on January 25, 1995, which became 50% vested on July 25, 1995 and 100% vested on January 25, 1996; and on December 29, 1995, which became 33 1/3% vested on June 30, 1996 with an additional 33 1/3% vesting on June 30, 1997 and June 30, 1998. Dividend equivalents for all restricted stock awards accrue from date of grant and are paid upon vesting. The following is the aggregate number of shares in unreleased restricted stock holdings and their value as of December 31, 1996, for each of the Named Officers: Mr. Lay, 18,880 shares valued at $814,200; Mr. Kinder, 12,560 shares valued at $541,650; 18 21 Mr. Skilling, 3,120 shares valued at $134,550; Mr. Segner, 7,520 shares valued at $324,300; and Mr. White, 6,453 shares valued at $278,286. (3) The amounts shown for 1994 and 1995, for Messrs. Lay, Kinder and Segner represent payouts made under Enron's Performance Unit Plan. The amounts shown for 1994 and 1995, for Mr. Skilling represent payouts made under the ECT Executive Compensation Plan. The amounts shown for 1994 and 1995, for Mr. White represent payouts made for the termination of the Enron Power Corp. Executive Compensation Plan and his rights related thereto. (4) The amounts shown include the value, as of year-end 1994, 1995, and 1996 of Enron Common Stock allocated during those years to employees' savings and special subaccounts under the ESOP. Included in 1994 is a special allocation made in February, 1994 to employees' savings subaccounts under the ESOP in lieu of a merit increase in 1994 and a special allocation made in December, 1994 to a special allocation subaccount. Included in 1995 and 1996, is a special allocation made in December of 1995 and 1996, to a special allocation subaccount under the ESOP. Included in 1994, 1995 and 1996 for Mr. Lay is $1,944, $3,252, and $3,775 respectively, that is attributable to term life insurance coverage pursuant to a split-dollar life insurance arrangement. Also included in 1994, 1995, and 1996 for Mr. Lay is $278,321, $277,013 and $276,490, 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 and 1996 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. (5) Effective December 31, 1996, Mr. Kinder resigned as an officer, director and member of executive committees of Enron and its subsidiaries and affiliated companies. The amount shown as All Other Compensation for Mr. Kinder in 1996 includes $109,472 in accrued vacation pay, $1,100,000 in severance pay, $3,810,450 in loan forgiveness and $8,500 worth of club memberships which were paid under Mr. Kinder's severance agreement (see "Employment Contracts"). (6) Restricted stock was awarded to Mr. Skilling on January 23, 1996, as a result of the termination of the ECT Executive Compensation Plan and his rights related thereto, and became 66.7% vested on July 23, 1996, and 100% vested on December 1, 1996. 19 22 STOCK OPTION GRANTS DURING 1996 The following table sets forth information with respect to grants of stock options pursuant to Enron's stock plans to the Named Officers reflected in the Summary Compensation Table. No stock appreciation rights were granted during 1996. INDIVIDUAL GRANTS -------------------------------------- NUMBER OF SECURITIES POTENTIAL REALIZABLE VALUE AT UNDERLYING % OF TOTAL ASSUMED ANNUAL RATES OF OPTIONS/ OPTIONS/SARS EXERCISE STOCK PRICE APPRECIATION SARS GRANTED TO OR BASE FOR OPTION TERM(7) GRANTED EMPLOYEES IN PRICE EXPIRATION --------------------------------------- NAME (#)(1) FISCAL YEAR ($/SH) DATE 0%(6) 5% 10% ---- ---------- ------------ -------- ---------- ----- ------------- ------------- Kenneth L. Lay....... 73,850(2) 1.00% $36.7500 01/23/01 $0 $ 749,825 $ 1,656,917 637,500(3) 8.65% $45.0000 12/31/03 $0 $ 11,797,576 $ 27,538,398 209,310(4) 2.84% $43.1250 12/31/01 $0 $ 2,493,854 $ 5,510,765 Richard D. Kinder.... 53,335(2) 0.72% $36.7500 01/23/01 $0 $ 541,529 $ 1,196,637 Jeffrey K. Skilling........... 9,440(2) 0.13% $36.7500 01/23/01 $0 $ 95,848 $ 211,798 237,835(5) 3.23% $36.7500 01/23/06 $0 $ 5,496,813 $ 13,930,004 111,630(4) 1.51% $43.1250 12/31/01 $0 $ 1,330,032 $ 2,939,022 Edmund P. Segner, III................ 19,080(2) 0.26% $36.7500 01/23/01 $0 $ 193,726 $ 428,084 37,795(4) 0.51% $43.1250 12/31/01 $0 $ 450,314 $ 995,076 Thomas E. White...... 11,080(2) 0.15% $36.7500 01/23/01 $0 $ 112,499 $ 248,594 37,795(4) 0.51% $43.1250 12/31/01 $0 $ 450,314 $ 995,076 All Employee and Director Optionees.......... 