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 /X/ Definitive proxy statement / / Definitive additional materials / / Soliciting material pursuant to Rule 14a-11(c) or Rule 14a-12 ENRON CORP. - -------------------------------------------------------------------------------- (Name of Registrant as Specified in Its Charter) ENRON CORP. - -------------------------------------------------------------------------------- (Name of Person(s) Filing Proxy Statement) Payment of filing fee (Check the appropriate box): /X/ $125 per Exchange Act Rule 0-11(c)(1)(ii), 14a-6(i)(1), or 14a-6(j)(2). / / $500 per each party to the controversy pursuant to Exchange Act Rule 14a-6(i)(3). / / Fee computed on table below per Exchange Act Rules 14a-6(i)(4) and 0-11. (1) Title of each class of securities to which transaction applies: - -------------------------------------------------------------------------------- (2) Aggregate number of securities to which transactions applies: - -------------------------------------------------------------------------------- (3) Per unit price or other underlying value of transaction computed pursuant to Exchange Act Rule 0-11:(1) - -------------------------------------------------------------------------------- (4) Proposed maximum aggregate value of transaction: - -------------------------------------------------------------------------------- /X/ 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: $125.00 - -------------------------------------------------------------------------------- (2) Form, schedule or registration statement no.: 001-03423 - -------------------------------------------------------------------------------- (3) Filing party: Enron Corp. - -------------------------------------------------------------------------------- (4) Date filed: 3-10-94 - -------------------------------------------------------------------------------- - --------------- (1) Set forth the amount on which the filing fee is calculated and state how it was determined. 2 ENRON CORP. NOTICE OF ANNUAL MEETING OF STOCKHOLDERS May 3, 1994 TO THE STOCKHOLDERS: Notice is hereby given that the annual meeting of stockholders of Enron Corp. ("Enron") will be held in the LaSalle Ballroom of the Doubletree Hotel at Allen Center, 400 Dallas Street, Houston, Texas, at 10:00 a.m. Houston time on Tuesday, May 3, 1994, for the following purposes: 1. To elect twelve directors of Enron to hold office until the next annual meeting of stockholders and until their respective successors are duly elected and qualified; 2. To ratify the Board of Directors' appointment of Arthur Andersen & Co., independent public accountants, as Enron's auditors for the year ending December 31, 1994; 3. To amend the Restated Certificate of Incorporation of Enron to change the dividend rate on the $10.50 Cumulative Second Preferred Convertible Stock; 4. To approve the Enron Corp. Performance Unit Plan; 5. To approve the Enron Corp. Annual Incentive Plan; 6. To amend the Enron Corp. 1991 Stock Plan; and 7. 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 $10.50 Cumulative Second Preferred Convertible Stock at the close of business on March 7, 1994, will be entitled to notice of and to vote at the meeting or any adjournment(s) thereof. Stockholders who do not expect to attend the meeting are requested to sign and return the enclosed proxy, for which a postage-paid, return envelope is enclosed. The proxy must be signed and returned in order to be counted. By Order of the Board of Directors, PEGGY B. MENCHACA Vice President and Secretary Houston, Texas March 25, 1994 3 PROXY STATEMENT The enclosed form of proxy is solicited by the Board of Directors of Enron Corp. ("Enron") to be used at the annual meeting of stockholders to be held in the LaSalle Ballroom of the Doubletree Hotel at Allen Center, 400 Dallas Street, Houston, Texas, at 10:00 a.m. Houston time on Tuesday, May 3, 1994. The mailing address of the principal executive office of Enron is 1400 Smith St., Houston, Texas 77002-7369. This proxy statement and the related proxy are to be first sent or given to the stockholders of Enron on approximately March 25, 1994. Any stockholder giving a proxy may revoke it at any time provided written notice of such revocation is received by the Vice President and Secretary of Enron before such proxy is voted; otherwise, if received in time, properly completed proxies will be voted at the meeting in accordance with the instructions specified thereon. Stockholders attending the meeting may revoke their proxies and vote in person. Holders of record at the close of business on March 7, 1994, of Enron's Common Stock, $.10 par value (the "Common Stock"), will be entitled to one vote per share on all matters submitted to the meeting. Holders of record at the close of business on March 7, 1994, of Enron's $10.50 Cumulative Second Preferred Convertible Stock, $1 par value (the "Preferred Convertible Stock"), will be entitled to a number of votes per share equal to the conversion rate of 13.652 shares of Common Stock for each share of Preferred Convertible Stock. On March 7, 1994, the record date, there were outstanding 250,460,513 shares of Common Stock and 1,418,787 shares of Preferred Convertible Stock. Included in the number of shares of outstanding Common Stock are 7,500,000 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. There are no other voting securities outstanding. Common Stock and Preferred Convertible Stock are collectively referred to herein as "Voting Stock". All references in this proxy statement to Common Stock reflect the 2-for-1 stock split made on August 16, 1993. Enron's annual report to stockholders for the year ended December 31, 1993, including financial statements, is being mailed herewith to all stockholders entitled to vote at the annual meeting. The annual report does not constitute a part of the proxy soliciting material. ITEM 1. ELECTION OF DIRECTORS At the meeting, twelve directors are to be elected to hold office until the next succeeding annual meeting of the stockholders and until their respective successors have been elected and qualified. All of the nominees are currently directors of Enron. Proxies cannot be voted for a greater number of persons than the number of nominees named on the enclosed form of proxy. A plurality of the votes cast in person or by proxy by the holders of Voting Stock is required to elect a director. Accordingly, under Delaware law and Enron's Restated Certificate of Incorporation and by-laws, abstentions and "broker non-votes" would not have the same legal effect as a vote against a particular director. A broker non-vote occurs if a broker or other nominee does not have discretionary authority and has not received instructions with respect to a particular item. Stockholders may not cumulate their votes in the election of directors. 4 It is the intention of the persons named in the enclosed proxy to vote such proxy "FOR" the election of the nominees named herein. Should any nominee become unavailable for election, discretionary authority is conferred to vote for a substitute. The following information regarding the nominees, their principal occupations, employment history and directorships in certain companies is as reported by the respective nominees. - ------------------------------------------------------------------------------------------------------------------ [PHOTO] ROBERT A. BELFER, 58 Director since 1983 Mr. Belfer's principal occupation is oil and gas investments. Prior to his resignation in April, 1986 from Belco Petroleum Corporation, a wholly owned subsidiary of Enron, Mr. Belfer was President and then Chairman of Belco. Mr. Belfer is also a director of EOTT Energy Corp. (the general partner of EOTT Energy Partners, L.P.), NAC Re Corporation and Smith Barney World Funds Inc. - ------------------------------------------------------------------------------------------------------------------ [PHOTO] NORMAN P. BLAKE, JR., 52 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, a large property and casualty insurer. Before joining USF&G, Mr. Blake was Chairman and CEO of Heller International Corporation, a wholly owned subsidiary of The Fuji Bank, Ltd. of Tokyo, Japan. Mr. Blake is also a director of Owens-Corning Fiberglass Corporation. - ------------------------------------------------------------------------------------------------------------------ [PHOTO] JOHN H. DUNCAN, 66 Director since 1985 Mr. Duncan lives in Houston, Texas, and since 1990, his principal occupation has been investments. From 1986 until 1990, he was a director and partner of Duncan, Cook & Co., an investment banking and advisory firm. Mr. Duncan is also a director of EOTT Energy Corp. (the general partner of EOTT Energy Partners, L.P.) Texas Commerce Bancshares, Inc. and King Ranch, Inc. - ------------------------------------------------------------------------------------------------------------------ 2 5 - ------------------------------------------------------------------------------------------------------------------ [PHOTO] JOE H. FOY, 67 Director since 1985 Mr. Foy is a retired partner of Bracewell & Patterson, Attorneys, 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, 49 Director since 1993 Dr. Gramm is currently self employed as a consultant on economic issues. From February, 1988 until January, 1993, Dr. Gramm served as Chairman of the Commodity Futures Trading Commission in Washington, D.C. Dr. Gramm is also a director of IBP, Inc., State Farm Life Insurance Co. and the Chicago Mercantile Exchange. - ------------------------------------------------------------------------------------------------------------------ [PHOTO] ROBERT K. JAEDICKE, 65 Director since 1985 Dr. Jaedicke is Professor (Emeritus) of Accounting at the Stanford University Graduate School of Business in Stanford, California. He has been on the Stanford Faculty since 1961 and served as Dean from 1983 until 1990. Dr. Jaedicke is also a director of Homestake Mining Co., Boise Cascade Corporation, Wells Fargo & Company, California Water Service Company, GenCorp, Inc. and State Farm Insurance Co. - ------------------------------------------------------------------------------------------------------------------ 3 6 - ------------------------------------------------------------------------------------------------------------------ [PHOTO] RICHARD