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 RESTRICTED SECURITIES ANNUAL STOCK UNDERLYING LTIP SALARY BONUS COMPENSATION AWARDS OPTIONS/ PAYOUTS NAME & PRINCIPAL POSITION YEAR $ $ ($)(1) ($)(2) SARS (#) ($)(3) ($)(4) - ------------------------- ---- ---------- ---------- ------------ ------------ ---------- ---------- ------------ Kenneth L. Lay 1997 $1,200,000 $ 475,000 $228,847 $ -- 950,460 $ -- $ 545,264 Chairman of the Board and 1996 $ 990,000 $1,620,864 $162,399 $ -- 920,660 $ -- $ 281,368 Chief Executive Officer, Enron 1995 $ 990,000 $1,440,000 $159,854 $ -- 156,955 $ 421,875 $ 281,058 Jeffrey K. Skilling 1997 $ 750,000 $ 450,000 $ 22,525 $10,230,267(5) 1,000,000(5) $ -- $ 107,673 President and Chief 1996 $ 423,333 $ 800,000 $ 15,061 $ 5,999,989(6) 358,905 $ -- $ 1,103 Operating Officer, Enron 1995 $ 385,003 $ 184,000 $ 10,700 $ -- 7,385 $2,503,080 $ 793 Ken L. Harrison(7) 1997 $ 262,500 $ 420,000 $ 84,226 $ 525,013 160,765 $ -- $ 19,189 Chairman of the Board and Chief Executive Officer, PGE Vice Chairman, Enron Stanley C. Horton 1997 $ 461,667 $ 250,000 $ 13,100 $ -- 145,895 $ -- $ 152 Chairman, President and 1996 $ 417,083 $ 360,000 $ 7,800 $ -- 179,210 $ -- $ 1,103 Chief Executive Officer, 1995 $ 328,333 $ 320,000 $ 8,774 $ -- 37,000 $ 75,000 $ 793 Enron Pipeline Company Thomas E. White 1997 $ 451,667 $ 250,000 $ 13,100 $ -- 170,895 $ -- $ -- Chairman of the Board, 1996 $ 423,333 $ 360,000 $ 19,692 $ -- 48,875 $ -- $ 1,103 Chief Executive Officer and 1995 $ 391,667 $ 216,000 $ 11,300 $ 226,025 40,130 $1,199,000 $ 793 President, Enron Ventures 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 $130,154, $116,712, and $192,847 has been reported for Mr. Lay in 1995, 1996, and 1997, 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 1995 was 12.39%, for 1996 was the minimum rate of 12%, and for 1997 was the minimum rate of 12%. No interest has been reported as Other Annual Compensation under the 1985 Deferral Plan for participating Named Officers because the crediting rates during 1995, 1996, and 1997, did not exceed 120% of the long-term Applicable Federal Rate ("AFR") of 14.38% in effect at the time the 1985 Deferral Plan was implemented. No interest has been reported as Other Annual Compensation under the 1992 Deferral Plan, as none of the Named Officers are participants in the plan. Interest has been reported as Other Annual Compensation under the 1994 Deferral Plan during 1995 for the participating Named Officers because the crediting rate of 9% exceeded 120% of the AFR of 7.29% in effect at the time the 1994 Deferral Plan was implemented. 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 and 1997. Mr. Harrison's above-market interest has been calculated utilizing a long-term AFR of 9.61% which was set in 1989 when PGE amended its plan interest rate. Under the PGE Deferral Plan, interest during 1997 was credited at an average rate of 10.63%. Other Annual Compensation also includes cash perquisite allowances and cash paid for benefits lost due to statutory and/or plan earnings limits. (2) Restricted Stock awarded to Mr. Harrison on July 1, 1997 will vest 20% on July 1, 1998 and 20% on each of the following four anniversaries of date of grant. Dividend equivalents for all Restricted Stock awards accrue from date of grant and are paid upon vesting. The following is the aggregate total of shares in unreleased Restricted Stock holdings and their value as of December 31, 1997, for each of the Named Officers: Mr. Lay, 9,440 shares valued at $392,350; Mr. Skilling, 264,718 shares valued at $11,002,342; (Notes continued on following page) 18 21 Mr. Harrison, 23,477 shares valued at $975,763; Mr. Horton, 2,960 shares valued at $123,025; and Mr. White, 3,226 shares valued at $134,081. In accordance with the provisions of the 1991 Stock Plan, in the event of a "change of control," outstanding grants of Restricted Stock shall become fully vested. (3) The amounts shown for 1995 for Messrs. Lay and Horton represent payouts made under the Enron Performance Unit Plan. The amount shown for 1995 for Mr. Skilling represents a payout made under the ECT Executive Compensation Plan. The amount shown for 1995 for Mr. White represents a payout made for the discontinuation of the Enron Power Corp. Executive Compensation Plan and his rights related thereto. (4) The amounts shown include the value, as of year-end 1995 and 1996, of Common Stock allocated during those years to employees' special subaccounts under Enron's Employee Stock Ownership Plan. Included in 1995, 1996, and 1997 for Mr. Lay is $3,252, $3,775, and $4,388, respectively, that is attributable to term life insurance coverage pursuant to split-dollar life insurance arrangements. Also included in 1995, 1996, and 1997 for Mr. Lay is $277,013, $276,490, and $275,877, 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. Additionally, included in 1997 for Mr. Lay is $14,999 of imputed income that is attributable to a split-dollar life insurance premium of $250,000 (also included) which is paid annually by Enron on a life insurance policy already owned by Mr. Lay, with recovery of the cost of such premiums upon Mr. Lay's death. Included in 1997 for Mr. Skilling is a cash payment by Enron of $107,673 attributable to term life insurance coverage pursuant to a split-dollar life insurance arrangement with recovery of the cost of such premiums upon Mr. Skilling's death. Included in 1997 for Mr. Harrison is a cash payment of $1,720 attributable to term life insurance coverage pursuant to a split-dollar life insurance arrangement and $17,469 in company contributions to PGE non-qualified benefits plans. (5) Restricted Stock and stock options awarded to Mr. Skilling on October 13, 1997. Restricted Stock vests 33 1/3% on October 13, 1998, 33 1/3% on October 13, 1999, and 33 1/3% on October 13, 2000. Stock options granted on October 13, 1997 vest 20% on the date of grant and will vest 20% on each grant date anniversary thereafter until 100% vested. In accordance with the provisions of the 1991 Stock Plan, in the event of a "change of control," outstanding grants of Restricted Stock shall become fully vested. (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. (7) Mr. Harrison became an employee and executive officer of Enron effective July 1, 1997. Pursuant to Mr. Harrison's employment agreement, he received a bonus of $525,000 of which 80% was paid in cash and 20% in stock options which were granted on January 19, 1998. 