7,371,026(8) 100% $39.7113(9) N/A $0 184,085,478(10) 466,509,287(10) All Stockholders..... N/A N/A N/A N/A $0 6,160,902,605(10) 15,612,955,030(10) Optionee Gain as % of All Stockholders Gain............... N/A N/A N/A N/A N/A 2.99% 2.99% - --------------- (1) If a "change of control" (as defined in Enron's 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 Enron's 1991 Stock Plan). (2) Stock options awarded on January 23, 1996 became 100% vested on July 23, 1996. (3) Stock options awarded on December 9, 1996, became 20% vested on the date of grant and 100% vested on November 1, 2003. However, the vesting schedule may be accelerated if Enron's total stockholder return equals or exceeds 120% of the S&P 500 in calendar years 1997, 1998 and 1999. (4) Stock options awarded on December 31, 1996 became 25% vested on the date of grant with an additional 25% vested on the anniversary of the date of grant until December 31, 1999. (5) Stock options awarded on January 23, 1996 became 20% vested on July 23, 1996 with an additional 20% vested on the anniversary of the date of grant until January 23, 2000. (6) 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. (7) 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. (8) Includes options awarded on December 31, 1996 under the All-Employee Stock Option Program to employees hired during 1996. (9) Weighted average exercise price of all Enron stock options granted to employees in 1996. 20 23 (10) 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 term, the weighted average exercise price for All Employee and Director Optionees ($39.7113) and the number of shares of Common Stock issued and outstanding on December 31, 1996, excluding 4,216,730 shares held by the Enron Flexible Equity Trust. AGGREGATED STOCK OPTION/SAR EXERCISES DURING 1996 AND STOCK OPTION/SAR VALUES AS OF DECEMBER 31, 1996 The following table sets forth information with respect to the Named Officers concerning the exercise of SARs and options during the last fiscal year and unexercised options and SARs held as of the end of the fiscal year: NUMBER OF SECURITIES UNDERLYING UNEXERCISED VALUE OF UNEXERCISED OPTIONS/SARS AT IN-THE-MONEY OPTIONS/ SHARES DECEMBER 31, 1996 SARS AT DECEMBER 31, 1996 ACQUIRED ON VALUE --------------------------- --------------------------- NAME EXERCISE(#) REALIZED($) EXERCISABLE UNEXERCISABLE EXERCISABLE UNEXERCISABLE ---- ----------- ----------- ----------- ------------- ----------- ------------- Kenneth L. Lay........... 150,000 $ 4,409,375 2,229,093 1,263,037 $29,280,505 $6,237,212 Richard D. Kinder(1)..... 1,194,927 $30,209,985 888,884 469,152 $ 8,109,503 $4,787,586 Jeffrey K. Skilling...... -- $ -- 212,315 791,820 $ 3,146,017 $7,919,718 Edmund P. Segner, III.... 230,448 $ 2,856,207 101,189 181,561 $ 878,521 $1,997,145 Thomas E. White.......... -- $ -- 254,918 140,887 $ 3,298,760 $1,390,447 - --------------- (1) Effective with his termination of employment on February 15, 1997, Mr. Kinder forfeited 164,685 stock options with a value at December 31, 1996 of $1,458,765. LONG-TERM INCENTIVE PLAN -- AWARDS IN 1996 The following table provides information concerning awards of performance units under Enron's Performance Unit Plan during 1996 for the 1996-1999 performance period. 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 Peer Group. At that time, the units are assigned a value ranging from $0 to $2.00 based on the rank of Enron's stockholder return within the Peer Group. To be valued at the maximum of $2.00, Enron must rank first, and to be valued at the target of $1.00, Enron must rank third. Regardless of Enron's rank, Enron's stockholder return must be above the return on 90-day U.S. Treasury Bills over the same performance period in order for any value to be assigned. NUMBER PERFORMANCE ESTIMATED FUTURE PAYOUTS OF SHARES, OR OTHER UNDER NON-STOCK PRICE-BASED PLANS UNITS OR PERIOD UNTIL --------------------------------------- OTHER MATURATION THRESHOLD TARGET MAXIMUM NAME RIGHTS (#) PAYOUT ($) ($) ($) ---- ---------- ------------ --------- -------- ---------- Kenneth L. Lay.......................... 812,500 4 years $ -- $812,500 $1,625,000 Richard D. Kinder(1).................... 700,000 4 years $ -- $700,000 $1,400,000 Edmund P. Segner, III................... 225,000 4 years $ -- $225,000 $ 450,000 Thomas E. White......................... 225,000 4 years $ -- $225,000 $ 450,000 - ------------------ (1) Effective with his termination of employment on February 15, 1997, Mr. Kinder forfeited the 700,000 performance units he was awarded in 1996. 21 24 RETIREMENT AND SUPPLEMENTAL BENEFIT PLANS Enron maintains the Enron Corp. Retirement Plan (the "Retirement Plan") which is a noncontributory defined benefit plan to provide retirement income for employees of Enron and its subsidiaries. Through December 31, 1994, participants in the Retirement Plan with five years or more of service were entitled to retirement benefits in the form of an annuity based on a formula that uses a percentage of final average pay and years of service. 