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 SHAREHOLDERS May 5, 1998 TO THE SHAREHOLDERS: Notice is hereby given that the annual meeting of shareholders 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 5, 1998, for the following purposes: 1. To elect seventeen directors of Enron to hold office until the next annual meeting of shareholders and until their respective successors are duly elected and qualified; 2. To ratify the Board of Directors' appointment of Arthur Andersen LLP, independent public accountants, as Enron's auditors for the year ending December 31, 1998; and 3. To transact such other business as may properly be brought before the meeting or any adjournment(s) thereof. Holders of record of Enron Common Stock and Cumulative Second Preferred Convertible Stock at the close of business on March 9, 1998, will be entitled to notice of and to vote at the meeting or any adjournment(s) thereof. Shareholders who do not expect to attend the meeting are requested to sign and return the enclosed proxy, for which a postage-paid, return envelope is enclosed. The proxy must be signed and returned in order to be counted. By Order of the Board of Directors, PEGGY B. MENCHACA Vice President and Secretary Houston, Texas March 25, 1998 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 shareholders 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 5, 1998. 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 shareholders of Enron on approximately March 25, 1998. Any shareholder 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. Shareholders attending the meeting may revoke their proxies and vote in person. Holders of record at the close of business on March 9, 1998, of Enron's Common Stock (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 9, 1998, of Enron's Cumulative Second Preferred Convertible Stock (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 9, 1998, the record date, there were outstanding and entitled to vote at the annual meeting of shareholders 311,623,212 shares of Common Stock and 1,334,124 shares of Preferred Convertible Stock. Included in the number of shares of outstanding Common Stock are 3,031,196 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 shareholders for the year ended December 31, 1997, including financial statements, is being mailed herewith to all shareholders 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, seventeen directors are to be elected to hold office until the next succeeding annual meeting of the shareholders 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 Oregon corporate law and Enron's 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. Shareholders 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, 62 Director since 1983 Mr. Belfer's principal occupation is Chairman and Chief Executive Officer of Belco Oil & Gas Corp., a company formed in 1992. 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 NAC Re Corporation. - ------------------------------------------------------------------------------------- [PHOTO] NORMAN P. BLAKE, JR., 56 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. Mr. Blake is also a director of Owens-Corning Fiberglass Corporation. - ------------------------------------------------------------------------------------- [PHOTO] RONNIE C. CHAN, 48 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, 70 Director since 1985 Mr. Duncan's principal occupation has been investments since 1990. Mr. Duncan is also a director of EOTT Energy Corp. (the general partner of EOTT Energy Partners, L.P.), Chase Bank of Texas, National Association and Group I Automotive Inc. - ------------------------------------------------------------------------------------- [PHOTO] JOE H. FOY, 71 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, 53 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 Invesco Funds Group, Inc. - ------------------------------------------------------------------------------------- 3 6 - ------------------------------------------------------------------------------------- [PHOTO] KEN L. HARRISON, 55 Director since 1997 Mr. Harrison has served as Vice Chairman of the Board of Enron since July 1, 1997 and, since 1987, has served as Chairman of the Board and Chief Executive Officer of Portland General Electric Company ("PGE"), an electric utility company and a subsidiary of Enron. He served as Chairman of the Board, Chief Executive Officer, and President of Portland General Corporation, an electric utility holding company, for more than five years before it was acquired by Enron on July 1, 1997. He is also a director of Enron Oil & Gas Company ("EOG"). - ------------------------------------------------------------------------------------- [PHOTO] ROBERT K. JAEDICKE, 69 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 