<PAGE> 1
SCHEDULE 14A
(RULE 14A-101)
INFORMATION REQUIRED IN PROXY STATEMENT
SCHEDULE 14A INFORMATION
PROXY STATEMENT PURSUANT TO SECTION 14(A) OF THE SECURITIES
EXCHANGE ACT OF 1934 (AMENDMENT NO. )
Filed by the Registrant [X]
Filed by a Party other than the Registrant [ ]
Check the appropriate box:
[ ] Preliminary Proxy Statement [ ] Confidential, for Use of the
Commission Only (as permitted by
Rule 14a-6(e)(2))
[X] Definitive Proxy Statement
[ ] Definitive Additional Materials
[ ] Soliciting Material Pursuant to sec. 240.14a-11(c) or sec. 240.14a-12
EL PASO ENERGY CORPORATION
- --------------------------------------------------------------------------------
(Name of Registrant as Specified in its Charter)
EL PASO
- --------------------------------------------------------------------------------
(Name of Person(s) Filing Proxy Statement, if other than the Registrant)
Payment of Filing Fee (Check the appropriate box):
[X] No fee required.
[ ] Fee computed on table below per Exchange Act Rules 14a-6(i)(l) and
0-11.
(1) Title of each class of securities to which transaction applies:
- --------------------------------------------------------------------------------
(2) Aggregate number of securities to which transaction applies:
- --------------------------------------------------------------------------------
(3) Per unit price or other underlying value of transaction computed
pursuant to Exchange Act Rule 0-11 (Set forth the amount on which the filing fee
is calculated and state how it was determined):
- --------------------------------------------------------------------------------
(4) Proposed maximum aggregate value of transaction:
- --------------------------------------------------------------------------------
(5) Total fee paid:
- --------------------------------------------------------------------------------
[ ] Fee paid previously with preliminary materials.
[ ] Check box if any part of the fee is offset as provided by Exchange Act
Rule 0-11(a)(2) and identify the filing for which the offsetting fee was paid
previously. Identify the previous filing by registration statement number, or
the Form or Schedule and the date of its filing.
(1) Amount Previously Paid:
- --------------------------------------------------------------------------------
(2) Form, Schedule or Registration Statement No.:
- --------------------------------------------------------------------------------
(3) Filing Party:
- --------------------------------------------------------------------------------
(4) Date Filed:
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<PAGE> 2
[EL PASO ENERGY LOGO]
Dear Stockholder:
You are cordially invited to attend the 1999 Annual Meeting of Stockholders
(the "Annual Meeting") of El Paso Energy Corporation (the "Company"), which will
be held on Thursday, April 22, 1999, at 9:00 a.m. (central daylight time), at
The Windsor Court Hotel, 300 Gravier Street, New Orleans, Louisiana 70130. The
accompanying Notice of 1999 Annual Meeting of Stockholders and Proxy Statement
describe the business to be transacted at the Annual Meeting.
The Company is pleased to offer you the option of voting your shares (1)
electronically via the Internet by following the instructions on your proxy
card, (2) by telephone by following the instructions on your proxy card, or (3)
by using the enclosed traditional paper proxy card. Whether or not you plan to
attend the Annual Meeting, please vote by one of the foregoing methods to ensure
that your shares are represented and voted in accordance with your wishes. This
will help the Company avoid the expense of sending follow-up letters to ensure
that a quorum is represented.
Sincerely,
/s/ WILLIAM A. WISE
WILLIAM A. WISE
Chairman of the Board,
President and Chief Executive Officer
Houston, Texas
March 19, 1999
<PAGE> 3
EL PASO ENERGY CORPORATION
1001 LOUISIANA STREET
HOUSTON, TEXAS 77002
NOTICE OF 1999 ANNUAL MEETING OF STOCKHOLDERS
APRIL 22, 1999
The 1999 Annual Meeting of Stockholders (the "Annual Meeting") of El Paso
Energy Corporation (the "Company"), will be held on Thursday, April 22, 1999, at
9:00 a.m. (central daylight time), at The Windsor Court Hotel, 300 Gravier
Street, New Orleans, Louisiana 70130 for the following purposes:
1. To elect eight Directors, each to hold office for a term of one year;
2. To approve the El Paso Energy Corporation 1999 Omnibus Incentive
Compensation Plan;
3. To approve the El Paso Energy Corporation Employee Stock Purchase Plan;
4. To amend the Restated Certificate of Incorporation of El Paso Natural
Gas Company to eliminate the provision relating to Section 251(g) of the
Delaware General Corporation Law;
5. To ratify the appointment of PricewaterhouseCoopers LLP as independent
certified public accountants to audit the Company's financial statements
for the fiscal year ending December 31, 1999; and
6. To transact any other business which may be properly brought before the
Annual Meeting. The Board of Directors is aware of one stockholder
proposal that may be presented at the Annual Meeting, which is described
in the attached proxy statement.
Only stockholders of record at the close of business on February 24, 1999,
are entitled to notice of, and to vote at, the Annual Meeting and any
adjournment or postponement thereof. As an alternative to using the paper proxy
card to vote, stockholders may vote electronically via the Internet or by
telephone. Please see "Additional Information - Internet and Telephone Voting"
in the Proxy Statement for more details. Whether or not you plan to attend the
Annual Meeting, please complete, date, sign and return the proxy in the
accompanying envelope, electronically via the Internet or by telephone as
promptly as possible to ensure that your shares are represented and voted in
accordance with your wishes.
By Order of the Board of Directors
/s/ DAVID L. SIDDALL
DAVID L. SIDDALL
Corporate Secretary
Houston, Texas
March 19, 1999
<PAGE> 4
EL PASO ENERGY CORPORATION
1001 LOUISIANA STREET
HOUSTON, TEXAS 77002
PROXY STATEMENT
1999 ANNUAL MEETING OF STOCKHOLDERS -- APRIL 22, 1999
This Proxy Statement with the accompanying Notice of 1999 Annual Meeting of
Stockholders and proxy card are being mailed to stockholders beginning on or
about March 19, 1999. The proxy is solicited by the Board of Directors of El
Paso Energy Corporation (the "Company") for use at the 1999 Annual Meeting of
Stockholders (the "Annual Meeting") to be held on Thursday, April 22, 1999.
Shares of the Company's common stock, par value $3.00 per share (the "Common
Stock"), represented by a properly executed proxy submitted either in the
accompanying form, via the Internet, or by telephone, will be voted at the
Annual Meeting. The proxy may be revoked at any time before its exercise by
sending written notice of revocation to Mr. David L. Siddall, Corporate
Secretary, El Paso Energy Corporation, 1001 Louisiana Street, Houston, Texas
77002, by signing and delivering a subsequently dated proxy card; by attending
the Annual Meeting in person and giving notice of revocation to the Inspector of
Election; or by following the appropriate revocation procedures via the Internet
or by telephone.
Effective August 1, 1998, El Paso Natural Gas Company ("EPNG") reorganized
into a holding company form of organizational structure, whereby the Company, a
Delaware corporation, became the holding company (the "Reorganization"). The
Reorganization was effected by a merger conducted pursuant to Section 251(g) of
the Delaware General Corporation Law ("DGCL"), which permits the formation of a
holding company structure without a vote of the stockholders of EPNG. By virtue
of the Reorganization, EPNG became a direct, wholly owned subsidiary of the
Company, and all of EPNG's outstanding capital stock was converted, on a
share-for-share basis, into capital stock of the Company. As a result of the
Reorganization, all outstanding securities of EPNG (including common stock) were
converted into equivalent securities of the Company. Because the Reorganization
involved companies under common control, the stockholders' equity, and
components related thereto, of EPNG became the basis for the Company
stockholders' equity. References to the "Company" in this Proxy Statement refer
to El Paso Energy Corporation, as successor to EPNG after August 1, 1998, and to
EPNG for information prior to August 1, 1998.
February 24, 1999, was the record date for the determination of
stockholders entitled to notice of, and to vote at, the Annual Meeting, or
adjournments or postponements of the Annual Meeting. On that date there were
122,309,755 shares of Common Stock outstanding and entitled to vote, which is
the Company's only class of voting securities. For a period of at least ten days
prior to the Annual Meeting, a complete list of stockholders entitled to vote at
the Annual Meeting will be available for examination by any stockholder during
ordinary business hours at The Windsor Court Hotel, 300 Gravier Street, New
Orleans, Louisiana 70130.
Each stockholder is entitled to cast one vote on each proposal presented at
the Annual Meeting for each share of Common Stock held as of the record date.
One Inspector of Election, a representative from BankBoston, N.A. and appointed
by the Board of Directors, shall have authority to receive, inspect,
electronically tally and determine the validity of the proxies which are
received. In accordance with the Company's By-laws, in determining the number of
votes cast for or against a proposal, an abstention by a stockholder will be a
vote of abstention with respect to the proposal voted upon and will not be
treated as a vote "for" or "against" the proposal; however, an abstention and a
broker non-vote will be included when determining whether a quorum is present.
The Company's By-laws also provide that a non-vote by a broker will be treated
as if the broker never voted, but a non-vote by a stockholder will be deemed a
vote "for" the management proposal. Stockholders may vote for all, some or none
of the director nominees, and they may vote "for" or "against" the other
proposals or abstain from voting.
<PAGE> 5
INFORMATION ABOUT THE BOARD OF DIRECTORS AND COMMITTEES
The Board of Directors held nine meetings during the fiscal year ended
December 31, 1998. The standing committees of the Board of Directors are the
Audit Committee and the Compensation Committee. The Board of Directors does not
have a nominating committee or any committee performing similar functions, and
all matters which would be considered by such committee are acted upon by the
full Board of Directors. During the 1998 fiscal year, and during his term, each
Director attended at least 75% of the meetings of the Board of Directors and the
committees on which he served, except for Mr. Juan Carlos Braniff.
THE AUDIT COMMITTEE
The Audit Committee held five meetings during the 1998 fiscal year. The
Audit Committee currently consists of Kenneth L. Smalley (Chairman), Juan Carlos
Braniff, Peter T. Flawn and Malcolm Wallop, each a non-employee Director. The
Audit Committee makes a recommendation to the Board of Directors for a firm of
independent certified public accountants to audit the Company's annual financial
statements. In addition, the Audit Committee reviews with management and the
Company's independent certified public accountants the Company's financial
statements, the adequacy of the Company's internal accounting controls, the
Company's basic accounting and financial policies and practices, the Company's
risk management practices and Year 2000 readiness efforts.
THE COMPENSATION COMMITTEE
The Compensation Committee held four meetings during the 1998 fiscal year.
The Compensation Committee currently consists of Ben F. Love (Chairman), Byron
Allumbaugh and James F. Gibbons, each a non-employee Director. The Compensation
Committee currently administers the Company's executive stock option plan,
long-term incentive compensation plan, annual incentive compensation plan and
other executive compensation plans. In addition, the Compensation Committee
considers proposals with respect to the creation of and changes to executive
compensation plans and reviews appropriate criteria for establishing performance
targets and determining annual corporate and executive performance ratings. The
policies and mission of the Compensation Committee are set forth in the
"Compensation Committee Report on Executive Compensation," which begins on page
13 of this Proxy Statement.
DIRECTOR COMPENSATION
Each member of the Board of Directors is reimbursed for the usual and
ordinary expenses of meeting attendance. Employee Directors receive no
additional compensation for serving on the Board of Directors or committees
thereof. Pursuant to the Company's 1995 Compensation Plan for Non-Employee
Directors, non-employee Directors receive an annual retainer of $60,000, with
$10,000 of said amount required to be paid in deferred shares of Common Stock
(plus a conversion premium), and the remaining $50,000 to be paid, at the option
of the Director, in cash, deferred cash or deferred shares of Common Stock (plus
a conversion premium) or a combination thereof. Each non-employee Director
receives a retirement benefit credit in the form of deferred shares of Common
Stock equal to the annual retainer (without the conversion premium) pursuant to
the Company's 1995 Compensation Plan for Non-Employee Directors. Each
non-employee Director receives a stock option grant of 3,000 options under the
Company's Stock Option Plan for Non-Employee Directors upon initial election to
the Board of Directors and an annual stock option grant of 2,000 options upon
each re-election to the Board of Directors.
As part of its overall program to support charitable organizations, the
Company has a Director Charitable Award Plan. The plan provides for the
designation of up to four charitable organizations to receive a maximum of
$1,000,000 in the aggregate upon the death of each Director participant.
Pursuant to the plan, each Director is entitled to participate upon the
completion of two consecutive years of service on the Board of Directors.
Currently, all Directors other than Mr. Braniff are eligible to participate in
the plan.
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<PAGE> 6
PROPOSALS
PROPOSAL NO. 1 -- ELECTION OF DIRECTORS
In accordance with the Company's By-laws, the Board of Directors has fixed
at eight the number of Directors constituting the full Board of Directors. The
Company proposes to elect eight Directors, each to hold office for a term of one
year and until his successor has been duly elected and shall qualify. With the
exception of broker non-votes and unless otherwise instructed by stockholders,
the persons named on the enclosed proxy card will vote the shares of Common
Stock represented by such proxy "for" the election of the eight nominees named
in this Proxy Statement. However, if any of the named nominees should be
unavailable for election, the Board of Directors may substitute nominees, in
which event the shares of Common Stock represented by proxy will be voted "for"
such substitute nominees unless an instruction to the contrary is contained on
the proxy card. No circumstances are presently known which would render any
nominee named herein unavailable to serve as a member of the Board of Directors.
Pursuant to the Company's By-laws, the election of each Director requires an
affirmative vote of a plurality of the shares of Common Stock represented at the
Annual Meeting in person or by proxy and entitled to vote on the proposal.
Holders of Common Stock may not cumulate their votes for the election of
Directors.
THE BOARD OF DIRECTORS RECOMMENDS THAT THE STOCKHOLDERS VOTE "FOR" THE ELECTION
OF EACH OF THE NOMINEES NAMED BELOW.
Each of the following nominees is currently a Director of the Company:
<TABLE>
<CAPTION>
NAME, PRINCIPAL OCCUPATION
AND SELECTED OTHER INFORMATION
CONCERNING NOMINEES FOR DIRECTOR
--------------------------------
<S> <C>
BYRON ALLUMBAUGH Director since 1992
Retired.
Age -- 67
Member -- Compensation Committee
Mr. Allumbaugh has been retired since February 1, 1997. From February 1996 to
February 1997, Mr. Allumbaugh was Chairman of the Board of Ralphs Grocery
Company. He served as Chief Executive Officer of Ralphs Grocery Company from June
1995 until February 1996. From 1976 to 1995, Mr. Allumbaugh served as Chairman of
the Board and Chief Executive Officer of Ralphs Grocery Company. Mr. Allumbaugh
is a member of the Board of Directors of CKE Restaurants, Inc. and Ultramar
Diamond Shamrock Inc.
JUAN CARLOS BRANIFF Director since 1997
Deputy Chief Executive Officer of Service Banking,
BANCOMER,
Mexico City, Mexico -- Commercial Banking Institution.
Age -- 41
Member -- Audit Committee
Mr. Braniff has served as the Deputy Chief Executive Officer of Service Banking
at BANCOMER since September 1994. He served as Executive Vice President of
Capital Investments and Mortgage Banking of BANCOMER from December 1991 to
September 1994. For more than five years prior to that date he held several
positions in the real estate, corporate finance and brewing division of Valores
Industriales, S.A.-Fomento Economico Mexicano, S.A. de C.V. ("FEMSA") and its
affiliates. Mr. Braniff is currently a member of the Board of Directors of FEMSA,
S.A. de C.V., Coca Cola FEMSA, S.A. de C.V. and Grupo Financiero Bancomer.
</TABLE>
3
<PAGE> 7
<TABLE>
<CAPTION>
NAME, PRINCIPAL OCCUPATION
AND SELECTED OTHER INFORMATION
CONCERNING NOMINEES FOR DIRECTOR
--------------------------------
<S> <C>
PETER T. FLAWN, PH.D. Director since 1997
Retired.
Age -- 73
Member -- Audit Committee
Dr. Flawn has been retired since 1985. He was President ad interim of The
University of Texas at Austin from July 1, 1997 until April 15, 1998. For more
than five years prior to his retirement, Dr. Flawn was President of The
University of Texas at Austin and currently holds the title of President
Emeritus. He is a member of the Board of Directors of Harte-Hanks, Inc. and
Hester Capital Management, L.L.C.
JAMES F. GIBBONS, PH.D. Director since 1994
Professor, Electrical Engineering,
Stanford University,
Stanford, California -- Higher Education.
Age -- 67
Member -- Compensation Committee
Dr. Gibbons has been on the faculty of Stanford University since 1957 and was
Dean of the School of Engineering from September 1984 until June 1996. Currently,
he is Professor of Electrical Engineering and special counsel to the President
for Industry Relations at Stanford University. He is a member of the Board of
Directors of Centigram Communications Corporation, Cisco Systems, Inc., Lockheed
Martin Corporation and Raychem Corporation.
BEN F. LOVE Director since 1992
Investor.
Age -- 74
Chairman -- Compensation Committee
Since December 1989, Mr. Love's principal occupation has been as a private
investor. For more than five years prior to that date, Mr. Love was Chairman of
the Board and Chief Executive Officer of Texas Commerce Bancshares, Inc. He is a
member of the Board of Directors of Mitchell Energy & Development Corp.
KENNETH L. SMALLEY Director since 1992
Retired.
Age -- 69
Chairman -- Audit Committee
Mr. Smalley has been retired since February 1992. For more than five years prior
to that date, Mr. Smalley was a Senior Vice President of Phillips Petroleum
Company and President of Phillips 66 Natural Gas Company, a Phillips Petroleum
Company subsidiary. He is a member of the Board of Directors of El Paso Tennessee
Pipeline Co.
</TABLE>
4
<PAGE> 8
<TABLE>
<CAPTION>
NAME, PRINCIPAL OCCUPATION
AND SELECTED OTHER INFORMATION
CONCERNING NOMINEES FOR DIRECTOR
--------------------------------
<S> <C>
MALCOLM WALLOP Director since 1995
President,
Frontiers of Freedom Foundation,
Arlington, Virginia -- Political Foundation.
Age -- 66
Member -- Audit Committee
Since January 1995, Mr. Wallop's principal occupation has been President of
Frontiers of Freedom Foundation. For eighteen years prior to that date, Mr.
Wallop was a member of the United States Senate. He is a member of the Board of
Directors of Hubbell Inc., Sheridan State Bank and Leviathan Gas Pipeline
Company, the general partner of Leviathan Gas Pipeline Partners, L.P.
WILLIAM A. WISE Director since 1984
Chairman of the Board, President
and Chief Executive Officer,
El Paso Energy Corporation,
Houston, Texas -- Diversified Energy Company.
Age -- 53
Mr. Wise has been Chairman of the Board since January 1994 and Chief Executive
Officer of the Company (the "CEO") since January 1990. Mr. Wise has been
President of the Company from January 1990 until April 1996 and from July 1998 to
present. He was President and Chief Operating Officer of the Company from April
1989 to December 1989. From March 1987 until April 1989, Mr. Wise was an
Executive Vice President of the Company. From January 1984 to February 1987, he
was a Senior Vice President of the Company. He is a member of the Board of
Directors of Battle Mountain Gold Company and is Chairman of the Board of El Paso
Tennessee Pipeline Co. and Leviathan Gas Pipeline Company, the general partner of
Leviathan Gas Pipeline Partners, L.P.
</TABLE>
5
<PAGE> 9
SECURITY OWNERSHIP OF A CERTAIN BENEFICIAL OWNER AND MANAGEMENT
The following table sets forth certain information as of February 1, 1999,
regarding the beneficial ownership of Common Stock by (i) each Director of the
Company, (ii) the Company's Chief Executive Officer and the four other most
highly compensated executives officers in the last fiscal year (together, the
"named executives"), (iii) all Directors and executive officers of the Company
as a group, and (iv) each person or entity known by the Company to own
beneficially more than 5% of its outstanding shares of Common Stock. No family
relationship exists between any of the Directors and executive officers of the
Company.
<TABLE>
<CAPTION>
NAME OF BENEFICIAL OWNERSHIP STOCK PERCENT
TITLE OF CLASS BENEFICIAL OWNER (EXCLUDING OPTIONS)(1) OPTIONS(3) TOTAL OF CLASS
- -------------- ---------------- ---------------------- ---------- --------- --------
<S> <C> <C> <C> <C> <C>
Common Stock Morgan Stanley, Dean Witter,
Discover & Co.
1585 Broadway, 38th Floor
New York, NY 10036 8,196,634 0 8,196,634 6.71%
Common Stock B. Allumbaugh.................... 25,417 18,000 43,417 *
Common Stock J. C. Braniff.................... 2,361 8,000 10,361 *
Common Stock P. T. Flawn...................... 7,013 10,000 17,013 *
Common Stock J. F. Gibbons.................... 15,816 16,000 31,816 *
Common Stock B. F. Love....................... 42,921 4,000 46,921 *
Common Stock K. L. Smalley.................... 28,763 14,000 42,763 *
Common Stock M. Wallop........................ 9,654 14,000 23,654 *
Common Stock W. A. Wise....................... 1,295,980(2) 1,275,356 2,571,336 2.08%
Common Stock H. B. Austin..................... 217,064 229,676 446,740 *
Common Stock R. O. Baish...................... 216,189 137,466 353,655 *
Common Stock J. W. Somerhalder II............. 200,756 213,132 413,888 *
Common Stock B. White Jr. .................... 209,006 199,466 408,472 *
Common Stock Directors and executive officers
as a group (17 persons total,
including those individuals
listed above).................... 3,443,165 2,797,278 6,240,443 4.99%
</TABLE>
- ---------------
* Less than 1%.
(1) Directors and executive officers have sole voting and investment power over
the shares of Common Stock reflected in the table above, except that each of
Messrs. Allumbaugh, Gibbons, Wise, Austin and White shares with one or more
other individuals voting and investment power with respect to 4,575, 2,000,
11,694, 318 and 2,000 shares of Common Stock, respectively. Some shares of
Common Stock reflected in this column for certain individuals are subject to
restrictions. As of December 31, 1998, Morgan Stanley, Dean Witter, Discover
& Co. had shared voting power over 8,155,681 shares of Common Stock and
shared dispositive power over 8,196,634 shares of Common Stock.
(2) Mr. Wise's beneficial ownership excludes 400 shares of Common Stock owned by
his children under the Uniform Gifts to Minors Act, of which Mr. Wise
disclaims beneficial ownership.
(3) The Directors and executive officers have the right to acquire the shares of
Common Stock reflected in this column within 60 days of February 1, 1999,
through the exercise of stock options and/or tandem stock appreciation
rights ("SARs").
6
<PAGE> 10
EXECUTIVE COMPENSATION
COMPENSATION OF EXECUTIVE OFFICERS
The following table sets forth information concerning compensation awarded
to, earned by or paid to any person serving as the Company's CEO or acting in a
similar capacity during the last completed fiscal year, and the named executives
for services rendered to the Company and its subsidiaries in all capacities
during each of the last three fiscal years. The table also identifies the
principal capacity in which each of the named executives served the Company at
the end of fiscal year 1998.