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"). In connection with a change to the retirement benefit formula, all employees became fully vested in retirement benefits earned through December 31, 1994. The formula in place prior to January 1, 1995 was suspended and replaced with a benefit accrual in the form of a cash balance of 5% of annual base pay beginning January 1, 1996. Under the Cash Balance Plan, each employee's accrued benefit will be credited with interest based on 10-year Treasury Bond yields. Enron also maintains a noncontributory employee stock ownership plan (ESOP) which covers all eligible employees. Allocations to individual employees' retirement accounts within the ESOP offset a portion of benefits earned under the Cash Balance Plan. 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 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 NAME SERVICE AT AGE 65 BY PLANS RETIREMENT ---- -------- --------- ------------ -------------- Kenneth L. Lay.......................... 19.9 30.2 $1,200,000 $459,815 Richard D. Kinder(1).................... 16.1 16.2 $ 825,000 $228,179 Jeffrey K. Skilling..................... 6.4 28.3 $ 750,000 $264,915 Edmund P. Segner, III................... 8.9 30.7 $ 415,000 $175,161 Thomas E. White......................... 6.5 18.5 $ 435,000 $ 84,630 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 the ESOP. - --------------- (1) Since Mr. Kinder terminated his employment on February 15, 1997, estimated annual benefits payable are based on his actual credited years of service (16.2). Messrs. Skilling and Segner 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 22 25 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 HNG for an annual benefit equal to 30% of his annual base salary upon death before retirement, paid for the life of his spouse. 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 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 W-2 earnings over the past five years. EMPLOYMENT CONTRACTS Mr. Lay entered into an employment agreement with Enron in December, 1996, which provides for a minimum salary effective January 1, 1997 of $1,200,000. To preserve tax deductibility, any base salary in excess of $1,000,000 must be deferred under Enron's 1994 Deferral Plan. The agreement provides for a grant of 1,275,000 stock options, 50% granted in December, 1996 and 50% granted in January, 1997, at market value on each date of grant. The stock options vested 20% on the date of grant and will be 100% vested on November 1, 2003. However, the vesting schedule may be accelerated if Enron's total stockholder return equals or exceeds 120% of the S&P 500 in calendar years 1997, 1998 and 1999. The agreement also provides for a split-dollar life insurance arrangement, whereby Enron will pay five annual premiums of $250,000 each on a life insurance policy already owned by Mr. Lay, with recovery of the cost of such premiums upon Mr. Lay's death; benefits payable under Enron's Deferral Plans and the HNG Deferral Plan in the event of Mr. Lay's termination of employment, will be paid as if Mr. Lay had retired from Enron, regardless of the reason for termination; and the maturity date on Mr. Lay's $ 4,000,000 interest bearing line of credit was extended to December 31, 2001. The highest outstanding principal balance on the line of credit during 1996 was $3,081,000. Mr. Lay paid accrued interest in 1996 totaling $96,019, at an average rate of 6.29%, representing the mid-term AFR. As of February 28, 1997 the outstanding principal balance is $733,919. In the event of his involuntary termination, Mr. Lay will receive amounts prescribed in the agreement, offset against amounts payable under any severance plan maintained by Enron, through the term of the agreement, which expires on December 31, 2001. If severance remuneration payable under the agreement is held to constitute an "excess parachute payment" and Mr. Lay becomes liable for any tax penalties imposed thereon, Enron will 23 26 make a cash payment to him in an amount equal to the tax penalties plus an amount equal to any additional tax for which he will be liable as a result of receipt of the payment for such tax penalties and payment for such reimbursement for additional tax. The employment agreement contains noncompete provisions in the event of Mr. Lay's termination of employment. Mr. Skilling entered into an employment agreement with Enron in January, 1996, which as amended, provides for a minimum annual salary of $750,000. In January, 1997, the agreement was amended to reflect Mr. Skilling's enhanced duties as President and Chief Operating Officer of Enron. The amended agreement provides for a revision of the vesting schedule on 500,000 stock options granted on August 29, 