Boise Cascade Corporation, Wells Fargo & Company, California Water Service Company, GenCorp, Inc. and State Farm Insurance Co. - ------------------------------------------------------------------------------------- [PHOTO] KENNETH L. LAY, 55 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, EOG, EOTT Energy Corp. (the general partner of EOTT Energy Partners, L.P.) and Trust Company of the West. - ------------------------------------------------------------------------------------- 4 7 - ------------------------------------------------------------------------------------- [PHOTO] CHARLES A. LEMAISTRE, 74 Director since 1985 For 18 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. - ------------------------------------------------------------------------------------- [PHOTO] JEROME J. MEYER, 60 Director since 1997 For over seven years, Mr. Meyer has served as Chairman and Chief Executive Officer and a director of Tektronix, Inc., an electronics manufacturer located in Wilsonville, Oregon. He is also a director of Esterline Technologies Corporation and AMP, Incorporated. - ------------------------------------------------------------------------------------- [PHOTO] JEFFREY K. SKILLING, 44 Director since 1997 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 senior managerial positions. - ------------------------------------------------------------------------------------- 5 8 - ------------------------------------------------------------------------------------- [PHOTO] JOHN A. URQUHART, 69 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. He serves as 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. He also serves as a director of Aquarion Company, TECO Energy, Inc., Hubbell, Inc., The Weir Group, PLC. and Catalytica Inc. - ------------------------------------------------------------------------------------- [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. - ------------------------------------------------------------------------------------- [PHOTO] CHARLS E. WALKER, 74 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 Charls E. Walker Associates, a governmental relations consulting firm, in Washington, D.C. He is also Adjunct Professor at The University of Texas at Austin. Dr. Walker, a former Deputy Secretary of the Treasury, is chairman of the American Council for Capital Formation. - ------------------------------------------------------------------------------------- 6 9 - ------------------------------------------------------------------------------------- [PHOTO] BRUCE G. WILLISON, 49 Director since 1997 Since 1996, Mr. Willison has served as President, Chief Operating Officer and a director of H.F. Ahmanson Company and its principal subsidiary, Home Savings of America, FSB, one of the nation's largest full service consumer banks. He served as Chairman, President and Chief Executive Officer of First Interstate Bank of California from April, 1991 until April, 1996 and as Vice Chairman of First Interstate Bank from December, 1994 until April, 1996. - ------------------------------------------------------------------------------------- [PHOTO] HERBERT S. WINOKUR, JR., 54 Director since 1985 Since 1987, Mr. Winokur has been President of Winokur Holdings, Inc., an investment company, 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, the WMF Group, Ltd., Mrs. Fields Holdings, Inc. and DynCorp. - ------------------------------------------------------------------------------------- 7 10 SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS As of February 15, 1998, Enron knows of no one who beneficially owns in excess of 5% 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 4,554,655(1)(2) 1,266,018(3) 12,070(4)(5) 1.85 Preferred 767 Fifth Avenue Convertible New York, NY 10153 237,773(6) 64,852(7) 22.66 Common Mr. and Mrs. Lawrence Ruben 4,863,371(8) 941,347(9) 1.82 Preferred 600 Madison Avenue Convertible New York, NY 10022 289,387(10) 16,275(11) 22.89 Common Jack Saltz 1,451,252(12) 817,103(13) * Preferred 767 Fifth Avenue Convertible New York, NY 10153 73,041 58,900(14) 9.88 Common Enron Corp. 7,436,509(15) 2.39 Preferred Savings Plan Convertible 70,000(15) 5.24 - --------------- * Less than 1%. (1) Includes 13,248 shares held by trust of which Mr. Belfer is trustee, in all of which shares Mr. Belfer disclaims beneficial ownership. Also includes 3,246,077 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) 21,344 shares of Common Stock are subject to stock options exercisable within 60 days after February 15, 1998, which number is included in the number of shares shown as beneficially owned as of such date. (3) 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 885,360 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. (4) Includes restricted shares of