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
ANNUAL COMPENSATION LONG-TERM COMPENSATION
------------------------------------- ------------------------------------------
AWARDS PAYOUTS
------------------------- --------------
OTHER SECURITIES LONG-TERM ALL
ANNUAL RESTRICTED UNDERLYING INCENTIVE PLAN OTHER
NAME AND PRINCIPAL SALARY BONUS COMPENSATION STOCK AWARDS OPTIONS PAYOUTS COMPENSATION
POSITION YEAR ($) ($)(2) ($)(3) ($)(4) (#) ($)(6) ($)(7)
------------------ ---- -------- ---------- ------------ ------------ ---------- -------------- ------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
William A. Wise 1998 -- $1,600,000 $152,939 $1,599,985 98,000 -- $105,227
Chairman, 1997 -- $1,105,000 $203,182 $1,104,971 -- -- $106,209
President & CEO 1996 --(1) $1,275,000 $124,967 $3,537,481(5) 395,000 $740,000 $ 69,731
H. Brent Austin 1998 $305,417 $ 438,000 $ 201 $ 437,972 26,250 -- $ 32,410
Executive Vice 1997 $300,000 $ 330,000 $ 93,435 $ 329,970 -- -- $ 36,150
President & Chief 1996 $228,125 $ 450,000 $ 178 $ 149,987 60,000 $176,658 $ 22,855
Financial Officer
Richard Owen Baish 1998 $302,500 $ 396,000 $ 590 $ 395,987 26,250 -- $ 37,034
President, El Paso 1997 $300,000 $ 472,500 -- -- -- -- $ 39,382
Natural Gas Company 1996 $228,125 $ 450,000 -- $ 149,987 60,000 $176,658 $ 29,826
John W. Somerhalder II 1998 $302,500 $ 396,000 $ 575 $ 395,987 $25,250 -- $ 30,335
President, Tennessee 1997 $300,000 $ 330,000 $ 578 $ 329,970 -- -- $ 34,837
Gas Pipeline Company 1996 $206,458 $ 450,000 $ 15,597 $ 149,987 60,000 $154,927 $ 19,664
Britton White Jr. 1998 $279,584 $ 396,000 $ 284 $ 395,987 26,250 -- $ 32,774
Executive Vice 1997 $275,000 $ 302,500 $ 34,899 $ 302,472 -- -- $ 35,219
President & General 1996 $203,125 $ 412,500 $ 223 $ 137,472 60,000 $133,145 $ 20,550
Counsel
</TABLE>
- ---------------
(1) Mr. Wise's base salary was eliminated in 1996 and replaced with long-term
awards of stock options and restricted stock, the majority of which vest
only after the expiration of specified time periods and only if certain
performance targets are met within those periods. This change was consistent
with Company-wide cost reduction initiatives and was intended to align Mr.
Wise's compensation more directly with stockholder value.
(2) Except for a small amount of cash payable for a fractional share of Common
Stock, the value reflected represents the value of restricted Common Stock
awarded to each of the named executives for their incentive bonus. Pursuant
to the Company's 1995 Incentive Compensation Plan, the named executives are
required to receive a substantial part of their annual bonus in restricted
Common Stock. The amounts reflected in this column represent a combination
of the market value of the restricted Common Stock and cash awarded under
that plan. Dividends are paid directly to the holders of the restricted
Common Stock during the four-year vesting schedule. The amounts reflected
for 1996 include an additional one-time cash bonus awarded under the
Company's 1995 Incentive Compensation Plan in recognition of the
extraordinary accomplishments achieved during 1996.
(3) The amount reflected for Mr. Wise in fiscal year 1998 includes, among other
things, $90,000 for a perquisite and benefit allowance and $36,088 in value
attributed to use of the Company's aircraft. In fiscal year 1997, the amount
for Mr. Wise includes, among other things, a tax gross-up associated with
his relocation to Houston and $85,167 for a perquisite and benefit
allowance. The amount reflected for Mr. Wise for fiscal year 1996 includes a
$48,000 perquisite and benefit allowance and a one-time living allowance in
the amount of $45,833 paid prior to the compensation changes discussed in
Note 1 above. The amounts reflected for fiscal year 1997 for the other named
executives, except for Messrs. Baish and
7
<PAGE> 11
Somerhalder, are tax gross-ups associated with their relocation to Houston.
The aggregate value of the perquisites and other personal benefits received
by the other named executives in fiscal years 1998, 1997 and 1996 have not
been reflected because the amounts were below the Securities and Exchange
Commission's (the "SEC") required reporting threshold.
(4) The Company's 1995 Incentive Compensation Plan provides for and encourages
participants to elect to take the cash portion of their annual bonus award
in shares of restricted Common Stock. The amounts reflected in this column
include the market value of restricted Common Stock on the date of grant,
subject to a four-year vesting schedule, received by each of the named
executives pursuant to such election. The total shares of restricted Common
Stock, including those shares reflected in this column, held on December 31,
1998 by Messrs. Wise, Austin, Baish, Somerhalder and White was 978,876,
175,096, 164,296, 167,732, and 166,080, respectively. The aggregate dollar
value on December 31, 1998, of all shares of restricted Common Stock held by
Messrs. Wise, Austin, Baish, Somerhalder and White was $34,077,121,
$6,095,530, $5,719,555, $5,839,170 and $5,781,660, respectively. Dividends
are paid directly to the holders of the restricted Common Stock. Most of the
foregoing values can be realized by the named executives if, and only if,
they remain employees of the Company for the specified time period and the
Company's stockholders realize the required total stockholder value during
the specified time period.
(5) The amount reflected for Mr. Wise also includes the market value of a
one-time retention oriented restricted Common Stock grant of 200,000 shares,
which began vesting on January 19, 1997 at the rate of 20% per year for five
years.
(6) The amounts in this column for fiscal year 1996 represent the market value
of Common Stock and/or cash paid as an interim payout of performance units
("PUs") under the Company's 1995 Omnibus Compensation Plan. The interim
payment was made in recognition of the Company's total stockholder return in
relation to that of its peer group of companies during the first two years
of the performance period. No named executive received a long-term incentive
plan payout from the Company during fiscal years 1997 and 1998.
(7) The compensation reflected in this column for fiscal year 1998 is comprised
of Company contributions to the Company's Retirement Savings Plan,
supplemental Company contributions under the Supplemental Benefits Plan and
the above-market interest earned on deferred compensation. Specifically,
these amounts for fiscal year 1998 were $0, $88,536 and $16,690 for Mr.
Wise; $7,200, $21,392 and $3,818 for Mr. Austin; $7,200, $21,263 and $8,572
for Mr. Baish; $7,200, $21,261 and $1,874 for Mr. Somerhalder; and $7,200,
$18,993 and $6,582 for Mr. White, respectively.
STOCK OPTION GRANTS
The table on the following page sets forth the number of stock options
granted at fair market value to each of the named executives during the fiscal
year 1998. In satisfaction of applicable SEC regulations, the table further sets
forth the potential realizable value of such stock options in the year 2008 (the
expiration date of the stock options) at arbitrarily assumed annualized rates of
stock price appreciation of 5% and 10% over the full ten-year term of the stock
options. As the table indicates, the annualized stock price appreciation of 5%
and 10% will result in stock prices in the year 2008 of approximately $57.67 and
$91.83, respectively. The amounts shown in the table as potential realizable
values for all stockholders' stock (approximately $2.7 billion and $6.8
billion), represent the corresponding increases in the market value of
121,645,011 shares of the Common Stock outstanding as of December 31, 1998. No
gain to the named executives is possible without an increase in stock price,
which would benefit all stockholders proportionately. Actual gains, if any, on
stock option exercises and Common Stock holdings are dependent on the future
performance of the Common Stock and overall stock market conditions. There can
be no assurances that the potential realizable values shown in this table will
be achieved.
8
<PAGE> 12
OPTION GRANTS IN 1998
<TABLE>
<CAPTION>
POTENTIAL REALIZABLE VALUE AT
ASSUMED ANNUAL RATES
OF STOCK PRICE
INDIVIDUAL GRANTS(1) APPRECIATION FOR OPTION TERM
------------------------------------------------ -------------------------------------
NUMBER OF % OF TOTAL
SECURITIES OPTIONS IF STOCK PRICE AT IF STOCK PRICE AT
UNDERLYING GRANTED TO EXERCISE $57.67 $91.83
OPTIONS EMPLOYEES PRICE EXPIRATION IN 2008 IN 2008
NAME GRANTED(#) IN 1998 ($/SHARE) DATE 5% ($) 10% ($)
---- ---------- ---------- --------- ---------- ----------------- -----------------
<S> <C> <C> <C> <C> <C> <C>
ALL STOCKHOLDERS'
STOCK
APPRECIATION........ N/A N/A N/A N/A $2,708,645,177 $6,864,238,688
William A. Wise....... 98,000 4.23% $35.40625 7/24/08 $ 2,182,146 $ 5,529,988
H. Brent Austin....... 26,250 1.13% $35.40625 7/24/08 $ 584,504 $ 1,481,247
Richard Owen Baish.... 26,250 1.13% $35.40625 7/24/08 $ 584,504 $ 1,481,247
John W. Somerhalder
II.................. 26,250 1.13% $35.40625 7/24/08 $ 584,504 $ 1,481,247
Britton White Jr...... 26,250 1.13% $35.40625 7/24/08 $ 584,504 $ 1,481,247
</TABLE>
- ---------------
(1) The stock options granted in 1998 by the Company to the named executives are
not immediately exercisable. Each grant will become exercisable on the first
anniversary of the date of grant thereof. There were no SARs granted in
1998. Any unvested stock options become fully exercisable in the event of a
"change in control" (see page 16 of this Proxy Statement for a description
of the Company's 1995 Omnibus Compensation Plan and the definition of the
term "change in control.") Under the terms of the Company's 1995 Omnibus
Compensation Plan, the Compensation Committee may, in its sole discretion
and at any time, change the vesting of the stock options. Certain
non-qualified stock options may be transferred to immediate family members,
directly or indirectly or by means of a trust, corporate entity or
partnership. Further, stock options are subject to forfeiture and/or time
limitations in the event of a termination of employment. Upon termination of
employment for certain reasons, all stock options and SARs held by Mr. Wise
vest immediately according to his letter agreement dated January 13, 1995
(as described on page 15 of this Proxy Statement).
OPTION EXERCISES AND YEAR-END VALUE TABLE
The following table sets forth information concerning option exercises and
the fiscal year-end values of the unexercised stock options (and SARs), provided
on an aggregate basis, for each of the named executives.
AGGREGATED OPTION/SAR EXERCISES IN 1998
AND FISCAL YEAR-END OPTION/SAR VALUES
<TABLE>
<CAPTION>
NUMBER OF SECURITIES VALUE OF UNEXERCISED
UNDERLYING UNEXERCISED IN-THE-MONEY
SHARES OPTIONS/SARS OPTIONS/SARS
ACQUIRED VALUE AT FISCAL YEAR-END(#) AT FISCAL YEAR-END($)(2)
ON EXERCISE REALIZED --------------------------- ---------------------------
NAME # ($)(1) EXERCISABLE UNEXERCISABLE EXERCISABLE UNEXERCISABLE
---- ----------- ---------- ----------- ------------- ----------- -------------
<S> <C> <C> <C> <C> <C> <C>
William A. Wise......... 0 $ 0 1,173,184 572,000 $23,719,943 $8,501,063
H. Brent Austin......... 0 $ 0 203,010 66,250 $ 3,831,066 $ 716,249
Richard Owen Baish...... 100,000 $2,212,813 110,800 66,250 $ 2,020,701 $ 716,249
John W. Somerhalder
II.................... 9,000(3) $ 177,750 186,466 66,250 $ 3,476,310 $ 716,249
Britton White Jr........ 0 $ 0 172,800 66,250 $ 3,086,201 $ 716,249
</TABLE>
- ---------------
(1) The figures presented in this column have been calculated based upon the
difference between the fair market value of the securities underlying each
stock option/SAR on the date of exercise and its exercise price.
(2) The figures presented in these columns have been calculated based upon the
difference between $34.15625, the fair market value of the Common Stock on
December 31, 1998, for each in-the-money stock option/SAR, and its exercise
price. No cash is realized until the shares received upon exercise of an
option are sold. Mr. Wise has tandem SARs attached to some of his stock
options. If his stock options are
9
<PAGE> 13
exercised, the tandem SARs expire and vice versa. The exercise of a tandem
SAR would have a market value equivalent to the exercise of a stock option.
(3) Mr. Somerhalder exercised stock options pursuant to a qualified domestic
relations order for a former spouse.
PENSION PLAN
Set forth below is a table describing the Company's Pension Plan in which
the named executives, as well as other Company employees, may be entitled to
participate. The following table lists current annual retirement benefits
payable under the Pension Plan and the Company's Supplemental Benefits Plan
(collectively, the "Plans") for the assumed average annual earnings and years of
credited service shown for a participant retiring at the normal retirement age
of 65. Under the Pension Plan and applicable Internal Revenue Code ("IRC")
provisions, compensation in excess of $160,000 cannot be taken into account and
the maximum payable benefit in 1998 is $130,000. Any excess benefits otherwise
accruing under the Pension Plan are payable under the Supplemental Benefits
Plan.
Estimated annual benefit levels under the Plans, based on earnings and
years of credited service at the normal retirement age, are reflected in the
following table:
PENSION PLAN TABLE
<TABLE>
<CAPTION>
YEARS OF SERVICE AT NORMAL RETIREMENT AGE
FINAL AVERAGE ------------------------------------------------
PENSION EARNINGS 15 20 25 30
---------------- ------- ------- ------- ---------
<S> <C> <C> <C> <C>
$ 400,000.......................... 94,185 125,580 156,975 188,370
$ 800,000.......................... 190,185 253,580 316,975 380,370
$1,200,000......................... 286,185 381,580 476,975 572,370
$1,600,000......................... 382,185 509,580 636,975 764,370
$1,900,000......................... 454,185 605,580 756,975 908,370
$2,100,000......................... 502,185 669,580 836,975 1,004,370
$2,300,000......................... 550,185 733,580 916,975 1,100,370
$2,500,000......................... 598,185 797,580 996,975 1,196,370
</TABLE>
Benefits which accrue under the Plans are based upon the gross salary
amount of each individual, including base incentive bonus amounts, but excluding
all commissions and other compensation or benefits of any kind (including risk
premium restricted stock, as described on page 17 of this Proxy Statement). For
the named executives, the amounts reflected in the Salary and Bonus columns of
the "Summary Compensation Table" are considered to calculate benefits under the
Plans. The Pension Plan formula for retirement at age 65 is 1.1% of the highest
five-year average earnings, plus 0.5% of the highest five-year average earnings
in excess of one-third of the FICA taxable wage base in effect during the year
of termination, times the number of years of credited service up to a maximum of
30 years. There is no deduction for Social Security amounts paid; however, an
early retirement supplement equal to 1% of the highest five-year average
earnings up to one-third of the FICA taxable wage base in effect in the year of
termination, times the number of years of credited service up to a maximum of 30
years, is payable from retirement until age 62. Both the basic benefit and the
early retirement supplement are reduced by 2% for each year the participant's
actual retirement date precedes the date the participant would have attained age
65, or the date the participant could have retired after attaining age 60 with
30 years of credited service, if earlier. Years of credited service under the
Pension Plan at age 65 for Messrs. Wise, Austin, Baish, Somerhalder and White
are 30, 30, 30, 30, and 25 (including 7 years of credited service pursuant to
Mr. White's employment agreement, which is described on page 16 of this Proxy
Statement), respectively.
Effective January 1, 1997, the Company amended its noncontributory defined
benefit Pension Plan to determine benefits by a cash balance formula in which
the named executives, as well as other Company employees, may be entitled to
participate. During a five-year transition period, ending December 31, 2001,
10
<PAGE> 14
eligible participants will continue to accrue a minimum benefit under the
previous formula, as described above. On December 31, 2001, this benefit will be
frozen. The actual benefit paid to participants with a minimum benefit will be
the greater of the minimum benefit and the cash balance benefit. Under the cash
balance formula, each participant has a cash account which is credited quarterly
with a percentage of earnings. The annual percentage is based on a combination
of age and service as shown below:
<TABLE>
<CAPTION>
IF AGE PLUS PAY CREDIT SERVICE ON THE APPLICABLE ANNUAL %
THE PRECEDING DECEMBER 31 IS: OF EARNINGS IS:
- --------------------------------- -----------------------
<S> <C>
Under 35....................................................... 4%
35 through 49.................................................. 5%
50 through 64.................................................. 6%
65 or over..................................................... 7%
</TABLE>
At the end of each quarter, accounts are also credited with interest
applied to the beginning quarter balance. Participants, who were participants on
December 31, 1996 and eligible employees on January 1, 1997, were credited with
an initial cash balance equivalent to accrued benefits on December 31, 1996.
Estimated annual benefits payable upon retirement at the normal retirement
age for each of the named executives is reflected below (based on assumptions
that each named executive receives no pay increases, receives maximum bonuses
and cash balances are credited with interest at a rate of 3% per annum):
<TABLE>
<CAPTION>
ESTIMATED ANNUAL
NAME BENEFIT
---- ----------------
<S> <C>
William A. Wise............................................. $1,144,769
H. Brent Austin............................................. $ 202,191
Richard Owen Baish.......................................... $ 304,440
John W. Somerhalder II...................................... $ 258,588
Britton White Jr. .......................................... $ 196,562
</TABLE>
PERFORMANCE GRAPHS
The Performance Graphs on the following page reflect the changes in the
value of $100 invested since December 31, 1993 and since March 12, 1992 (the
date on which the Common Stock was initially offered to the public),
respectively, in the Common Stock, the Standard & Poor's Natural Gas Index and
the Standard & Poor's 500 Stock Index.
The Company has made previous filings and may make future filings under the
Securities Act of 1933, as amended, or the Securities Exchange Act of 1934, as
amended, that incorporate future filings, including this Proxy Statement, in
whole or in part. However, the Performance Graphs on the following page and the
Compensation Committee Report on Executive Compensation shall not be
incorporated by reference into any such filings.
11
<PAGE> 15
COMPARISON OF ANNUAL CUMULATIVE TOTAL VALUES FROM 1993-1998 FOR THE
COMPANY, THE S&P NATURAL GAS INDEX AND THE S&P 500 STOCK INDEX
<TABLE>
<CAPTION>
MEASUREMENT PERIOD THE S&P NATURAL S&P 500
(FISCAL YEAR COVERED) COMPANY GAS INDEX STOCK INDEX
<S> <C> <C> <C>
12/93 100 100 100
12/94 87.9 95.4 101.3
12/95 86.8 134.9 139.4
12/96 157.5 179.3 171.4
12/97 212.6 211.6 228.6
12/98 227.5 232.2 293.9
</TABLE>
COMPARISON OF ANNUAL CUMULATIVE TOTAL VALUES FROM 1992-1998 FOR THE
COMPANY, THE S&P NATURAL GAS INDEX AND THE S&P 500 STOCK INDEX
<TABLE>
<CAPTION>
MEASUREMENT PERIOD THE S&P NATURAL S&P 500
(FISCAL YEAR COVERED) COMPANY GAS INDEX STOCK INDEX
<S> <C> <C> <C>
3/12/92 100 100 100
12/92 167.6 122.6 108.3
12/93 200.4 145.6 119.2
12/94 176.1 138.9 120.7
12/95 173.9 196.4 166.1
12/96 315.6 261.0 204.3
12/97 426.0 308.0 272.4
12/98 455.8 337.9 250.3
</TABLE>
The annual values of each investment are based on the share price
appreciation and assumes cash dividend reinvestment. The calculations exclude
any applicable brokerage commissions and taxes. Cumulative total stockholder
return from each investment can be calculated from the annual values given
above.
12
<PAGE> 16
COMPENSATION COMMITTEE REPORT ON EXECUTIVE COMPENSATION
The Company's executive officer compensation program is administered and
reviewed by the
Compensation Committee. The Compensation Committee consists of Messrs.
Allumbaugh, Gibbons and Love. The Compensation Committee has neither interlocks
nor insider participation.
POLICIES AND MISSION
The Compensation Committee has determined that the compensation program of
executive officers should not only be adequate to attract, motivate and retain
competent executive personnel, but should also be directly and materially
related to the short-term and long-term objectives and operating performance of
the Company. To achieve these ends, executive compensation (including base
salary, year-end bonus, restricted stock awards, stock option grants and other
long-term incentive awards) is, to a significant extent, dependent upon the
Company's financial performance and the return on its Common Stock. However, to
ensure that the Company is strategically and competitively positioned for the
future, the Compensation Committee also has the discretion to attribute
significant weight to other factors in determining executive compensation, such
as maintaining competitiveness, implementing capital improvements, expanding
markets, pursuing growth opportunities and achieving other long-range business
and operating objectives.
In order to determine appropriate levels of executive compensation, the
Compensation Committee periodically conducts a thorough competitive evaluation,
reviews proprietary and proxy information, and consults with and receives advice
from an independent compensation consulting firm. The Compensation Committee
also considers relevant industry and market changes when evaluating the
Company's performance as well as each individual executive's performance. The
independent consulting firm provides data and information that compares the
Company with a peer group of companies for evaluation purposes. The peer group
consists of a majority of the companies included in the S&P Natural Gas Index
(reflected in the Performance Graphs found on page 12 of this Proxy Statement)
along with certain additional companies which the consulting firm and the
Compensation Committee believe represent the Company's most direct competition
for executive talent.
A primary mission of the Compensation Committee is to ensure that each
executive officer's compensation is directly related to the performance of the
Company and its Common Stock, and the performance of the individual executive
officer. Toward that end, the Compensation Committee has established an
executive compensation program with a strong performance-based orientation. In
particular, the Compensation Committee has determined, in consultation with the
independent consulting firm, that the value of long-term incentive awards for
executive officers, including the CEO, should be targeted in the top one-half of
the peer group. These long-term incentive awards should tie directly to the
performance of the Common Stock and consist of approximately 50% in stock
options and 50% in PUs. With respect to cash compensation, the base salary of
executive officers is targeted at or near the 50th percentile of the peer group
(described above). Total cash compensation under the Company's current plans can
reach approximately the 90th percentile of such peer group with the year-end
incentive bonuses ranging from 0% to 160% of base salary for the CEO and from 0%
to 120% for the other named executives. Based on objectives established each
year, the Compensation Committee determines the specific percentage bonus to be
awarded to each recipient based upon both the Company's and the individual
executive's performance. Mr. Wise's employment agreement, as described on page
15 of this Proxy Statement, does not affect the amount of his compensation. Mr.
Wise's compensation and benefits are determined under Company plans and programs
in effect from time to time in accordance with the policies described above.
However, the Company entered into a letter agreement with Mr. Wise to eliminate
his base salary and other cash compensation and to encourage him to elect
(pursuant to terms of the applicable Company plans) to have all incentive awards
payable in shares of restricted Common Stock. As a result, Mr. Wise's employment
agreement was amended to establish an illustrative base salary for certain of
the Company's benefits and welfare plans. See page 15 of this Proxy Statement
for a description of the letter agreement and the employment agreement with Mr.
Wise. None of the other named executives received compensation governed or
affected by employment agreements.
13
<PAGE> 17
Section 162(m) of the IRC ("Section 162(m)") was enacted in 1993 and
generally affects the Company's federal income tax deduction for compensation
paid to the Company's CEO and four other highest paid executive officers. To the
extent compensation is "performance-based" within the meaning of Section 162(m),
the Section's limitations will not apply. In 1995, the Board of Directors
adopted, and the stockholders approved, certain Company compensation plans which
were structured to qualify as performance-based compensation under Section
162(m). In addition to requiring and encouraging stock ownership by Company
executives, these plans are designed to allow the Compensation Committee to
provide appropriate compensation when certain performance goals have been
achieved. The Compensation
Committee awards under the Company plans during 1998 are intended to qualify as
performance-based compensation under Section 162(m). It is possible under
certain circumstances that some portion of the compensation paid to the
Company's CEO and other executive officers will not meet the standards of
deductibility under Section 162(m). The Compensation Committee reserves the
right to award compensation which does not qualify as performance-based under
Section 162(m) if it determines that such awards are necessary to provide a
competitive compensation package to attract and retain qualified executive
talent.