1994, such that one-third of the options will vest on each May 1 in 1997, 1998 and 1999. Also, it is intended that Enron will adopt a phantom equity plan relating to the retail aspects of Enron's business. If such a plan is adopted, Mr. Skilling will receive a phantom equity grant equal to 5% of the value of such retail business. In the event of his involuntary termination, Mr. Skilling will receive amounts prescribed in the agreement, offset against amounts payable under any severance plan maintained by Enron, through the term of the agreement, which expires on December 31, 2000. The employment agreement contains noncompete provisions in the event of Mr. Skilling's termination of employment. Mr. Segner entered into an employment agreement with Enron in October, 1991, which as amended, provides for a minimum annual salary of $415,000. In May, 1994, Mr. Segner's agreement was extended two years, and he was granted 150,000 stock options, at market value on date of grant. These options vested 20% immediately and will vest 100% eight years from the date of grant. However, vesting can be accelerated based on earnings per share performance in years 1994 through 1998. In the event of his involuntary termination, Mr. Segner will receive amounts prescribed in the agreement, offset against amounts payable under any severance plan maintained by Enron, through the term of the agreement, which as amended, expires on September 30, 1998. The employment agreement contains noncompete provisions in the event of Mr. Segner's termination of employment. Mr. White entered into an employment agreement with Enron in July, 1990, which as amended, currently provides for an annual salary of $435,000. In May, 1994, Mr. White's agreement was extended two years, and he was granted 100,000 stock options, at market value on date of grant. These options vested 20% immediately and will vest 100% eight years from the date of grant. However, vesting can be accelerated based on earnings per share performance in years 1994 through 1998. In January, 1997, Mr. White's agreement was extended an additional two and one-half years, and he was granted 125,000 stock options, at market value on date of grant. These options vested 20% immediately and will vest an additional 20% on each of the first four anniversaries of date of grant. In the event of his involuntary termination, Mr. White will receive amounts prescribed in the agreement, offset against amounts payable under any severance plan maintained by Enron, through the term of the agreement, which as amended, expires on December 31, 2000. The employment agreement contains noncompete provisions in the event of Mr. White's termination of employment. Mr. Rodney Gray, an executive officer of Enron, received a personal executive loan from Enron in the amount of $250,000 on August 1, 1994, all of which is still outstanding. The loan bears interest compounded semi-annually on the unpaid principal and interest of the loan at the short-term AFR in effect during each month that the loan is outstanding, which during 1996 averaged 5.66%, and is collateralized with 7,960 shares of Common Stock. Mr. Gray paid accrued interest in the amount of $15,416 during 1996. Mr. J. Clifford Baxter, an executive officer of Enron, received a personal executive loan from Enron in the amount of $200,000 on September 15, 1995. The loan bears interest at the short-term AFR compounded annually, which was fixed during 1996 at 5.91%. Interest in the amount of $7,137 accrued in 1996 on the loan, 24 27 of which Mr. Baxter paid $6,000 in March, 1996. In the event that Mr. Baxter remains an employee of Enron, then on each of March 15, 1996 and March 15, 1997, respectively, fifty percent (50%) of the initial principal amount of the loan will be forgiven and waived by Enron. In 1996, principal in the amount of $100,000 was forgiven and waived by Enron. On January 31, 1997, the outstanding principal loan balance was $100,000. Mr. Kinder entered into an agreement with Enron in November, 1996, which provided that he would resign as an officer, director and member of executive committees of Enron and its subsidiaries and affiliated companies in which he held office, directorship and/or membership effective December 31, 1996 and subsequently would voluntarily resign and terminate employment with Enron effective February 15, 1997. Mr. Kinder received a severance payment of $1,100,000, accrued vacation pay of $109,472 and club memberships valued at $8,500 and agreed not to induce any employee of Enron or any Affiliate to terminate employment for a period of two years. In addition, pursuant to the terms of his employment agreement, Mr. Kinder shall continue to receive annual payments of $121,245 