19 22 STOCK OPTION GRANTS DURING 1997 The following table sets forth information with respect to grants of stock options pursuant to the Enron stock plans to the Named Officers reflected in the Summary Compensation Table. No stock appreciation rights ("SARs") were granted during 1997. INDIVIDUAL GRANTS ------------------------------------ NUMBER OF SECURITIES POTENTIAL REALIZABLE VALUE AT UNDERLYING % OF TOTAL ASSUMED ANNUAL RATES OF OPTIONS/ OPTIONS/SARS EXERCISE STOCK PRICE APPRECIATION SARS GRANTED TO OR BASE FOR OPTION TERM(1) GRANTED EMPLOYEES IN PRICE EXPIRATION ------------------------------------------ NAME (#)(2) FISCAL YEAR ($/SH) DATE 0%(3) 5% 10% ---- ---------- ------------ -------- ---------- ----- ------------- -------------- Kenneth L. Lay....... 637,500(4) 3.77% $43.3750 12/31/03 $0 $ 11,353,446 $ 26,346,481 56,545(5) 0.33% $44.5000 01/21/02 $0 $ 695,194 $ 1,536,197 256,415(6) 1.51% $41.5625 12/31/04 $0 $ 4,338,570 $ 10,110,714 Jeffrey K. Skilling........... 27,910(5) 0.16% $44.5000 01/21/02 $0 $ 343,140 $ 758,250 972,090(7) 5.74% $38.8750 10/13/07 $0 $ 23,765,927 $ 60,227,526 Ken L. Harrison...... 120,000(8) 0.71% $41.4375 07/01/07 $0 $ 3,127,179 $ 7,924,884 33,335(6) 0.20% $41.5625 12/31/04 $0 $ 564,032 $ 1,314,434 7,430(9) 0.04% $41.5625 12/31/07 $0 $ 194,209 $ 492,163 Stanley C. Horton.... 12,560(5) 0.07% $44.5000 01/21/02 $0 $ 154,419 $ 341,226 100,000(10) 0.59% $39.7500 05/05/07 $0 $ 2,499,856 $ 6,335,126 33,335(6) 0.20% $41.5625 12/31/04 $0 $ 564,032 $ 1,314,434 Thomas E. White...... 125,000(11) 0.74% $43.3750 01/03/07 $0 $ 3,435,240 $ 8,681,600 12,560(5) 0.07% $44.5000 01/21/02 $0 $ 154,419 $ 341,226 33,335(6) 0.20% $41.5625 12/31/04 $0 $ 564,032 $ 1,314,434 All Employee and Director Optionees.......... 16,929,185(12) 100% $40.4740(13) N/A $0 $ 430,913,782(14) $ 1,092,020,126(14) All Shareholders..... N/A N/A N/A N/A $0 $7,821,684,107(14) $19,821,683,169(14) Optionee Gain as % of All Shareholders Gain............... N/A N/A N/A N/A N/A 5.51% 5.51% - --------------- (1) 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. (2) If a "change of control" (as defined in the 1991 Stock Plan) were to occur before the options become exercisable and are exercised, the vesting described below will be accelerated and all such outstanding options shall be surrendered and the optionee shall receive a cash payment by Enron in an amount equal to the value of the surrendered options (as defined in the 1991 Stock Plan). (3) An appreciation in stock price, which will benefit all shareholders, is required for optionees to receive any gain. A stock price appreciation of 0% would render the option without value to the optionees. (4) Stock options awarded on January 3, 1997 became 20% vested 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 shareholder return equals or exceeds 120% of the S&P 500 in calendar years 1997, 1998, and 1999. (5) Stock options awarded on January 21, 1997 were vested 100% on date of grant. (6) Represents stock options awarded under the Long-Term Incentive Program for 1998. Stock options awarded on December 31, 1997 became 20% vested on the date of grant with an additional 20% vested on the anniversary of the date of grant until 100% vested on December 31, 2001. (Notes continued on following page) 20 23 (7) Represents stock options with a ten-year term. Options vested 20% on October 13, 1997, and will vest 20% on each grant date anniversary thereafter. (8) Represents stock options awarded on July 1, 1997 which vested 20% at grant and will vest 20% on each grant date anniversary thereafter. (9) Represents shares issued on December 31, 1997 as a new employee under the All Employee Stock Option Program. (10) Represents stock options awarded on May 5, 1997 which vested 20% at grant and will vest 20% on each grant date anniversary thereafter. (11) Represents stock options awarded on January 3, 1997 which vested 20% at grant and will vest 20% on each grant date anniversary thereafter. (12) Includes shares issued on December 31, 1997 under the All Employee Stock Option Program to employees hired during 1997 including PGC employees. (13) Weighted average exercise price of all Enron stock options granted to employees in 1997. (14) Appreciation for All Employee and Director Optionees is calculated using the maximum allowable option term of ten years, even though in some cases the actual option term is less than ten years. Appreciation for all shareholders is calculated using an assumed ten-year option term, the weighted average exercise price for All Employee and Director Optionees ($40.4740) and the number of shares of Common Stock issued and outstanding on December 31, 1997 excluding 3,958,072 shares held by the Enron Flexible Equity Trust. AGGREGATED STOCK OPTION/SAR EXERCISES DURING 1997 AND STOCK OPTION/SAR VALUES AS OF DECEMBER 31, 1997 The following table sets forth information with respect to the Named Officers concerning the exercise of SARs and options during the last fiscal year and unexercised options and SARs held as of the end of the fiscal year: NUMBER OF SECURITIES UNDERLYING UNEXERCISED VALUE OF UNEXERCISED OPTIONS/SARS AT IN-THE-MONEY OPTIONS/ SHARES DECEMBER 31, 1997 SARS AT DECEMBER 31, 1997 ACQUIRED ON VALUE --------------------------- --------------------------- NAME EXERCISE(#) REALIZED($) EXERCISABLE UNEXERCISABLE EXERCISABLE UNEXERCISABLE ---- ----------- ----------- ----------- ------------- ----------- ------------- Kenneth L. Lay............ 50,000 $1,437,500 2,906,386 1,486,204 $28,785,093 $1,146,186 Jeffrey K. Skilling....... -- $ -- 691,615 1,312,520 $ 5,702,929 $6,580,759 Ken L. Harrison........... 