COMPANY PERFORMANCE AND CHIEF EXECUTIVE OFFICER COMPENSATION
The Compensation Committee reviewed the Company's 1998 financial goals
(consisting of earnings before interest and taxes, earnings per share, return,
cash flow and operating and maintenance cost objectives) and the Company's 1998
non-financial goals, consisting of achieving certain progress in the regulatory
segment (primarily the recontracting effort of Tennessee Gas Pipeline Company
capacity and developing new opportunities for El Paso Natural Gas Company in
Mexico); optimizing and rationalizing assets in the field services segment;
increasing margin contributions from certain restructurings in the marketing
segment; restructuring certain holdings of the international segment in South
America; and certain operating matters (primarily safety goals), and this
Committee hereby certifies that this Company has attained the necessary
performance goals for the 1998 performance period to make incentive awards under
the Company's 1995 Incentive Compensation Plan or the Company's 1995 Omnibus
Compensation Plan, as applicable. Although the attainment of all performance
targets is not required, all such performance targets are evaluated to determine
the maximum incentive award opportunity in a given year and what incentive
awards are actually made. The Compensation Committee does not assign relative
weights to each of the factors and criteria used in determining executive
compensation. Moreover, any publication of sensitive and proprietary
quantifiable targets and other specific goals for both the Company and the CEO
which are established and applied each year could adversely affect the Company.
The Compensation Committee, consistent with its policies and mission,
applied the information and performance factors for 1998 to determine the
appropriate compensation for Mr. Wise and other executive officers. Mr. Wise's
accomplishments during 1998 resulted in a successful year that was full of
challenges, including final integration of the El Paso/Tenneco organizations,
pursuing and closing significant acquisitions such as DeepTech International
Inc./Leviathan Gas Pipeline Partners, L.P., and KLT Power, Inc., developing
several strategic international projects, restructuring the marketing function
and implementing expansion projects. In 1998, Mr. Wise displayed exceptional
foresight and responsiveness to rapidly changing industry-wide and general
economic conditions by continuing to leverage the Company's expertise and assets
through a carefully planned strategic growth program. These achievements, along
with his implementation of innovative marketing strategies for excess pipeline
capacity and continued operating efficiencies, resulted in a successful year for
the Company and its stockholders. Having reviewed the contribution that Mr. Wise
made to the Company's performance in 1998, the Compensation Committee believes
that he continues to demonstrate the motivational, planning and leadership
qualities that the executive compensation program was designed to foster and
reward.
In recognition of Mr. Wise's overall performance and his responsibility for
the Company's exceptional successes during 1998, the Compensation Committee
determined that he should receive the highest rating, and awarded him the
maximum incentive bonus available under the incentive award opportunity
discussed above (160% of illustrative base salary). In support of the
Compensation Committee's long-term compensation mission to provide competitive
compensation incentives to retain and motivate executive
14
<PAGE> 18
officers, Mr. Wise was granted 98,000 stock options. The number of options
granted to Mr. Wise and the other named executives was determined in accordance
with the targets and formulas recommended by the Company's independent
consulting firm, as described in more detail above. The Compensation Committee,
in consultation with the independent consulting firm, adjusted Mr. Wise's
illustrative base salary to $1,000,000 (though not paid to Mr. Wise, the base
salary is used to determine other Company benefits) to remain competitive for
executive talent.
COMPENSATION OF OTHER EXECUTIVE OFFICERS
The Compensation Committee, in consultation with the independent consulting
firm, applied the information and performance factors outlined above in
reviewing and approving the compensation of the Company's other executive
officers. This process resulted in a determination that, based upon individual
performance and their significant individual contributions to overall Company
performance during the fiscal year 1998, each of the other four named executive
officers should be awarded the maximum incentive bonus available under the
incentive award opportunity discussed above (120% of base salary). Stock options
were granted in 1998 to executive officers to provide continuing incentives for
future performance. The number of options granted to such executives was
determined in accordance with the targets and formulas recommended by the
Company's independent consulting firm, as described in more detail above. Base
salaries were adjusted for the other named executive officers, determined in
consultation with the independent consulting firm, to remain competitive for
executive talent.
THE 1998 COMPENSATION COMMITTEE OF THE BOARD OF DIRECTORS
<TABLE>
<S> <C> <C>
Byron Allumbaugh James F. Gibbons Ben F. Love
(Member) (Member) (Chairman)
</TABLE>
EMPLOYMENT CONTRACTS, TERMINATION OF EMPLOYMENT AND
CHANGE IN CONTROL ARRANGEMENTS
The Company entered into an employment agreement with Mr. Wise effective
July 31, 1992. The term of the agreement is three years from its initial
effective date and is automatically renewed at the end of every month
(re-establishing a three-year term on the first of each month), unless either
party notifies the other that it elects not to extend the term of the agreement.
Mr. Wise's compensation and benefits are determined under Company plans and
programs in effect from time to time. If Mr. Wise's employment is terminated
involuntarily, without cause, or is voluntarily terminated by Mr. Wise for "good
reason" (as defined in the Severance Plan, which is discussed below), Mr. Wise
will receive his salary, bonus (equal to fifty percent of the maximum bonus
opportunity in effect at the time of termination, but not less than fifty
percent of annual salary) and benefits through the end of the term of the
employment agreement. Unless termination follows a "change in control" (as
defined in the Severance Plan), any continued salary, bonus or benefits (not
including defined benefit pension plan payments) will be reduced by comparable
compensation from subsequent employment. If Mr. Wise's employment is terminated
because of death, involuntary termination for cause or is voluntarily terminated
by Mr. Wise other than for "good reason," Mr. Wise's right to receive his salary
shall terminate on the date of termination of his employment and his right to
receive benefits will be determined according to the terms of the Company's
applicable plans. Mr. Wise will also be entitled to pension benefits under the
terms of the Company's Supplemental Benefits Plan, however, such pension
benefits will be based on one additional year of "age" and "service" credit for
each year of the term. Upon termination of his employment, this benefit will be
funded through a trust. If Mr. Wise's employment is terminated prior to the end
of the term, other than as a result of either a "change in control" of the
Company or his voluntary termination of the agreement for "good reason" pursuant
to six months prior written notice to the Company of such termination, Mr. Wise
will be subject to a noncompetition provision through the end of the term. Any
compensation and benefits received by Mr. Wise under the Severance Plan will
offset obligations of a similar nature under Mr. Wise's employment agreement.
The Company entered into a letter agreement with Mr. Wise dated January 13,
1995, which provides that in the event of termination of Mr. Wise's employment
due to death, retirement, permanent disability, any other involuntary
termination without cause or any other
15
<PAGE> 19
voluntary termination for "good reason," the restriction period for restricted
Common Stock held by Mr. Wise shall lapse and all restrictions thereon shall end
(but only to the extent the performance targets have been achieved on the
performance-based restricted Common Stock), and unvested stock options shall
become immediately exercisable, subject to applicable law, for a period of
thirty-six months, unless such stock options expire sooner in accordance with
their terms. In order to squarely align Mr. Wise's compensation with the
interests of the Company's stockholders, the Compensation Committee replaced his
salary with a long-term incentive in the form of restricted Common Stock (the
majority of which will not vest unless certain performance measures are attained
and, in that event, only after a certain specified time) and a grant of stock
options. As a result, Mr. Wise's employment agreement was amended to establish
an illustrative base salary for certain of the Company's benefits and welfare
plans during 1996. During 1997, the Company loaned Mr. Wise $1,564,000 for the
purchase of his residence in Houston in connection with the Company's
relocation. The loan and interest (at 6.8%) thereon is payable at the end of ten
years, or at the time of Mr. Wise's retirement from the Company, whichever is
earlier. The loan is secured by Mr. Wise's Houston residence. In the event of a
"change in control" (as defined in the Severance Plan) and Mr. Wise meets all
the requirements for a severance benefit under the Severance Plan, he will not
be required to repay the loan and accrued interest and he may be entitled to a
payment to cover any adverse tax consequences (as provided in the Severance
Plan).
The Company entered into a letter agreement with Mr. White dated February
22, 1991, which provides that Mr. White is entitled to additional years of
credited service with respect to pension benefits which are payable under the
Company's Supplemental Benefits Plan if he remains employed with the Company
until the specified age set forth in his letter agreement.
The Company has a Key Executive Severance Protection Plan (the "Severance
Plan") which provides severance benefits following a "change in control" (as
defined below) of the Company for all officers of the Company and certain of its
subsidiaries in an amount equal to three times annual salary, including maximum
bonus amounts as specified in the plan. The Severance Plan also provides for the
continuation of life and health insurance for a period of 18 months subsequent
to a participant's termination of employment following a "change in control" of
the Company, as well as a supplemental pension payable under the Company's
Supplemental Benefits Plan calculated by adding three years of additional
credited pension service and certain other benefits. Benefits are payable under
the Severance Plan for any termination of employment within two years of the
date of a "change in control" of the Company, except where termination is by
reason of death, disability, for cause or instituted by the employee for other
than "good reason." The Severance Plan provides that certain additional payments
will be made to terminated participants following a "change in control" of the
Company if the participant's payments are subjected to a specified adverse
excise tax. The Severance Plan also provides that the Company will pay legal
fees and expenses incurred by a participant to enforce rights or benefits under
the plan. For purposes of the Severance Plan, a "change in control" of the
Company is deemed to occur if (a) any person or entity becomes the beneficial
owner of 20% or more of the Company's outstanding voting securities, (b) any
person or entity purchases the Common Stock pursuant to a tender offer or
exchange offer, other than a tender offer or exchange offer made by the Company,
(c) the stockholders of the Company approve a merger or consolidation, a sale or
disposition of all or substantially all of the Company's assets or a plan of
liquidation or dissolution of the Company, or (d) during any period of two
consecutive years, individuals who at the beginning of such period constitute
the Board of Directors cease for any reason to constitute at least a majority
thereof. Notwithstanding the foregoing, a "change in control" will not be deemed
to have occurred if the Company is involved in a merger, consolidation or sale
of assets which is in connection with a corporate restructuring wherein
stockholders of the Company immediately before such transaction own at least 80%
of the combined voting power of all outstanding classes of securities of the
company resulting from such transaction in substantially the same proportion as
their ownership in the Company immediately prior to such transaction.
16
<PAGE> 20
The Company's 1995 Omnibus Compensation Plan provides that stock options,
SARs, limited stock appreciation rights ("LSARs"), PUs and restricted stock may
be granted to officers and key employees of the Company and its subsidiaries.
The Plan Administrator (as defined in the plan) determines which employees are
eligible to participate, the amount of any grant and the terms and conditions
(not otherwise specified in the plan) of such grant. Pursuant to the terms of
the plan, if a "change in control" of the Company occurs, all outstanding stock
options become fully exercisable, SARs and LSARs become immediately exercisable,
designated amounts of PUs become fully vested and all restrictions placed on
awards of restricted Common Stock automatically lapse. For purposes of the plan,
the term "change in control" has the same meaning given such term in the
Severance Plan. This plan will be terminated, except with respect to outstanding
stock options, SARs, LSARs, PUs and restricted stock, if stockholders approve
the 1999 Omnibus Incentive Compensation Plan pursuant to Proposal No. 2.
The Company's Omnibus Compensation Plan, which is the predecessor to the
Company's 1995 Omnibus Compensation Plan, provided for the grant of stock
options, SARs, LSARs, performance share units and restricted Common Stock to
officers and key employees of the Company and its subsidiaries. Although this
plan has been terminated with respect to any new grants, certain stock options
and SARs remain outstanding thereunder. Pursuant to the terms of the plan, if a
"change in control" of the Company occurs, all outstanding stock options become
fully exercisable and SARs become immediately exercisable. For purposes of the
plan, the term "change in control" has the same meaning given such term in the
Severance Plan, except that the definition does not contain the exclusion
dealing with mergers, consolidations or sales of assets of the Company in
connection with a corporate restructuring of the Company.
Under the Company's 1995 Incentive Compensation Plan, awards of cash and/or
shares of restricted Common Stock may be granted to eligible officers of the
Company and its subsidiaries. The amount of awards available (subject to a plan
maximum and as established by the Plan Administrator (as defined in the plan)
per participant annually) and the performance goals upon which the awards are
contingent are determined by the Plan Administrator. Depending upon the
participant's position and the terms of the grant, each participant is required
to take between 25% and 100% of the incentive award in shares of restricted
Common Stock, but any participant may elect to receive the entire incentive
award in shares of restricted Common Stock. A participant who receives any
shares of restricted Common Stock shall receive additional shares of restricted
Common Stock of an equal amount because the participant bears the risk of
forfeiture, price fluctuation and other attendant risks during the period in
which the restrictions apply ("risk premium restricted stock"). Pursuant to the
terms of the plan, if a "change in control" of the Company occurs, the current
year's maximum incentive award for each officer becomes fully payable within 30
days following such "change in control." For purposes of the plan, the term
"change in control" has the same meaning given such term in the Severance Plan.
This plan will be terminated, except with respect to outstanding incentive
awards and restricted stock, if stockholders approve the 1999 Omnibus Incentive
Compensation Plan pursuant to Proposal No. 2.
The El Paso Energy Corporation Strategic Stock Plan provides that stock
options, SARs, LSARs and shares of restricted Common Stock may be granted to
officers and key employees of the Company and its subsidiaries in connection
with the Company's strategic acquisitions. The Plan Administrator (as defined in
the plan) determines which employees are eligible to participate, the amount of
any grant and the terms and conditions (not otherwise specified in the plan) of
such grant. Pursuant to the terms of the plan, if a "change in control" of the
Company occurs, all outstanding stock options become fully exercisable, SARs and
LSARs become immediately exercisable and all restrictions placed on awards of
restricted Common Stock automatically lapse. For purposes of the plan, the term
"change in control" has the same meaning given such term in the Severance Plan.
The Company's Supplemental Benefits Plan provides benefits to officers and
key management employees of the Company and its subsidiaries. The benefits equal
the amount that a participant failed to receive under the Company's Pension Plan
because the Pension Plan does not consider deferred compensation (whether in
deferred cash or deferred restricted Common Stock) for purposes of calculating
benefits and is subject to IRC limitations on the amount of compensation to be
considered when calculating benefits and on the amount of benefits that can be
paid to a participant. The plan also provides an additional benefit equal to the
amount of
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<PAGE> 21
the Company's matching contribution to the Company's Retirement Savings Plan
that cannot be made because of deferred compensation and IRC limitations. The
plan may not be terminated so long as the Pension Plan and/or Retirement Savings
Plan remain in effect. The Management Committee (as defined in the plan)
designates who may participate and administers the plan. Benefits under the
Company's Supplemental Benefits Plan are paid upon termination of employment in
a lump-sum payment, in annuity or in periodic installments. In the event of a
"change in control," the supplemental pension benefits become fully vested and
nonforfeitable. For purposes of the plan, the term "change in control" has the
same meaning given such term in the Severance Plan.
The Company's Deferred Compensation Plan allows eligible executives and key
management employees of the Company and its subsidiaries to defer all or a
portion of their base salaries and any other deferrals made in accordance with
certain of the Company's compensation plans. The Management Committee (as
defined in the plan) designates the executives and key management employees who
may participate. Amounts deferred are payable upon termination of employment in
a lump-sum payment or in periodic installments, except that the Management
Committee may, in its discretion, accelerate payments. Any amounts deferred
shall be credited with interest, gains/losses based on investments or other
indices specified by the Management Committee.
The Company has a Senior Executive Survivor Benefits Plan which provides
certain senior executives of the Company and its subsidiaries, who are
designated by the Management Committee (as defined in the plan), with survivor
benefit coverage in lieu of the coverage provided generally for employees under
the Company's group life insurance plan. The amount of benefits provided, on an
after-tax basis, is two and one half times the executive's annual salary.
Benefits are payable in installments over 30 months beginning within 31 days
after the executive's death, except that the Management Committee may, in its
discretion, accelerate payments.
The Company had a Domestic Relocation Plan, under which the Company is
obligated, upon the termination of employment (as a result of death, retirement,
permanent disability or in the event of a change in control, as defined in the
Severance Plan described above) of the named executives, to purchase their
residences in Houston which they acquired during the Company's relocation from
El Paso to Houston in 1997.
PROPOSAL NO. 2 -- APPROVAL OF THE EL PASO ENERGY CORPORATION 1999 OMNIBUS
INCENTIVE
COMPENSATION PLAN
The Company adopted, and the stockholders approved, the current 1995
Omnibus Compensation Plan and 1995 Incentive Compensation Plan (collectively,
the "1995 Plans") in 1995. The 1995 Plans were adopted so equity awards would
qualify as "performance-based" compensation for purposes of Section 162(m) of
the IRC, and thereby continue to be deductible by the Company without regard to
the deduction limit otherwise imposed by Section 162(m). However, Section 162(m)
requires that stockholders reapprove "performance-based" plans every five years
to continue the deductibility of the awards. Since 1995, the Company has made
several significant and value adding acquisitions (including, but not limited
to, Tenneco Inc., Eastex Energy Inc., Cornerstone Natural Gas, Inc., TPC
Corporation, KLT Power Inc., and several others) which has more than doubled the
number of eligible participants in the 1995 Plans. As a result, the number of
shares authorized under the 1995 Plans have been depleted sooner than the
Company had anticipated in 1995, and the Company's increased size has
necessitated the need to provide more competitive stock-based incentives for
management.
Accordingly, on January 20, 1999, the Board of Directors adopted the El
Paso Energy Corporation 1999 Omnibus Incentive Compensation Plan (the "1999
Omnibus Compensation Plan") and is herein seeking approval of such plan by the
stockholders of the Company at the Annual Meeting. If the 1999 Omnibus
Compensation Plan is approved, it will succeed both the 1995 Omnibus
Compensation Plan and the 1995 Incentive Compensation Plan and each will be
terminated, except as to currently outstanding awards under each of those plans.
AN AFFIRMATIVE VOTE OF A MAJORITY OF THE SHARES OF COMMON STOCK REPRESENTED
AT THE ANNUAL MEETING IN PERSON OR BY PROXY AND ENTITLED TO VOTE ON THE PROPOSAL
WILL CONSTITUTE APPROVAL.
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<PAGE> 22
The following is a general summary of the 1999 Omnibus Compensation Plan
and is qualified in its entirety by the full text of the plan which is attached
to this Proxy Statement as Exhibit A.
PURPOSES. The purposes of the 1999 Omnibus Compensation Plan are to promote
the interests of the Company and its stockholders by strengthening the Company's
ability to attract and retain officers and key management employees (defined for
purposes of the plan as those employees who hold the position of department
director) in the employ of the Company and its subsidiaries by furnishing
suitable recognition of their ability and industry which contributed materially
to the success of the Company and to align the interests and efforts of the
Company's officers and key management employees to the long-term interests of
the Company's stockholders and to provide a direct incentive to achieve the
Company's strategic and financial goals.
ADMINISTRATION. The plan will be administered by the Compensation Committee
(the "Plan Administrator") with respect to those officers and directors of the
Company who are subject to the requirements of Section 16 of the Securities
Exchange Act of 1934, as amended (the "Exchange Act") (the "Section 16
Insiders"). The Compensation Committee will be constituted to meet the
non-employee director standards of Rule 16b-3 of the Exchange Act ("Rule 16b-3")
and to meet the "outside directors" requirements of Section 162(m). For all
other participants, the Plan Administrator will be the Management Committee
(consisting of the CEO and other such senior officers as he may designate).
Except as otherwise explicitly set forth in the plan, the Plan Administrator
will be authorized to construe and interpret the plan, establish, amend and
rescind rules and regulations relating to the plan, to select individuals
eligible to participate in the plan, to grant awards under the plan and to take
all other actions necessary or advisable for the administration of the plan.
PARTICIPANTS. The Plan Administrator will designate the officers, including
salaried officers who are members of the Board of Directors, and key management
employees of the Company or any subsidiary of the Company who will be eligible
to participate in the plan. Members of the Board of Directors who are not full-
time salaried officers will not be eligible to participate in the plan. As of
February 1, 1999, approximately 156 employees were eligible to participate in
the plan.
SHARES AND UNITS AVAILABLE FOR THE PLAN. Subject to adjustment as provided
in the plan (e.g., in the event of a recapitalization, stock split, stock
dividend, merger, reorganization or similar event), the maximum number of shares
of Common Stock which may be issued pursuant to awards under the plan is
6,000,000, which may be shares of original issuance, treasury shares or a
combination thereof. The maximum number of shares of restricted stock which may
be granted under the plan is limited to 2,000,000. The maximum number of PUs
which may be granted under the plan is limited to 250,000 units. The maximum
number of shares of Common Stock which may be granted to any eligible
participant in any one year may not exceed: (a) 1,000,000 in the case of options
(and related SARs and LSARs) or in satisfaction of Performance Units (b)
1,000,000 in the case of shares of restricted stock (whether or not such
restricted stock is performance-based restricted stock) and (c) $5,000,000 in
cash, restricted stock or a combination thereof in the case of Incentive Awards
(as defined below). With respect to PUs, the maximum number of units which may
be granted to any eligible participant may not exceed 100,000 PUs in any
performance cycle (as hereinafter defined). The Plan Administrator will
determine the method of share counting under the plan.
AWARDS. The plan authorizes the granting of stock options (both incentive
stock options and non-qualified stock options), SARs, LSARs, PUs, Incentive
Awards and restricted stock. The terms and features of these various forms of
awards are set forth below and described more fully in the plan itself, attached
hereto as Exhibit A.
Stock Options. Stock options may be granted to participants in such number,
at such times and subject to such terms and conditions as the Plan Administrator
may determine, except that (i) the option exercise price may not be less than
100% of the fair market value of the Common Stock on the date of grant, (ii) an
option may not be exercised until the participant has completed at least one
year of continuous employment with the Company or its subsidiaries after the
date of grant (subject to the Plan Administrator's sole discretion to waive or
modify such period at any time), and (iii) no option may be exercised more than
ten years after the date of grant. Options granted under the plan may be either
"incentive stock options" within the meaning
19
<PAGE> 23
of Section 422 of the IRC or options that are not intended to so qualify. With
respect to each option granted under the plan, the Plan Administrator may
determine and reflect in the option grant, the nature and extent of any
restrictions to be imposed on the shares of Common Stock which may be purchased
thereunder, including, but not limited to, restrictions on the transferability
of shares acquired upon exercise.
The Plan Administrator will determine the form of payment of the option
exercise price, which may include cash, Common Stock previously acquired by the
participant and held for at least six months, or any combination of cash and
Common Stock having a fair market value on the exercise date equal to the
relevant exercise price. At the time of grant, the Plan Administrator may also
designate additional forms of payment that will be permitted, including the
payment of all or a portion of the exercise price from the shares of Common
Stock issuable to a participant upon such exercise. A participant will have no
rights as a stockholder of the Company until the shares of Common Stock are
issued to the participant. Options granted under the plan will be exercisable
only by the participant or a "Permitted Transferee," (as defined in the plan)
and will not be transferable or assignable except to a Permitted Transferee or
by will or by applicable laws of descent and distribution. Any other attempt to
transfer or assign an option, or any right or privilege conferred thereby, will
result in such affected option being immediately forfeited.
A participant may exercise options only while he or she is an employee of
the Company or its subsidiaries and before the expiration date of the option, or
for a period not to exceed thirty-six months after the participant retires,
becomes permanently disabled, resigns or is terminated under certain
circumstances, as the Plan Administrator may determine at the time of grant or
otherwise. If a participant is terminated for cause (as defined in the plan),
any options held by such participant will expire upon such termination. Options
will vest in accordance with the schedule established by the Plan Administrator
at the time of grant and will not be exercisable until vested. All outstanding
unvested options may become exercisable in full upon the occurrence of a Change
in Control (as hereinafter defined) of the Company.
SARs and LSARs. SARs and LSARs may be granted under the plan in tandem with
stock options, either at the time the stock options are granted or any time
thereafter during the term of the stock options. SARs and LSARs will cover the
same number of shares of Common Stock covered by the related stock option (or
such lesser number of shares of Common Stock as the Plan Administrator may
determine), and will be subject to the same terms and conditions as the related
stock options and such further terms and conditions as determined by the Plan
Administrator. Each SAR and LSAR will entitle the holder of the related stock
option to surrender the unexercised portion of the related stock option (and, in
the case of a SAR, any portion thereof), and to receive from the Company in
exchange therefor an amount of cash and/or Common Stock equal to the difference
between the exercise price per share specified for the stock option and the fair
market value of one share of Common Stock on the date of exercise times the
number of shares of Common Stock covered by the stock option (or, in the case of
a SAR, any portion thereof) surrendered. At the discretion of the Plan
Administrator, payments with respect to SARs may be made in Common Stock or in
cash. Payments with respect to LSARs, however, may be made only in cash.