D. KINDER, 49 Director since 1988 Since October, 1990, Mr. Kinder has been President and Chief Operating Officer of Enron. From December, 1988 until October, 1990, he served Enron as Vice Chairman of the Board. For over five years prior to his election as Vice Chairman, Mr. Kinder served in various management and legal positions with Enron and its affiliates. Mr. Kinder is also a director of Enron Oil & Gas Company, EOTT Energy Corp. (the general partner of EOTT Energy Partners, L.P.), Enron Liquids Pipeline Company (the general partner of Enron Liquids Pipeline, L.P.) and Baker Hughes Incorporated. - ------------------------------------------------------------------------------------------------------------------ [PHOTO] KENNETH L. LAY, 51 Director since 1985 For over five years, Mr. Lay has been Chairman of the Board and Chief Executive Officer of Enron. From February, 1989 until October, 1990, he also served as President of Enron. Mr. Lay is also a director of Eli Lilly and Company, Compaq Computer Corporation, Enron Oil & Gas Company, EOTT Energy Corp. (the general partner of EOTT Energy Partners, L.P.) and Trust Company of the West. - ------------------------------------------------------------------------------------------------------------------ [PHOTO] CHARLES A. LEMAISTRE, 70 Director since 1985 For over fifteen years, Dr. LeMaistre has been President of The University of Texas M. D. Anderson Cancer Center in Houston, Texas. - ------------------------------------------------------------------------------------------------------------------ 4 7 - ------------------------------------------------------------------------------------------------------------------ [PHOTO] JOHN A. URQUHART, 65 Director since 1990 Since August, 1991, Mr. Urquhart has been Vice Chairman of the Board of Enron. Since January, 1991, Mr. Urquhart has also been President of John A. Urquhart Associates, a management consulting firm in Fairfield, Connecticut. From 1986 through 1990, he served General Electric Company in the roles of Senior Vice President of Industrial and Power Systems and as Executive Vice President of two of General Electric Company's sectors -- International and Power Systems. He also serves as a director of Aquarion Company, TECO Energy, Inc., Hubbell, Inc. and The Weir Group, PLC. - ------------------------------------------------------------------------------------------------------------------ [PHOTO] CHARLS E. WALKER, 70 Director since 1985 For two decades, Dr. Walker has been Chairman of Walker/Free Associates, previously Charls E. Walker Associates, Inc., a governmental relations consulting firm, in Washington, D.C. Dr. Walker is also a director of Potomac Electric Power Company. - ------------------------------------------------------------------------------------------------------------------ [PHOTO] HERBERT S. WINOKUR, JR., 50 Director since 1985 Since 1987, Mr. Winokur has been President of Winokur & Associates, Inc., an investment and management services firm, and Managing General Partner of Capricorn Investors, L.P., a private investment partnership concentrating on investments in restructure situations. Prior to his current appointment, Mr. Winokur was Senior Executive Vice President and Director of Penn Central Corporation. Mr. Winokur is also a director of NAC Re Corporation, NHP, Inc., DynCorp and Marine Drilling Companies. - ------------------------------------------------------------------------------------------------------------------ 5 8 STOCK OWNERSHIP OF CERTAIN BENEFICIAL OWNERS Enron knows of no one who beneficially owns in excess of five percent of a class of Enron's Voting Stock except as set forth in the table below. AMOUNT AND NATURE OF BENEFICIAL NAME AND OWNERSHIP ADDRESS OF AS OF BENEFICIAL JANUARY 31, PERCENT OWNER TITLE OF CLASS 1994 OF CLASS --------- -------------- ----------- -------- Estate of Arthur B. Belfer Preferred Convertible 85,000 5.91657 767 Fifth Ave. Common 162,116(1) * New York, New York 10153 Robert A. Belfer Preferred Convertible 261,803(2) 17.9554 767 Fifth Ave. Common 1,291,734(3)(4)(5)(6) * New York, New York 10153 Mr. and Mrs. Lawrence Ruben Preferred Convertible 232,497(7) 15.9455 600 Madison Ave. Common 1,000,300(8) * New York, New York 10022 Enron Corp. Employee Stock Common 32,486,545(9) 13.0096 Ownership Plan 1400 Smith St. Houston, Texas 77002-7369 - --------------- * Less than 1 percent. (1) If the Estate of Arthur B. Belfer converted the Preferred Convertible Stock that it owns directly into Common Stock, it would beneficially own 1,322,536 shares, or approximately .53%, of the Common Stock that would be outstanding after giving effect to such conversion. (2) Does not include 85,000 shares held by the Estate of Arthur B. Belfer of which Robert A. Belfer is executor; 625 shares held by Mr. Belfer's wife; 22,000 shares held by a trust of which Mr. Belfer's wife is co-trustee; and 63,797 shares held by trusts of which Mr. Belfer is trustee or co-trustee, in all of which shares Mr. Belfer disclaims beneficial ownership. (3) Includes restricted shares of Common Stock held under Enron's 1988 and 1991 Stock Plans. Participants in those Plans have sole voting power and no investment power for restricted shares awarded under the Plan until such shares vest in accordance with Plan provisions. After vesting, the participant has sole investment and voting powers. (4) The number of shares of Common Stock subject to stock options exercisable within 60 days after January 31, 1994, which number is included in the number of shares shown as beneficially owned as of such date, is 11,872 shares. (5) Includes shares held under Enron's Savings Plan. Participants in the Savings Plan have sole voting power and limited investment power with respect to shares in the Plan. (6) Does not include 162,116 shares held by the Estate of Arthur B. Belfer, of which Robert A. Belfer is executor; 6,180 shares held by Mr. Belfer's wife; 372,000 shares held by a trust of which Mr. Belfer's wife is co-trustee and 13,248 shares held by a trust of which Mr. Belfer is trustee, in all of which shares Mr. Belfer disclaims beneficial ownership. If Robert A. Belfer converted the Preferred Convertible Stock that he owns directly into Common Stock, he would own 4,865,869 shares, or approximately 1.9%, of the Common Stock that would be outstanding after giving effect to such conversion. (7) Does not include 960 shares held as co-trustees for their children; 68,824 shares held by Mrs. Ruben as trustee and 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 disclaims beneficial ownership. (8) Does not include 9,480 shares held as co-trustees for their children; 240,896 shares held by Mrs. Ruben as trustee and co-trustee for her children; 179,696 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 89,800 shares held by the Selma and Lawrence Ruben Foundation in which shares Mr. and Mrs. Ruben disclaim beneficial ownership. If Mr. and Mrs. Ruben converted the Preferred Convertible Stock that they own directly into Common Stock, they would own 4,174,349 shares, or approximately 1.7%, of the Common Stock that would be outstanding after giving effect to such conversion. (9) Pursuant to the terms of Enron's Employee Stock Ownership Plan ("ESOP"), shares allocated to employee accounts are voted by the respective employees. The ESOP administrative committee has the power to vote Enron's Common Stock which has not been allocated to any employee accounts. If the ESOP trustee receives no voting directions from the ESOP administrative committee as to unallocated shares or from the respective employees as to allocated shares, then all such shares are to be voted by the trustee in the same proportion as the allocated shares that are voted by employees. 6 9 STOCK OWNERSHIP OF MANAGEMENT AND BOARD OF DIRECTORS PREFERRED COMMON STOCK COMMON UNITS CONVERTIBLE STOCK ENRON OIL & ENRON LIQUIDS COMMON STOCK ENRON CORP. GAS COMPANY PIPELINE, L.P. ENRON CORP. AS OF JANUARY 31, 1994 AS OF JANUARY 31, 1994 AS OF JANUARY 31, 1994 AS OF JANUARY 31, 1994 -------------------------- -------------------------- ---------------------- ---------------------------- AMOUNT AMOUNT AMOUNT AMOUNT AND NATURE AND NATURE AND NATURE AND NATURE OF OF OF OF BENEFICIAL PERCENT BENEFICIAL PERCENT BENEFICIAL PERCENT BENEFICIAL PERCENT NAME OWNERSHIP(1)(2)(3) OF CLASS OWNERSHIP(1) OF CLASS OWNERSHIP(1) OF CLASS OWNERSHIP(1) OF CLASS - -------------------- ------------------ -------- ------------ -------- ------------ -------- ------------ -------- Robert A. Belfer.... 1,291,734(4)(5) * 261,803(6) 17.9554 --(7) -- Norman P. Blake, Jr................ -- -- -- -- John H. Duncan...... 102,452 * -- 40,000 * -- Joe H. Foy.......... 30,452 * -- 1,000 * 1,800 * Wendy L. Gramm...... 864 * -- -- -- Robert K. Jaedicke.......... 14,724 * -- -- -- Richard D. Kinder... 806,952(4) * -- 19,619(8) * 25,000 * Kenneth L. Lay...... 1,250,601(4)(9) * -- 15,800(8)(9) * -- Charles A. LeMaistre......... 14,324 * -- -- -- John A. Urquhart.... 8,802 * -- --(8) -- Charls E. Walker.... 11,676(12) * -- 5,500(10)(11) * -- Herbert S. Winokur, Jr................ 50,552 * -- -- -- Ronald J. Burns..... 621,069(4) * -- 2,500 * 1,900 * Edmund P. Segner, III............... 154,918(4) * -- -- -- Rodney L. Gray...... 135,738(4) * -- 650 * -- All directors and executive officers as a group (22 in number).... 5,548,110(4) 2.203% 261,803 17.9554 97,589 * 28,700 * COMMON UNITS NORTHERN BORDER PARTNERS, COMMON UNITS L.P. ENRON CAPITAL L.L.C. AS OF JANUARY 31, 1994 AS OF JANUARY 31, 1994 --------------------------- ---------------------------- AMOUNT AMOUNT AND NATURE AND NATURE OF OF BENEFICIAL PERCENT BENEFICIAL PERCENT NAME OWNERSHIP OF CLASS OWNERSHIP(1) OF CLASS - ----------------------------------------------------------------- ------------- -------- ------------ -------- Robert A. Belfer................................................. -- -- Norman P. Blake, Jr.............................................. -- 1,500 * John H. Duncan................................................... -- -- Joe H. Foy....................................................... -- -- Wendy L. Gramm................................................... -- -- Robert K. Jaedicke............................................... -- -- Richard D. Kinder................................................ -- -- Kenneth L. Lay................................................... -- -- Charles A. LeMaistre............................................. -- -- John A. Urquhart................................................. -- -- Charls E. Walker................................................. -- -- Herbert S. Winokur, Jr........................................... -- -- Ronald J. Burns.................................................. -- 3,100 * Edmund P. Segner, III............................................ -- -- Rodney L. Gray................................................... -- -- All directors and executive officers as a group (22 in number)...................................... -- 10,600 * - --------------- * Less than 1%. (Notes continued on following page) 7 10 (1) Except as otherwise explained in the footnotes set forth below, all shares involve sole voting power and sole investment power. (2) Includes restricted shares of Common Stock held under Enron's 1988 and 1991 Stock Plans for certain individuals. Participants in those Plans have sole voting power and no investment power for restricted shares awarded under the Plan until such shares vest in accordance with Plan provisions. After vesting, the participant has sole investment and voting powers. (3) The number of shares of Common Stock subject to stock options exercisable within 60 days after January 31, 1994, which number is included in the number of shares shown as beneficially owned as of such date, is as follows: Mr. Belfer, 11,872 shares; Mr. Duncan, 16,832 shares; Mr. Foy, 16,832 shares; Dr. Gramm, 384 shares; Dr. Jaedicke, 7,904 shares; Mr. Kinder, 534,041 shares; Mr. Lay, 450,100 shares; Dr. LeMaistre, 7,904 shares; Mr. Urquhart, 3,968 shares; Dr. Walker, 3,504 shares; Mr. Winokur, 16,832 shares; Mr. Burns, 458,080 shares; Mr. Gray, 108,876 shares; Mr. Segner, 117,800 shares; and all directors and executive officers as a group, 2,185,879 shares. (4) Includes shares held under Enron's Savings Plan and/or Employee Stock Ownership Plan ("ESOP"). Participants in the Savings Plan have sole voting power and limited investment power with respect to shares in the Plan. Participants in the ESOP have sole voting power and no investment power prior to distribution of shares from the Plan. (5) Does not include 162,116 shares held by the Estate of Arthur B. Belfer, of which Robert A. Belfer is executor; 6,180 shares held by Mr. Belfer's wife, 372,000 shares held by a trust of which Mr. Belfer's wife is co-trustee and 13,248 shares held by a trust of which Mr. Belfer is trustee, in all of which shares Mr. Belfer disclaims beneficial ownership. If Robert A. Belfer converted the Preferred Convertible Stock that he owns directly into Common Stock, he would own 4,865,869 shares, or approximately 1.9%, of the Common Stock that would be outstanding after giving effect to such conversion. (6) Does not include 85,000 shares held by the Estate of Arthur B. Belfer, of which Robert A. Belfer is executor; 625 shares held by Mr. Belfer's wife; 22,000 shares held by a trust of which Mr. Belfer's wife is co-trustee; and 63,797 shares held by trusts of which Mr. Belfer is trustee or co-trustee, in all of which shares Mr. Belfer disclaims beneficial ownership. (7) Does not include 10,000 shares held by trusts of which Mr. Belfer's wife is trustee for their children, in all of which shares Mr. Belfer disclaims beneficial ownership. (8) Does not include 64,000,000 shares owned by Enron in which each of Messrs. Lay, Urquhart and Kinder, in their capacities as Chairman of the Board, Vice Chairman of the Board and President, respectively, of Enron, has sole voting and investment power pursuant to the provisions of Enron's by-laws. (9) Includes 7,530 shares with respect to Enron Common Stock and 800 shares with respect to Enron Oil & Gas Company Common Stock held by Mr. Lay's children and stepchildren in which Mr. Lay has shared voting and investment power. (10) Does not include 6,088 shares owned by Dr. Walker's wife and in which Dr. Walker disclaims beneficial ownership. (11) Includes 3,500 shares which may be purchased at $45.00 pursuant to a call option which expires on April 16, 1994. As of January 31, 1994, management and the Board of Directors held no ownership interest in common units of EOTT Energy Partners, L.P. Such units first traded publicly on March 18, 1994. BOARD OF DIRECTORS AND COMMITTEES The Board of Directors held five regularly scheduled meetings and three specially scheduled meetings during the year ended December 31, 1993. 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 by-laws or by applicable law. During the year ended December 31, 1993, the Executive Committee met five times. The Executive Committee is currently composed of Messrs. Duncan (Chairman), Belfer, Foy, Kinder, Lay, LeMaistre and Winokur. The Board of Directors uses working committees with functional responsibility in the more complex recurring areas where disinterested oversight is required. The Audit Committee is the communication link between the Board and Enron's independent auditors. At four meetings during the 8 11 year ended December 31, 1993, 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 fee related to the audit, the accounting policies and reporting practices, contract and internal auditing and internal control, compliance with Enron's policies regarding business conduct and other matters as deemed appropriate. The Audit Committee is currently composed of Messrs. Jaedicke (Chairman), Blake and Walker and Ms. Gramm. The Compensation Committee is responsible for approving the compensation arrangements of senior management and recommending approval by the Board of Directors of the creation of and amendments to Enron benefit plans. In meeting eleven times during the year ended December 31, 1993, the Compensation Committee also continued to monitor and approve awards earned pursuant to Enron's comprehensive executive compensation program. The Compensation Committee is currently composed of Messrs. LeMaistre (Chairman), Belfer, Duncan and Foy. The Finance Committee serves as a focal point of communication between management of Enron and the Board of Directors on financial matters. In meeting twice during the year ended December 31, 1993, the Finance Committee reviewed the financial plans and proposals of management, as well as recommended action with regard thereto to the Board of Directors. The Finance Committee is currently composed of Messrs. Winokur (Chairman), Blake, Jaedicke and Urquhart. The Board's Nominating Committee is responsible for continuing studies of the size and composition of the Board. In meeting twice during the year ended December 31, 1993, the Committee reviewed information regarding proposed nominees to the Board. The Nominating Committee is currently composed of Messrs. Walker (Chairman) and Urquhart and Ms. Gramm. During the year ended December 31, 1993, each Director attended at least 75% of the total number of meetings of the Board and the committees on which the Director served. COMPENSATION OF DIRECTORS AND EXECUTIVE OFFICERS DIRECTOR COMPENSATION During 1993, each non-employee director of Enron received a fee of $22,000 for serving as a director. Each non-employee director was also paid $4,000 annually for each committee on which such director served. Chairs of the committees received an additional $2,000 annually. Meeting fees were $1,250 for each Board meeting attended and $1,000 for each committee meeting attended. Total directors' fees paid or deferred in 1993 were $550,833. Enron maintains a Deferral Plan for directors under which fees can be deferred to a later specified date. Interest is credited to all amounts deferred. Currently six Directors participate in the Plan. Directors also participate in the Enron Corp. 1988 and 1991 Stock Plans. During 1993, each non- employee director received 480 shares of restricted stock (valued at $29.00 per share on the date of grant) and stock options to purchase a total of 1,920 shares (with an exercise price of $29.00 per share) pursuant to the 1991 Stock Plan. 9 12 REPORT FROM THE COMPENSATION COMMITTEE REGARDING EXECUTIVE COMPENSATION The Compensation Committee (the "Committee") of the Board of Directors is responsible for developing Enron's executive compensation philosophy. It is the duty of the Committee to administer the philosophy and its relationship with the compensation paid to the Chief Executive Officer and each of the other executive officers. The basic philosophy behind executive compensation at Enron is to reward the executive's performance that creates long-term stockholder value. This pay-for-performance tenet is embedded in most aspects of an executive's total compensation package. Salary increases, annual incentive awards and long-term incentive grants are reviewed annually to ensure consistency with Enron's total compensation philosophy. 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 annual compensation surveys. Base salaries are targeted at the median of an industry comparator group, comparable to the peer group reflected in the performance graph set forth in "Comparative Stock Performance" in this proxy statement. Annual Incentive Awards The Annual Incentive Plan is funded as a percentage of after-tax net income as approved by the Committee each year based upon company performance and competitive industry practice. Downward adjustment of the fund is at the sole discretion of the Committee based on performance against other goals such as cash flow, strengthening the balance sheet and total stockholder return. These factors are not weighted but are applied at the sole discretion of the Committee. However, upward adjustment of the fund, over the formula-driven amount, is not allowed. Since Enron's performance goal is net income, the fund increases or decreases based on Enron's earnings performance. All decisions regarding individual incentive awards are made based upon individual performance as measured against pre-established individual objectives and competitive practice as measured by annual compensation surveys, but in no event will an individual incentive award exceed one-half of one percent of after-tax net income. 