through 2002, which constitute 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; benefits payable under Enron's Deferral Plans and the HNG Deferral Plan will be paid as if Mr. Kinder had retired from Enron; and vested shares under an option granted February 8, 1994 shall remain exercisable until February 7, 2001. Also, pursuant to the terms of his employment agreement, since mutually satisfactory terms pertaining to his future employment with Enron were not agreed to by Mr. Kinder and Enron, the outstanding principal and interest balances of his loan and advance, totaling $3,810,450, were forgiven as of February 7, 1997. Upon his termination of employment Mr. Kinder forfeited 164,685 unvested stock options, 6,280 unvested shares of restricted stock and a total of 1,901,000 performance units granted in 1994, 1995 and 1996. 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 agreement was amended several times between 1991 and 1995. In August, 1995, the agreement was amended to provide for a grant of 50,000 Enron phantom stock options at a grant price equal to the December 29, 1995 Enron closing stock price, or $38.125. The phantom shares vested 50% on June 29, 1996, and 50% on December 29, 1996, and will expire on December 31, 1998. The amended agreement also provided a retainer fee of $42,000 per month effective January 1, 1996, for providing up to 120 days of consulting services annually, and a daily rate of $4,200 for days in excess of 120 annually. Effective January 1, 1997, the retainer was increased to $44,100 per month and the daily rate was increased to $4,410. Mr. Urquhart is paid for all reasonable out-of-pocket expenses incurred under the agreement. 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 1996, Enron paid Mr. Urquhart $625,126 for services rendered (including reimbursement of expenses) under the Consulting Services Agreement. Mr. Urquhart is a member of the Managing Board of Amoco/Enron Solar Partnership, Chairman and Chief Executive Officer of Enron Solar Energy Inc. and a director of Enron Renewable Energy Corp. ("EREC"). On January 2, 1997, Mr. Urquhart was awarded 67,495 EREC stock options at a grant price of $15.00, granted in tandem with 23,750 Enron stock options at a grant price of $42.625, both of which were 25 28 awarded at fair market value on the date of grant. The options became 20% vested on the date of grant and will become 20% vested on each anniversary of the date of grant through January 2, 2001. The exercise of either the EREC or Enron options will cancel the tandem options of the other security. These stock options will expire on January 2, 2007. 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. A confirmation was entered into in 1995 under the Master Agreement between Bruin and HPL relating to the storage of up to approximately 6 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 term of such confirmation has been withdrawn as of this date. HPL and Bruin entered into an all points interruptible Transportation Agreement on January 1, 1995. There were no transactions conducted under such agreement in 1996. There are no currently effective confirmations under the Master Agreement, nor are there any discussions relating to the conduct of storage or transportation business between HPL and Bruin under the Master Agreement or the Transportation Agreement; however, such agreements have not been terminated and could be used in the future as the contractual vehicles to document future storage and/or transportation transactions between Bruin and HPL. Enron believes that the terms of the Master Agreement and the Transportation Agreement are comparable to those available to unaffiliated third parties, and Enron does not intend to engage in or permit any affiliate to engage in any transactions with Bruin except on terms that Enron 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 (collectively, the "Individuals"), 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 committed to advance the project up to $300,000 ("Initial Capital"), which advances included certain internal costs and out of pocket expenses of ECT and UMC. Effective April 23, 1996, ECT, UMC and the Individuals entered into a letter agreement ("Termination Agreement") terminating their obligations under the Feasibility Agreement and releasing each party from any further obligation to pursue the project. In consideration for a reduction in the term of the exclusivity and noncompetition provisions that would have otherwise been applicable to ECT upon termination of the Feasibility Agreement, ECT agreed to waive its right to receive a payment equal to 200% of the Initial Capital that had been furnished to the project at the time of termination. During 