No SAR can be exercised until the participant has completed six months of
continuous employment with the Company or its subsidiaries following the date
the SAR is granted. In the event of a Change in Control, however, such six-month
requirement will be waived with respect to each participant who is employed by
the Company at the time of the Change in Control and who, within the six-month
period, voluntarily terminates employment for good reason (as defined in the
plan) or is terminated by the Company at the time of the Change in Control other
than for cause. No participant who receives a grant of SARs will have any rights
as a stockholder of the Company until shares of Common Stock, if any, are issued
to the participant upon exercise of such SARs.
LSARs are exercisable only in the event of a Change in Control. A
participant's right to exercise an LSAR will be canceled if and to the extent
the related stock option is exercised.
Performance Units. The Plan Administrator may grant Performance Units
representing the right to receive specified compensation upon the Company's
attainment of shareholder return objectives established by the Plan
Administrator for a performance cycle. Generally, Performance Units will be
granted only at the beginning of a performance cycle, except in cases where
prorated grants may be made in mid-cycle to a newly
20
<PAGE> 24
eligible participant or a participant whose job responsibilities have
significantly changed during the performance cycle. Each grant of Performance
Units will specify the number of Performance Units, the vesting schedule, the
Company's targeted total shareholder return requirements for such cycle, and
such other terms and conditions as the Plan Administrator may determine.
The initial value of each Performance Unit will be $100. The adjusted value
of the Performance Unit at the end of the performance cycle (or at the end of
the second year of the performance cycle in the event of an interim payment)
will be determined based upon the Company's relative total shareholder return
for the applicable performance cycle compared to the total shareholder return
for each other company in the performance peer group selected by the Plan
Administrator for such cycle. The value of the Performance Unit at the end of
the performance cycle will be based on the following schedule:
<TABLE>
<CAPTION>
COMPANY'S PERFORMANCE
RANKING POSITION AGAINST PEER ADJUSTED VALUE
GROUP COMPANIES OF A PERFORMANCE UNIT
- ----------------------------- ---------------------
<S> <C>
1(st) Quartile..................................... $ 150
2(nd) Quartile...................................... $ 100
3(rd) Quartile...................................... $ 50
4(th) Quartile...................................... $ 0
</TABLE>
For example, if the Company's total shareholder return is equal to or
greater than 75% of the total shareholder return for the peer group companies,
the Company will be in the 1st quartile and the adjusted value would be $150.
Upon the expiration of each performance cycle, all uncanceled Performance
Units granted with respect to such performance cycle will vest and the benefits,
if any, with respect to such performance cycle will become payable. The Plan
Administrator may determine at the time of grant or otherwise that an interim
payment will be permitted, an interim payment of up to 50% of the adjusted value
of vested Performance Units may be made to participants then employed at the end
of the second year of the performance cycle; provided, however, that the
Company's performance ranking position is in the 1st or 2nd quartile.
The benefit which a participant will be entitled to receive from the
Company at the end of a performance cycle will equal the product of the adjusted
value of such Performance Units at the end of the applicable performance cycle
times the number of vested Performance Units which a participant holds less the
amount of any interim payment made with respect to such Performance Units. In no
event will such amount be less than zero. No benefits will be paid under the
plan unless the Plan Administrator has certified the Company's performance
ranking position for such performance cycle in writing prior to the payment of
the benefit. No benefits will be paid to participants if the Company's
performance ranking is in the 4th quartile.
In the absence of a Change in Control or an election by a participant to
defer payment of cash benefits, benefits payments with respect to Performance
Units will be paid as follows, unless otherwise determined by the Plan
Administrator: (i) 50% in cash and 50% in Common Stock to participants employed
by the Company holding the positions of Chairman of the Board, President or CEO
(or equivalent positions in the case of Company subsidiary executives); (ii) 60%
in cash and 40% in Common Stock to participants employed by the Company holding
the position of Vice Chairman of the Board, Chief Operating Officer, or
Executive Vice President (or equivalent positions in the case of Company
subsidiary executives); and (iii) 75% in cash and 25% in Common Stock to
participants employed by the Company holding the position of Senior Vice
President (or equivalent position in the case of Company subsidiary executives).
Participants (or their beneficiaries in the case of their deaths) who have
retired, died, became permanently disabled or who have terminated their
employment prior to the end of the performance cycle shall not be entitled to
receive payment for any Performance Units which were not vested as of the time
such participants ceased active employment with the Company or its subsidiaries.
Vested units held by such participants (or their beneficiaries in the case of
their deaths) will be paid in accordance with the plan. Cash benefits may, at
the election of the participant, be deferred according to the terms of the
Company's Deferred Compensation Plan. Any amounts (deferred or otherwise) to be
paid to participants pursuant to the plan are unfunded obligations
21
<PAGE> 25
of the Company. The Company will not be required to segregate any monies from
its general account, to create any trusts or to make any special deposits with
respect to such obligations.
In the event of a Change in Control, the then current performance cycle
will immediately end and all vested Performance Units will be paid to
participants within ten days following the Change in Control. Such payment will
be made in the form of a lump-sum cash payment based on a value of $150 per
Performance Unit. Any amount due as a result of a Change in Control of the
Company will be reduced by the amount of any interim benefit payment made by the
Company to the participant. In addition, in the event of a Change in Control,
all unvested Performance Units shall become fully vested on a pro-rata basis
measured in the nearest whole year between the date of grant and the date of the
Change in Control.
Restricted Stock. Restricted stock, including performance-based restricted
stock, may be granted under the plan in such number and at such times during the
term of the plan as the Plan Administrator may determine. Each participant who
receives a grant of restricted stock under the plan will have all the rights of
a stockholder with respect to such shares (subject to certain restrictions on
transferability), including the right to vote such shares and receive dividends
and other distributions following issuance of a certificate or certificates, or
the establishment of book-entry accounts, for such shares.
Restricted stock issued under the plan may not be sold, assigned,
transferred, pledged, hypothecated or otherwise encumbered or disposed of by the
participant, except in the event of death or permanent disability, during a
period of years determined by the Plan Administrator. Such restrictions may
never be for a period of less than one year. Except as provided below, if a
participant terminates employment with the Company for any reason before the
expiration of the applicable restrictive period, or attempts to sell, exchange,
transfer, pledge or otherwise dispose of the restricted stock in violation of
the terms of the plan, such shares of restricted stock will be forfeited by the
participant to the Company.
Performance-based restricted stock may not be granted or vested, as
applicable, unless the Plan Administrator has determined the performance goals
applicable to the particular performance period relating to such shares, and the
Plan Administrator has certified in writing that the performance goals for such
performance period have been attained.
The restrictive period for any participant's restricted stock will be
deemed to end and all restrictions on such shares will lapse upon the
participant's death, permanent disability or any termination of employment
determined by the Plan Administrator to end the restrictive period. In addition,
in the event of a Change in Control the restrictive period for any participant
shall be deemed to end and all restrictions on shares of restricted stock will
terminate immediately.
Incentive Awards. The Plan Administrator will determine prior to the
beginning of a particular performance period or at such other time allowed by
the IRC, the participants who will be eligible to receive an Incentive Award
(meaning a percentage of base salary, fixed dollar amount or other measure of
compensation to be awarded) for such performance period, the performance goals
applicable to the performance period and the maximum amount payable to each
participant if the performance goals for such performance period are attained.
The Plan Administrator will set the target level of performance required for
each performance goal selected for a particular performance period and may
specify that a percentage less than 100% of an award may be payable if a
designated level of performance of a performance goal is attained that is less
than the established target level for such performance goal. Performance goals
may be based on one or more of the following criteria: operating income, pre-tax
profit, earnings per share, cash flow, return on capital, return on equity,
return on net assets, net income, debt reduction, safety, return on investment,
total stockholder return, revenues or Common Stock price. The foregoing terms
shall have the same meaning as used in the Company's financial statements, in
the generally accepted accounting principles or in the industry, as applicable.
Within thirty days after the Company's financial information is available
for a particular performance period, the Plan Administrator will calculate the
extent to which the performance goals have been attained and the amount of the
award for each participant. No Incentive Awards under the plan may be made by
the Plan Administrator, unless the Plan Administrator has certified in writing
prior to payment of the award that
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<PAGE> 26
the performance goals for such performance period have been attained. No
Incentive Awards will be payable under the plan if the threshold level of
performance set for the performance goals for the applicable performance period
have not been attained. The Plan Administrator will have the sole and absolute
discretion to reduce the amount of any award otherwise payable to a participant
upon attainment of any performance goal established for a performance period. No
participant will be entitled to receive an Incentive Award under the plan unless
his or her performance is satisfactory.
Generally, Incentive Awards under the plan will be paid not later than the
end of the month following the month in which the Plan Administrator determines
the amount of the award. Incentive Awards will be paid as follows (unless the
Plan Administrator elects a different combination of cash and restricted stock
(and shall be treated as performance-based restricted stock)): (i) 50% in cash
and 50% in restricted stock to any participant employed by the Company holding
the position of Chairman of the Board, President, CEO, Vice Chairman of the
Board, Chief Operating Officer, Executive Vice President or Senior Vice
President (or equivalent positions in the case of Company subsidiary
executives), and (ii) 75% in cash and 25% in restricted stock to participants
employed by the Company holding the position of Vice President (or equivalent
position in the case of Company subsidiary executives). Because participants
will bear the forfeiture, price fluctuation and other attendant risks during the
period in which the restricted stock remains restricted, the participants will
also be awarded an additional amount of restricted stock equal to the amount of
restricted stock which they receive pursuant to the award.
In lieu of receiving all or any portion of any cash award under the plan,
participants will be entitled to elect to receive additional shares of
restricted stock with a value equal to the portion of the cash award foregone.
Any participant who makes such an election will, on account of the attendant
risks, as described above, receive additional shares of restricted stock in an
amount equal to the shares a participant elected to receive in lieu of cash.
Cash awards under the plan may, at the election of the participant, be deferred
according to the terms of the Company's Deferred Compensation Plan.
In addition to, or in the place of (as applicable) the terms and conditions
of the restricted stock discussed above, the restrictive period for restricted
stock awarded as additional restricted stock under the circumstances described
above will lapse on a pro rata basis measured in years between the amount of
time which has elapsed between the date of the Incentive Award and the
participant's death, retirement, permanent disability or any other involuntary
termination without cause and the restrictive period for such shares. All
restricted stock for which the restrictive period has not lapsed will be
forfeited to the Company. Notwithstanding the foregoing, the plan provides that
the Plan Administrator may determine that any restrictive period should not
lapse or that the restrictive period on additional shares of restricted stock
should lapse. In the event of a Change in Control, the restrictive period for
all outstanding shares of restricted stock for any participant will be deemed to
end and all restrictions on such shares of restricted stock will immediately
lapse.
In the event of a Change in Control, all Incentive Awards attributable to
the performance period in which a Change in Control occurs will become fully
vested and distributable in cash within thirty days after the date of the Change
in Control in an amount equal to the greater of the annual incentive percentage
of Annual Salary (as hereinafter defined) established by the Plan Administrator
(subject to the plan maximum Incentive Award) or the following: 100% of Annual
Salary for participants who are employees of the Company holding the positions
of Chairman of the Board, President, CEO, Vice Chairman of the Board or Chief
Operating Officer (or equivalent positions in the case of Company subsidiary
executives); 80% of Annual Salary for any participant employed by the Company
holding the positions of Executive Vice President or Senior Vice President (or
equivalent positions in the case of Company subsidiary executives); and 60% of
Annual Salary for any participant employed by the Company holding the position
of Vice President (or equivalent position in the case of Company subsidiary
executives). For the purposes of the plan, the term "Annual Salary" means a
participant's annual base salary in effect on the date of a Change in Control.
In the event that the Change in Control is deemed to occur after the end of
a performance period but before the Plan Administrator has calculated whether
the applicable performance goals have been achieved and has set each
participant's award amount for such performance period, then the participant
will be entitled
23
<PAGE> 27
to receive in cash, within thirty days after the date of the Change in Control,
the amounts set forth in the preceding paragraph. Any such amounts payable under
the plan are in addition to any amounts which participants may be entitled to
for the performance period in which the Change in Control is deemed to occur.
CHANGE IN CONTROL. Under the plan, a Change in Control will be deemed to
have occurred (i) if any person (as defined in Section 13(d) and 14(d)(2) of the
Exchange Act) is or becomes the beneficial owner (as defined in Section 13d-3 of
the Exchange Act) directly or indirectly, of securities of the Company
representing 20% or more of the combined voting power of the Company's then
outstanding securities, (ii) upon the first purchase of Common Stock pursuant to
a tender offer or exchange offer (other than a tender offer or exchange offer
made by the Company), (iii) upon the approval by the Company's stockholders of a
merger, consolidation, sale or disposition of all or substantially all of the
Company's assets, or a plan of dissolution of the Company, or (iv) if during any
period of two consecutive years, individuals who at the beginning of such period
constitute the Board cease for any reason to constitute at least a majority
thereof, unless the election or nomination for election by the Company's
stockholders of each new director was approved by a vote of at least two-thirds
of the directors then still in office who were directors at the beginning of the
period. Notwithstanding the foregoing, the plan provides that a Change in
Control will not be deemed to have occurred if the Company either merges or
consolidates with or into another company or sells or disposes of all or
substantially all of its assets to another company, if such merger,
consolidation, sale or disposition is in connection with a corporate
restructuring wherein the stockholders of the Company immediately before such
merger, consolidation, sale or disposition own, directly or indirectly,
immediately following such merger, consolidation, sale or disposition, at least
80% of the combined voting power of all outstanding classes of securities of the
company resulting from such merger or consolidation or to which the Company
sells or disposes of its assets, in substantially the same proportion as their
ownership in the Company immediately before such merger, consolidation sale or
disposition.
TERMINATION AND AMENDMENT. Subject to certain plan provisions, the Plan
Administrator may from time to time amend the plan as it may deem proper and in
the best interest of the Company without any further approval of the
stockholders of the Company, provided, however, that no change in any option,
SAR, LSAR, restricted stock, Incentive Award or Performance Unit previously
granted, which would impair the right of the participant to acquire or retain
Common Stock or cash that the participant may have acquired as a result of the
plan, may be made without the consent of the participant. Notwithstanding the
foregoing, the Plan Administrator and the Board of Directors may not, to the
extent required for compliance with applicable laws and regulations, including
Rule 16b-3 of the Exchange Act and Section 162(m) of the IRC, amend the plan
without the approval of the stockholders of the Company to: (i) materially
increase the number of shares, options, rights, Incentive Awards or PUs that may
be issued under the plan to Section 16 Insiders, (ii) with respect to incentive
stock options and any related SARs and LSARs, change the description of the
participants or class of participants eligible for participation in the plan,
or, with respect to all other grants under the plan, materially modify the
requirements as to eligibility for participation in the plan to add a class of
Section 16 Insiders, and (iii) otherwise materially increase the benefits
accruing to the participants under the plan. The plan will terminate ten years
after the date of stockholder approval.
FEDERAL INCOME TAX CONSEQUENCES. The following discussion briefly
summarizes the material federal income tax consequences of participation in the
plan. This discussion is general in nature and does not address issues related
to the tax circumstances of any particular participant. The discussion is based
on federal income tax laws currently in effect and is, therefore, subject to
possible future changes in the law. This discussion does not address state,
local or foreign tax consequences.
The grant of a stock option, SAR or LSAR will have no tax consequences for
the participant or the Company. The participant will have no taxable income upon
exercising an incentive stock option (except that an alternative minimum tax may
apply), and the Company will not receive a deduction when an incentive stock
option is exercised. If the participant does not dispose of the shares of Common
Stock acquired upon exercise of an incentive stock option within the two-year
period beginning on the day after the grant of the incentive stock option or
within one year after the exercise, the gain or loss on a subsequent sale will
be a capital gain or loss to the participant. The Company would not be entitled
to any deduction in such event. If the participant disposes of the shares within
the two-year or one-year periods described above, the participant
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<PAGE> 28
generally will realize ordinary income and the Company will be entitled to a
corresponding deduction. Upon exercising a SAR, LSAR or stock option (other than
an incentive stock option), the participant must recognize ordinary income in an
amount equal to the difference between the exercise price and the fair market
value of the Common Stock on the exercise date. The Company is entitled to a
deduction for the same amount.
Because an LSAR is exercisable only upon the occurrence of a Change in
Control of the Company, exercise by a participant could result in the imposition
of an additional 20% excise tax on, and denial of a deduction to the Company
for, all or a portion of the total payments made to the participant upon the
Change in Control. Similarly, accelerated vesting resulting from a Change in
Control in the case of any other awards under the plan could trigger the 20%
excise tax and the loss of the deduction. The amount of the excise tax will
depend on the amount of the payments subject to the Change in Control provisions
and the other circumstances of the participant.
Awards, including Incentive Awards, granted under the plan that are settled
in cash or shares of Common Stock are taxable as ordinary income when received.
Awards of restricted stock granted under the plan are taxable as ordinary
income, as of the earlier of the date that the shares become transferable or are
not subject to a substantial risk of forfeiture, in an amount equal to the fair
market value of the shares on such date, unless the participant makes an
election under Section 83(b) of the IRC. If a Section 83(b) election is made,
the participant must include in income the value of the shares as of the date of
grant. The Company will receive a deduction for the amount recognized as income
by the participant, subject to the provisions of Section 162(m).
BENEFITS UNDER THE PLAN. During 1998, the Plan Administrator granted awards
of options, Performance Units and Incentive Awards to certain participants in
the 1995 Omnibus Compensation Plan and 1995 Incentive Compensation Plan. The
table on the following page sets forth the awards made to (i) each of the named
executives (ii) all current executive officers as a group, (iii) all current
Directors who are not executive officers, as a group, and (iv) all employees
(who would have been participating in the plan), including all current officers
who are not executive officers, as a group. While the grants reflected on the
following page were made from existing plans and not pursuant to the 1999
Omnibus Incentive Compensation Plan, such awards would have been substantially
the same if issued pursuant to the 1999 Omnibus Incentive Compensation Plan. The
Compensation Committee has determined that the overall compensation structure
submitted to stockholders is important as a whole. If stockholders do not
approve one or more pieces of the structure, the Compensation Committee intends
to design other compensation programs to achieve an appropriate aggregate
compensation structure.
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<PAGE> 29
1999 OMNIBUS INCENTIVE COMPENSATION PLAN
<TABLE>
<CAPTION>
STOCK OPTION AWARDS NUMBER OF
NUMBER OF SECURITIES PERFORMANCE INCENTIVE AWARDS
NAME AND POSITION UNDERLYING OPTIONS UNITS(1) RANGES OF $ VALUE(2)
----------------- -------------------- ----------- --------------------
<S> <C> <C> <C>
William A. Wise
Chairman, President & CEO 98,000 35,500 0-1,600,000
H. Brent Austin
Executive Vice President & Chief Financial
Officer 26,250 10,000 0-438,000
Richard Owen Baish
President, El Paso Natural Gas Company 26,250 10,000 0-396,000
John W. Somerhalder II
President, Tennessee Gas Pipeline Company 26,250 10,000 0-396,000
Britton White Jr.
Executive Vice President & General Counsel 26,250 10,000 0-396,000
Executive Officer Group 334,250 122,600 0-4,911,000
Non-Executive Officer Director Group 0 0 0
Non-Executive Officer Employee Group 490,000 14,200 0-3,274,061
</TABLE>
- ---------------
(1) The Performance Units were granted for a four-year performance cycle which
began on January 1, 1999 and ends on December 31, 2002. Although overlapping
cycles are allowed, it is not currently contemplated that another
Performance Unit grant will be made before the year 2003.
(2) The amounts reflected do not include the value of the risk premium, if any,
associated with the Incentive Award.
RECOMMENDATION. The Board of Directors believes that approval of the 1999
Omnibus Incentive Compensation Plan is in the best interests of the Company and
its stockholders because the plan will enable the Company to attract and retain
officers and key management employees and provide these employees with
competitive incentives which also align their interests with those of the
Company stockholders.
THE BOARD OF DIRECTORS RECOMMENDS THAT THE STOCKHOLDERS VOTE "FOR" THE APPROVAL
OF THE 1999 OMNIBUS INCENTIVE COMPENSATION PLAN.
PROPOSAL NO. 3 -- APPROVAL OF THE EL PASO ENERGY CORPORATION EMPLOYEE STOCK
PURCHASE PLAN
On January 20, 1999, the Board of Directors adopted the El Paso Energy
Corporation Employee Stock Purchase Plan (the "Stock Purchase Plan") and is
herein seeking approval of such plan by the stockholders of the Company at the
Annual Meeting. The Stock Purchase Plan will be effective, subject to
stockholder approval, on January 20, 1999.
The purpose of the Stock Purchase Plan is to permit Company employees to
purchase Common Stock over a period of time at a 15% discount in order to
continue to attract and retain dedicated and reliable employees. The Board of
Directors believes that the Stock Purchase Plan will align employees' interests
with those of stockholders, and will provide an attractive incentive to the
employees and promote a greater interest of such employees in the future growth
and success of the Company.
There are reserved for issuance under the Stock Purchase Plan 2,000,000
shares of Common Stock, which shares will be issued from the Company's treasury
or from authorized but unissued shares.
The Stock Purchase Plan is being presented to the stockholders for approval
at the Annual Meeting to enable such plan to qualify under Section 423 of the
IRC. A discussion of the tax consequences under the
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<PAGE> 30
Stock Purchase Plan is set forth below. The Stock Purchase Plan is not subject
to any of the provisions of the Employee Retirement Income Security Act of 1974,
as amended, or Section 401(a) of the IRC.
AN AFFIRMATIVE VOTE OF A MAJORITY OF SHARES OF COMMON STOCK REPRESENTED AT
THE ANNUAL MEETING IN PERSON OR BY PROXY AND ENTITLED TO VOTE ON THE PROPOSAL
WILL CONSTITUTE APPROVAL.
The following is a general summary of the El Paso Energy Corporation
Employee Stock Purchase Plan and is qualified in its entirety by full text of
the plan which is attached to this Proxy Statement as Exhibit B.
PURPOSES. The purposes in establishing the Stock Purchase Plan are to
permit employees of the Company and designated subsidiaries to purchase Common
Stock over a period of time at a discount from market prices and to increase
employee stock ownership in order to continue to attract and retain dedicated
and reliable employees. The Board of Directors believes that the Stock Purchase
Plan will align employees' interests with those of stockholders, and will
provide an attractive incentive to the employees and promote a greater interest
of such employees in the future growth and success of the Company.
ADMINISTRATION. The Stock Purchase Plan will be administered by the "Plan
Administrator" meaning the Compensation Committee of the Board of Directors with
respect to Section 16 Insiders and by the Management Committee (consisting of
the CEO and such other senior officers as he may designate) for all other
participants. The Plan Administrator will have authority to establish rules and
regulations for the administration of the Plan, and its interpretations and
decisions with regard to the Stock Purchase Plan will be final.
SHARES AVAILABLE FOR THE PLAN. There are reserved for issuance under the
Plan 2,000,000 shares of the Company's Common Stock, which shares will be issued
from the Company's treasury account or from authorized but unissued shares.
PARTICIPANTS. Participation in the Stock Purchase Plan is open to all
active employees of the Company and of its designated Subsidiaries (as that term
is defined by the Plan). At December 31, 1998, approximately 3,530 employees are
currently eligible to participate in the Stock Purchase Plan; however, no
employee is eligible who would own, after purchasing Common Stock under the
Plan, shares of capital stock equaling 5% or more of the total combined voting
stock of the Company.