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. Long-Term Incentive Grants Long-term incentive grants are made annually to each executive and are targeted at the top quartile of the industry comparator group. One-half of the grants' intended value is made in performance units under Enron's Performance Unit Plan and one-half is made in stock options. Aggregate stock holdings of the executives have no bearing on the size of long-term incentive grants. Occasionally, restricted stock is granted for specific reasons, such as: (i) individual performance, (ii) company performance, (iii) to accommodate special situations such as promotions, (iv) in lieu of other benefits or (v) to remain market competitive. Enron's long-term incentive program is focused on increasing stockholder value. For example, performance units compare Enron's total stockholder return versus peer group performance over a 10 13 four-year period. In order for top quartile compensation to be realized, Enron's total stockholder return must rank at least third among the peer group of 12 companies. Stock options are granted at market price. Thus, for any compensation to be realized pursuant to stock options, the market price of Common Stock must increase. Total Compensation Approximately 70% of the total compensation of Enron's most senior executives is "at risk", growing or shrinking based strictly upon the performance of Enron and return to the stockholders. Also, two significant elements in the employee benefit package, the Employee Stock Ownership Plan and Enron Corp. Savings Plan (which own over 16% of Enron Voting Stock), are driven by increasing stockholder value. Inherent in this "at-risk" component is a heavy weighting toward long-term performance. At Enron, long-term incentives for the most senior executives are more than double the size of annual incentives. We believe this feature provides Enron management with a long-term strategic incentive that will encourage the continued creation of stockholder value. In addition, the executive officers who are employees and are listed in Enron's annual report to stockholders are each expected to hold Common Stock having a value of at least their annual salary. The Committee has access to Hewitt Associates, a national consulting firm experienced in executive compensation, other nationally recognized compensation consulting firms, national compensation surveys and Enron's financial records. Each year 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. Chief Executive Officer Compensation As part of an annual review, the Committee applies the executive compensation philosophy to the total compensation package of the Chief Executive Officer and the other executives. In May, 1993, Mr. Lay received a $90,000 increase in his base salary, to reflect accomplishment of objectives and top quartile performance relative to industry peers. In recognition of Enron's superior performance relative to its peer group, Mr. Lay received a cash annual incentive award of $1,040,000 and a stock option grant, at market value, of 48,000 shares. The Committee determined the amount of the annual incentive award taking into consideration the annual performance report presented by management, Enron's 43% increase in earnings from operations, 26% increase in net income (exclusive of a one time charge related to the increase in the corporate federal income tax rate) and Enron's 28% total stockholder return for 1993 as compared to the S&P 500's 10% and industry peers' 17% annual return. Mr. Lay also received a cash payment of $900,000 in 1993 under the Performance Unit Plan for the 1990-1993 performance period. Payments are made under the Performance Unit Plan only if Enron's total stockholder returns are greater than returns stockholders would have received if they invested in stock of industry peers. The payout for the measurement period from 1990-1993 reflected Enron's return to its stockholders of 95.08% compared with a negative 3.4% for industry peers, 43.64% for the S&P 500, and 19.86% for 90-day U.S. Treasury Bills. This performance earned Enron a ranking of Number 1 and valued the units at $2.00. 11 14 During 1993, long term incentive grants of stock options and performance units were made to Mr. Lay and were consistent with the design of the overall program. Special one time grants of 400,000 stock options and 47,200 shares of restricted stock were made to Mr. Lay to supplement the actual value that had been realized from prior long-term grants, which the Committee determined to be insufficient relative to the market in light of Enron's superior performance during the past several years. The options were granted at market value. In connection with certain advances to purchase Common Stock, Mr. Lay received a cash payment of $1,095,128 in 1993 under the stock finance agreement which was part of his September 1989 employment agreement (see "Employment Contracts," pages 20 and 21 below). Under the stock finance agreement, Mr. Lay was advanced $5 million to buy Enron Common Stock, which served as collateral for the advance. The cash payment in 1993 was provided to equalize the increased value and dividends that would have been realized based on the purchase of 100,000 shares (currently, 400,000 shares on a post-split basis), assuming a $50 purchase price (or $12.50 on a post-split basis), which Mr. Lay agreed to buy under the agreement, compared to the number of shares that were actually purchased in the open market at varying prices above $50 (or $12.50 on a post-split basis). Renewed Employment Contracts The existing five year employment contracts for Mr. Lay and Mr. Kinder were scheduled to expire on August 31, 1994. To ensure that Enron retains what the Executive and Compensation Committees consider to be the top management team in the industry, which increased stockholder value by 296% from 1988 to 1993 and outperformed the S&P 500 and the industry peer group average for each of the past five years, as evidenced by the performance graph set forth in "Comparative Stock Performance" in this proxy statement, the Committee entered into contract renewal discussions with Mr. Lay and Mr. Kinder during 1993. The Committee is pleased to announce that effective February 8, 1994, Mr. Lay and Mr. Kinder have agreed to renew their employment contracts through February 8, 1999, although each has the right to terminate his agreement as of February 8, 1997. The Committee and Board of Directors agree that retaining and motivating these top two executives is critical if Enron is to achieve or exceed its targeted earnings per share growth rate of 15% in 1994 and beyond, and at the same time expand its business globally. To assure that management interests are properly aligned with stockholder interests, the Committee granted Mr. Lay and Mr. Kinder 1,200,000 and 1,000,000 stock options at market value, respectively, under the renewed employment contracts. The vesting of up to 80% of these stock options will not occur during the five year term of the renewed employment contracts unless Enron achieves a compound growth in earnings per share of at least 15% per year. The Committee believes these significant stock option grants provide the necessary linkage between stockholder returns and management rewards. The details of the grants and renewed contracts are explained in the "Employment Contracts" section of this proxy statement. Compliance with Internal Revenue Code Section 162(m) Section 162(m) of the Internal Revenue Code, enacted in 1993, generally disallows a tax deduction to public companies for compensation over $1 million paid to the company's Chief Executive Officer and four other most highly compensated executive officers, as reported in the proxy statement. Qualifying performance-based compensation will not be subject to the deduction limit if certain requirements are met. Enron intends to structure the performance-based portion of the compensation of its executive officers (which currently consists of stock option grants, certain 12 15 restricted stock grants, performance unit grants and annual incentive awards) in a manner that complies with the new statute, including presentation of each of these plans to stockholders for approval (see Annual Meeting Items 4, 5 and 6 in this proxy statement). Occasionally, Enron may grant restricted stock for specific reasons which would not qualify as performance-based compensation. Summary Executive compensation at Enron is taken seriously by the Committee, the Board of Directors and senior management. The Committee believes that there has been a strong link between the success of the stockholder and the rewards of the executives. The Committee also strongly believes that Mr. Lay and Mr. Kinder have had significant influence in the success of Enron. This success is evidenced by the increase in stockholder value from 1988 to 1993, during which time a stockholder who invested $100 in Enron Common Stock would have received $396.30 or a 296% increase in value compared to 97% for the S&P 500 and 23% for industry peers, as evidenced by the performance graph set forth in "Comparative Stock Performance" in this proxy statement. The Committee believes that with the present plan designs, and the employment contract extensions for Messrs. Lay and Kinder, management will continue to strive to increase stockholder value. COMPENSATION COMMITTEE Charles A. LeMaistre -- Chairman Robert A. Belfer John H. Duncan Joe H. Foy COMPARATIVE STOCK PERFORMANCE The performance graph shown below was prepared by Value Line, Inc., for use in this proxy statement. As required by applicable rules of the Securities and Exchange Commission (the "SEC"), the graph was prepared based upon the following assumptions: 1. $100 was invested in Enron Common Stock, the S&P 500 and the Peer Group (as defined below) on January 1, 1989. 