1996, Bruin and Enron Development Corp., a wholly owned subsidiary of Enron ("EDC") entered into discussions concerning Bruin's serving EDC as a consultant with respect to iron carbide natural gas processing projects. Under the terms of the proposed consulting arrangement, Bruin would be paid a monthly retainer of $2,500 per month. In addition, following the execution of a memorandum of understanding or letter of intent relating to the first project accepted by EDC under the arrangement, Bruin would receive a one-time incentive payment of $100,000. Furthermore, following the closing of project financing for any project accepted by EDC under the arrangement, Bruin would be entitled to a fee of 0.3% of EDC's "net 26 29 project value" for the project, up to a maximum of $600,000 per project. As of March 15, 1997, no consulting agreement had been entered into between EDC and Bruin, and there can be no assurance that any such agreement will be entered into. However, EDC paid Bruin $33,500 for advisory services that Bruin provided EDC in 1996 with respect to iron carbide projects. Enron believes that the terms of the iron carbide arrangement being discussed with Bruin are comparable to those available to unaffiliated third parties. Enron Property & Services Corp. ("EPSC"), a subsidiary of Enron, and Lay/Wittenberg Travel Agency in the Park, Inc. ("TAP") are parties to an Agreement for Services under which TAP provides travel arrangements for Enron and its affiliates' employees. The agreement will expire on March 31, 2001. TAP is owned 50% by Sharon Lay, sister of Kenneth L. Lay, Chairman of the Board and Chief Executive Officer of Enron. During 1996, TAP received commissions in the amount of $1,597,409 attributable to Enron employee travel. COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION In May, 1996, the Compensation Committee was reconstituted, at which time Messrs. Belfer and Foy resigned from the committee and were replaced by Messrs. Blake and Jaedicke. Thus, at December 31, 1996, the Compensation Committee consisted of Messrs. LeMaistre, Blake, Duncan and Jaedicke. Until April 1986, Mr. Belfer was an officer of Belco Petroleum Corporation, a wholly owned subsidiary of Enron. During 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 $3.3 million with respect to 1996. 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 1997. 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 HNG, a predecessor of Enron. ITEM 2. APPROVAL OF AMENDED AND RESTATED 1991 STOCK PLAN The stockholders approved the Enron Corp. 1991 Stock Plan (the "1991 Stock Plan") at the 1991 Annual Meeting, and subsequently approved an amendment to the 1991 Stock Plan, effective May 3, 1994, at the 1994 Annual Meeting. The 1991 Stock Plan is intended to provide individual participants with an opportunity to acquire a proprietary interest in Enron and give them an additional incentive to use their best efforts for Enron's long-term success. The 1991 Stock Plan permits the granting of (i) stock options, including incentive stock options meeting the requirement of Section 422 of the Internal Revenue Code, (ii) stock appreciation rights ("SARs"), (iii) phantom stock units and (iv) restricted stock, any of which may be granted separately or together. Grants may be made to any employee or officer of Enron or any of its affiliates, non-employee directors of Enron or any of its affiliates and non-employee contractors performing services for Enron or any of its affiliates. The 1991 Stock Plan is administered by the Compensation Committee of the 27 30 Board of Directors (the "Committee"), each of the members of which meet the definition of Non-Employee Director in Rule 16b-3 of the Exchange Act. The Committee has the authority to establish administrative rules, to designate individuals to receive awards and the size of such awards, and to set the terms and conditions of awards. Stock options permit the recipient to purchase shares of Enron Common Stock, commonly referred to as exercising their option, at a fixed price, determined on the date of grant, regardless of the fair market value on the date of exercise. The holder of an SAR is entitled to receive the excess of the fair market value on the date of exercise over the grant price of the SAR. Upon the vesting of the phantom stock units, the holder is entitled to payment in shares of Common Stock at the rate of one share of Common Stock for each such unit, plus dividends paid on such number of shares of Common Stock after the date of the award. Restricted stock may provide the recipient all of the rights of an Enron stockholder, including the right to vote the shares and receive any dividends. However this restricted stock may not be transferred