20,000 $ 450,640 128,567 130,098 $ 2,502,583 $ 12,000 Stanley C. Horton......... -- $ -- 270,879 246,191 $ 1,680,426 $ 649,756 Thomas E. White........... 10,000 $ 126,875 359,881 196,819 $ 3,495,365 $ 490,701 21 24 LONG-TERM INCENTIVE PLAN -- AWARDS IN 1997 The following table provides information concerning awards of performance units under the Performance Unit Plan of Enron for the 1997-2000 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 shareholder return is compared to that of the 11 peer companies included in the Current Peer Group. At that time, the units are assigned a value ranging from $0 to $2.00 based on the rank of Enron's shareholder return within the Current Peer Group. To be valued at the maximum of $2.00, Enron must rank first, and to be valued at the target of $1.00, Enron must rank third. Regardless of Enron's rank, Enron's shareholder return must be above the return on 90-day U.S. Treasury Bills over the same performance period in order for any value to be assigned. NUMBER PERFORMANCE ESTIMATED FUTURE PAYOUTS OF SHARES, OR OTHER UNDER NON-STOCK PRICE-BASED PLANS UNITS OR PERIOD UNTIL ----------------------------------------- OTHER MATURATION THRESHOLD TARGET MAXIMUM NAME RIGHTS (#) PAYOUT ($) ($) ($) ---- ---------- ------------ --------- ---------- ---------- Kenneth L. Lay.......................... 1,800,000 4 years $ -- $1,800,000 $3,600,000 Jeffrey K. Skilling..................... 960,000 4 years $ -- $ 960,000 $1,920,000 Ken L. Harrison(1)...................... -- -- $ -- $ -- $ -- Stanley C. Horton....................... 325,000 4 years $ -- $ 325,000 $ 650,000 Thomas E. White......................... 325,000 4 years $ -- $ 325,000 $ 650,000 - --------------- (1) Mr. Harrison did not become an Enron employee until July, 1997 and did not receive a grant in 1997. RETIREMENT AND SUPPLEMENTAL BENEFIT PLANS Enron maintains the Enron Corp. Cash Balance Plan (the "Cash Balance 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 Cash Balance 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 Cash Balance Plan changing the plan's name from the Enron Corp. Retirement Plan to the Enron Corp. 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 ten-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. December 31, 1993 was the final date on which ESOP allocations were made to employees' retirement accounts. 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 Code and a Pension Program for Deferral Plan 22 25 Participants that provides supplemental retirement benefits equal to any reduction in benefits due to deferral of salary into Enron's Deferral Plans. Messrs. Lay, Skilling, Horton and White participate in plans sponsored by Enron. Mr. Harrison participates in the Portland General Pension Plan (the "Pension Plan") and Supplemental Executive Retirement Plan ("SERP"). Compensation used to calculate Mr. Harrison's benefits under the combined Pension Plan and SERP is based on a three-year average of base salary and bonus amounts earned. The SERP benefit is based on final average pay over the highest 36 months out of the last ten years. SERP participants may retire without age-based reductions in benefits when their age plus years of service equals 85. Surviving spouses receive one-half the participant's retirement benefit from the SERP plus the joint and survivor benefit, if any, from the Pension Plan. In addition to the aforementioned annual retirement benefits, an additional temporary Social Security Supplement is paid until the participant is eligible for social security benefits. Retirement benefits are not subject to any deduction for social security. Mr. Harrison is eligible to retire without a reduction in benefits upon attainment of age 59. 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.......................... 20.9 30.2 $1,200,000 $468,199 Ken L. Harrison......................... 22.9 31.9 $1,050,000 $630,000 Jeffrey K. Skilling..................... 7.4 28.3 $ 750,000 $265,952 Stanley C. Horton....................... 24 41.1 $ 475,000 $226,386 Thomas E. White......................... 7.5 18.5 $ 460,000 $ 90,703 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. Messrs. Skilling and Horton participate in the Executive Supplemental Survivor Benefit Plan (the "Survivor Benefit Plan"). Mr. Lay has waived his participation in lieu of life insurance premiums. In the event of death after retirement, the Survivor Benefit Plan provides an annual benefit to the participant's beneficiary equal to 50% of the participant's annual base salary at retirement, paid for ten years. The Survivor Benefit Plan also provides that in the event of death before retirement, the participant's beneficiary receives an annual benefit equal to 30% of the participant's annual base salary at death, paid for the life of the participant's spouse (but for no more than 20 years in some cases). Mr. Lay has an agreement which was entered into with Houston Natural Gas Corporation ("HNG") for an annual benefit equal to 30% of his annual base salary upon death before retirement, paid for the life of his spouse. 