2. Peer Group investment is weighted based on the market capitalization of each individual company within the Peer Group at the beginning of each year. 3. Dividends are reinvested on the ex-dividend dates. The companies that comprise Enron's Peer Group are as follows: Arkla, Inc.; Burlington Resources Inc.; Coastal Corp.; Columbia Gas Systems, Inc.; Consolidated Natural Gas Co.; Occidental Petroleum Corp.; Panhandle Eastern Corp.; Sonat Inc.; Tenneco, Inc.; Transco Energy Company; and The Williams Companies, Inc. 13 16 Although this method of calculating stockholder return differs from the method that Enron uses for purposes of its long-term incentive plan (which is based upon quarterly period returns), it does display a similar trend. COMPARATIVE FIVE-YEAR TOTAL RETURNS ENRON CORP., S&P 500, PEER GROUP (PERFORMANCE RESULTS THROUGH DECEMBER 31, 1993) MEASUREMENT PERIOD (FISCAL YEAR COVERED) ENRON CORP. S&P 500 PEER GROUP 1/1/89 100.00 100.00 100.00 12/31/89 $166.03 $131.49 $138.72 12/31/90 $165.05 $127.32 $109.88 12/31/91 $219.68 $166.21 $ 94.35 12/31/92 $309.66 $179.30 $ 104.9 12/31/93 $396.29 $197.23 $122.78 14 17 EXECUTIVE COMPENSATION The following table summarizes certain information regarding compensation paid or accrued during each of Enron's last three fiscal years to Enron's Chief Executive Officer and each of Enron's four other most highly compensated executive officers (the "Named Officers"): SUMMARY COMPENSATION TABLE ANNUAL COMPENSATION LONG-TERM COMPENSATION ----------------------------------- ----------------------------------- OTHER ALL OTHER ANNUAL RESTRICTED OPTIONS/ LTIP COMPENSATION NAME & PRINCIPAL SALARY BONUS COMPENSATION STOCK SARS PAYOUTS ------------ POSITION YEAR $ $ ($)(1)(2) AWARDS($)(3) (#) ($)(4) ($)(2)(5) - --------------------- ---- -------- ---------- -------- ---------- ------- -------- ------------ Kenneth L. Lay............. 1993 $960,000 $1,040,000 $375,232 $1,283,250 648,000 $900,000 $1,137,035 Chairman of the Board and 1992 $875,000 $1,100,000 $326,709 $ 60,270 187,500 $739,200 $ 35,624 Chief Executive Officer 1991 $800,000 $ 900,000 $ 656,073 156,000 $714,000 Executive Officer Richard D. Kinder.......... 1993 $640,044 $ 720,000 $218,410 $ 853,688 433,233 $550,044 $ 404,913 President and Chief 1992 $583,377 $ 750,000 $100,344 $ 32,646 125,000 $475,200 $ 35,624 Operating Officer 1991 $533,376 $ 600,000 $ 418,223 114,000 $300,000 Ronald J. Burns............ 1993 $433,333 $ 320,000 $129,212 $ 426,844 199,950 $216,810 $ 41,907 Co-Chairman and Chief 1992 $368,021 $ 325,000 $ 46,089 $ 11,839 62,500 $208,440 $ 35,624 Executive Officer, Enron 1991 $335,000 $ 250,000 $ 286,030 262,500 $175,050 Gas Services Corp. Edmund P. Segner, III...... 1993 $297,500 $ 260,000 $ 8,450 $ 511,125 240,000 $ 70,070 $ 41,907 Executive Vice President 1992 $195,631 $ 250,000 $ 8,400 $ 0 41,700 $ 67,376 $ 30,679 and Chief of Staff 1991 $168,340 $ 150,000 $ 101,000 53,300 $ 53,184 Rodney L. Gray............. 1993 $287,292 $ 260,000 $ 6,250 $ 266,438 252,950 $ 84,150 $ 41,907 Chairman and Chief 1992 $187,545 $ 165,000 $ 5,100 $ 0 29,200 $ 80,904 $ 29,303 Executive Officer, Enron 1991 $170,672 $ 120,000 $ 75,750 29,200 $ 80,904 International, Inc. - ------------ (1) Includes "Perquisites and Other Personal Benefits" if value is greater than the lesser of $50,000 or 10% of reported salary and bonus. Personal plane usage of $132,829 has been reported for Mr. Lay. Also, Enron maintains two 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, which for 1992 was 13.845% and for 1993 was 12.825%. Interest in excess of 120% of the December, 1992 long-term Applicable Federal Rate (8.5%) has been reported as other annual compensation for 1993, and interest in excess of 120% of the December, 1991 long-term Applicable Federal Rate (9.5%) has been reported as other annual compensation for 1992. No interest has been reported as other annual compensation under the 1992 Deferral Plan, which credits interest at Enron's mid-term borrowing rate, since the crediting rates for 1992 and 1993 of 7.5% and 7.06%, respectively, did not exceed 120% of the Applicable Federal Rate. Other Annual Compensation also includes miscellaneous cash payments for items such as cash perquisite allowances and lost benefits due to statutory earnings limits. (2) Only 1992 and 1993 data is provided, since the rules adopted by the SEC allow a three-year phase-in for this category. (3) Restricted stock awards granted to Messrs. Lay, Kinder and Burns on January 3, 1991 vested 33% on January 3, 1992 and 67% on December 14, 1992; restricted stock awards granted to Messrs. Lay, Kinder, Burns, Segner and Gray on January 16, 1991 vested 33% on January 16, 1992 and 67% on December 14, 1992; restricted stock awards granted to Messrs. Lay, Kinder and Burns on January 2, 1992 vested 100% on December 14, 1992. Vesting of all unvested restricted stock was accelerated to December, 1992. Dividend equivalents accrued from date of grant and were paid upon vesting. The following is the aggregate total of shares in unreleased restricted stock holdings and their value as of December 31, 1993, for each of the Named Officers: Mr. Lay, 47,200 shares valued at $1,368,800; Mr. Kinder, 31,400 shares valued at $910,600; Mr. Burns, 15,700 shares valued at $455,300; Mr. Segner, 18,800 shares valued at $545,200; and Mr. Gray, 9,800 shares valued at $284,200. (4) Payments are included in the years in which the applicable payout was earned. The payout for the 1988 grant was earned in December, 1991, and was paid in January, 1992. The payout for the 1989 grant was earned and paid in December, 1992. The payout for the 1990 grant was earned and paid in December, 1993. (5) The amounts shown include the value, as of December 31, 1992 and December 31, 1993, of Enron Common Stock allocated during 1992 and 1993 to employee's savings account under Enron's Employee Stock Ownership Plan. Also included in 1993 are cash payments to Messrs. Lay and Kinder of $1,095,128 and $363,006 respectively that were made pursuant to the terms of their advances which were used to purchase Common Stock in 1989. See "Chief Executive Officer Compensation" in the Report from the Compensation Committee Regarding Executive Compensation on pages 12 and 13. 15 18 STOCK OPTION GRANTS DURING 1993 The following tables sets forth information with respect to grants of stock options pursuant to Enron's stock option plans to the Named Officers reflected in the Summary Compensation Table. No stock appreciation rights were granted during 1993. INDIVIDUAL GRANTS ------------------------------------- % OF TOTAL POTENTIAL REALIZABLE VALUE AT OPTIONS/SARS ASSUMED ANNUAL RATES OF OPTIONS/ GRANTED TO EXERCISE STOCK PRICE APPRECIATION SARS EMPLOYEES IN OR BASE FOR OPTION TERM(3) GRANTED FISCAL PRICE EXPIRATION ------------------------------------------- NAME (#)(1) YEAR ($/SH) DATE 0%(2) 5% 10% ---- ---------- ------- -------- ---------- ----- -------------- --------------- Kenneth L. Lay............ 600,000 13.81% $27.1875 02/09/03 $0.00 $ 10,258,844 $ 25,997,924 48,000 1.11% $28.2500 12/13/98 $0.00 $ 374,638 $ 827,852 Richard D. Kinder......... 399,998 9.21% $27.1875 02/09/03 $0.00 $ 6,839,195 $ 17,331,863 33,235 0.76% $28.2500 12/13/98 $0.00 $ 259,398 $ 573,201 Ronald J. Burns........... 199,950 4.60% $27.1875 02/09/03 $0.00 $ 3,418,760 $ 8,663,808 Edmund P. Segner, III..... 240,000 5.52% $27.1875 02/09/03 $0.00 $ 4,103,537 $ 10,399,170 Rodney L. Gray............ 124,950 2.88% $27.1875 02/09/03 $0.00 $ 2,136,404 $ 5,414,068 128,000 2.95% $30.1250 06/21/03 $0.00 $ 2,425,018 $ 6,145,471 All Employee and Director Optionees...... 4,345,233 100% $27.6371(4) N/A $0.00 $ 75,523,626(5) $ 191,391,871(5) All Stockholders.......... N/A N/A N/A N/A $0.00 $4,329,475,798 $10,971,751,750 Optionee Gain as % of All Stockholders Gain....... N/A N/A N/A N/A N/A 1.74% 1.74% - --------------- (1) Options granted to the Named Officers granted on February 9, 1993 became 20% vested on August 9, 1993 and were first exercisable on that date with an additional 20% becoming exercisable on the anniversary of the date of grant until February 9, 1997. Options granted to Mr. Lay and Mr. Kinder on December 13, 1993 are 5 year grants and will become 100% vested June 13, 1994. Options granted to Mr. Gray on June 21, 1993 will vest 8 years from the date of grant or will vest on an accelerated basis according to the following percentages if earnings targets are met: 14.29% of total shares on February 1, 1994; 28.57% of total shares on February 1, 1995; 28.57% of total shares on February 1, 1996; and 28.57% of total shares on December 31, 1996. If a "change of control" (as defined in the 1991 Stock Plan) were to occur before the options become exercisable and are exercised, such vesting shall be accelerated and all such outstanding options shall be surrendered and the optionee shall receive a cash payment by Enron in an amount equal to the value of the surrendered options (as defined in the 1991 Stock Plan). (2) An appreciation in stock price, which will benefit all stockholders, is required for optionees to receive any gain. A stock price appreciation of zero percent would render the option without value to the optionees. (3) The dollar amounts under these columns represent the potential realizable value of each grant of options assuming that the market price of Enron 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 Enron Common Stock. (4) Weighted average grant price of all stock options granted to employees in 1993. (5) Appreciation for all stockholders is calculated using the average exercise price for All Employee and Director Optionees ($27.6371) and using the number of shares of Enron Common Stock issued and outstanding on December 31, 1993 (249,095,312). 16 19 AGGREGATED STOCK OPTION/SAR EXERCISES DURING 1993 AND STOCK OPTION/SAR VALUES AS OF DECEMBER 31, 1993 The following table sets forth information with respect to the Named Officers concerning the exercise of SARs and options during the last fiscal year and unexercised options and SARs held as of the end of the fiscal year: NUMBER OF UNEXERCISED OPTIONS/SARS SHARES AT DECEMBER 31, 1993 ACQUIRED ON VALUE ---------------------- NAME EXERCISE (#) REALIZED ($) EXERCISABLE ---- ------------ ------------ ----------- Kenneth L. Lay.................. 147,220 $2,796,819 261,400 Richard D. Kinder............... 60,000 $1,428,750 406,241 Ronald J. Burns................. 0 $ 0 393,090 Edmund P. Segner, III........... 50,480 $ 931,528 52,000 Rodney L. Gray.................. 0 $ 0 51,230 VALUE OF UNEXERCISE IN-THE-MONEY OPTIONS/ SARS AT DECEMBER 31, 1993 ------------------------- NAME UNEXERCISABLE EXERCISABLE UNEXERCISABLE ---- ------------- ----------- ------------- Kenneth L. Lay.................. 1,436,500 $2,325,600 $15,480,750 Richard D. Kinder............... 913,992 $5,406,462 $ 9,575,461 Ronald J. Burns................. 