TERMS AND CONDITIONS. The Stock Purchase Plan provides for consecutive,
one-year offering periods (the "Offering Periods") commencing on the first
trading day of a particular calendar year and ending on the last trading day of
such year. The initial Offering Period will be from January 20, 1999 to December
31, 1999.
As of each Grant Date (as that term is defined in the plan), eligible
employees will be entitled to allocate payroll deductions ranging from a minimum
of $10 per month up to an overall annual maximum amount of $21,250.
Participants' payroll deductions will be invested in shares of the Company's
Common Stock on the last trading day of each calendar quarter (the "Exercise
Date"). Shares will be purchased from the Company at 85% of the lower of the
Fair Market Value (defined as the average of the high and low selling prices of
the Common Stock for a particular day) of such Common Stock on (i) the Grant
Date for the calendar year in which the Exercise Date falls or (ii) the Exercise
Date for the particular quarter.
The Company makes no contributions to the Stock Purchase Plan, other than
making Common Stock available for purchase at a discount and paying the costs of
administering the plan.
Participation in the plan will be cancelled (i) at any time upon the
election of the employee, or (ii) on the date that such person ceases to be an
employee of the Company or its designated subsidiaries. Any funds deposited by
the employee prior to such cancellation will be used to purchase Common Stock on
the next Exercise Date or refunded, without interest to such employee, as
required by the Plan. An employee who elects to cancel participation may not
rejoin the Stock Purchase Plan until the next Offering Period.
The rights of employees participating in the Stock Purchase Plan are not
transferable other than by will or the laws of descent and distribution, and are
exercisable during the employee's lifetime only by the employee or by the
employee's guardian or legal representative. No rights or payroll deductions of
a participating employee will be subject to execution, attachment, levy,
garnishment or similar process.
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<PAGE> 31
In the event of a change in control (defined the same as in the 1999
Omnibus Incentive Compensation Plan, described on page 24 of this Proxy
Statement), the current Offering Period shall be shortened and a new Exercise
Date shall be the day before the proposed merger or sale.
TERMINATION AND AMENDMENT. The Board of Directors may amend, suspend or
terminate the Stock Purchase Plan at any time; provided, however, that no such
amendment may increase or decrease the number of shares authorized for the plan,
except as provided by its terms. Further, except to conform the plan to the
requirements of the IRC, no amendment may (i) change the formula for determining
the Exercise Price per share, (ii) withdraw the administration of the plan from
the Plan Administrator, (iii) affect the rights of participating employees to
purchase stock on an Exercise Date with funds previously credited to Plan
Accounts, as defined by the plan, or (iv) cause the Stock Purchase Plan not to
meet the requirements of Section 423(b) of the IRC.
SUMMARY OF TAX CONSEQUENCES OF THE STOCK PURCHASE PLAN. The following
discussion of certain federal income tax consequences of the Stock Purchase Plan
is based on the IRC provisions in effect on the date of this Proxy Statement,
current regulations thereunder and existing administrative rulings of the
Internal Revenue Service. The discussion is limited to the United States tax
consequences and the tax consequences may vary depending on the personal
circumstances of individual employees.
If the Stock Purchase Plan is approved by the stockholders of the Company
at the Annual Meeting, the Stock Purchase Plan will qualify under Section 423 of
the IRC. As such, the amount of the discount will not be taxed until the
employee disposes of the stock, and the determination of the ordinary and
capital portion of the resulting gain or loss will depend on the length of time
the employee has held the stock. The Company will be entitled to a deduction
equal to the amount of the employee's ordinary income if the disposition occurs
within two years of the applicable Grant Date or within one year of the Exercise
Date; otherwise the Company will have no tax consequences.
BENEFITS UNDER THE PLAN. Since participation in the plan is subject to the
discretion of the individual employee, within the limits of the Stock Purchase
Plan, and enrollment for the initial Offering Period is not yet complete, actual
participation in the Stock Purchase Plan for the current fiscal year is not
determinable.
RECOMMENDATION. The Board of Directors believes that approval of the El
Paso Energy Corporation Employee Stock Purchase Plan is in the best interest of
the Company and its stockholders because the plan will enable the Company to
attract and retain exceptional employees and provide these employees with
competitive incentives which also align their interests with those of the
Company stockholders.
THE BOARD OF DIRECTORS RECOMMENDS THAT STOCKHOLDERS VOTE "FOR" THE APPROVAL OF
THE EMPLOYEE STOCK PURCHASE PLAN.
PROPOSAL NO. 4 -- TO AMEND THE RESTATED CERTIFICATE OF INCORPORATION OF EL PASO
NATURAL GAS COMPANY, TO ELIMINATE THE PROVISION RELATING TO
SECTION 251(g) OF THE DGCL
Effective August 1, 1998, the Company completed a holding company
reorganization in which EPNG became a wholly owned subsidiary of the Company.
This reorganization was conducted in accordance with Section 251(g) of the DGCL
and did not require a vote of EPNG's stockholders. In connection with the
reorganization and pursuant to the requirements of Section 251(g), EPNG's
charter was restated to add the following language:
"ARTICLE 13. VOTE OF STOCKHOLDERS OF EL PASO ENERGY CORPORATION
REQUIRED TO APPROVE CERTAIN ACTIONS
Any act or transaction by or involving this corporation that
requires for its adoption under the General Corporation Law of the
State of Delaware of this Restated Certificate of Incorporation the
approval of the stockholders of this corporation shall, pursuant to
Section 251(g) of the General Corporation Law of the State of
Delaware, require, in addition, the approval of the stockholders of El
Paso Energy Corporation, a Delaware corporation, or any successor
thereto by merger, by the
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<PAGE> 32
same vote that is required by the General Corporation Law of the State of
Delaware and/or the Restated Certificate of Incorporation of this
corporation."
This provision requires EPNG to obtain a vote of Company stockholders in
connection with certain actions taken by EPNG, such as mergers, sale of all or
substantially all of its assets, charter amendments and corporate dissolutions.
Absent such a provision, there is no general requirement under Delaware law that
stockholders of a parent entity, such as the Company, be entitled to vote on
these types of transactions involving its wholly owned subsidiaries, such as
EPNG. The amendment would have no effect on the right of stockholders of the
Company to vote on transactions occurring at the Company level. In order to
provide maximum flexibility and efficiency under the holding company structure
that has been established, the Company proposes to eliminate this Article 13
from EPNG's restated charter. The Board of Directors believes that the deletion
of Article 13 of EPNG's restated charter will allow the Company to manage its
entire organization more effectively.
The affirmative votes of a majority of the outstanding shares of Common
Stock are required for approval of this amendment to EPNG's restated charter. If
this proposed amendment is approved by the stockholders, the Company intends to
promptly effect the amendment by filing an appropriate amendment to EPNG's
restated charter with the State of Delaware.
THE BOARD OF DIRECTORS RECOMMENDS THAT STOCKHOLDERS VOTE "FOR" THE APPROVAL OF
THE AMENDMENT TO EPNG'S RESTATED CERTIFICATE OF INCORPORATION.
PROPOSAL NO. 5 -- RATIFICATION OF THE APPOINTMENT OF PRICEWATERHOUSECOOPERS LLP
AS INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS
The Board of Directors desires to obtain stockholder ratification of the
resolution appointing
PricewaterhouseCoopers LLP, 1100 Louisiana Street, Suite 4100, Houston, Texas
77002, as independent certified public accountants for the Company for fiscal
year 1999. PricewaterhouseCoopers LLP has served
continuously in such capacity for the Company since 1983.
If the appointment is not ratified, the adverse vote will be considered as
an indication to the Board of Directors that it should select other independent
certified public accountants for the following fiscal year. Given the difficulty
and expense of making any substitution of accountants after the beginning of the
current fiscal year, it is contemplated that the appointment for the fiscal year
1999 will be permitted to stand unless the Board of Directors finds other good
reason for making a change.
A representative from PricewaterhouseCoopers LLP will attend the Annual
Meeting to respond to appropriate questions raised during the Annual Meeting or
submitted to PricewaterhouseCoopers LLP in writing prior to the Annual Meeting,
and to make a statement if he or she desires to do so.
THE BOARD OF DIRECTORS RECOMMENDS THAT THE STOCKHOLDERS VOTE "FOR" THE
RATIFICATION OF THE APPOINTMENT OF PRICEWATERHOUSECOOPERS LLP AS
INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS FOR THE COMPANY FOR THE FISCAL YEAR
1999.
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<PAGE> 33
PROPOSAL NO. 6 -- STOCKHOLDER PROPOSAL ON CORPORATE DEMOCRACY
Rear Admiral J.F. Quilter, 500 Westridge Drive, Portola Valley, CA
94028-7721, the beneficial owner of 291.797 registered shares of Common Stock on
December 31, 1998, has indicated that he will present a proposal for action at
the 1999 Annual Meeting as follows:
"CORPORATE DEMOCRACY
WHEREAS, it is the usual practice for annual stockholders' meeting
announcements to include a statement to the effect that if no
direction is made the proxy will be voted for the nominations made
or positions held by management.
This clouds the voting results as to votes for directors and
auditors, does not accurately reflect the desires of voting
stockholders and skews the results. In a political election it
would be tantamount to counting votes of those who do not vote as
being in favor of the incumbent.
THEREFORE it is resolved that the shareholders recommend that the
Board of Directors take the necessary action to cause proxy
balloting on nominees and items contained in the notice of the
annual meeting to be tabulated for each nominee and proposal as in
favor, opposed, abstain and returned unmarked. The DECISION SHALL
BE DETERMINED BY THE NUMBER OF THOSE VOTED IN FAVOR AND OPPOSED.
Unmarked ballots shall be considered only for the demonstration of
a quorum.
For each nominee and proposal, stockholders shall be advised of the
official results in the normal course of communication with
stockholders."
STATEMENT OF THE BOARD OF DIRECTORS IN OPPOSITION
TO THE STOCKHOLDER PROPOSAL
Your Board of Directors believes that the proposal is contrary to the
interests of the Company and our stockholders and, accordingly, is recommending
that stockholders vote AGAINST the proposal for the following reasons:
Under Delaware law, a stockholder is entitled to participate at
stockholders' meetings in person or by proxy. If our stockholders intend to
participate at a meeting by proxy, they can direct how their votes will be cast
by either (i) marking a box for each item to be voted on and signing the proxy
card, or (ii) simply signing the proxy card or electronic proxy media. The
adoption of Rear Admiral Quilter's proposal would deny stockholders their right
to participate at stockholders' meetings when they return a signed, but unmarked
proxy card or electronic proxy media. This is unfair, unnecessary, contrary to
Delaware law and contrary to the customary practices of the substantial majority
of all publicly held United States companies.
Rear Admiral Quilter apparently assumes that stockholders who sign but do
not otherwise mark their proxy card are not making a conscious decision as to
how their shares are to be voted. Your Board of Directors disagrees with his
assumption. The proxy card states explicitly in boldface type how shares will be
voted in this situation. This year's proxy card, for example, states: "THIS
PROXY WHEN PROPERLY EXECUTED WILL BE VOTED IN THE MANNER DIRECTED HEREIN BY THE
UNDERSIGNED STOCKHOLDER. IF THIS PROXY IS RETURNED WITHOUT DIRECTION BEING
GIVEN, THIS PROXY WILL BE VOTED FOR PROPOSALS 1, 2, 3, 4 AND 5 AND AGAINST
PROPOSAL 6." Neither the Board of Directors nor the persons appointed as Proxies
have the authority or discretion to ignore a stockholder's instructions on a
properly signed proxy, whether those instructions are indicated by marked boxes
or by the alternative method of merely signing and returning the proxy card or
electronic proxy media. Thus, your Board of Directors believes that those
stockholders who take advantage of this alternative method by signing and
returning unmarked proxies fully understand how their shares will be voted.
Your Board of Directors further believes that our procedures, which
facilitate the execution and return of proxy cards, result in a higher
stockholder response than could be expected if stockholders were required to
complete each item on the proxy card. This, in turn, helps to minimize the time
and expense incurred in connection with the solicitation of proxies. The
adoption of the proposal would also make it more difficult to
30
<PAGE> 34
ascertain the wishes of our stockholders because a signed but unmarked proxy
card would have to be ignored. Your Board of Directors believes that our
procedures, which follow Securities and Exchange Commission rules and customary
practice in the United States, are appropriate and essential for good corporate
governance.
The Board is not aware of any valid reason to adopt Rear Admiral Quilter's
proposal. It would not give stockholders any new rights or powers and would deny
our stockholders rights that make it easier for their participation at
stockholders' meetings.
Adoption of Rear Admiral Quilter's proposal requires an affirmative vote of
a majority of shares of Common Stock represented at the Annual Meeting in person
or by proxy and entitled to vote on the proposal.
THE BOARD OF DIRECTORS URGES A VOTE "AGAINST" THIS STOCKHOLDER PROPOSAL. THE
PROXIES RECEIVED BY THE BOARD OF DIRECTORS WILL BE VOTED "AGAINST" UNLESS
STOCKHOLDERS SPECIFY A CONTRARY CHOICE ON THEIR SIGNED PROXIES.
COST OF SOLICITATION
The cost of preparing, printing and mailing this Proxy Statement and the
accompanying proxy card, and the cost of solicitation of proxies on behalf of
the Company's Board of Directors will be borne by the Company. The Company has
retained Georgeson & Company Inc. to assist in the solicitation of proxies from
stockholders at an estimated fee of $10,000, plus reimbursement of out-of-pocket
expenses. In addition to the use of the mail, proxies may be solicited
personally or by telephone by regular employees of the Company without
additional compensation, as well as by Georgeson & Company Inc. Brokerage houses
and other custodians and nominees will be asked whether other persons are
beneficial owners of the shares of Common Stock which they hold of record and,
if so, they will be supplied with additional copies of the proxy materials for
distribution to such beneficial owners. The Company will reimburse banks,
nominees, fiduciaries, brokers and other custodians for their costs of sending
the proxy materials to the beneficial owners of Common Stock.
OTHER MATTERS
The Board of Directors knows of no other matters which will be brought
before the Annual Meeting. If, however, any other matters should come before the
Annual Meeting all proxies which have been signed and returned without further
instruction will give the persons designated thereon discretionary authority to
vote according to their best judgment.
SECTION 16(a) BENEFICIAL OWNERSHIP REPORTING COMPLIANCE
Section 16(a) of the Exchange Act requires the Company's directors, certain
officers and beneficial owners of more than 10% of a registered class of the
Company's equity securities to file reports of ownership and reports of changes
in ownership with the SEC and the New York Stock Exchange. Directors, officers
and beneficial owners of more than 10% of the Company's equity securities are
also required by SEC regulations to furnish the Company with copies of all such
reports that they file. Based on the Company's review of copies of such forms
and amendments provided to it, the Company believes that all filing requirements
were complied with during the fiscal year ended December 31, 1998.
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<PAGE> 35
SUBMISSION OF STOCKHOLDER PROPOSALS
Stockholder proposals submitted for inclusion in the Proxy Statement for
the Company's 2000 Annual Meeting of Stockholders must be mailed to the
Corporate Secretary, El Paso Energy Corporation, 1001 Louisiana Street, Houston,
Texas 77002, and must be received by the Corporate Secretary on or before
November 19, 1999. The Company will consider only proposals meeting the
requirements of applicable SEC rules. Pursuant to the Company's By-laws, in
order for stockholder proposals that are not included in such Proxy Statement to
be brought before the 2000 Annual Meeting of Stockholders, such proposals must
be mailed to the Corporate Secretary at the foregoing address and received not
less than 60 days nor more than 90 days prior to the scheduled date of such
annual meeting.
ADDITIONAL INFORMATION -- INTERNET AND TELEPHONE VOTING
You may vote shares registered in your name, as well as shares that you
beneficially own and hold in "street name" through a broker, via the Internet or
by telephone. Votes submitted electronically via the Internet or by telephone
must be received by 3:00 p.m. central daylight time, on April 21, 1999. The
giving of such a proxy will not affect your right to vote in person at the
Annual Meeting.
To vote via the Internet or by telephone, please follow the instructions on
your proxy card.
The Internet voting procedures are designed to authenticate stockholder
identities, to allow stockholders to give voting instructions, and to confirm
the accurate recording of stockholder instructions. Stockholders voting via the
Internet should understand that there may be costs associated with electronic
access, such as usage charges from Internet access providers and telephone
companies, that must be paid by the stockholder.
ANNUAL REPORT
A copy of the Company's 1998 Annual Report to Stockholders is being mailed
with this Proxy Statement to each stockholder entitled to vote at the Annual
Meeting. Stockholders not receiving a copy of such Annual Report may obtain one
free of charge by writing or calling Mr. David L. Siddall, Corporate Secretary,
El Paso Energy Corporation, 1001 Louisiana Street, Houston, Texas 77002,
telephone (713) 420-6195.
By Order of the Board of
Directors
/s/ DAVID L. SIDDALL
DAVID L. SIDDALL
Corporate Secretary
Houston, Texas
March 19, 1999
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<PAGE> 36
EXHIBIT A
EL PASO ENERGY CORPORATION
1999 OMNIBUS INCENTIVE COMPENSATION PLAN
SECTION 1 PURPOSES
The purposes of the El Paso Energy Corporation 1999 Omnibus Incentive
Compensation Plan (the "Plan") are to promote the interests of El Paso Energy
Corporation (the "Company") and its stockholders by strengthening its ability to
attract and retain officers and key management employees ("key management
employees" means those employees who hold the position of department director)
in the employ of the Company and its Subsidiaries (as defined below) by
furnishing suitable recognition of their ability and industry which contribute
materially to the success of the Company and to align the interests and efforts
of the Company's officers and key management employees to the long-term
interests of the Company's stockholders, and to provide a direct incentive to
the Participants (as defined below) to achieve the Company's strategic and
financial goals. The Plan provides for the grant of stock options, limited stock
appreciation rights, stock appreciation rights, restricted stock, incentive
awards and performance units in accordance with the terms and conditions set
forth below.
SECTION 2 DEFINITIONS
Unless otherwise required by the context, the following terms when used in
the Plan shall have the meanings set forth in this Section 2:
2.1 ADJUSTED VALUE
The dollar value of Performance Units determined as of a Valuation Date.
2.2 BENEFICIARY
The person or persons designated by the Participant pursuant to Section
6.4(f) or Section 14.7 of this Plan to whom payments are to be paid pursuant to
the terms of the Plan in the event of the Participant's death.
2.3 BOARD OF DIRECTORS
The Board of Directors of the Company.
2.4 CAUSE
The Company may terminate the Participant's employment for Cause. A
termination for Cause is a termination evidenced by a resolution adopted in good
faith by two-thirds ( 2/3) of the Board of Directors that the Participant (i)
willfully and continually failed to substantially perform the Participant's
duties with the Company (other than a failure resulting from the Participant's
incapacity due to physical or mental illness) which failure continued for a
period of at least thirty (30) days after a written notice of demand for
substantial performance has been delivered to the Participant specifying the
manner in which the Participant has failed to substantially perform or (ii)
willfully engaged in conduct which is demonstrably and materially injurious to
the Company, monetarily or otherwise; provided, however, that no termination of
the Participant's
employment shall be for Cause as set forth in clause (ii) above until (A) there
shall have been delivered to the Participant a copy of a written notice setting
forth that the Participant was guilty of the conduct set forth in clause (ii)
above and specifying the particulars thereof in detail and (B) the Participant
shall have been provided an opportunity to be heard by the Board of Directors
(with the assistance of the Participant's counsel if the Participant so
desires). No act, nor failure to act, on the Participant's part shall be
considered "willful" unless the Participant has acted, or failed to act, with an
absence of good faith and without a reasonable belief that the Participant's
action or failure to act was in the best interest of the Company.
Notwithstanding
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anything contained in the Plan to the contrary, no failure to perform by the
Participant after notice of termination is given by the Participant shall
constitute Cause.
2.5 CHANGE IN CONTROL
As used in the Plan, a Change in Control shall be deemed to occur (i) if
any person (as such term is used in Sections 13(d) and 14(d)(2) of the Exchange
Act) is or becomes the "beneficial owner" (as defined in Rule 13d-3 of the
Exchange Act), directly or indirectly, of securities of the Company representing
twenty percent (20%) or more of the combined voting power of the Company's then
outstanding securities, (ii) upon the first purchase of the Common Stock
pursuant to a tender or exchange offer (other than a tender or exchange offer
made by the Company), (iii) upon the approval by the Company's stockholders of a
merger or consolidation, a sale or disposition of all or substantially all of
the Company's assets or a plan of liquidation or dissolution of the Company, or
(iv) if, during any period of two (2) consecutive years, individuals who at the
beginning of such period constitute the Board of Directors cease for any reason
to constitute at least a majority thereof, unless the election or nomination for
the election by the Company's stockholders of each new director was approved by
a vote of at least two-thirds ( 2/3) of the directors then still in office who
were directors at the beginning of the period. Notwithstanding the foregoing, a
Change in Control shall not be deemed to occur if the Company either merges or
consolidates with or into another company or sells or disposes of all or
substantially all of its assets to another company, if such merger,
consolidation, sale or disposition is in connection with a corporate
restructuring wherein the stockholders of the Company immediately before such
merger, consolidation, sale or disposition own, directly or indirectly,
immediately following such merger, consolidation, sale or disposition at least
eighty percent (80%) of the combined voting power of all outstanding classes of
securities of the company resulting from such merger or consolidation, or to
which the Company sells or disposes of its assets, in substantially the same
proportion as their ownership in the Company immediately before such merger,
consolidation, sale or disposition.
2.6 CODE
The Internal Revenue Code of 1986, as amended and in effect from time to
time, and the temporary or final regulations of the Secretary of the U.S.
Treasury adopted pursuant to the Code.
2.7 COMMON STOCK
The Common Stock of the Company, $3 par value per share, or such other
class of shares or other securities as may be applicable pursuant to the
provisions of Section 5.
2.8 EXCHANGE ACT
The Securities Exchange Act of 1934, as amended.
2.9 FAIR MARKET VALUE
Unless otherwise provided by the Plan Administrator prior to the date of a
Change in Control as applied to a specific date, Fair Market Value shall be
deemed to be the mean between the highest and lowest quoted selling prices at
which Common Stock is sold on such date as reported in the NYSE-Composite
Transactions by The Wall Street Journal for such date, or if no Common Stock was
traded on such date, on the next preceding day on which Common Stock was so
traded. Notwithstanding the foregoing, upon the exercise,
(a) during the thirty (30) day period following a Change in Control,
of a limited stock appreciation right or stock appreciation right granted
in connection with a Nonqualified Option more than six (6) months prior to
a Change in Control, or
(b) during the seven (7) month period following a Change in Control,
of a limited stock appreciation right or of a stock appreciation right
granted in connection with a Nonqualified Option less than six (6) months
prior to a Change in Control,
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on or after a Change in Control, Fair Market Value on the date of exercise
shall be deemed to be the greater of (i) the highest price per share of
Common Stock as reported in the NYSE-Composite Transactions by The Wall
Street Journal during the sixty (60) day period ending on the day preceding
the date of exercise of the stock appreciation right or limited stock
appreciation right, as the case may be, and (ii) if the Change in Control
is one described in clause (ii) or (iii) of Section 2.5, the highest price
per share paid for Common Stock in connection with such Change in Control.