23 26 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 5% 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 into 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 date of grant and will be 100% vested on November 1, 2003. However, the vesting schedule may be accelerated if Enron's total shareholder 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 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. In addition, the maturity date on Mr. Lay's $4,000,000 interest bearing line of credit was extended to December 31, 2001 under the agreement. The highest outstanding principal balance on the line of credit during 1997 was $2,903,116. Mr. Lay paid accrued interest in 1997 totaling $83,324.72, at an average rate of 6.36%, representing the mid-term AFR. As of February 25, 1998, the outstanding principal balance was $0, as the loan balance was paid by Mr. Lay on that date. In the event of his involuntary termination, Mr. Lay will receive amounts prescribed in the agreement, offset against amounts payable under the 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 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 24 27 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. In the event of his involuntary termination, Mr. Skilling will receive amounts prescribed in the agreement through the term of the agreement. In order to tie Mr. Skilling's compensation more closely to Enron Corp. stock performance as opposed to any one Enron operating company, in October, 1997, his contract was renegotiated and extended through December 31, 2001. As a result, Mr. Skilling received on October 13, 1997, a grant of 972,090 Enron Corp. stock options with standard vesting of 20% at grant and 20% on each of the following four anniversary dates, a grant of 263,158 shares of Restricted Stock to vest 33 1/3% on each of the first three grant date anniversaries and a $4,000,000 loan to accrue interest at the October, 1997 mid-term AFR of 6.24% compounded semiannually until maturity date of December 31, 2001. The terms of the contract specify that if Mr. Skilling fully performs all the duties and responsibilities expected of him in his position and under his employment agreement through December 31, 2001, then 50% of the loan amount will be forgiven and the remaining 50% shall be repaid to Enron by Mr. Skilling. Mr. Skilling is responsible for 100% of the loan interest. If Mr. Skilling voluntarily terminates employment, or is terminated for cause prior to December 31, 2001, the entire loan amount and interest is due and payable. The loan will be collateralized with Enron Common Stock and 1994 Deferral Plan benefits. As an additional benefit to Mr. Skilling, Enron has entered into an agreement with Mr. Skilling to provide split-dollar life insurance whereby Enron will pay a portion of the annual premiums on a life insurance policy owned by Mr. Skilling, with recovery of the cost of such premiums upon Mr. Skilling's death. In 1997, the insurance premium paid by Enron was $107,673 which generates no imputed income as Mr. Skilling contributes an amount equal to the annual cost of current life insurance as measured by the insurer's current minimum premium rate for standard risks. The employment agreement contains noncompete provisions in the event of Mr. Skilling's termination of employment. Mr. Harrison entered into an employment agreement with Enron effective as of July 1, 1997, the effective date of the merger between Enron and Portland General Corporation ("PGC"), and will serve as Vice Chairman of Enron and Chairman and Chief Executive Officer of Portland General Electric Company ("PGE"). The agreement is for a period of five years and expires on June 30, 2002. Pursuant to the terms of the agreement, Mr. Harrison will receive an annual base salary of not less than $525,000 and was granted 120,000 stock options which have a ten-year term and which vested 20% on the date of grant and will vest 20% on each of the first four anniversaries of the date of grant and in accordance with the terms of his agreement. Mr. Harrison also received 12,670 shares of Restricted Stock which vested 20% on the date of grant and will vest 20% on each of the first four anniversaries of the date of grant. Also, Mr. Harrison will receive an annual bonus of not less than $525,000, of which 20% will be paid in stock options and 80% will be paid in cash. In the event of his involuntary termination, Mr. Harrison will receive amounts prescribed in the agreement through the term of the agreement. If Mr. Harrison terminates his employment voluntarily during a Window Period (defined as one of the 30-day periods beginning on the second, third, or fourth anniversaries of the effective date of the merger between Enron and PGC), he will be entitled to the insurance coverage equivalent to that under certain of Enron's insurance plans for active employees and to all payments of his annual base salary and bonus at such time and in such manner as if his employment had continued for the balance of the initial term, provided that, if the initial term would have continued beyond the second anniversary of the termination date, then Enron will pay Mr. Harrison a lump sum amount on such second anniversary date equal to the amount which would have been paid to Mr. Harrison during the balance of the initial term if his employment had continued during such period. In the event that the severance or other payments payable under the agreement constitute "excess parachute payments" within the meaning of Section 280G of the Code, and Mr. Harrison becomes liable for any excise tax or penalties or interest thereon, Enron will 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 25 28 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. Harrison's termination of employment. Mr. Horton entered into an employment agreement with Enron Interstate Pipeline Company in January, 1990, which was amended and assigned to Northern Natural Gas Company