342,460 $5,237,644 $ 2,884,928 Edmund P. Segner, III........... 241,140 $ 134,000 $ 1,023,763 Rodney L. Gray.................. 259,960 $ 447,317 $ 636,680 - --------------- LONG-TERM INCENTIVE PLAN -- AWARDS IN 1993 The following table provides information concerning awards of performance units under Enron's long-term incentive plan during 1993. 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 plan performance period, at the end of which Enron's cumulative quarterly total stockholder return is compared to that of the 11 peer companies included in the Peer Group. At that time, the units are assigned a value ranging from $0 to $2.00 based on the rank of Enron's stockholder return within the Peer Group. To be valued at the maximum of $2.00, Enron must rank first, and to be valued at the target of $1.00, Enron must rank third. Regardless of Enron's rank, Enron's cumulative quarterly stockholder return must be above the cumulative return on 90-day U.S. Treasury Bills over the same performance period in order for any value to be assigned. NUMBER OF PERFORMANCE ESTIMATED FUTURE PAYOUTS SHARES, OR OTHER UNDER NON-STOCK PRICE-BASED PLANS UNITS OR PERIOD UNTIL ------------------------------------------- OTHER MATURATION THRESHOLD TARGET MAXIMUM RIGHTS (#) PAYOUT ($ OR #) ($ OR #) ($ OR #) ---------- ------------ --------- -------- ---------- Kenneth L. Lay.................. 600,000 4 years $0.00 $600,000 $1,200,000 Richard D. Kinder............... 400,000 4 years $0.00 $400,000 $ 800,000 Ronald J. Burns................. 200,000 4 years $0.00 $200,000 $ 400,000 Edmund P. Segner, III........... 240,000 4 years $0.00 $240,000 $ 480,000 Rodney L. Gray.................. 125,000 4 years $0.00 $125,000 $ 250,000 RETIREMENT AND SEVERANCE PLANS For many years, Enron has maintained a Retirement Plan to provide retirement income for employees of Enron and its subsidiaries. Enron's ongoing Retirement Plan is designed to provide monthly retirement income for each employee of Enron and its participating subsidiaries in an amount equal to 1.45% of an employee's final average pay multiplied by such employee's years of accrual service not in excess of 25 years, plus .45% of final average pay multiplied by accrual service in excess of 25 years up to a maximum of 10 years, plus .45% of final average pay in excess of the integration level multiplied by accrual service not in excess of 35 years, plus 1% of final average pay multiplied by accrual service in excess of 35 years. Final average pay is the average of an employee's monthly 17 20 compensation either for any period of 60 consecutive months which occurs during the last 120 months of vesting service and for which such employee's average monthly compensation is the highest, or for the period of such employee's vesting service if less than 60 months. The integration level is the lesser of 125% of compensation covered by Social Security for an employee attaining the Social Security retirement age, or the FICA taxable wage base in effect, in the Plan year in which the employee terminates employment. Directors who are not employees are not eligible to participate in the Plan. Benefits accrued after 1986 are offset by the value of Common Stock allocated to an employee's retirement account in Enron's Employee Stock Ownership Plan. In addition, Enron has a Supplemental Retirement Plan which is designed to assure payments to certain employees of that retirement income which would be provided under the Retirement Plan except for the dollar limitation on accrued benefits imposed by the Internal Revenue Code of 1986, as amended, and a Pension Program for Deferral Plan Participants which provides supplemental retirement benefits equal to any reduction in benefits due to deferral of salary into either of Enron's Deferral Plans. Estimated annual retirement benefits based on continued participation in the Enron Retirement Plan and Supplemental Retirement Plan are as follows: PENSION PLAN TABLE ESTIMATED ANNUAL BENEFIT ------------------------------------------------------------------------------------ YEARS OF CREDITED SERVICE AT AGE 65 ------------------------------------------------------------------------------------ REMUNERATION 10 15 20 25 30 35 - ------------ -------- -------- -------- -------- -------- -------- $ 200,000 $ 36,722 $ 55,084 $ 73,445 $ 91,806 $100,167 $108,528 $ 400,000 $ 74,722 $112,084 $149,445 $186,806 $204,167 $221,528 $ 600,000 $112,722 $169,084 $225,445 $281,806 $308,167 $334,528 $ 800,000 $150,722 $226,084 $301,445 $376,806 $412,167 $447,528 $1,000,000 $188,722 $283,084 $377,445 $471,806 $516,167 $560,528 $1,200,000 $226,722 $340,084 $453,445 $566,806 $620,167 $673,528 NOTE: The estimated benefit amounts in the preceding and following tables are based on the straight life annuity form without adjustment for any offset applicable to a participant's retirement account in the ESOP. The following table sets forth the estimated annual benefits payable under normal retirement at age 65, assuming current remuneration levels and participation until normal retirement at age 65, with respect to the Named Officers under the provisions of the foregoing retirement plans: ESTIMATED CURRENT ESTIMATED ANNUAL CREDITED CREDITED CURRENT BENEFIT YEARS YEARS OF COMPENSATION PAYABLE OF SERVICE COVERED UPON SERVICE AT AGE 65 BY PLANS RETIREMENT ------- --------- -------- ---------- Mr. Lay....................... 16 30 $990,000 $509,664 Mr. Kinder.................... 13 29 660,044 329,799 Mr. Burns..................... 19 43 445,000 280,178 Mr. Segner.................... 5 30 350,000 176,398 Mr. Gray...................... 5 29 350,000 171,821 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 18 21 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 severance pay benefits are doubled. 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 which will be determined according to a formula including factors for length of service, amount of base pay and annual incentive award opportunity under the Annual Incentive Plan. All of the Named Officers participate in the Executive Supplemental Survivor Benefit Plan. In the event of death after retirement, the Plan provides an annual benefit to the participant's beneficiary equal to 50 percent of the participant's annual base salary at retirement, paid for 10 years. The Plan also provides that in the event of death before retirement, the participant's beneficiary receives an annual benefit equal to 30% of the participant's annual base salary at death, paid for the life of the participant's spouse (but for no more than 20 years in some cases). Messrs. Lay and Kinder have also entered into agreements with Enron which supplement benefits under Enron's retirement plans and provide a participant who retires after reaching age 60 with annual benefit increases of 5% for up to 13 years or until the participant's total retirement benefit, as supplemented, equals 60% of the participant's annual base salary at retirement. EMPLOYMENT CONTRACTS Mr. Lay entered into an employment agreement with Enron in September, 1989. The agreement was renewed for an additional five years in February, 1994 and provides for (i) a fixed annual salary of $990,000, and (ii) a stock option grant of 1,200,000 shares of Common Stock pursuant to the Enron Corp. 1991 Stock Plan. Mr. Lay has the option to terminate the agreement as of February 8, 1997. Mr. Kinder entered into an employment agreement with Enron in September, 1989. The agreement was renewed for an additional five years in February, 1994 and provides for (i) a minimum annual salary of $660,000, and (ii) a stock option grant of 1,000,000 shares of Common Stock pursuant to the Enron Corp. 1991 Stock Plan. Mr. Kinder has the option to terminate the agreement as of February 8, 1997. The stock option grants to Messrs. Lay and Kinder provided pursuant to the 1991 Stock Plan in the above described employment agreements vest 20% on the date of grant and 80% after 6 years and 10 months from the date of grant. However, if 15% annual earnings per share growth targets are achieved, the options granted under the 1991 Stock Plan vest 20% on the date of grant and the remaining vest 33 1/3% on each of the first, second and third anniversaries from the date of grant. If Mr. Lay or Mr. Kinder leaves Enron prior to full vesting of the options granted under the 1991 Stock Plan, then no further vesting will occur, but all vested options will be exercisable through February 7, 2001. Pursuant to the terms of his original 1989 employment agreement, Mr. Lay received an advance of $5 million to be used to purchase shares of Common Stock (which shares are pledged as collateral) and a loan commitment of $2.5 million. Pursuant to the terms of his original 1989 employment agreement, Mr. Kinder received an advance of $3 million to be used to purchase shares of Common Stock (which shares are pledged as collateral) and a loan commitment of $1.5 million. Messrs. Lay and Kinder each 19 22 received the full principal amounts of their respective advances and loans in 1989. During 1993, the balance of Mr. Lay's advance remained at $4,999,975. During 1993, the highest amount of Mr. Lay's outstanding loan balance was $2,500,000. As of February 28, 1994, the balance on such loan was $2,150,000. During 1993, the balance of Mr. Kinder's advance and loan remained at $1,553,086 and $1,500,000 respectively. The advances and loans bear interest (during 1993, at an average annual rate of 5.36%) and are collateralized with Common Stock and personal property. Mr. Lay paid Enron $384,950 as interest in 1993 pursuant to his advance and loan agreements. Mr. Kinder paid Enron $80,548 as interest in 1993 pursuant to his loan agreement. Interest in the amount of $83,129 accrued in 1993 on Mr. Kinder's advance, of which Mr. Kinder paid Enron $81,832. Unpaid interest continues to accrue and is payable on or before February 8, 1999. The loans and advances mature on February 8, 1999, and if the shares of Common Stock pledged as collateral for the advances are insufficient to cover the amount of the advance and accrued interest outstanding, then Messrs. Lay and Kinder are liable for up to one-third of the advance as well as unpaid interest. In the event of either Mr. Lay's or Mr. Kinder's death or permanent disability, his obligation to repay the advance is forgiven. Under the terms of the advances, Messrs. Lay and Kinder are also entitled to receive payments to equalize the increased