2.10 GOOD REASON
For purposes of the Plan, a Participant's termination of employment for
Good Reason, following a Change in Control, shall mean the occurrence of any of
the following events or conditions:
(a) a change in the Participant's status, title, position or
responsibilities (including reporting responsibilities) which, in the
Participant's reasonable judgment, represents a substantial reduction of
the status, title, position or responsibilities as in effect immediately
prior thereto; the assignment to the Participant of any duties or
responsibilities which, in the Participant's reasonable judgment, are
inconsistent with such status, title, position or responsibilities; or any
removal of the Participant from or failure to reappoint or reelect the
Participant to any of such positions, except in connection with the
termination of the Participant's employment for Cause, for Permanent
Disability or as a result of his or her death, or by the Participant other
than for Good Reason;
(b) a reduction in the Participant's annual base salary;
(c) the Company's requiring the Participant (without the consent of
the Participant) to be based at any place outside a thirty-five (35) mile
radius of his or her place of employment prior to a Change in Control,
except for reasonably required travel on the Company's business which is
not materially greater than such travel requirements prior to the Change in
Control;
(d) the failure by the Company to (i) continue in effect any material
compensation or benefit plan in which the Participant was participating at
the time of the Change in Control, including, but not limited to, the Plan,
the El Paso Energy Corporation Pension Plan, the El Paso Energy Corporation
Supplemental Benefits Plan, the El Paso Energy Corporation Deferred
Compensation Plan and the El Paso Energy Corporation Retirement Savings
Plan, with any amendments and restatements of such plans (or substantially
similar successor plans) made prior to such Change in Control; or (ii)
provide the Participant with compensation and benefits at least equal (in
terms of benefit levels and/or reward opportunities) to those provided for
under each employee benefit plan, program and practice as in effect
immediately prior to the Change in Control (or as in effect following the
Change in Control, if greater);
(e) any material breach by the Company of any provision of the Plan;
or
(f) any purported termination of the Participant's employment for
Cause by the Company which does not otherwise comply with the terms of the
Plan.
2.11 INCENTIVE AWARD
A percentage of base salary, fixed dollar amount or other measure of
compensation for which Participants are eligible to receive, in cash and/or
shares of Restricted Stock, at the end of a Performance Period if certain
Performance Goals are achieved.
2.12 INCENTIVE STOCK OPTION
An option intended to meet the requirements of an Incentive Stock Option as
defined in Section 422 of the Code, as in effect at the time of grant of such
option, or any statutory provision that may hereafter replace such Section.
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2.13 MANAGEMENT COMMITTEE
A committee consisting of the Chief Executive Officer and such other senior
officers as the Chief Executive Officer shall designate.
2.14 MAXIMUM ANNUAL EMPLOYEE GRANT
The Maximum Annual Employee Grant set forth in Section 5.4.
2.15 NONQUALIFIED OPTION
An option which is not intended to meet the requirements of an Incentive
Stock Option as defined in Section 422 of the Code.
2.16 OPTION PRICE
The price per share of Common Stock at which an option is exercisable.
2.17 PARTICIPANT
An eligible employee to whom an option, limited stock appreciation right,
stock appreciation right, Restricted Stock, Incentive Award or Performance Unit
is granted under the Plan as set forth in Section 4.
2.18 PERFORMANCE CYCLE
That period commencing with January 1 of each year in which the grant of a
Performance Unit is made and ending on December 31 of the third succeeding year,
or such other time period as the Plan Administrator may determine. The Plan
Administrator, it its discretion, may initiate an overlapping Performance Cycle
that begins before an existing Performance Cycle has ended.
2.19 PERFORMANCE GOALS
The Plan Administrator shall establish one or more performance goals
("Performance Goals") for each Performance Period in writing. Such Performance
Goals shall be set no later than the commencement of the applicable Performance
Period, or such later date as may be permitted with respect to
"performance-based" compensation under Section 162(m) of the Code, and shall
establish the amount of any Incentive award to be granted to each Participant,
subject to Section 5.4 below.
Each Performance Goal selected for a particular Performance Period shall be
any one or more of the following, either individually, alternatively or in any
combination, applied to either the Company as a whole or to a Subsidiary or
business unit, either individually, alternatively or in any combination, and
measured either annually or cumulatively over a period of years, on an absolute
basis or relative to the pre-established target, to previous years' results or
to a designated comparison group, in each case as specified by the Plan
Administrator: Total Shareholder Return, operating income, pre-tax profit,
earnings per share, cash flow, return on capital, return on equity, return on
net assets, net income, debt reduction, safety, return on investment, revenues,
or Common Stock price. The foregoing terms shall have the same meaning as used
in the Company's financial statements, or if the terms are not used in the
Company's financial statements, they shall have the meaning generally applied
pursuant to general accepted accounting principles, or as used in the industry,
as applicable. The Plan Administrator may appropriately adjust any evaluation of
performance under a Performance Goal to exclude any of the following events that
occurs during a Performance Period: (i) asset write-downs, (ii) litigation or
claim judgments or settlements, (iii) the effect of changes in tax law,
accounting principles or other such laws or provisions affecting reported
results, (iv) accruals for reorganization and restructuring programs, and (v)
extraordinary non-recurring items as described in Accounting Principles Board
Opinion No. 30 and/or in management's discussion and analysis of financial
condition and results of operations appearing in the Company's annual report to
stockholders for the applicable year.
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2.20 PERFORMANCE PEER GROUP
Those publicly held companies selected by the Plan Administrator prior to
the commencement of a Performance Period, or such later date as may be permitted
under Section 162(m) of the Code, consistent with maintaining the status of
Performance Units as "performance-based compensation," to form a comparative
performance group in applying Section 9.4.
2.21 PERFORMANCE PERIOD
That period of time during which Performance Goals are measured to
determine the vesting or granting of options, limited stock appreciation rights,
stock appreciation rights, Restricted Stock, Performance Units or Incentive
Awards, as the Plan Administrator may determine.
2.22 PERFORMANCE RANKING POSITION
The relative placement of the Company's Total Shareholder Return measured
against the Total Shareholder Return of the other companies in the Performance
Peer Group for which purposes rank shall be determined by quartile, with a
ranking in the first (1st) quartile (e.g., the Company's Total Shareholder
Return is equal to or greater than the Total Shareholder Return of at least
seventy-five percent (75%) of the Performance Peer Group) corresponding to the
highest quartile of Total Shareholder Return.
2.23 PERFORMANCE UNIT OR UNITS
Units of long-term incentive compensation granted to a Participant with
respect to a particular Performance Cycle.
2.24 PERMANENT DISABILITY OR PERMANENTLY DISABLED
A Participant shall be deemed to have become Permanently Disabled for
purposes of the Plan if the Chief Executive Officer of the Company shall find
upon the basis of medical evidence satisfactory to the Chief Executive Officer
that the Participant is totally disabled, whether due to physical or mental
condition, so as to be prevented from engaging in further employment by the
Company or any of its Subsidiaries, and that such disability will be permanent
and continuous during the remainder of the Participant's life; provided, that
with respect to Section 16 Insiders such determination shall be made by the Plan
Administrator.
2.25 PLAN ADMINISTRATOR
The Board of Directors or the committee appointed and/or authorized
pursuant to Section 3 to administer the Plan.
2.26 RESTRICTED STOCK
Common Stock granted under the Plan that is subject to the requirements of
Section 10 and such other restrictions as the Plan Administrator deems
appropriate. References to Restricted Stock in this Plan shall include
Performance Restricted Stock (as defined in Section 5.2) unless the context
otherwise requires.
2.27 RULE 16b-3
Rule 16b-3 of the General Rules and Regulations under the Exchange Act.
2.28 SECTION 16 INSIDER
Any person who is selected by the Plan Administrator to receive options,
limited stock appreciation rights, stock appreciation rights, Restricted Stock,
Incentive Award and/or Performance Units pursuant to the Plan and who is subject
to the requirements of Section 16 of the Exchange Act, and the rules and
regulations promulgated thereunder.
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2.29 SECTION 162(m)
Section 162(m) of the Code, and regulations promulgated thereunder.
2.30 SUBSIDIARY
An entity that is designated by the Plan Administrator as a subsidiary for
purposes of the Plan and that is a corporation, partnership, joint venture,
limited liability company, limited liability partnership, or other entity, in
which the Company owns directly or indirectly, fifty percent (50%) or more of
the voting power or profit interests, or as to which the Company or one of its
affiliates serve as general or managing partner or in a similar capacity.
Notwithstanding the foregoing, for purposes of options intended to qualify as
incentive stock options, the term "Subsidiary" shall mean a corporation (or
other entity treated as a corporation for tax purposes) in which the Company
directly or indirectly holds more than fifty percent (50%) of the voting power.
2.31 TOTAL SHAREHOLDER RETURN
The sum of (i) the appreciation or depreciation in the price of a share of
a company's common stock, and (ii) the dividends and other distributions paid
during the applicable Performance Cycle, expressed as a percentage basis of the
Fair Market Value of such share on the first day of the applicable Performance
Cycle, as calculated in a manner determined by the Plan Administrator.
2.32 VALUATION DATE
The date for determining the Adjusted Value of vested Units that will be
paid or credited to the Participant or Beneficiary in accordance with Section
9.5 or 9.6. The Valuation Date shall occur on the last day of the applicable
Performance Cycle, or such other time as provided in this Plan, or as the Plan
Administrator may select. The Valuation Date for each Performance Cycle shall be
set forth in the grant of Performance Units and shall be established no later
than the date on which the Performance Goals for a particular Performance Cycle
are selected, except as otherwise specifically provided herein.
SECTION 3 ADMINISTRATION
3.1 With respect to awards made under the Plan to Section 16 Insiders, the
Plan shall be administered by the Board of Directors or Compensation Committee
of the Board of Directors, which shall be constituted at all times so as to meet
the non-employee director standards of Rule 16b-3 and the outside director
requirements of Section 162(m), so long as any of the Company's equity
securities are registered pursuant to Section 12(b) or 12(g) of the Exchange
Act. Subject to the Board of Directors, and as may be required by the foregoing
sentence, the Plan shall be administered by the Management Committee.
No member of the Board of Directors or the Plan Administrator shall vote
with respect directly to the granting of options, limited stock appreciation
rights, stock appreciation rights, Restricted Stock, Incentive Awards and/or
Performance Units hereunder to himself or herself, as the case may be, and, if
state corporate law does not permit a committee to grant options, limited stock
appreciation rights, stock appreciation rights, Restricted Stock, Incentive
Awards and Performance Units to directors, then any option, limited stock
appreciation right, stock appreciation right, Restricted Stock, Incentive Award
or Performance Unit granted under the Plan to a director for his or her services
as such shall be approved by the full Board of Directors.
3.2 Except for the terms and conditions explicitly set forth in the Plan,
the Plan Administrator shall have sole authority to construe and interpret the
Plan, to establish, amend and rescind rules and regulations relating to the
Plan, to select persons eligible to participate in the Plan, to grant options,
limited stock appreciation rights, stock appreciation rights, Restricted Stock,
Incentive Awards and Performance Units thereunder, to administer the Plan, to
make recommendations to the Board of Directors, and to take all such steps and
make all such determinations in connection with the Plan and the options,
limited stock appreciation rights, stock appreciation rights, Restricted Stock,
Incentive Awards and Performance Units granted thereunder as it may deem
necessary or advisable, which determination shall be final and binding upon all
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Participants, so long as such interpretation and construction with respect to
Incentive Stock Options corresponds to any applicable requirements of Section
422 of the Code. The Plan Administrator shall cause the Company at its expense
to take any action related to the Plan which may be necessary to comply with the
provisions of any federal or state law or any regulations issued thereunder,
which the Plan Administrator determines are intended to be complied with.
3.3 Each member of any committee acting as Plan Administrator, while
serving as such, shall be considered to be acting in his or her capacity as a
director of the Company. Members of the Board of Directors and members of any
committee acting under the Plan shall be fully protected in relying in good
faith upon the advice of counsel and shall incur no liability except for gross
negligence or willful misconduct in the performance of their duties.
SECTION 4 ELIGIBILITY
To be eligible for selection by the Plan Administrator to participate in
the Plan, an individual must be an officer or key management employee of the
Company, or of any Subsidiary, as of the date on which the Plan Administrator
grants to such individual an option, limited Stock appreciation right, stock
appreciation right, Restricted Stock, Incentive Award or Performance Unit or a
person who, in the judgment of the Plan Administrator, holds a position of
responsibility and is able to contribute substantially to the Company's
continued success. Members of the Board of Directors of the Company who are
full-time salaried officers shall be eligible to participate. Members of the
Board of Directors who are not employees are not eligible to participate in this
Plan.
SECTION 5 SHARES AND UNITS AVAILABLE FOR THE PLAN
5.1 Subject to Section 5.5, the maximum number of shares that may be
issued upon settlement of Incentive Awards or Performance Units and exercise of
options, limited stock appreciation rights, stock appreciation rights and
Restricted Stock granted under the Plan is six million (6,000,000) shares of
Common Stock, from shares held in the Company's treasury or out of authorized
but unissued shares of the Company, or partly out of each, as shall be
determined by the Board of Directors. For purposes of Section 5.1, the aggregate
number of shares of Common Stock issued under this Plan at any time shall equal
only the number of shares actually issued upon exercise or settlement of
options, limited stock appreciation rights, stock appreciation rights,
Restricted Stock, Incentive Awards and Performance Units and not returned to the
Company upon cancellation, expiration or forfeiture of any such award or
delivered (either actually or by attestation) in payment or satisfaction of the
purchase price, exercise price or tax obligation of the award.
5.2 Notwithstanding the foregoing, and subject to Section 5.5, the number
of shares for which Restricted Stock may be granted pursuant to Section 10 of
the Plan may not exceed two million (2,000,000) shares of Common Stock,
including the granting or vesting of Restricted Stock that is in compliance with
the performance-based requirements of Section 162(m) (the "Performance
Restricted Stock").
5.3 Subject to Section 5.5, the number of Performance Units which may be
granted under the Plan is set at five hundred thousand (500,000) Units. Units
that have been granted and are fully vested or that still may become fully
vested under the terms of the Plan shall reduce the number of outstanding Units
that are available for use in making future grants under the Plan.
5.4 The maximum number of shares, as calculated in accordance with the
provisions of Section 5.1, and maximum dollar amount with respect to which
awards under this Plan may be granted to any eligible employee in any one year
shall not exceed: (a) one million (1,000,000) in the case of options (and
related limited stock appreciation rights or stock appreciation rights) or
issuable upon settlement of Performance Units; (b) one million (1,000,000) in
the case of shares of Restricted Stock (whether or not such Restricted Stock is
Performance Restricted Stock); and (c) five million dollars ($5,000,000) in
cash, Restricted Stock or a combination thereof, in the case of Incentive
Awards. With respect to Performance Units, the maximum Units granted to any
eligible employee for any Performance Cycle shall not exceed one hundred
thousand
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(100,000) Performance Units. Collectively, the foregoing maximums referred in
this Section 5.5 shall be referred to as the "Maximum Annual Employee Grant."
5.5 In the event of a recapitalization, stock split, stock dividend,
exchange of shares, merger, reorganization, change in corporate structure or
shares of the Company or similar event, the Board of Directors, upon the
recommendation of the Plan Administrator, may make appropriate adjustments in
the number of shares authorized for the Plan, the Maximum Annual Employee Grant
and, with respect to outstanding options, limited stock appreciation rights,
stock appreciation rights, and Restricted Stock, the Plan Administrator may make
appropriate adjustments in the number of shares and the Option Price, except
that any such adjustments for purposes of Sections 5.4 and 6.3 shall be
consistent with the requirements under Code Sections 162(m) and 422,
respectively.
SECTION 6 STOCK OPTIONS
6.1 Options may be granted to eligible employees in such number, and at
such times during the term of the Plan as the Plan Administrator shall
determine, the Plan Administrator taking into account the duties of the
respective employees, their present and potential contributions to the success
of the Company, and such other factors as the Plan Administrator shall deem
relevant in accomplishing the purposes of the Plan. The granting of an option
shall take place when the Plan Administrator by resolution, written consent or
other appropriate action determines to grant such an option to a particular
Participant at a particular price. Each option shall be evidenced by a written
instrument delivered by or on behalf of the Company containing provisions not
inconsistent with the Plan, which may (but need not) require the Participant's
signature.
6.2 An option granted under the Plan may be either an Incentive Stock
Option or a Nonqualified Option.
6.3 Each provision of the Plan and each Incentive Stock Option granted
thereunder shall be construed so that each such option shall qualify as an
Incentive Stock Option, and any provision thereof that cannot be so construed
shall be disregarded, unless the Participant agrees otherwise. The total number
of shares which may be purchased upon the exercise of Incentive Stock Options
granted under the Plan shall not exceed the total specified in Section 5.1.
Incentive Stock Options, in addition to complying with the other provisions of
the Plan relating to options generally, shall be subject to the following
conditions:
(a) Ten Percent (10%) Stockholders
A Participant must not, immediately before an Incentive Stock Option
is granted to him or her, own stock representing more than ten percent
(10%) of the voting power or value of all classes of stock of the Company
or of a Subsidiary. This requirement is waived if (i) the Option Price of
the Incentive Stock Option to be granted is at least one hundred ten
percent (110%) of the Fair Market Value of the stock subject to the option,
determined at the time the option is granted, and (ii) the option is not
exercisable more than five (5) years from the date the option is granted.
(b) Annual Limitation
To the extent that the aggregate Fair Market Value (determined at the
time of the grant of the option) of the stock with respect to which
Incentive Stock Options are exercisable for the first time by the
Participant during any calendar year exceeds One Hundred Thousand Dollars
($100,000), such options shall be treated as Nonqualified Options.
(c) Additional Terms
Any other terms and conditions which the Plan Administrator
determines, upon advice of counsel, must be imposed for the option to be an
Incentive Stock Option.
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6.4 Except as otherwise provided in Section 6.3, all Incentive Stock
Options and Nonqualified Options under the Plan shall be granted subject to the
following terms and conditions:
(a) Option Price
The Option Price shall be determined by the Plan Administrator, but
shall not be less than one hundred percent (100%) of the Fair Market Value
of the Common Stock on the date the option is granted.
(b) Duration of Options
Options shall be exercisable at such time and under such conditions as
set forth in the option grant, but in no event shall any Incentive Stock
Option be exercisable subsequent to the day before the tenth anniversary of
the date on which the option is granted, nor shall any other option be
exercisable later than the tenth anniversary of the date of its grant.
(c) Exercise of Options
Subject to Section 6.4(j), a Participant may not exercise an option
until the Participant has completed one (1) year of continuous employment
with the Company or any of its Subsidiaries from and including the date on
which the option is granted, or such longer period as the Plan
Administrator may determine in a particular case. This requirement is
waived in the event of death, Permanent Disability of a Participant or a
Change in Control before such period of continuous employment is completed
and may be waived or modified in the agreement evidencing the option or by
resolution adopted at any time by the Plan Administrator. Thereafter,
shares of Common Stock covered by an option may be purchased at one time or
in such installments over the balance of the option period as may be
provided in the option grant. Any shares not purchased on the applicable
installment date may be purchased thereafter at any time prior to the final
expiration of the option. To the extent that the right to purchase shares
has accrued thereunder, options may be exercised from time to time by
written notice to the Company setting forth the number of shares with
respect to which the option is being exercised.
(d) Payment
The purchase price of shares purchased under options shall be paid in
full to the Company upon the exercise of the option by delivery of
consideration equal to the product of the Option Price and the number of
shares purchased (the "Purchase Price"). Such consideration may be either
(i) in cash or (ii) at the discretion of the Plan Administrator, in Common
Stock already owned by the Participant for at least six (6) months, or any
combination of cash and Common Stock. The Fair Market Value of such Common
Stock as delivered shall be valued as of the day prior to delivery. The
Plan Administrator can determine that additional forms of payment will be
permitted. To the extent permitted by the Plan Administrator and applicable
laws and regulations (including, but not limited to, federal tax and
securities laws, regulations and state corporate law), an option may also
be exercised in a "cashless" exercise by delivery of a properly executed
exercise notice together with irrevocable instructions to a broker to
promptly deliver to the Company the amount of sale or loan proceeds to pay
the Purchase Price. A Participant shall have none of the rights of a
stockholder until the shares of Common Stock are issued to the Participant.
If specifically authorized in the option grant, a Participant may
elect to pay all or a portion of the Purchase Price by having shares of
Common Stock with a Fair Market Value equal to all or a portion of the
Purchase Price be withheld from the shares issuable to the Participant upon
the exercise of the option; provided that such shall be permitted of a
Participant who is a Section 16 Insider only if approved in advance by the
Board of Directors or the Compensation Committee, if required by Section
16, and rules promulgated thereunder, of the Exchange Act. The Fair Market
Value of such Common Stock as is withheld shall be determined as of the
same day as the exercise of the option.
Notwithstanding any other provision in this Plan to the contrary and
unless the Plan Administrator shall otherwise determine, in the event of a
"cashless" exercise, and for that purpose only under this Plan, a
Participant's compensation shall be equal to the difference between the
actual sales price received for
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the underlying Common Stock and the Option Price. For all other purposes
under this Plan, the Fair Market Value shall be the value against which
compensation is determined.
(e) Restrictions
The Plan Administrator shall determine and reflect in the option
grant, with respect to each option, the nature and extent of the
restrictions, if any, to be imposed on the shares of Common Stock which may
be purchased thereunder, including, but not limited to, restrictions on the
transferability of such shares acquired through the exercise of such
options for such periods as the Plan Administrator may determine and,
further, that in the event a Participant's employment by the Company, or a
Subsidiary, terminates during the period in which such shares are
nontransferable, the Participant shall be required to sell such shares back
to the Company at such prices as the Plan Administrator may specify in the
option. In addition, the Plan Administrator may require that a Participant
who wants to effectuate a "cashless" exercise of options be required to
sell the shares of Common Stock acquired in the associated exercise to the
Company, or in the open market through the use of a broker selected by the
Company, at such price and on such terms as the Plan Administrator may
determine at the time of grant, or otherwise.
(f) Nontransferability of Options
Options granted under the Plan and the rights and privileges conferred
thereby shall not be subject to execution, attachment or similar process
and may not be transferred, assigned, pledged or hypothecated in any manner
(whether by operation of law or otherwise) other than by will or by the
applicable laws of descent and distribution. Notwithstanding the foregoing
and only as provided by the Plan Administrator or the Company, as
applicable, Nonqualified Options may be transferred to a Participant's
immediate family members, directly or indirectly or by means of a trust,
corporate entity or partnership (a person who thus acquires this option by
such transfer, a "Permitted Transferee"). A transfer of an option may only
be effected by the Company at the request of the Participant and shall
become effective upon the Permitted Transferee agreeing to such terms as
the Plan Administrator may require and only when recorded in the Company's
record of outstanding options. In the event an option is transferred as
contemplated hereby, the option may not be subsequently transferred by the
Permitted Transferee except a transfer back to the Participant or by will
or the laws of descent and distribution. A transferred option may be
exercised by a Permitted Transferee to the same extent as, and subject to
the same terms and conditions as, the Participant (except as otherwise
provided herein), as if no transfer had taken place. As used herein,
"immediate family" shall mean, with respect to any person, such person's
child, stepchild, grandchild, parent, stepparent, grandparent, spouse,
sibling, mother-in-law, father-in-law, son-in-law, daughter-in-law,
brother-in-law, sister-in-law, and shall include adoptive relationships. In
the event of exercise of a transferred option by a Permitted Transferee,
any amounts due to (or to be withheld by) the Company upon exercise of the
option shall be delivered by (or withheld from amounts due to) the
Participant, the Participant's estate or the Permitted Transferee, in the
reasonable discretion of the Company.
In addition, to the extent permitted by applicable law and Rule 16b-3,
the Plan Administrator may permit a recipient of a Nonqualified Option to
designate in writing during the Participant's lifetime a Beneficiary to
receive and exercise the Participant's Nonqualified Options in the event of
such Participant's death (as provided in Section 6.4(i)). A designation by
a Participant under the Company's Omnibus Compensation Plan dated as of
January 1, 1992, as amended, or the Company's 1995 Omnibus Compensation
Plan effective as of January 13, 1995, as amended and restated (the
"Predecessor Plans"), shall remain in effect under the Plan for any options
unless such designation is revoked or changed under the Plan. Except as
otherwise provided for herein, if any Participant attempts to transfer,
assign, pledge, hypothecate or otherwise dispose of any option under the
Plan or of any right or privilege conferred thereby, contrary to the
provisions of the Plan or such option, or suffers the sale or levy or any
attachment or similar process upon the rights and privileges conferred
hereby, all affected options held by such Participant shall be immediately
forfeited.