in June, 1991, and amended and assigned to Enron Operations Corp. in October, 1993, and which provided for an extension of the employment contract through May 31, 1996. In consideration of this extension, Mr. Horton received 5,000 shares of Restricted Stock which vested 20% at grant and 20% on each of the following four anniversaries. The agreement was further amended in May, 1994, which provided for an extension of the agreement through May 31, 1998, and in consideration of such extension, Mr. Horton received 100,000 stock options of which all but 24,000 have vested. In October, 1996, a new employment agreement was initiated to supersede all previous agreements and which provides for an annual salary of $435,000 and a grant of 125,000 stock options in consideration of the extension of his employment agreement through May 31, 2000. These options vested 20% at grant 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. Horton will receive amounts prescribed in the agreement through the term of the agreement. The employment agreement contains noncompete provisions in the event of Mr. Horton's termination of employment. In May, 1997, Mr. Horton received a grant of 100,000 stock options as part of a company reorganization, which resulted in the aggregation of his long-term compensation being tied solely to the performance of Enron. These shares vested 20% at grant and will vest 20% on each of the first four anniversaries of the date of grant. 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 to December 31, 2000, 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 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, who was an executive officer of Enron until November, 1997, 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 semiannually 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 1997 averaged 5.80%. Mr. Gray paid accrued interest in the amount of $15,874.58 in December, 1997. Ms. Rebecca Mark, an executive officer of Enron, received a personal executive loan from Enron in the amount of $900,000 on May 7, 1997, all of which is still outstanding. The loan bears interest compounded semiannually on the unpaid principal and interest of the loan at the mid-term AFR in effect during each month that the loan is outstanding, which during 1997 averaged 6.12% and is collateralized with 24,899 shares of Common Stock. As of December 31, 1997, accrued interest totaled $37,367. 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 terms of the loan provide for 50% of the initial principal amount of the loan to be forgiven and waived by Enron in the event that Mr. Baxter remains an employee of 26 29 Enron through March 15, 1996, and the remainder of the principal amount forgiven in the event Mr. Baxter remains an employee of Enron through March 15, 1997. Mr. Baxter's loan was forgiven effective March 15, 1997, and unpaid accrued interest on the remaining balance of $5,788 was paid by Mr. Baxter. 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 has been amended several times, the latest of which amendments was effective as of January 1, 1998, to provide for an extension of the agreement through December 31, 1998. 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 amendment provides for a retainer fee of $33,075 per month for providing up to 90 days of consulting services annually and a daily rate of $4,410 for days in excess of 90 annually. 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 were to expire on December 31, 1998. With the extension of Mr. Urquhart's Consulting Services Agreement through December 31, 1998, the expiration date of the 50,000 Enron phantom stock options granted on December 29, 1995 was extended to December 31, 1999. Mr. Urquhart is paid for all reasonable out-of-pocket expenses incurred in performing services 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 1997, Enron paid Mr. Urquhart $632,156 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 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. Effective September 30, 1996, a monthly retainer of $6,000 was approved for payment to Lord John Wakeham in consideration of his services to Enron and its affiliates relating to his advice and counsel on matters relating specifically to European business and operations. The services to be performed by Lord Wakeham pursuant to this monthly retainer arrangement 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 Lord Wakeham as a member of the Board of Directors of Enron. During 1997, Enron paid Lord Wakeham $72,000 for services rendered to Enron Europe Limited during 1997. 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 27 30 Enron. During 1997, TAP received commissions in the amount of $1,980,046.45 attributable to Enron employee travel. In May, 1997, ECT, Mark K. Lay and certain other individuals (collectively, "Individuals") who were formerly officers, directors, and/or shareholders of Paper & Print Management Corporation ("PPMC"), entered into employment agreements with ECT for the development within ECT of a clearinghouse for the purchase and sale of finished paper products. Mark K. Lay is a son of Kenneth L. Lay, Chairman of the Board and Chief Executive Officer of Enron. As consideration for their employment by ECT, the Individuals agreed to cause PPMC to convey to ECT certain intangible property rights associated with PPMC and enter into three-year employment agreements with ECT. In consideration therefor, ECT agreed to reimburse PPMC $1,005,257.85 in expenses that were incurred by PPMC to a third party in conjunction with PPMC's prior business. The employment agreement entered into between ECT and Mark K. Lay, which is similar to the employment agreements affecting the other Individuals, provides for the following: (i) a three-year term beginning