value and dividends that would have been realized based on the number of shares of Common Stock they agreed to buy at a fixed price of $50 per share and the number of shares they were actually able to buy in the open market at varying prices above $50. Under the terms of Mr. Lay's renewed agreement, within 30 days of execution of the agreement, Mr. Lay will repay all outstanding advances and loans, including principal and interest. Mr. Lay will then be provided with a new non-collateralized, interest bearing line of credit in an aggregate amount not to exceed $4 million at any time. Mr. Kinder's renewed agreement also provides that, as of February 8, 1997, if mutually satisfactory terms pertaining to his future employment with Enron have not been agreed to by Mr. Kinder and Enron, then the outstanding principal and interest balances of his loan and advance will be forgiven. Enron has purchased insurance on Messrs. Lay and Kinder, with Enron as the owner and beneficiary, which policies will allow Enron to recover any outstanding advances in the event of the death or permanent disability of Mr. Lay or Mr. Kinder. If severance remuneration payable under the agreements is held to constitute "excess parachute payments" and Messrs. Lay or Kinder become liable for any tax penalties imposed thereon, Enron will make a cash payment to them in an amount equal to the tax penalties plus an amount equal to any additional tax for which they will be liable as a result of their receipt of the payment for such tax penalties and payment for such reimbursement for additional tax. Messrs. Lay and Kinder have agreed to noncompete provisions until the end of the term of their employment agreements if they are involuntarily terminated and for two years from the date of any other termination of their employment. Mr. Burns entered into an employment agreement with Enron in July, 1989, which, as amended, provides for a minimum annual salary of $245,000, and contains a loan commitment provision which allows Mr. Burns to borrow up to an aggregate of $1,000,000 from Enron. Mr. Burns received the full principal amount of his loan in August, 1991. The loan bears interest (during 1993, at an average annual rate of 5.36%) and is collateralized with pledged personal properties. Mr. Burns paid $75,000 as interest in 1993 pursuant to his loan agreement. In the event of his involuntary termination, he will receive amounts prescribed in such agreement through the term of the agreement, which expires on August 31, 1996. The employment agreement contains noncompete provisions in the event of Mr. Burns' termination of employment. 20 23 Mr. Segner entered into an employment agreement with Enron in October, 1991, which, as amended, provides for a minimum annual salary of $230,000. In the event of his involuntary termination, he will receive amounts prescribed in such agreement through the term of the agreement, which expires on September 30, 1996. The employment agreement contains noncompete provisions in the event of Mr. Segner's termination of employment. Mr. Gray entered into an employment agreement with Enron in July, 1993, which provides for a minimum annual salary of $350,000. It also includes the following provisions: (i) The potential to receive 65,800 shares of restricted stock, contingent upon Enron International meeting the Board approved earnings target for the previous calendar year, according to the following grant schedule: in February 1994, 9,400 shares if 1993 earnings target met; in February 1995, 18,800 shares if 1994 earnings target met; in February 1996, 18,800 shares if 1995 earnings target met; and in December 1996, 18,800 shares if 1996 earnings target met. If a grant is not made because the previous year's earnings target was missed, the grant can be made in a following February if the earnings target for the year is exceeded by at least the amount of the underage from a previous year. All shares will vest on December 31, 1996. If the value of the 65,800 shares, including accrued dividends, is less than $3,000,000 on December 31, 1996, the difference (prorated for shares not granted) will be made up by Enron. (ii) A grant of 128,000 stock options with a 10 year term vesting 100% eight years from date of grant. Vesting may be accelerated under the following schedule: in February 1994, one-seventh if 1993 earnings target met; in February 1995, two-sevenths if 1994 earnings target met; in February 1996, two-sevenths if 1995 earnings target met; in December, 1996, two-sevenths if 1996 earnings target met. Vesting of stock options has the same carry back provision, relative to missed earning targets as the restricted shares. (iii) No performance unit grants will be made during the term of the agreement. (iv) Payment of annual bonuses during the term of the agreement are at the sole discretion of the Compensation Committee. In the event of his involuntary termination, he will receive amounts prescribed in such agreement through the term of the agreement, which expires on December 31, 1996. The employment agreement contains noncompete provisions in the event of Mr. Gray's termination of employment. CERTAIN TRANSACTIONS During 1993, Enron paid Walker/Free Associates, of which Dr. Walker is Chairman, approximately $31,146 in fees relating to governmental relations and tax consulting. The services to be performed by Walker/Free Associates pursuant to its consulting arrangement do not include, and are in addition to, Mr. Walker's duties as a director of Enron, and the above compensation is in addition to the remuneration payable to Mr. Walker as a member of the Board of Directors. Effective August 1, 1991, Enron, Enron Power Corp. (a wholly owned subsidiary of Enron) and John A. Urquhart entered into a Consulting Services Agreement which, as amended, extends through July 31, 1994. Pursuant to the terms of the agreement, Mr. Urquhart serves as Vice Chairman of the Board of Enron and consults with Enron and Enron Power Corp. regarding the development and implementation of an integrated strategic international business plan. The agreement contains a retainer fee of $37,500 per month for providing up to 120 days consulting services annually. To the extent that consulting services exceed 120 days, Enron and/or Enron Power Corp. will pay Mr. Urquhart a daily rate of $3,750. Enron and/or Enron Power Corp. also pays for all reasonable out- of-pocket expenses incurred by Mr. Urquhart under the agreement. In addition, prior to the amendment described below, Mr. Urquhart was entitled to receive the following incentive compensa- 21 24 tion: (i) 84,000 Enron Corp. phantom shares valued at $15.25 per share, (ii) a $300,000 consulting services completion bonus, payable upon the earlier of July 31, 1995, or the date no phantom units remain exercisable, reduced by all phantom unit payments received, and (iii) a grant of phantom equity of .1% in Enron Power Corp., pursuant to the provisions of the Enron Power Corp. Executive Compensation Plan, which shall vest at the end of the term of the Consulting Services Agreement. The Consulting Services Agreement was amended in February 1993 to replace the .1% phantom equity in Enron Power Corp. with 92,000 phantom shares in Enron at a grant price of $28.125. Upon exercise of phantom shares, Mr. Urquhart will receive the difference between the grant price and the fair market value of a phantom share on the date of exercise, defined as the closing price for one share of Enron Common Stock, times the number of phantom shares exercised. The phantom shares will vest 100% one year from date of grant and will expire on August 1, 1995. In return for waiving his phantom equity, Mr. Urquhart will receive cash payments totalling $1,160,000, one-third of which was paid upon execution of the amendment and an additional one-third of which will be paid on each of the first and second anniversaries of execution. If at the end of July, 1994, the average number of days which Mr. Urquhart provided services for each twelve-month period exceeds 135 days, then Enron and/or Enron Power Corp. in its sole discretion shall review the compensation arrangement and make a determination whether to pay Mr. Urquhart a cash bonus, taking into account the average number of days in excess of 135 and the effect they had on the performance and economic results of Enron and Enron Power Corp. 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 1993, Enron paid Mr. Urquhart approximately $562,500 for services rendered under the Consulting Services Agreement. Jeffrey K. Skilling, an executive officer of Enron, is Co-Chairman and Chief Executive Officer of Enron Gas Services Corp. and a member of Enron's Management Committee. Mr. Skilling entered into a loan agreement with Enron in August, 1990, which, as amended, provides for a loan commitment of $1,400,000. The loan bore interest and was collateralized with pledged personal properties. In April, 1992, Mr. Skilling received an additional loan of $100,000, which accrued interest at an annual rate of 7%. Effective as of January 1, 1993, both of the then-existing loans, as well as accrued interest thereon, were repaid with the proceeds from a new nonrecourse loan in the amount of $1,606,719, which was payable on or before January 2, 1995, and was collateralized with Enron stock options and phantom equity in Enron Gas Services Corp. Interest in the amount of $34,818 accrued on the new loan during 1993. The new loan, as well as accrued interest thereon, was repaid in full on July 1, 1993. Section 16(a) of the Securities Exchange Act of 1934 requires Enron's executive officers and directors, and persons who own more than 10% of a registered class of Enron's equity securities, to file reports of ownership and changes in ownership with the SEC and the New York Stock Exchange. Based solely on its review of the copies of such reports received by it, or written representations from certain reporting persons that no Forms 5 were required for those persons, Enron believes that during 1993, its executive officers, directors and greater than ten percent stockholders complied with all applicable filing requirements, with the exception of the transactions described below. In 1993, Lawrence Ruben failed to timely file three reports covering one transaction, each related to a trust for the benefit of his nieces