Common Stock held under Enron's 1991 Stock Plan (the "1991 Stock Plan"). Participants in the 1991 Stock Plan have sole voting power and no investment power for restricted shares awarded under the 1991 Stock Plan until such shares vest in accordance with 1991 Stock Plan provisions. After vesting, the participant has sole investment and voting powers. (5) Includes shares held under Enron's Savings Plan (the "Savings Plan"). Participants in the Savings Plan instruct the Savings Plan Trustee as to how the participant's shares should be voted. Additionally, participants have limited investment power with respect to shares in the Savings Plan. (6) Includes 53,370 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 co-trustee, in all of which shares Mr. Belfer disclaims beneficial ownership. (8) 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. (9) Includes 99,209 shares held by Mrs. Ruben as co-trustee for her children; 185,716 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 99,200 shares held by charitable foundations 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. (10) 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. (11) 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. (Notes continued on following page) 8 11 (12) Includes 997,156 shares that would be issued upon the conversion of the Preferred Convertible Stock. (13) Includes 804,103 shares that would be issued upon the conversion of the Preferred Convertible Stock. (14) Held by Mr. Saltz's wife as trustee for their children. (15) Pursuant to the terms of the Savings Plan, shares allocated to employee accounts are voted by the Savings Plan Trustee as instructed by the 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 995,640 shares that would be acquired upon the conversion of the Preferred Convertible Stock. STOCK OWNERSHIP OF MANAGEMENT AND BOARD OF DIRECTORS AS OF FEBRUARY 15, 1998 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(1) POWER(1) POWER(2)(3) OF CLASS -------------- ---- ---------- ---------- ----------- -------- Enron Corp. Common Stock Robert A. Belfer................... 4,554,655(4) 1,266,018(5) 12,070 1.85 Norman P. Blake, Jr................ 15,741 466 * Ronnie C. Chan..................... 2,268 -- * John H. Duncan..................... 82,069 26,304 562 * Joe H. Foy......................... 27,982 562 * Wendy L. Gramm..................... 6,698 562 * Ken L. Harrison.................... 143,378 1,539 31,321 * Stanley C. Horton.................. 305,643 14,705 * Robert K. Jaedicke................. 22,678 562 * Kenneth L. Lay..................... 2,911,452 959,798(6) 48,768 1.25 Charles A. LeMaistre............... 23,470 800 562 * Jerome J. Meyer.................... 3,115 * Jeffrey K. Skilling................ 537,385 264,444 * John A. Urquhart................... 74,852 562 * John Wakeham....................... 2,632 270 * Charls E. Walker................... 21,622 6,088(7) 562 * Thomas E. White.................... 526,609 16,565 * Bruce G. Willison.................. 7,607 * Herbert S. Winokur, Jr............. 57,058 3,500(8) 562 * All directors and executive officers as a group (24 in number).......................... 10,415,764(4) 2,276,630(5) 696,335 4.22 Enron Corp. Preferred Con- vertible Stock Robert A. Belfer................... 237,773(9) 64,852(10) 22.66 All directors and executive officers as a group (24 in number).......... 237,773 64,852 22.66 (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(1) POWER POWER(2)(3) OF CLASS -------------- ---- ---------- ---------- ----------- -------- Enron Oil & Gas Company Common Stock Robert A. Belfer.......................... 11,000 38,600(11) * Norman P. Blake, Jr....................... 2,000 * John H. Duncan............................ 28,825 11,175 * Joe H. Foy................................ 3,000 * Kenneth L. Lay............................ 20,000(12) 30,000 * Jeffrey K. Skilling....................... 100,000(12) * John A. Urquhart.......................... (12) * Charls E. Walker.......................... 3,000 * All directors and executive officers as a group (24 in number)................. 167,825(12) 82,775 * EOTT Energy Partners, L.P. Common Units Norman P. Blake, Jr....................... 1,000 * John H. Duncan............................ 8,500 * Joe H. Foy................................ 2,000 * Kenneth L. Lay............................ 5,000 * All directors and executive officers as a group (24 in number)................. 11,500 5,000 * Northern Border Partners, L.P. Common Units Robert A. Belfer.......................... 32,500 28,500(13) * Norman P. Blake........................... 1,500 * Joe H. Foy................................ 6,650 * All directors and executive officers as a group (24 in number)................. 