May 19, 1997; (ii) that Mark K. Lay serves as a Vice President of ECT; (iii) a sign-on bonus of $100,000; (iv) a minimum salary of $12,500 per month; (v) minimum annual bonuses of $100,000 for calendar years 1997 through 1999; (vi) a grant of an option to Mark K. Lay under the terms of an Enron stock plan to purchase 20,000 shares of Common Stock. The stock option grant provides for a per share option price that was set at the fair market value of a share of Common Stock as of the effective date of grant, vesting of the options to occur one-third on each of the succeeding three anniversaries of the effective date of employment, and, subject to vesting, an exercise term of ten years; and (vii) a noncompetition agreement restricting Mark K. Lay from competing with ECT in certain activities during and after the employment term. Herbert S. Winokur, Jr., a director of Enron, is an affiliate of National Tank Company, a privately owned company that is a provider of wellhead equipment, systems and services used in the production of oil and gas ("Natco"). During the calendar years ended December 31, 1996 and 1997, Natco recorded revenues of $316,000 and $1,035,000, respectively, from sales to subsidiaries of Enron of oilfield equipment, services and spare parts in the ordinary course of business on terms that Enron believes are no less favorable than the terms of similar arrangements with third parties. Mr. Winokur's affiliation with Natco arises out of his indirect management of two funds that own Natco's indirect parent. In addition, Mr. Winokur is a minority limited partner of such funds. Enron believes that its subsidiaries and Natco will continue to enter into similar arrangements throughout 1998. COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION 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 a publicly traded corporation, approximately 77% of the outstanding common stock of which is 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, Enron paid BOGC a net amount of approximately $1,808,537.60 with respect to 1997. 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 1998. On November 26, 1997, BOGC acquired Coda Energy, Inc. ("Coda"), 98.5% of the common stock of which was owned by a joint venture in which Enron participates. The acquisition was effected pursuant to a merger agreement whereby Coda merged with and into a newly formed subsidiary of BOGC so that after the 28 31 merger Coda became a wholly owned subsidiary of BOGC. As announced by BOGC, it paid $149,000,000 in cash in the merger, assumed approximately $175,000,000 of Coda's debt, and issued three-year warrants to purchase 1,666,667 shares of BOGC's common stock at an exercise price of $27.50 per share. The Board of Directors of Coda received a fairness opinion from an investment banker that the merger consideration was fair, from a financial point of view, to the shareholders of Coda. 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. SECTION 16(a) BENEFICIAL OWNERSHIP REPORTING COMPLIANCE Section 16(a) of the Securities Exchange Act of 1934, as amended (the "Exchange Act"), requires Enron's officers, directors and persons who own more than 10% of the Common Stock or the Preferred Convertible Stock to file reports of ownership and changes in ownership concerning the Common Stock or the Preferred Convertible Stock with the SEC and to furnish Enron with copies of all Section 16(a) forms they file. Based upon Enron's review of the Section 16(a) filings that have been received by Enron, Enron believes that all filings required to be made under Section 16(a) during 1997 were timely made, except that Lawrence Ruben did not timely file one report containing one required transaction. This filing has now been made by Mr. Ruben. ITEM 2. RATIFICATION OF APPOINTMENT OF AUDITORS Pursuant to the recommendation of the Audit Committee, the Board of Directors appointed Arthur Andersen LLP, independent public accountants, to audit the consolidated financial statements of Enron for the year ending December 31, 1998. Ratification of this appointment shall be effective upon receiving the affirmative vote of the holders of a majority of the Voting Stock present or represented by proxy and entitled to vote at the Annual Meeting of Shareholders on May 5, 1998. Under Oregon law, abstentions and broker non-votes (which occur if a broker or other nominee does not have discretionary authority and has not received instructions with respect to a particular item) would not have the same legal effect as a vote against the proposal. The Board of Directors recommends ratification by the shareholders of this appointment. In the event the appointment is not ratified, the Board of Directors will consider the appointment of other independent auditors. A representative of Arthur Andersen LLP is expected to be present at the Annual Meeting of Shareholders on May 5, 1998, will be offered the opportunity to make a statement if such representative desires to do so and will be available to respond to appropriate questions. THE BOARD OF DIRECTORS RECOMMENDS VOTING "FOR" THIS PROPOSAL. 