and nephews for which he is co-trustee, for himself and for the trust. Mrs. Ruben did not timely file Form 3s for three trusts for the benefit of her children covering the acquisition in December, 1993, of shares under the will of Arthur B. Belfer. Robert A. Belfer did 22 25 not timely file Form 3s for three trusts for the benefit of his children covering the acquisition in December, 1993, of shares under the will of Arthur B. Belfer. COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION During 1993, the Compensation Committee consisted of Messrs. LeMaistre, William A. Anders, Belfer, Duncan and Foy. On March 14, 1994, Mr. Anders resigned from Enron's Board of Directors and all committees on which he served. Until April, 1986, Robert Belfer was an officer of Belco Petroleum Corporation, a wholly owned subsidiary of Enron. During 1993 and 1994, Belco Oil & Gas Corp. ("BOGC") entered into natural gas commodity swap agreements and option agreements with Enron Risk Management Services Corp., a wholly owned subsidiary of Enron ("ERMS"). BOGC is wholly owned by Mr. Belfer and members of his family. These agreements were entered into in the ordinary course of business of ERMS, and are on terms that ERMS believes are no less favorable than the terms of similar arrangements with third parties. Pursuant to the terms of these agreements, BOGC has paid ERMS $92,100 with respect to 1993. The amount of future payments (as well as whether payments are made by ERMS to BOGC or vice versa) is affected by fluctuations in energy commodity prices. Enron retains the law firm of Bracewell & Patterson for legal services. During the last fiscal year, Enron and its subsidiaries paid Bracewell & Patterson, from which Mr. Foy is a retired partner, legal fees which Enron believes to be reasonable for the services rendered. ITEM 2. RATIFICATION OF APPOINTMENT OF AUDITORS Pursuant to the recommendation of the Audit Committee, the Board of Directors appointed Arthur Andersen & Co., independent public accountants, to audit the consolidated financial statements of Enron for the year ending December 31, 1994. Ratification of this appointment shall be effective upon receiving the affirmative vote of the holders of a majority of the Voting Stock present or represented by proxy and entitled to vote at the Annual Meeting. Under Delaware law, an abstention would have the same legal effect as a vote against this proposal, but a broker non-vote would not be counted for purposes of determining whether a majority had been achieved. THE BOARD OF DIRECTORS RECOMMENDS RATIFICATION BY THE STOCKHOLDERS OF THIS APPOINTMENT. In the event the appointment is not ratified, the Board of Directors will consider the appointment of other independent auditors. A representative of Arthur Andersen & Co. is expected to be present at the Annual Meeting of Stockholders on May 3, 1994, 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. 23 26 ITEM 3. AMENDMENT OF THE RESTATED CERTIFICATE OF INCORPORATION TO CHANGE THE DIVIDEND RATE ON THE $10.50 CUMULATIVE SECOND PREFERRED CONVERTIBLE STOCK The Board of Directors of Enron desires to amend the Restated Certificate of Incorporation to change to a variable rate the dividend characteristics of the $10.50 Cumulative Second Preferred Convertible Stock (the "Preferred Stock"). At the 1994 Annual Meeting of Stockholders, there will be submitted for stockholder approval the resolution described below that would amend Enron's Restated Certificate of Incorporation by amending Paragraph (A) and Paragraph (B) of the resolution of the Board of Directors set forth in the Certificate of Designation of the Preferred Stock (the "Charter Amendment"). Stockholder approval of the following resolutions is necessary in order to effect the Charter Amendment: RESOLVED, that the Restated Certificate of Incorporation of the Company is hereby amended by amending Paragraph (A) and Paragraph (B) of the resolutions of the Board of Directors set forth in the Certificate of Designation of the $10.50 Cumulative Preferred Convertible Stock to read in their entirety as follows: (A) The distinctive designation of the Second Preferred Convertible Series shall be "Cumulative Second Preferred Convertible Stock"; the number of shares which shall constitute the Second Preferred Convertible Series shall be 2,400,000 shares; and such number shall not be increased. (B) The annual rate of dividends payable on shares of the Cumulative Second Preferred Convertible Series shall be a variable amount equal to the higher of $10.50 per share or the equivalent dividend that would be paid if shares of the Cumulative Second Preferred Convertible Series were converted to Common Stock and the date from which dividends shall be cumulative and shall accrue on all shares of the Cumulative Second Preferred Convertible Series shall be the Effective Time of the Merger, as such terms are defined in the Agreement and Plan of Merger, dated as of April 12, 1983 among the Corporation, I N Holdings, Inc. and Belco Petroleum Corporation. If the Charter Amendment is adopted by the required vote of stockholders, it will become effective when the appropriate Certificate of Amendment to Enron's Restated Certificate of Incorporation is filed with the Secretary of State of Delaware. If the proposal is approved, Enron intends to file the amendment as soon as possible. REASONS FOR THE INCREASE IN THE DIVIDEND RATE ON THE PREFERRED STOCK The new dividend policy would provide that holders of the Preferred Stock receive the higher of $10.50 per share or the equivalent dividend that would be paid if the Preferred Stock were converted into Common Stock. The Board of Directors believes that the amendment will benefit both the holders of the Preferred Stock and the holders of Common Stock. Each share of Preferred Stock is currently convertible into 13.652 shares of Common Stock. The Preferred Stock dividend of $10.50 per share equates to $0.77 per share of dividends on this amount of Common Stock -- a $0.02 per share dividend advantage based on the current annualized dividend rate 24 27 on the Common Stock. If Enron were to increase the Common Stock dividend by as little as 3%, the holders of Preferred Stock would have an economic incentive to convert in order to receive the higher dividend. Unless the Charter Amendment is adopted, conversion (which is currently fully available) would be the only option available to a holder of the Preferred Stock that desires to realize the benefit of higher dividends. If all of the approximately 1.5 million shares of Preferred Stock were converted, twenty million additional shares of Common Stock would be outstanding (an 8% increase). An increase of this magnitude in the number of shares of Common Stock outstanding would decrease primary earnings per share by 3 to 4%. The proposed amendment will permit holders of the Preferred Stock to receive such higher dividends, without converting their shares, in the event the dividend rate on the Common Stock is increased above $0.77 per share. The Board of Directors believes that holders of the Common Stock will benefit if the Charter Amendment is adopted because there are certain institutional investors, including insurance companies and fixed income investment companies, that may be subject to regulatory or contractual restrictions that prohibit them from owning common stocks or limit the amounts they may invest in common stocks. The Board of Directors believes that, in the event the dividend rate on Enron Common Stock is increased above $0.77 per share on an annualized basis, such investors may convert their Preferred Stock into Common Stock and sell their Common Stock in the market. This would result in selling pressure on the Common Stock that is occasioned by regulatory or contractual requirements and is unrelated to the value of the Common Stock. The Board of Directors believes that, although such selling pressure may be temporary, the holders of the Common Stock will benefit from the absence of such artificial selling pressure in the event the dividend rate is increased. The Board of Directors believes that the Charter Amendment will permit the market price of the Common Stock to reflect fully the benefits of any dividend increase, without artificial selling pressure unrelated to the intrinsic value of Common Stock. The Board of Directors believes Enron's stock price would be positively impacted if the Preferred Stock remained outstanding. Since the existing holders of Preferred Stock already are entitled to benefit from increases in dividends paid to the holders of Common Stock through their conversion rights, the Board of Directors believes the Common Stock will not be disadvantaged by approving this Charter Amendment. Since holders of both Preferred and Common Stock benefit from a higher Enron stock price, it is the opinion of the Board of Directors that it is in the best interests of both to approve the Charter Amendment. The Board of Directors has made no decision whether to increase the dividend rate on the Common Stock, although Enron has increased the dividend rate on the Common Stock for three consecutive years. The Board of Directors has in recent years addressed the question whether the dividend rate should be changed in the fourth quarter of each year. The Charter Amendment is being submitted at this time, however, so that the Board of Directors may consider future dividend increases without being concerned about selling pressure in the event the annualized dividend rate is increased above $0.77 per share on the Common Stock. REQUIRED VOTE AND RECOMMENDATION The approval and adoption of the Charter Amendment requires the affirmative vote of the holders of record at the close of business on March 7, 1994 of at least a majority of the voting power of the 25 28 outstanding Voting Stock. Accordingly, under Delaware law and Enron's Restated Certificate of Incorporation and by-laws, abstentions and broker non-votes would have the same legal effect as a vote against this proposal, even though this may not be the intent of the person voting or giving the proxy. The shares represented by the proxies solicited by the Board of Directors will be voted as directed on the form of proxy or, if no direction is indicated, will be voted "FOR" the proposal. THE BOARD OF DIRECTORS RECOMMENDS VOTING "FOR" THIS PROPOSAL.