40,650 28,500 * - --------------- * Less than 1%. (1) The number of shares of Common Stock subject to stock options exercisable within 60 days after February 15, 1998, which number is included in the number of shares shown as beneficially owned as of such date, is as follows: Mr. Belfer, 21,344 shares; Mr. Blake, 10,104 shares; Mr. Chan, 1,768 shares; Mr. Duncan, 26,304 shares, for which he has shared voting and investment power; Mr. Foy, 16,384 shares; Dr. Gramm, 5,744 shares; Mr. Harrison, 142,887 shares; Mr. Horton, 274,213 shares; Dr. Jaedicke, 15,384 shares; Mr. Lay, 2,828,186 shares, for which he has shared voting and investment power for 158,783 of such shares; Dr. LeMaistre, 17,376 shares; Mr. Skilling, 407,728 shares; Mr. Urquhart, 68,204 shares; Lord Wakeham, 2,256 shares; Dr. Walker, 12,976 shares; Mr. Winokur, 26,304 shares; Mr. White, 389,881 shares and all directors and executive officers as a group (24 in number), 5,289,553 shares. (2) Includes restricted shares of Common Stock held under Enron's 1991 and 1994 Stock Plans (the "Plans") for certain individuals. Participants in those Plans have sole voting power and no investment power for restricted shares awarded under the Plans until such shares vest in accordance with the Plans' provisions. After vesting, the participant has sole investment and voting powers. (3) Includes shares held under the Savings Plan and/or the ESOP. Participants in the Savings Plan instruct the Savings Plan Trustee as to how the participant's shares should be voted. Additionally, participants have limited investment power with respect to shares in the Savings Plan. Participants in the ESOP have sole voting power and no investment power prior to distribution of shares from the ESOP. Total shares held by the group includes 2,427 shares with shared voting power. (4) Includes 13,248 shares held by a trust of which Mr. Belfer is trustee, in all of which shares Mr. Belfer disclaims beneficial ownership. Also includes 3,246,077 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 885,360 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 165,000 shares held in a charitable foundation in which Mr. Lay has no pecuniary interest. (7) Shares owned by Dr. Walker's wife and in which Dr. Walker disclaims beneficial ownership. (8) Shares held in a charitable foundation in which Mr. Winokur has no pecuniary interest. (Notes continued on following page) 10 13 (9) Includes 53,370 shares held by trusts of which Mr. Belfer is trustee, in all of which shares Mr. Belfer disclaims beneficial ownership. (10) 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 co-trustee, in all of which shares Mr. Belfer disclaims beneficial ownership. (11) Includes 20,000 shares held by trusts of which Mr. Belfer is co-trustee or his wife is trustee for their children and 2,600 shares held by his daughter, in all of which shares Mr. Belfer disclaims beneficial ownership and 8,000 shares held in a charitable foundation in which Mr. Belfer has no pecuniary interest. (12) Does not include 85,080,000 shares owned by Enron in which each of Messrs. Lay, Harrison, Urquhart and Skilling, in their capacities as Chairman of the Board, Vice 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. (13) Includes 22,500 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 three special meetings during the year ended December 31, 1997. 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, 1997, the Executive Committee met 11 times. The Executive Committee is currently composed of Messrs. Duncan (Chairman), Belfer, Foy, Lay, LeMaistre, Skilling 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 five meetings during the year ended December 31, 1997, 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, Willison 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 eight times during the year ended December 31, 1997, 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 five times during the year ended December 31, 1997, 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, Meyer, Urquhart, Walker and Willison. 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 two times during the year ended December 31, 1997, 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 shareholders at the 1998 Annual Meeting of 11 14 Shareholders. The Nominating Committee is currently composed of Messrs. Walker (Chairman), Meyer, Wakeham and Dr. Gramm. During the year ended December 31, 1997, each Director attended at least 75% of the total number of meetings of the Board of Directors and the committees on which the Director served except Mr. Chan. COMPENSATION OF DIRECTORS AND EXECUTIVE OFFICERS DIRECTOR COMPENSATION Each nonemployee 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 of Directors 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 1997 were $812,875, or an average of $62,529 per nonemployee 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 ten different investment choices. For calendar year 1995, interest was credited at 9%. During 1997, seven 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%, which for 1995 was 12.39% and which for 1996 and 1997 was the minimum rate of 12%. Two directors elected to receive their 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 1997, each nonemployee director received 510 shares of phantom stock units (valued at $41.375 per share on the date of grant) and options to purchase 2,040 shares (with an exercise price of $41.375 per share) according to the terms of Enron's 1991 Stock 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 the Enron 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 shareholder 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 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 shareholder 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 the performance goal of Enron is net income, the fund increases or decreases based on the earnings performance of Enron. 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) accommodation of special situations such as promotions, (iv) in lieu of other benefits or (v) to remain market competitive. 13 16 The long-term incentive program of Enron is focused on increasing shareholder value. For example, performance units compare Enron's total shareholder return versus peer group performance over a four-year period. In order for top quartile compensation to be realized, the total shareholder return of Enron must rank at least third among the peer group of 12 companies. Stock options are granted at market price. Thus, for any compensation to be realized pursuant to stock options, the market price of Common Stock must increase. Total Compensation Approximately 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 shareholders. Also, several significant elements in the employee benefit package, the Employee Stock Ownership Plan, Enron Corp. Savings Plan, and Portland General Holdings Retirement Savings Plan (which together own approximately 7.5% of Common Stock as of December 31, 1997), and the All-Employee Stock Option Program are driven by increasing shareholder 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 shareholder 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 principal corporate and operating 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 Towers Perrin and Hewitt Associates, two consulting firms experienced in executive compensation, and has access to national compensation surveys and the financial records of Enron. 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's base salary of $1,200,000 is the salary set forth in his employment contract, which was renewed and extended at the end of 1996. Since Mr. Lay's base salary exceeds $1,000,000, base salary in excess of $1,000,000 is deferred into Enron's 1994 Deferral Plan to preserve tax deductibility under Section 162(m). (See "Compliance with Internal Revenue Code Section 162(m)" below.) The year 1997 was a difficult one for Enron in terms of net income and shareholder return which resulted primarily from nonrecurring losses of $537,000,000 related to the renegotiation of the J-Block gas contract and depressed MTBE (methyl tertiary butyl ether) margins on committed productions. The renegotiated J-Block contract now allows for the gas to be taken at steady volumes, assuring Enron a very significant, long-term supply at favorable prices comparable to other long-term contracts in the North Sea marketplace. The year also included such positive company accomplishments as (i) successfully completing 14 17 the Portland General Corporation merger, which has allowed Enron to expand its West Coast power marketing operations and has assisted in establishing entry into retail markets in other parts of the country, (ii) developing a significant retail energy business, which included the sale of 6.8% of this new, high potential business which allowed Enron to recoup a significant portion of the start-up costs while establishing a total enterprise value of $1.9 billion and (iii) advancing the fundamentals within each of its businesses. After taking all of these 1997 events into consideration, the Committee awarded Mr. Lay an Annual Incentive Plan payment of $475,000. This was significantly less than his 1996 annual incentive payment of $1,620,864 due to the nonrecurring losses mentioned above and the resulting impact on net income and shareholder return. Under the leadership of Mr. Lay, the Committee believes that Enron can continue to build on the 1997 accomplishments to prepare Enron for an even stronger future and once again deliver superior returns to its shareholders. As an incentive for Mr. Lay to deliver