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(g) Purchase for Investment
The Plan Administrator shall have the right to require that each
Participant or other person who shall exercise an option under the Plan,
and each person into whose name shares of Common Stock shall be issued
pursuant to the exercise of an option, represent and agree that any and all
shares of Common Stock purchased pursuant to such option are being
purchased for investment only and not with a view to the distribution or
resale thereof and that such shares will not be sold except in accordance
with such restrictions or limitations as may be set forth in the option or
by the Plan Administrator. This Section 6.4(g) shall be inoperative during
any period of time when the Company has obtained all necessary or advisable
approvals from governmental agencies and has completed all necessary or
advisable registrations or other qualifications of shares of Common Stock
as to which options may from time to time be granted as contemplated in
Section 12.
(h) Termination of Employment
Upon the termination of a Participant's employment for any reason
other than death or Permanent Disability, the Participant's option shall be
exercisable only to the extent that it was then exercisable and, unless the
term of the options expires sooner, such options shall expire according to
the following schedule; provided, that the Plan Administrator may at any
time determine in a particular case that specific limitations and
restrictions under the Plan shall not apply:
(i) Retirement
The option shall expire, unless exercised, thirty-six (36) months
after the Participant's retirement from the Company or any Subsidiary.
(ii) Disability
The option shall expire, unless exercised, thirty-six (36) months
after the Participant's termination on account of Permanent Disability.
(iii) Termination
Subject to subparagraphs (iv) and (v) below, the option shall
expire, unless exercised, for a period not to exceed thirty-six (36)
months, as specified in the grant letter, after a Participant resigns or
is terminated as an employee of the Company or any of its Subsidiaries,
unless the Chief Executive Officer of the Company shall have determined
in a specific case that the option should expire sooner or should
terminate when the Participant's employment status ceases; provided,
however, that for Section 16 Insiders, such determination shall be made
by the Plan Administrator.
(iv) Termination Following a Change in Control
The option shall expire, unless exercised or expiring earlier in
accordance with its original terms, thirty-six (36) months after a
Participant's termination of employment (other than a termination by the
Company for Cause or a voluntary termination by the Participant other
than for Good Reason) following a Change in Control, provided that said
termination of employment occurs within two (2) years following a Change
in Control.
(v) All Other Terminations
Notwithstanding subparagraphs (iii) and (iv) above, the option
shall expire upon termination of employment for Cause and any option
intended to qualify as an Incentive Stock Option shall expire, unless
exercised, one year after the Participant's termination of employment on
account of disability (as defined in Section 22(e)(3) of the Code) and
shall expire three (3) months after the Participant's termination of
employment other than on account of death, Permanent Disability or
termination for Cause.
(i) Death of Participant
Upon the death of a Participant, whether during the Participant's
period of employment or during the thirty-six (36) month period referred to
in Sections 6.4(h)(i), (ii) and (iii), the option shall expire, unless the
original term of the option expires sooner, twelve (12) months after the
date of the
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Participant's death, unless the option is exercised within such twelve (12)
month period by the Participant's Beneficiary, legal representatives,
estate or the person or persons to whom the deceased's option rights shall
have passed by will or the laws of descent and distribution; provided, that
the Plan Administrator may determine in a particular case that specific
limitations and restrictions under the Plan shall not apply.
Notwithstanding any other Plan provisions pertaining to the times at which
options may be exercised, no option shall continue to be exercisable,
pursuant to Section 6.4(h) or this Section 6.4(i), at a time that would
violate the maximum duration of Section 6.4(b).
(j) Change in Control
Notwithstanding other Plan provisions pertaining to the times at which
options may be exercised, all outstanding options, to the extent not then
currently exercisable, shall become exercisable in full upon the occurrence
of a Change in Control. No option (whether or not intended to be an
Incentive Stock Option) shall continue to be exercisable, pursuant to
Sections 6.4(h) and 6.4(i), at a time that would violate the maximum
duration of Section 6.4(b).
(k) Deferral Election
A Participant may elect irrevocably (at a time and in a manner
determined by the Plan Administrator or the Company, as appropriate) prior
to exercising an option granted under the Plan that issuance of shares of
Common Stock upon exercise of such option and/or associated stock
appreciation right shall be deferred until a pre-specified date in the
future or until the Participant ceases to be employed by the Company or any
of its Subsidiaries, as elected by the Participant. After the exercise of
any such option and prior to the issuance of any deferred shares, the
number of shares of Common Stock issuable to the Participant shall be
credited to the deferred stock account (or such other account(s) as the
management committee shall deem necessary and appropriate) under a
memorandum deferred account established pursuant the Company's
then-existing Deferred Compensation Plan (as it may be further amended)
(the "Deferred Compensation Plan"), and any dividends or other
distributions paid on the Common Stock (or its equivalent) shall be deemed
reinvested in additional shares of Common Stock (or its equivalent) until
all credited deferred shares shall become issuable pursuant to the
Participant's election, unless the management committee of the Deferred
Compensation Plan shall otherwise determine.
SECTION 7 STOCK APPRECIATION RIGHTS
7.1 The Plan Administrator may grant stock appreciation rights to
Participants in connection with any option granted under the Plan, either at the
time of the grant of such option or at any time thereafter during the term of
the option. Such stock appreciation rights shall cover the same number of shares
covered by the options (or such lesser number of shares of Common Stock as the
Plan Administrator may determine) and shall, except as provided in Section 7.3,
be subject to the same terms and conditions as the related options and such
further terms and conditions not inconsistent with the Plan as shall from time
to time be determined by the Plan Administrator.
7.2 Each stock appreciation right shall entitle the holder of the related
option to surrender to the Company unexercised the related option, or any
portion thereof, and to receive from the Company in exchange therefor an amount
equal to the excess of the Fair Market Value of one share of Common Stock on the
date the right is exercised over the Option Price per share times the number of
shares covered by the option, or portion thereof, which is surrendered. Payment
shall be made in shares of Common Stock valued at Fair Market Value as of the
date the right is exercised, or in cash, or partly in shares and partly in cash,
at the discretion of the Plan Administrator; provided, however, that payment
shall be made solely in cash with respect to a stock appreciation right which is
exercised within seven (7) months following a Change in Control. Stock
appreciation rights may be exercised from time to time upon actual receipt by
the Company of written notice stating the number of shares of Common Stock with
respect to which the stock appreciation right is being exercised. The value of
any fractional shares shall be paid in cash.
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7.3 Stock appreciation rights are subject to the following restrictions:
(a) Each stock appreciation right shall be exercisable at such time or
times as the option to which it relates shall be exercisable, or at such
other times as the Plan Administrator may determine. In the event of
death or Permanent Disability of a Participant during employment but
before the Participant has completed such period of continuous
employment, such stock appreciation right shall be exercisable; but only
within the period specified in the related option. In the event of a
Change in Control, the requirement that a Participant shall have
completed a six (6) month period of continuous employment is waived with
respect to a Participant who is employed by the Company at the time of
the Change in Control but who, within the six (6) month period,
voluntarily terminates employment for Good Reason or is terminated by
the Company other than for Cause.
(b) Except following a Change in Control, each request to exercise a
stock appreciation right shall be subject to approval or denial in whole
or in part by the Plan Administrator in its sole discretion. Denial or
approval of such request shall not require a subsequent request to be
similarly treated by the Plan Administrator.
(c) The right of a Participant to exercise a stock appreciation right
shall be canceled if and to the extent the related option is exercised.
To the extent that a stock appreciation right is exercised, the related
option shall be deemed to have been surrendered unexercised and
canceled.
(d) A holder of stock appreciation rights shall have none of the rights
of a stockholder until shares of Common Stock, if any, are issued to
such holder pursuant to such holder's exercise of such rights.
(e) The acquisition of Common Stock pursuant to the exercise of a stock
appreciation right shall be subject to the same restrictions as would
apply to the acquisition of Common Stock acquired upon exercise of the
related option, as set forth in Section 6.4.
SECTION 8 LIMITED STOCK APPRECIATION RIGHTS
8.1 The Plan Administrator may grant limited stock appreciation rights to
Participants in connection with any options granted under the Plan, either at
the time of the grant of such option or at any time thereafter during the term
of the option. Such limited stock appreciation rights shall cover the same
number of shares covered by the options (or such lesser number of shares of
Common Stock as the Plan Administrator may determine) and shall, except as
provided in Section 8.3, be subject to the same terms and conditions as the
related options and such further terms and conditions not inconsistent with the
Plan as shall from time to time be determined by the Plan Administrator.
8.2 Each limited stock appreciation right shall entitle the holder of the
related option to surrender to the Company the unexercised portion of the
related option and to receive from the Company in exchange therefor an amount in
cash equal to the excess of the Fair Market Value of one (1) share of Common
Stock on the date the right is exercised over the Option Price per share times
the number of shares covered by the option, or portion thereof, which is
surrendered.
8.3 Limited stock appreciation rights are subject to the following
restrictions:
(a) Each limited stock appreciation right shall be exercisable in full
for a period of seven (7) months following the date of a Change in
Control regardless of whether the holder is employed by the Company or
any of its Subsidiaries on the date the right is exercised. Limited
stock appreciation rights shall be exercisable only to the same extent
and subject to the same conditions as the options related thereto are
exercisable, as provided in Section 6.4(j).
(b) The right of a Participant to exercise a limited stock appreciation
right shall be canceled if and to the extent the related option is
exercised. To the extent that a limited stock appreciation right is
exercised, the related option shall be deemed to have been surrendered
unexercised and canceled.
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SECTION 9 PERFORMANCE UNITS
9.1 GRANTS OF UNITS
Subject to the Maximum Annual Employee Grant, Units may be granted to
Participants in such number as the Plan Administrator shall determine, taking
into account the duties of the respective Participants, their present and
potential contributions to the success of the Company or its Subsidiaries, their
compensation provided by other incentive plans, their salaries, and such other
factors as the Plan Administrator shall deem appropriate. Normally, Units will
be granted only at the beginning of each Performance Cycle except in cases where
a prorated grant may be made in mid-cycle to a newly eligible Participant or a
Participant whose job responsibilities have significantly changed during the
cycle.
9.2 NOTICE TO PARTICIPANTS
The Plan Administrator shall notify each Participant in writing of the
grant of Units to the Participant. Such notice shall set forth the Total
Shareholder Return requirements, vesting schedule and other terms and conditions
applicable to such Units, and may (but need not) require the Participant's
signature.
9.3 VESTING
(a) Vesting Schedule
The Plan Administrator shall adopt a vesting schedule for each year of
a Performance Cycle. Vesting of Units for each year may (i) occur
automatically after a Participant has completed the specified period of
continuous employment with the Company or any of its Subsidiaries from the
date of grant of such Units, (ii) be contingent upon attaining certain
levels of Total Shareholder Return for the year in which the Units are
eligible to vest, or (iii) occur at such other times or subject to such
other criteria as the Plan Administrator may determine. The Plan
Administrator may, in its discretion, alter the vesting guidelines in the
event of unusual circumstances provided that to the extent applicable any
such discretion shall be exercised in a manner consistent with Section
162(m). Vesting of Units with respect to Participants who begin
participation or receive an additional grant of Units during the
Performance Cycle will be determined by the Plan Administrator at the time
of grant.
(b) Change in Control
Notwithstanding the foregoing vesting provisions, upon a Change in
Control all unvested Units shall become fully vested on a pro rata basis
measured in the next higher whole year between (i) the date of grant and
(ii) the date of a Change in Control.
9.4 VALUATION OF PERFORMANCE UNITS
All Performance Units granted to Participants under the Plan shall be
valued as follows:
(a) Initial and Continuing Value
Each Performance Unit shall have an initial value of one hundred
dollars ($100) as of the date of the grant of Performance Units. Except
where the Adjusted Value of Performance Units is determined as provided
under Section 9.4(b), each Performance Unit shall continue to have a dollar
value of one hundred dollars ($100) on each date subsequent to the date of
grant of the Performance Unit.
(b) Adjusted Value
The determination of the Adjusted Value of Performance Units for
benefit payments under Sections 9.5(b)(i) and 9.5(b)(ii) as of any relevant
Valuation Date shall be made based on the
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Company's Performance Ranking Position for the applicable Performance Cycle
compared to the Performance Ranking Position of the Performance Peer Group,
based on the following schedule:
<TABLE>
<CAPTION>
COMPANY'S PERFORMANCE ADJUSTED
RANKING POSITION VALUE
- --------------------- --------
<S> <C> <C>
1(st) Quartile.............................................. $ 150
2(nd) Quartile............................................... $ 100
3(rd) Quartile............................................... $ 50
4(th) Quartile............................................... $ 0
</TABLE>
If any company which is a member of the Performance Peer Group that (i)
ceases to exist by reason of a liquidation, merger or other transaction;
(ii) undergoes a significant alternation in size, through recapitalization
or otherwise, such that its total market capitalization as determined from
its published financial statements is more than fifty (50%) greater or less
than its total market capitalization as of the grant date for the
applicable Performance Cycle; or (iii) otherwise changes its line of
business significantly to make it inappropriate to use such company in
comparison, and if such event(s) occurs after the time the Plan
Administrator can alter the Performance Peer Group under Section 2.20
above, then such company shall be considered to remain in the Performance
Peer Group, and to have achieved a Total Shareholder Return less than the
Company's Total Shareholder Return without regard to any actual Total
Shareholder Return actually achieved by such company, provided, however,
that the Plan Administrator shall have the authority to reduce the Adjusted
Value of Performance Units in such event if it determines that such
reduction is appropriate in view of the Company's performance relative to
those companies in the Performance Peer Group and not described in clauses
(i), (ii) or (iii), above.
9.5 ENTITLEMENT TO PAYMENT
(a) Performance Certification
The Plan Administrator shall certify in writing, prior to payment of
the Performance Units pursuant to this Section 9.5, the Company's
Performance Ranking Position. In no event will an award be payable under
this Section 9 if the Company's Performance Ranking Position is in the
fourth (4th) quartile.
(b) Eligibility for Benefit Payments
Benefit payments with respect to vested Performance Units shall be
paid under the following circumstances:
(i) Primary Benefit Payment
Upon the expiration of each Performance Cycle, all uncanceled
Performance Units granted with respect to such Performance Cycle shall
vest and benefit payments with respect to such Performance Units shall
become payable. A Participant who has remained an employee continuously
from the date of the grant of the Performance Units for a Performance
Cycle through the last day of such Performance Cycle shall be eligible
to receive a benefit payment equal to the Adjusted Value, as provided
for in Section 9.4(b), of the Performance Units (the "Primary Benefit")
with respect to and as of the close of such Performance Cycle. The
Valuation Date for determining such Adjusted Value shall be established
by the Plan Administrator at the time the Performance Units are granted.
The amount of any benefit payment payable with respect to Performance
Units shall be reduced by the amount of any interim benefit payments
made pursuant to Section 9.5(b)(ii) with respect to such Performance
Units. If the interim benefit payments exceed the Primary Benefit, no
payment shall be made.
(ii) Interim Benefit Payments
The Plan Administrator may in its sole discretion provide for an
interim benefit payment to be made to a Participant with respect to
Performance Units granted for any particular Performance Cycle. The
right to any interim benefit payment shall be set forth in the grant of
Performance Units to a Participant, or at such other time as the Plan
Administrator shall determine, and must establish
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the terms and conditions of such interim benefit payment (including the
Company's Total Shareholder Return which must be attained during such
Performance Period). An interim benefit payment may be provided for
after the second year of a Performance Cycle. The interim benefit
payment shall be based upon the Adjusted Value of the Performance Units,
as provided for in Section 9.4(b) for the period up to the date of the
interim payment valuation, and the amount of any such payment shall not
exceed fifty percent (50%) of such Adjusted Value for the Performance
Units which are vested at the end of the second year; provided, however,
that such interim payment will be made only if the Company's Performance
Ranking Position is in the first (1st) or second (2nd) quartile. The
Valuation Date for determining such Adjusted Value shall be set forth in
the grant of Performance Units, or at such other time as determined by
the Plan Administrator. The Performance Units which are valued for the
interim benefit payment shall also be valued in accordance with Section
9.5(b)(i) or Section 9.7 if applicable, to determine what, if any,
additional value the Participant may be entitled to. Interim benefit
payments may be made to those Participants who have remained employees
continuously from the date of the grant of the applicable Performance
Units until the date of the interim benefit payment relating to such
Performance Units. The amount of any benefit payment payable with
respect to Performance Units pursuant to Sections 9.5(b)(i) and 9.5(d)
shall be reduced by the amount of any interim benefit payment made
pursuant to this Section 9.5(b)(ii), but not below zero.
(c) Form of Payment
A Participant or a Participant's Beneficiary shall be entitled to
receive from the Company a benefit payment as provided pursuant to Sections
9.5(b)(i) or 9.5(b)(ii), as applicable, equal to the product of the
Adjusted Value and the number of vested Units of a Participant. Such
payment shall be made as soon as practicable following the applicable
Valuation Date in accordance with this Section 9.5(c).
Except as provided in Sections 9.5(d) and 9.7 (or unless the Plan
Administrator otherwise determines at any time that the form of payment
should be changed), each benefit payment made to a Participant pursuant to
this Section 9, shall be made as follows:
(i) Participants employed by the Company holding the position of
Chairman of the Board, President or Chief Executive Officer and
Participants employed by Company Subsidiaries holding equivalent
positions, but not necessarily the same title, shall receive their
Performance Unit payout as follows:
(A) 50% (fifty percent) in cash and
(B) 50% (fifty percent) in Common Stock.
(ii) Participants employed by the Company holding the position of
Vice Chairman of the Board, Chief Operating Officer, or Executive
Vice President and Participants employed by Company Subsidiaries
holding equivalent positions, but not necessarily the same title,
shall receive their Performance Unit payout as follows:
(A) 60% (sixty percent) in cash and
(B) 40% (forty percent) in Common Stock.
(iii) Participants employed by the Company holding the position of
Senior Vice President and Participants employed by Company
Subsidiaries holding equivalent positions, but not necessarily the
same title, shall receive their Performance Unit payout as follows:
(A) 75% (seventy-five percent) in cash and
(B) 25% (twenty-five percent) in Common Stock.
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(d) Retirement, Death, Disability or Termination of Employment
Participants (or their Beneficiaries in the case of their deaths) who
have retired, died, become Permanently Disabled, or who have terminated
their employment, prior to the end of a Performance Cycle shall not be
entitled to receive payment from the Company or its Subsidiaries for any
Units which were not vested as of the time such Participants ceased active
employment with the Company or its Subsidiaries. Notwithstanding Section
9.5(c), such Participants (or their Beneficiaries in the case of their
deaths) will be entitled to receive a cash payment for vested Units in
accordance with Section 9.5(b)(i). No payments shall be made to such
Participants (or Beneficiaries) pursuant to Section 9.5(b)(ii). Unless the
Plan Administrator otherwise determines, a Participant who is terminated
with Cause shall receive no benefit under this Section 9.
9.6 DEFERRED PAYMENT
Prior to the time that Units first vest pursuant to Section 9.3, the
Participant may, subject to the consent of the Management Committee and in
accordance with procedures that the Management Committee has approved, elect to
have all or a portion (subject to a $1,000 minimum) of the lump-sum cash payment
payable pursuant to Section 9.5(c) with respect to such vested Units deferred
according to the terms and conditions of the Company's Deferred Compensation
Plan.
9.7 ACCELERATION OF PAYMENT DUE TO CHANGE IN CONTROL
Upon a Change in Control, the current Performance Cycle shall immediately
end and all vested Units (including Units that vest pursuant to Section 9.3(b))
shall be paid in cash to Participants based on a value of one hundred fifty
dollars ($150) per Unit. This payment will be reduced to reflect any interim
benefit payments made in accordance with Section 9.5(b)(ii) and shall be made
(i) in a lump sum in cash that is in lieu of any otherwise applicable form and
time of payment for such Units under the Plan and (ii) within ten (10) days
after the Change in Control.
SECTION 10 RESTRICTED STOCK
10.1 Subject to Sections 5.2 and 5.4, Restricted Stock (including
Performance Restricted Stock) may be granted to Participants in such number and
at such times during the term of the Plan as the Plan Administrator shall
determine, the Plan Administrator taking into account the duties of the
respective Participants, their present and potential contributions to the
success of the Company, and such other factors as the Plan Administrator shall
deem relevant in accomplishing the purposes of the Plan. The granting of
Restricted Stock shall take place when the Plan Administrator by resolution,
written consent or other appropriate action determines to grant such Restricted
Stock to a particular Participant. Each grant shall be evidenced by a written
instrument delivered by or on behalf of the Company containing provisions not
inconsistent with the Plan, which may (but need not) require the Participant's
signature. The Participant receiving a grant of Restricted Stock shall be
recorded as a stockholder of the Company. Each Participant who receives a grant
of Restricted Stock shall have all the rights of a stockholder with respect to
such shares (except as provided in the restrictions on transferability),
including the right to vote the shares and receive dividends and other
distributions; provided, however, that no Participant awarded Restricted Stock
shall have any right as a stockholder with respect to any shares subject to the
Participant's Restricted Stock grant prior to the date of issuance to the
Participant of a certificate or certificates, or the establishment of a
book-entry account, for such shares.
10.2 Notwithstanding any other provision to the contrary in this Section
10, before Performance Restricted Stock can be granted or vested, as applicable,
the Plan Administrator shall:
(a) Determine the Performance Goals, if any, applicable to the
particular Performance Period; and
(b) Certify in writing that any such Performance Goals for a particular
Performance Period have been attained.
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10.3 A grant of Restricted Stock shall entitle a Participant to receive,
on the date or dates designated by the Plan Administrator, or, if later, upon
payment to the Company of the par value of the Common Stock, if required, in a
manner determined by the Plan Administrator, the number of shares of Common
Stock selected by the Plan Administrator. The Plan Administrator may require,
under such terms and conditions as it deems appropriate or desirable, that the
certificates for Restricted Stock delivered under the Plan may be held in
custody by a bank or other institution, or that the Company may itself hold such
shares in custody until the Restriction Period (as defined in Section 10.4)
expires or until restrictions thereon otherwise lapse, and may require, as a
condition of any issuance of Restricted Stock that the Participant shall have
delivered a stock power endorsed in blank relating to the shares of Restricted
Stock.
10.4 During a period of years following the date of grant, as determined
by the Plan Administrator, which shall in no event be less than one (1) year
(the "Restriction Period"), the Restricted Stock may not be sold, assigned,
transferred, pledged, hypothecated or otherwise encumbered or disposed of by the
recipient, except in the event of death or termination of employment on account
of Permanent Disability, the transfer to the Company as provided under the Plan,
the Plan Administrator's waiver or modification of such restrictions in the
agreement evidencing the grant of Restricted Stock, or by resolution of the Plan
Administrator adopted at any time.
10.5 Except as provided in Sections 10.4, 10.6 or 10.7, if a Participant
terminates employment with the Company for any reason before the expiration of
the Restriction Period, all shares of Restricted Stock still subject to
restriction shall be forfeited by the Participant to the Company. In addition,
in the event of any attempt by the Participant to sell, exchange, transfer,
pledge or otherwise dispose of shares of Restricted Stock in violation of the
terms of the Plan without the Company's prior written consent, such shares shall
be forfeited to the Company.
10.6 The Restriction Period for any Participant shall be deemed to end and
all restrictions on shares of Restricted Stock shall lapse, upon the
Participant's death or termination of employment on account of Permanent
Disability or any termination of employment determined by the Plan Administrator
to end the Restriction Period.
10.7 The Restriction Period for any Participant shall be deemed to end and
all restrictions on shares of Restricted Stock shall terminate immediately upon
a Change in Control.