29 32 SHAREHOLDER PROPOSALS AND DIRECTOR NOMINATIONS Shareholders may propose matters to be presented at shareholders' meetings and may also nominate persons to be directors. Formal procedures have been established for those proposals and nominations. PROPOSALS FOR 1999 ANNUAL MEETING Pursuant to various rules promulgated by the SEC, any proposals of holders of Voting Stock of Enron intended to be presented to the Annual Meeting of Shareholders of Enron to be held in 1999 must be received by Enron, addressed to Peggy B. Menchaca, Vice President and Secretary, 1400 Smith Street, Houston, Texas 77002, no later than November 24, 1998, to be included in the Enron proxy statement and form of proxy relating to that meeting. In addition to the SEC rules described in the preceding paragraph, Enron's bylaws provide that for business to be properly brought before the Annual Meeting of Shareholders, it must be either (a) specified in the notice of meeting (or any supplement thereto) given by or at the direction of the Board of Directors, (b) otherwise brought before the meeting by or at the direction of the Board of Directors or (c) otherwise properly brought before the meeting by a shareholder of Enron who is a shareholder of record at the time of giving of notice hereinafter provided for, who shall be entitled to vote at such meeting and who complies with the following notice procedures. In addition to any other applicable requirements, for business to be brought before an annual meeting by a shareholder of Enron, the shareholder must have given timely notice in writing of the business to be brought before an Annual Meeting of Shareholders of Enron to the Secretary of Enron. TO BE TIMELY, A SHAREHOLDER'S NOTICE MUST BE DELIVERED TO OR MAILED AND RECEIVED AT ENRON'S PRINCIPAL EXECUTIVE OFFICES, 1400 SMITH STREET, HOUSTON, TEXAS 77002, ON OR BEFORE NOVEMBER 24, 1998. A shareholder's notice to the Secretary shall set forth as to each matter the shareholder proposes to bring before the annual meeting (i) a brief description of the business desired to be brought before the annual meeting and the reasons for conducting such business at the annual meeting, (ii) the name and address, as they appear on Enron's books, of the shareholder proposing such business, (iii) the acquisition date, the class and the number of shares of Voting Stock of Enron which are owned beneficially by the shareholder, (iv) any material interest of the shareholder in such business and (v) a representation that the shareholder intends to appear in person or by proxy at the meeting to bring the proposed business before the meeting. Notwithstanding the foregoing bylaw provisions, a shareholder shall also comply with all applicable requirements of the Exchange Act, and the rules and regulations thereunder with respect to the matters set forth in the foregoing bylaw provisions. Notwithstanding anything in Enron's bylaws to the contrary, no business shall be conducted at the annual meeting except in accordance with the procedures outlined above. PROPOSALS FOR 1998 ANNUAL MEETING The date for delivery to, or receipt by, Enron of any notice from a shareholder of Enron regarding business to be brought before the 1998 Annual Meeting of Shareholders of Enron was November 24, 1997. Enron has not received any notices from its shareholders that Enron is required to include in this proxy statement. NOMINATIONS FOR 1999 ANNUAL MEETING AND FOR ANY SPECIAL MEETINGS Only persons who are nominated in accordance with the following procedures shall be eligible for election as directors. Nominations of persons for election to Enron's Board of Directors may be made at a meeting of shareholders (a) by or at the direction of the Board of Directors or (b) by any shareholder of Enron who is a 30 33 shareholder of record at the time of giving of notice hereinafter provided for, who shall be entitled to vote for the election of directors at the meeting and who complies with the following notice procedures. Such nominations, other than those made by or at the direction of the Board of Directors, shall be made pursuant to timely notice in writing to the Secretary of Enron. To be timely, a shareholder's notice shall be delivered to or mailed and received at Enron's principal executive offices, 1400 Smith Street, Houston, Texas 77002, (i) with respect to an election to be held at the Annual Meeting of Shareholders of Enron, or before November 24, 1998, and (ii) with respect to an election to be held at a special meeting of shareholders of Enron for the election of directors, not later than the close of business on the tenth day following the date on which notice of the date of the meeting was mailed or public disclosure of the date of the meeting was made, whichever first occurs. Such shareholder's notice to the Secretary shall set forth (a) as to each person whom the shareholder proposes to nominate for election or re-election as a director, all information relating to the person that is required to be disclosed in solicitations for proxies for election of directors, or is otherwise required, pursuant to Regulation 14A under the Exchange Act (including the written consent of such person to be named in the proxy statement as a nominee and to serve as a director if elected); and (b) as to the shareholder giving the notice, (i) the name and address, as they appear on Enron's books, of such shareholder, and (ii) the class and number of shares of capital stock of Enron which are beneficially owned by the shareholder. In the event a person is validly designated as nominee to the Board of Directors and shall thereafter become unable or unwilling to stand for election to the Board of Directors, the Board of Directors or the shareholder who proposed such nominee, as the case may be, may designate a substitute nominee. Notwithstanding the foregoing bylaw provisions, a shareholder shall also comply with all applicable requirements of the Exchange Act and the rules and regulations thereunder with respect to the matters set forth in the foregoing bylaw provisions. NOMINATIONS FOR 1998 ANNUAL MEETING The date for delivery to, or receipt by, Enron of any notice from a shareholder of Enron regarding nominations for directors to be elected at the 1998 Annual Meeting of Shareholders of Enron was November 24, 1997. Enron has not received any notices from its shareholders regarding nominations for directors to be elected at the 1998 Annual Meeting of Shareholders. 