by the recipient until certain restrictions, such as time, lapse. The 1991 Stock Plan contains several provisions so that certain awards under the plan qualify as performance-based compensation under Section 162(m) of the Internal Revenue Code. No individual can be granted more than 1,000,000 stock options or SARs in a calendar year. The purchase price of a stock option or SAR cannot be less than the fair market value of a share on the date of grant. As of March 13, 1997, the last reported sales price for the Enron Common Stock was $40.25 per share. The 1991 Stock Plan permits the grant of performance-based restricted stock which is either issued or becomes vested based on the attainment of pre-established net income and/or cash flow criteria or is issued in lieu of cash payments under the Enron Corp. Annual Incentive Plan or Enron Corp. Performance Unit Plan, based on attainment of the performance criteria established under those plans. A maximum of 100,000 shares of performance-based restricted stock can be granted to any individual in a calendar year. The Board of Directors cannot increase the number of shares authorized for granting awards under the plan, increase the maximum number of options, SARs or performance-based restricted stock that may be granted to any individual in a calendar year or modify the material terms of the plan, without obtaining stockholder approval. The Board of Directors of Enron desires to amend and restate the 1991 Stock Plan to increase the number of shares authorized for granting awards and to update certain provisions to conform with the amended Section 16 Rules adopted in 1996 by the Securities and Exchange Commission. The following summary description of the proposed amendment and restatement of the 1991 Stock Plan is qualified in its entirety by reference to the full text of the Amendment and Restatement, which is attached to this Proxy Statement as Exhibit A. CHANGES TO THE 1991 STOCK PLAN Among the changes effected by the proposed amendment and restatement of the 1991 Stock Plan is an increase, effective May 6, 1997, in the number of shares of Enron Common Stock available for granting awards under the 1991 Stock Plan. The number of shares authorized for granting awards when the 1991 Stock Plan was first approved in 1991 was 11,000,000 shares (2,750,000 shares adjusted for stock splits in December, 1991 and August, 1993), with no more than 25% to be granted as restricted stock. In May, 1994, an additional 10,000,000 shares were authorized for granting awards under the 1991 Stock Plan, again with no more than 25% to be granted as restricted stock. Less than 100,000 shares remain available for grant. The proposed amendment and restatement will authorize an additional 10,000,000 shares of Enron Common Stock for 28 31 granting awards under the 1991 Stock Plan effective May 6, 1997, with no more than an aggregate of 25% to be granted as restricted stock and phantom stock units. The recommended amendment and restatement of the 1991 Stock Plan also incorporates amendments which have been approved by the Board of Directors since May, 1994, which did not require stockholder approval, to provide for broker cashless exercise of stock options as authorized under Regulation T of the Federal Reserve Board, to provide for the grant of phantom stock units in lieu of Restricted Stock to directors of Enron and to permit the grant of phantom stock units interchangeably with restricted stock to eligible persons other than directors, in the sole discretion of the Committee, and to revise tax withholding provisions. Minor changes were also made to update certain provisions for conformity with the amended Section 16 Rules under the Exchange Act, including, but not limited to: adding provisions which allow for the transfer of stock options to immediate family members, family trusts or family partnerships; changing the composition of the committee that administers the plan; removal of 6-month holding requirements for persons who are subject to Section 16 of the Exchange Act; and removal of restrictions on grants which can be made to non-employee directors. Approval of the amendment and restatement of the 1991 Stock Plan by the stockholders of Enron is required in order for the plan to continue to comply with Section 162(m) of the Internal Revenue Code with respect to stock options and performance-based restricted stock. AWARDS UNDER THE PROPOSED AMENDMENT Benefits payable or amounts that will be granted after the effective date of the proposed amendment and restatement of the 1991 Stock Plan are not determinable at this time. Currently, there are approximately 7,000 employees and other persons eligible to receive awards under the 1991 Stock Plan.