such future performance, on January 19, 1998, the Committee awarded Mr. Lay a grant of 79,490 stock options, at market value on the date of grant. In addition, the Committee amended the accelerated vesting provisions contained in Mr. Lay's February 8, 1994 stock option award (with an exercise price of $34 per share). Under the terms of the original grant, accelerated vesting provisions were not triggered because of Enron's performance during 1997. However, in order to give Mr. Lay additional incentive to help Enron achieve its earnings objectives during 1998, the Committee amended the accelerated vesting provisions of the option agreement to provide that the options would be fully vested if Enron's 1998 recurring earnings per share goal is met. During 1997, Mr. Lay received long-term incentive grants consisting of a grant of stock options at market value on the date of grant, to acquire 256,415 shares, and a grant of 1,800,000 performance units, consistent with the design of the long-term incentive program. Mr. Lay did not receive a cash payment under the Performance Unit Plan for the 1994-1997 performance period. Payments are made under the Performance Unit Plan only if the total shareholder return of Enron ranks at least sixth out of 12 industry peer companies for the four-year performance period. During the measurement period from 1994-1997, Enron's return to its shareholders was 49.84% compared with 83.08% for industry peers, and 86.36% for the Standard & Poors ("S&P") 500. This performance earned Enron a ranking of Number 10 and therefore the units had no value. Compliance with Internal Revenue Code Section 162(m) Section 162(m) of the Internal Revenue Code, as amended (the "Code"), generally disallows a tax deduction to public companies for compensation over $1,000,000 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, the Amended and Restated Performance Unit Plan and the Annual Incentive Plan were presented to and approved by shareholders at the 1997, 1995 and 1994 Annual Meetings of Shareholders, respectively. Occasionally, Enron may grant restricted stock for specific reasons which would not qualify as performance-based compensation. 15 18 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 shareholder and the rewards of the executives. This success is evidenced by the increase in shareholder value from 1989 to 1997, during which time a shareholder who invested $100 in Enron Common Stock would have received $454 or a 354% increase in value, compared to 249% for the S&P 500 and 105% for industry peers. The Committee believes that with the present plan designs, management will continue to strive to increase shareholder 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 Groups (as defined below) on December 31, 1992. 2. The Original and Current Peer Group investments are weighted based on the market capitalization of each individual company within the Peer Groups at the beginning of each year and the trading activity of the stock of each individual company during the year. 3. Dividends are reinvested on the ex-dividend dates. The companies that comprised Enron's Original Peer Group were as follows: British Gas PLC; Burlington Resources Inc.; The Coastal Corp.; Columbia Gas Systems, Inc.; Consolidated Natural Gas Co.; NorAm Energy Corp.; Occidental Petroleum Corp.; PanEnergy Corp.; Sonat Inc.; Tenneco, Inc.; and The Williams Companies, Inc. As a result of mergers and divestitures in 1996 and 1997, the following Peer Group changes have been made: NorAm Energy Corp., due to its merger with Houston Industries Inc., has been replaced by Amoco Corporation; PanEnergy Corp., due to its merger with Duke Energy Corporation, has been replaced by Duke Energy Corporation; Burlington Resources Inc., due to its divestiture of El Paso Energy Corporation, has been replaced by El Paso Energy Corporation which subsequently acquired Tenneco Energy; and Tenneco Inc., due to its divestiture of Tenneco Energy, has been replaced by NGC Corp. Accordingly, the companies that comprise Enron's Current Peer Group are as follows: Amoco Corporation; British Gas PLC; The Coastal Corp.; Columbia Gas Systems, Inc.; Consolidated Natural Gas Co.; Duke Energy Corporation; El Paso Energy Corporation; NGC Corp.; Occidental Petroleum Corp.; Sonat Inc.; and The Williams Companies, Inc. Although this method of calculating shareholder 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 Groups (Performance Results Through December 31, 1997) Measurement Period Standard & Peer Group - Peer Group - (Fiscal Year Covered) Enron Corp. Poors 500 Current Original 1992 100.00 100.00 100.00 100.00 1993 127.98 110.09 117.01 119.66 1994 138.11 111.85 122.40 113.72 1995 176.67 153.80 143.59 129.90 1996 204.14 189.56 170.71 157.42 1997 201.37 252.82 218.69 208.91 17 20