31 34 GENERAL As of the date of this proxy statement, the management of Enron has no knowledge of any business to be presented for consideration at the meeting other than that described above. If any other business should properly come before the meeting, it is intended that the shares represented by proxies will be voted with respect thereto in accordance with the judgment of the persons named in such proxies. The cost of any solicitation of proxies will be borne by Enron. In addition to solicitation by use of the mails, certain officers and regular employees of Enron may solicit the return of proxies by telephone, telegraph or personal interview. Arrangements may also be made with brokerage firms and other custodians, nominees and fiduciaries for the forwarding of material to and solicitation of proxies from the beneficial owners of Voting Stock held of record by such persons, and Enron will reimburse such brokerage firms, custodians, nominees and fiduciaries for reasonable out-of-pocket expenses incurred by them in connection therewith. In addition, Enron has retained a proxy soliciting firm, Corporate Investor Communications, Inc., to assist in the solicitation of proxies and will pay a fee of approximately $7,000 plus reimbursement of expenses. By Order of the Board of Directors PEGGY B. MENCHACA Vice President and Secretary Houston, Texas March 25, 1998 32 35 [ENRON LOGO] 36 ENRON CORP. P PROXY SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS OF ENRON CORP. FOR ANNUAL MEETING ON MAY 5, 1998 R The Undersigned hereby appoints Kenneth L. Lay, James V. Derrick, Jr., O and Peggy B. Menchaca, or any of them, and any substitute or substitutes, to be the attorneys and proxies of the undersigned at the Annual Meeting of X Shareholders of Enron Corp. ("Enron") to be held at 10:00 a.m. Houston time on Tuesday, May 5, 1998, in the LaSalle Ballroom of the Doubletree Hotel at Y Allen Center, 400 Dallas St., Houston, Texas, or at any adjournment thereof, and to vote at such meeting the shares of stock of Enron the undersigned held of record on the books of Enron on the record date for the meeting. ELECTION OF DIRECTORS, NOMINEES: (change of address/comments) Robert A. Belfer, Norman P. Blake, Jr., Ronnie C. Chan, John H. Duncan, Joe H. --------------------------------------- Foy, Wendy L. Gramm, Ken L. Harrison, Robert K. Jaedicke, Kenneth L. Lay, --------------------------------------- Charles A. LeMaistre, Jerome J. Meyer, Jeffrey K. Skilling, John A. Urquhart, --------------------------------------- John Wakeham, Charls E. Walker, Bruce G. Willison, Herbert S. Winokur, Jr. --------------------------------------- (If you have written in the above space, please mark the corresponding box on the reverse side of this card) YOU ARE ENCOURAGED TO SPECIFY YOUR CHOICES BY MARKING THE APPROPRIATE BOXES, SEE REVERSE SIDE, BUT YOU NEED NOT MARK ----------- ANY BOXES IF YOU WISH TO VOTE IN ACCORDANCE WITH THE BOARD SEE REVERSE OF DIRECTORS' RECOMMENDATIONS. THE PROXIES CANNOT VOTE YOUR SIDE SHARES UNLESS YOU SIGN AND RETURN THIS CARD. ----------- 37 7405 [X] PLEASE MARK YOUR VOTES AS IN THIS EXAMPLE. THIS PROXY WHEN PROPERLY EXECUTED WILL BE VOTED IN THE MANNER DIRECTED HEREIN. IF NO DIRECTION IS MADE, THIS PROXY WILL BE VOTED FOR PROPOSALS 1 AND 2. - -------------------------------------------------------------------------------- THE BOARD OF DIRECTORS RECOMMENDS A VOTE FOR PROPOSALS 1 AND 2. - -------------------------------------------------------------------------------- 1. Election of Directors. (see reverse) FOR / / WITHHELD / / For, except vote withheld from the following nominee(s): - -------------------------------------------------------------------------------- 2. Ratification of appointment of FOR / / AGAINST / / ABSTAIN / / independent accountants 3. In the discretion of the proxies named herein, the proxies are authorized to vote upon other matters as are properly brought before the meeting. Change of Address/Comments on Reverse Side / / All as more particularly described in the Proxy Statement relating to such meeting, receipt of which is hereby acknowledged. Please sign exactly as name appears hereon. Joint owners should each sign. When signing as attorney, executor, administrator, trustee or guardian, please give full title as such. ------------------------------------------------------------------------ ------------------------------------------------------------------------ SIGNATURE(S) DATE - -------------------------------------------------------------------------------- o FOLD AND DETACH HERE o [ENRON CORP. LOGO] THIS IS YOUR PROXY. YOUR VOTE IS IMPORTANT. IF YOU NEED ASSISTANCE IN ANY OF THE FOLLOWING AREAS: o DIVIDEND CHECKS - ADDRESS CHANGES - LEGAL TRANSFERS o DIRECT DEPOSIT - HAVE YOUR ENRON CORP. QUARTERLY DIVIDENDS ELECTRONICALLY DEPOSITED INTO YOUR CHECKING OR SAVINGS ACCOUNT ON DIVIDEND PAYMENT DATE. (No more worries about late or lost dividend checks.) Call (800) 870-2340 to enroll. o DIVIDEND REINVESTMENT - HAVE YOUR ENRON CORP. QUARTERLY DIVIDENDS REINVESTED IN THE PURCHASE OF ADDITIONAL SHARES OF ENRON CORP. COMMON STOCK WITH NO COMMISSION OR SERVICE CHARGE FOR THE PURCHASE OF THE SHARES FOR RECORD HOLDERS AND A FEE OF $15 PLUS 12 CENTS PER SHARE TO SELL SHARES. (There is no charge to have shares delivered to you in certificate form.) o CONSOLIDATION OF ACCOUNTS - ELIMINATE MULTIPLE ACCOUNTS FOR ONE HOLDER AND CERTAIN DUPLICATE SHAREHOLDER MAILINGS GOING TO ONE ADDRESS. (Dividend checks, annual reports and proxy materials would continue to be mailed to each shareholder.) JUST CALL OUR TRANSFER AGENT'S TELEPHONE RESPONSE CENTER: (800) 519-3111 OR (201) 324-1225 OR WRITE TO: FIRST CHICAGO TRUST COMPANY OF NEW YORK P. O. BOX 2500 JERSEY CITY, NJ 07303-2500 FOR EARNINGS INFORMATION, CALL (800) 808-0363