10.8 When the restrictions imposed by Section 10.4 expire or otherwise
lapse with respect to one or more shares of Restricted Stock, the Company shall
deliver to the Participant (or the Participant's legal representative,
Beneficiary or heir) one (1) share of Common Stock for each share of Restricted
Stock.
10.9 Subject to Section 10.3 (and Section 10.2 in the case of Performance
Restricted Stock), a Participant entitled to receive Restricted Stock under the
Plan shall be issued a certificate, or have a book-entry account established,
for such shares. Such certificate, or book-entry account, shall be registered in
the name of the Participant, and shall bear an appropriate legend reciting the
terms, conditions and restrictions, if any, applicable to such shares and shall
be subject to appropriate stop-transfer orders.
10.10 Restricted Stock awarded to Participants pursuant to Section 11 in
lieu of cash shall be considered Performance Restricted Stock for purposes of
the Plan.
10.11 The Restriction Period for any Participant shall be deemed to end
and all restrictions on shares of Restricted Stock awarded pursuant to Sections
11.5(a)(ii), 11.5(b)(ii), and 11.6 (except for Restricted Stock awarded pursuant
to Section 11.5(c)) shall lapse upon the Participant's death, retirement,
Permanent Disability, or any other involuntary termination without Cause. The
Restriction Period shall be deemed to end and all restrictions on a
Participant's shares of Restricted Stock awarded pursuant to Section 11.5(c)
shall lapse on a pro rata basis measured in years between (i) the amount of time
which has elapsed between the Award Date and the Participant's death,
retirement, Permanent Disability, or any other involuntary termination without
Cause and (ii) the Restriction Period for such shares. All shares of Restricted
Stock for which the Restriction Period has not lapsed as described above shall
be forfeited to the Company. Notwithstanding the foregoing, the Plan
Administrator, or the Management Committee in the case of
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Participants other than Section 16 Insiders, may determine that such Restriction
Period should not lapse or that the Restriction Period on additional shares of
Restricted Stock should lapse.
10.12 A Participant may elect irrevocably (at a time and in the manner
determined by the Plan Administrator or the Company, as appropriate), prior to
vesting of Restricted Stock, that the Participant relinquishes any and all
rights in the shares of Restricted Stock in exchange for an interest in the
Deferred Compensation Plan, in which case receipt of such shares shall be
deferred until a pre-specified date in the future or until the Participant
ceases to be employed by the Company or any of its Subsidiaries, as elected by
the Participant. At the time the restrictions would have otherwise lapsed on the
shares of Restricted Stock (as specified at the time of grant, or otherwise if
changed by the Plan Administrator), the number of shares of Common Stock
issuable to the Participant shall be credited to the deferred stock account (or
such other account(s) as the Management Committee shall deem necessary and
appropriate) under a memorandum deferred account established pursuant to the
Deferred Compensation Plan, and any dividends or other distributions paid on the
Common Stock (or its equivalent) shall be deemed reinvested in additional shares
of Common Stock (or its equivalent) until all credited deferred shares shall
become issuable pursuant to the Participant's election, unless the Management
Committee of the Deferred Compensation Plan shall otherwise determine.
SECTION 11 INCENTIVE AWARDS
11.1 PROCEDURES FOR INCENTIVE AWARDS
Prior to the beginning of a particular Performance Period, or such other
date as the Code may allow, the Plan Administrator shall specify in writing:
(a) the Participants who shall be eligible to receive an Incentive
Award for a Performance Period,
(b) the Performance Goals for such Performance Period, and
(c) the maximum Incentive Award amount payable to each Participant if
the Performance Goals are met.
Any Participant chosen to participate in under this Section 11 for a given
Performance Period shall receive the maximum Incentive Award amount if the
designated Performance Goals are achieved, subject to the discretion of the Plan
Administrator to reduce such award, as described in Section 11.4.
11.2 PERFORMANCE GOAL CERTIFICATION
An Incentive Award shall become payable to the extent provided herein in
the event that the Plan Administrator certifies in writing prior to payment of
the award that the Performance Goal or Goals selected for a particular
Performance Period has or have been attained. In no event will an award be
payable under this Plan if the threshold level of performance set for each
Performance Goal for the applicable Performance Period is not attained.
11.3 MAXIMUM INCENTIVE AWARD PAYABLE
The maximum Incentive Award payable under this Plan to any Participant for
any Performance Period shall be five million dollars ($5,000,000) in cash,
Restricted Stock, or a combination of cash and Restricted Stock.
11.4 DISCRETION TO REDUCE AWARDS; PARTICIPANT'S PERFORMANCE
The Plan Administrator, in its sole and absolute discretion, may reduce the
amount of any Incentive Award otherwise payable to a Participant upon attainment
of any Performance Goal for the applicable Performance Period. A Participant's
individual performance must be satisfactory, regardless of the Company's
performance and the attainment of Performance Goals, before he or she may be
granted an Incentive Award.
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In evaluating a Participant's performance, the Plan Administrator shall consider
the Performance Goals of the Company and the Participant's responsibilities and
accomplishments, and such other factors as it deems appropriate.
11.5 REQUIRED PAYMENT OF INCENTIVE AWARDS
The Plan Administrator, or the Management Committee in the case of
Participants other than Section 16 Insiders, shall make a determination within
thirty (30) days after the Company's financial information is available for a
particular Performance Period (the "Award Date") whether the Performance Goals
for that Performance Period have been achieved and the amount of the award for
each Participant. In the absence of an election by the Participant pursuant to
Sections 11.6 or 11.7, the award shall be paid not later than the end of the
month following the month in which the Plan Administrator determines the amount
of the award and shall be paid as follows:
(a) Participants employed by the Company holding the position of
Chairman of the Board, President, Chief Executive Officer, Vice Chairman
of the Board, Chief Operating Officer, Executive Vice President, or
Senior Vice President and Participants employed by Company subsidiaries
with equivalent positions thereto, but not necessarily the same titles,
shall receive their incentive award as follows:
(i) 50% (fifty percent) in cash and
(ii) 50% (fifty percent) in Restricted Stock.
(b) Participants employed by the Company holding the position of Vice
President and Participants employed by Company subsidiaries with an
equivalent position thereto, but not necessarily the same title, shall
receive their incentive award as follows:
(i) 75% (seventy-five percent) in cash and
(ii) 25% (twenty-five percent) in Restricted Stock.
(c) Because the Participant bears forfeiture, price fluctuation, and
other attendant risks during the Restriction Period (as defined in
Section 10.4) associated with the Restricted Stock awarded under this
Plan, Participants shall be awarded an additional amount of Restricted
Stock equal to the amount of Restricted Stock which a Participant is
awarded pursuant to Sections 11.5(a)(ii) or 11.5(b)(ii), as applicable.
(d) Notwithstanding subsections (a) and (b) above, the Plan
Administrator or Management Committee, as appropriate, may determine
that a Participant must receive a greater amount of his or her award in
Restricted Stock, up to and including the entire award in Restricted
Stock. (For purposes of the Plan, such required shares shall be treated
as being awarded pursuant to Section 11.5(a)(ii) or Section 11.5(b)(ii),
as applicable.) In such event, a Participant shall be entitled to the
additional shares of Restricted Stock, awarded pursuant to Section
11.5(c) above.
The value of awards payable in Restricted Stock pursuant to this Section 11
shall be calculated by using Fair Market Value.
11.6 RESTRICTED STOCK ELECTION
In lieu of receiving all or any portion of the cash in accordance with
Sections 11.5(a)(i) or 11.5(b)(i), a Participant may elect to receive additional
Restricted Stock with a value equal to the portion of the incentive award which
the Participant would otherwise have received in cash, but has elected to
receive in Restricted Stock ("Restricted Stock Election"). Participants must
make their Restricted Stock Election at such time and in such a manner as
prescribed by the Management Committee. If required by Rule 16b-3 promulgated
under Section 16(b) of the Exchange Act, any Restricted Stock Election made by a
Participant who is a Section 16 Insider shall be made at least six months prior
to the Award Date, or at such other time as is allowed by Section 16(b) of the
Exchange Act. Each Participant who makes the Restricted Stock Election
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shall be entitled to the additional Restricted Stock granted pursuant to Section
11.5(c) with respect to the amount of the Participant's Restricted Stock
Election. Except as provided in Section 10, all shares of Restricted Stock
awarded pursuant to the Restricted Stock Election are subject to the same terms
and conditions as the Restricted Stock a Participant receives pursuant to
Sections 11.5(a)(ii) or 11.5(b)(ii), as applicable.
11.7 DEFERRED PAYMENT
Each Participant may elect to have the payment of all or a portion of any
Incentive Award made pursuant to Sections 11.5(a)(i) or 11.5(b)(i), as
applicable, for the year deferred according to the terms and conditions of the
Company's Deferred Compensation Plan. The election shall be irrevocable and
shall be made at such time and in such a manner as prescribed by the Management
Committee. The election shall apply only to that year. If a Participant has not
made an election under this Section, any incentive award granted to the
Participant for that year shall be paid pursuant to Sections 11.5 or 11.6, as
applicable.
11.8 PAYMENT UPON CHANGE IN CONTROL
Notwithstanding any other provision of this Plan, in the event of a Change
in Control of the Company, the Incentive Award attributable to the Performance
Period in which the Change in Control occurs shall become fully vested and
distributable, in cash, within 30 days after the date of the Change in Control,
in an amount equal to the greater of the annual incentive percentage of Annual
Salary established by the Plan Administrator, or the following:
<TABLE>
<CAPTION>
PARTICIPANTS EMPLOYED BY THE COMPANY HOLDING ANY
OF THE FOLLOWING POSITIONS AND PARTICIPANTS EMPLOYED
BY COMPANY SUBSIDIARIES WITH POSITIONS EQUIVALENT
PERCENTAGE OF ANNUAL SALARY THERETO, BUT NOT NECESSARILY WITH THE SAME TITLES:
- --------------------------- ----------------------------------------------------
<S> <C>
100% of Annual Salary..................... Chairman of the Board, President, Chief Executive
Officer, Vice Chairman of the Board, Chief Operating
Officer, or Executive Vice President
80% of Annual Salary...................... Senior Vice President
60% of Annual Salary...................... Vice President
</TABLE>
The term "Annual Salary" as used in this Plan shall mean a Participant's
annual base salary (whether actual or illustrative) in effect on the date
of a Change in Control.
In the event a Change in Control is deemed to have occurred after the end
of a Performance Period, but before the Award Date, each Participant shall be
entitled to receive in cash, within 30 days after the date of the Change in
Control, those amounts set forth above in this Section 11.8 for such Performance
Period. Such amounts are in addition to the amount to which Participants shall
be entitled for the Performance Period in which a Change in Control is deemed to
occur.
SECTION 12 REGULATORY APPROVALS AND LISTING
The Company shall not be required to issue any certificate for shares of
Common Stock upon the exercise of an option or a stock appreciation right
granted under the Plan, in payment of an Incentive Award, with respect to a
grant of Restricted Stock or Common Stock awarded as payment of vested Units
prior to:
(a) obtaining any approval or ruling from the Securities and Exchange
Commission, the Internal Revenue Service or any other governmental agency
which the Company, in its sole discretion, shall determine to be necessary
or advisable;
(b) listing of such shares on any stock exchange on which the Common
Stock may then be listed; and
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(c) completing any registration or other qualification of such shares
under any federal or state laws, rulings or regulations of any governmental
body which the Company, in its sole discretion, shall determine to be
necessary or advisable.
All certificates, or book-entry accounts, for shares of Common Stock
delivered under the Plan shall also be subject to such stop-transfer orders and
other restrictions as the Plan Administrator may deem advisable under the rules,
regulations and other requirements of the Securities and Exchange Commission,
any stock exchange upon which Common Stock is then listed and any applicable
federal or State securities laws, and the Plan Administrator may cause a legend
or legends to be placed on any such certificates, or notations on such
book-entry accounts, to make appropriate reference to such restrictions. The
foregoing provisions of this paragraph shall not be effective if and to the
extent that the shares of Common Stock delivered under the Plan are covered by
an effective and current registration statement under the Securities Act of
1933, as amended, or if and so long as the Plan Administrator determines that
application of such provisions are no longer required or desirable. In making
such determination, the Plan Administrator may rely upon an opinion of counsel
for the Company.
SECTION 13 EFFECTIVE DATE AND TERM OF PLAN
The Plan was adopted by the Board of Directors on January 20, 1999, and is
subject to approval by the Company's stockholders within the earlier of the date
of the Company's next annual meeting of stockholders and twelve (12) months
after the date the Plan is adopted by the Board of Directors. Subject to the
foregoing condition, options, limited stock appreciation rights, stock
appreciation rights, Restricted Stock, Incentive Awards and Performance Units
may be granted pursuant to the Plan from time to time within the period
commencing upon adoption of the Plan by the Board of Directors and ending ten
(10) years after the earlier of such adoption and the approval of the Plan by
the stockholders. Options, limited stock appreciation rights, stock appreciation
rights, Restricted Stock, Incentive Awards and Performance Units theretofore
granted may extend beyond that date and the terms and conditions of the Plan
shall continue to apply thereto and to shares of Common Stock acquired
thereunder. To the extent required to qualify as "performance-based
compensation" under Section 162(m), shares of Common Stock underlying options,
limited stock appreciation rights, stock appreciation rights, Restricted Stock
and Common Stock granted, subject to stockholder approval of the Plan may not be
vested, paid, exercised or sold until such stockholder approval is obtained.
SECTION 14 GENERAL PROVISIONS
14.1 Nothing contained in the Plan, or in any option, limited stock
appreciation right, stock appreciation right, Restricted Stock, Incentive Award
or Performance Unit granted pursuant to the Plan, shall confer upon any employee
any right with respect to continuance of employment by the Company or a
Subsidiary, nor interfere in any way with the right of the Company or a
Subsidiary to terminate the employment of such employee at any time with or
without assigning any reason therefor.
14.2 Grants, vesting or payment of stock options, limited stock
appreciation rights, stock appreciation rights, Restricted Stock, Incentive
Awards or Performance Units shall not be considered as part of a Participant's
salary or used for the calculation of any other pay, allowance, pension or other
benefit unless otherwise permitted by other benefit plans provided by the
Company or its Subsidiaries, or required by law or by contractual obligations of
the Company or its Subsidiaries. Notwithstanding the preceding sentence, the
Restricted Stock awarded pursuant to Section 11.5(c) shall not be considered as
part of a Participant's salary or used for the calculation of any other pay,
allowance, pension, or other benefit unless required by contractual obligations
of the Company or its subsidiaries.
14.3 Unless otherwise provided in the Plan, the right of a Participant or
Beneficiary to the payment of any compensation under the Plan may not be
assigned, transferred, pledged or encumbered, nor shall such right or other
interests be subject to attachment, garnishment, execution or other legal
process.
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14.4 Leaves of absence for such periods and purposes conforming to the
personnel policy of the Company, or of its Subsidiaries, as applicable, shall
not be deemed terminations or interruptions of employment, unless a Participant
commences a leave of absence from which he or she is not expected to return to
active employment with the Company or its Subsidiaries. The foregoing
notwithstanding, with respect to Incentive Stock Options, employment shall not
be deemed to continue beyond the first ninety (90) days of such leave unless the
Participant's reemployment rights are guaranteed by statute or contract.
14.5 In the event a Participant is transferred from the Company to a
Subsidiary, or vice versa, or is promoted or given different responsibilities,
the stock options, limited stock appreciation rights, stock appreciation rights,
Restricted Stock, Incentive Awards and Performance Units granted to the
Participant prior to such date shall not be affected.
14.6 Any amounts (deferred or otherwise) to be paid to Participants
pursuant to the Plan are unfunded obligations. Neither the Company nor any
Subsidiary is required to segregate any monies from its general funds, to create
any trusts or to make any special deposits with respect to this obligation. The
Management Committee, in its sole discretion, may direct the Company to share
with its subsidiaries the costs of a portion of the incentive awards paid to
Participants who are executives of those companies. Beneficial ownership of any
investments, including trust investments which the Company may make to fulfill
this obligation, shall at all times remain in the Company. Any investments and
the creation or maintenance of any trust or any Participant account shall not
create or constitute a trust or a fiduciary relationship between the Plan
Administrator, the Management Committee, the Company or any Subsidiary and a
Participant, or otherwise create any vested or beneficial interest in any
Participant or the Participant's Beneficiary or the Participant's creditors in
any assets of the Company or its Subsidiaries whatsoever. The Participants shall
have no claim against the Company for any changes in the value of any assets
which may be invested or reinvested by the Company with respect to the Plan.
14.7 The designation of a Beneficiary shall be on a form provided by the
Management Committee, executed by the Participant (with the consent of the
Participant's spouse, if required by the Management Committee for reasons of
community property or otherwise), and delivered to the Management Committee. A
Participant may change his or her Beneficiary designation at any time. A
designation by a Participant under the Predecessor Plans shall remain in effect
under the Plan for any Restricted Stock, Incentive Awards or Performance Units
unless such designation is revoked or changed under the Plan. If no Beneficiary
is designated, if the designation is ineffective, or if the Beneficiary dies
before the balance of a Participant's account is paid, the balance shall be paid
to the Participant's spouse, or if there is no surviving spouse, to the
Participant's lineal descendants, pro rata, or if there is no surviving spouse
or any lineal descendant, to the Participant's estate. Notwithstanding the
foregoing, however, a Participant's Beneficiary shall be determined under
applicable state law if such state law does not recognize Beneficiary
designations under plans of this sort and is not preempted by laws which
recognize the provisions of this Section 14.7.
14.8 The Plan shall be construed and governed in accordance with the laws
of the State of Texas, except that it shall be construed and governed in
accordance with applicable federal law in the event that such federal law
preempts state law.
14.9 Appropriate provision shall be made for all taxes required to be
withheld in connection with the exercise, grant or other taxable event with
respect to options, limited stock appreciation rights, stock appreciation
rights, Restricted Stock, Incentive Awards and Performance Units under the
applicable laws and regulations of any governmental authority, whether federal,
state or local and whether domestic or foreign, including, but not limited to,
the required withholding of a sufficient number of shares of Common Stock
otherwise issuable to a Participant to satisfy the said required minimum tax
withholding obligations. Unless otherwise provided in the grant, a Participant
is permitted to deliver shares of Common Stock (including shares acquired
pursuant to the exercise of an option or stock appreciation right other than the
option or stock appreciation right currently being exercised, to the extent
permitted by applicable regulations) for payment of withholding taxes on the
exercise of an option, stock appreciation right, or limited stock appreciation
right, upon the grant or vesting of Restricted Stock or upon the payout of
Incentive Awards or Performance Units. At the election of the Plan Administrator
or, subject to approval of the Plan Administrator at its sole
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discretion, at the election of a Participant, shares of Common Stock may be
withheld from the shares issuable to the Participant upon the exercise of an
option or stock appreciation right, upon the vesting of the Restricted Stock or
upon the payout of Performance Units to satisfy tax withholding obligations. The
Fair Market Value of Common Stock as delivered pursuant to this Section 14.9
shall be determined as of the day prior to delivery, and shall be calculated in
accordance with Section 2.9.
Any Participant that makes a Section 83(b) election under the Code shall,
within ten (10) days of making such election, notify the Company in writing of
such election and shall provide the Company with a copy of such election form
filed with the Internal Revenue Service.
Tax advice should be obtained by the Participant prior to the Participant's
(i) entering into any transaction under or with respect to the Plan, (ii)
designating or choosing the times of distributions under the Plan, or (iii)
disposing of any shares of Common Stock issued under the Plan.
14.10 The Plan administrator may in its discretion provide financing to a
Participant in a principal amount sufficient to pay the purchase price of any
award under the Plan and/or to pay the amount of taxes required by law to be
withheld with respect to any award. Any such loan shall be subject to all
applicable legal requirements and restrictions pertinent thereto, including
Regulation G promulgated by the Federal Reserve Board. The grant of an award
shall in no way obligate the Company or the Plan Administrator to provide any
financing whatsoever in connection therewith.
SECTION 15 COMPLIANCE WITH RULE 16b-3 AND SECTION 162(m)
The Company's intention is that, so long as any of the Company's equity
securities are registered pursuant to Section 12(b) or 12(g) of the Exchange
Act, with respect to awards granted to or held by Section 16 Insiders, the Plan
shall comply in all respects with Rule 16b-3 and Section 162(m) and, if any Plan
provision is later found not to be in compliance with Rule 16b-3 or Section
162(m), that provision shall be deemed modified as necessary to meet the
requirements of Rule 16b-3 and Section 162(m). Notwithstanding the foregoing,
and subject to Section 5.2, the Plan Administrator may grant or vest Restricted
Stock in a manner which is not in compliance with Section 162(m) if the Plan
Administrator determines that it would be in the best interests of the Company.
Notwithstanding anything in the Plan to the contrary, the Board of
Directors, in its absolute discretion, may bifurcate the Plan so as to restrict,
limit or condition the use of any provision of the Plan to Participants who are
Section 16 Insiders without so restricting, limiting or conditioning the Plan
with respect to other Participants.
SECTION 16 AMENDMENT, TERMINATION OR DISCONTINUANCE OF THE PLAN
16.1 Subject to the Board of Directors and Section 16.2, the Plan
Administrator may from time to time make such amendments to the Plan as it may
deem proper and in the best interest of the Company without further approval of
the stockholders of the Company, including, but not limited to, any amendment
necessary to ensure that the Company may obtain any regulatory approval referred
to in Section 12; provided, however, that after a Change in Control no change in
any option, limited stock appreciation right, stock appreciation right,
Restricted Stock, Incentive Award or Performance Unit theretofore granted may be
made without the consent of the Participant which would impair the right of the
Participant to acquire or retain Common Stock or cash that the Participant may
have acquired as a result of the Plan.
16.2 The Plan Administrator and the Board of Directors may not amend the
Plan without the approval of the stockholders of the Company to
(a) materially increase the number of shares, rights, Incentive Awards
or Units that may be issued under the Plan to Section 16 Insiders; or
(b) lower the Option Price at which options may be granted pursuant to
Section 6.4(a) or lower the Option Price of any outstanding options, except
as provided by Section 5.5.
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16.3 The Board of Directors may at any time suspend the operation of or
terminate the Plan with respect to any shares of Common Stock, rights or
Performance Units which are not at that time subject to option, limited stock
appreciation right, stock appreciation right or grant of Restricted Stock,
Incentive Awards or Performance Units.
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EXHIBIT B
EL PASO ENERGY CORPORATION
EMPLOYEE STOCK PURCHASE PLAN
1. PURPOSES
This Employee Stock Purchase Plan (the "Plan"), effective as of January 20,
1999, provides Eligible Employees of El Paso Energy Corporation, a Delaware
corporation, and its Subsidiaries an opportunity to (i) purchase shares of
Common Stock of the Company at a discount from market prices, and (ii) increase
ownership of the Company's Common Stock, on the terms and conditions set forth
below. It is the intention of the Company that options issued pursuant to the
Plan shall constitute stock options issued pursuant to an "employee stock
purchase plan" within the meaning of Section 423 of the Code. The provisions of
the Plan shall be construed so as to extend and limit participation in the Plan
in a manner consistent with the requirements of that section of the Code.
2. DEFINITIONS
(a) Board of Directors -- means the Board of Directors of El Paso Energy
Corporation.
(b) Company -- means El Paso Energy Corporation, a Delaware corporation.
(c) Compensation -- means the total annual cash remuneration (before taxes)
which an Eligible Employee receives as salary or wages, including base pay,
payments for overtime, shift premium, bonuses, holiday pay, paid time off,
short-term disability and other similar remuneration (grossed-up to reflect
salary deferrals, if any, under Section 401(k) plans, Section 125 cafeteria
plans, Section 132 plans and other qualified and nonqualified elective
deferrals). Compensation shall not include other cash or non-cash remuneration
such as payments under this or any other form of equity or fringe benefit
program, expense reimbursements, allowances and payments attributable to foreign
assignments, long-term disability and workers' compensation payments, and
lump-sum payments due to death, termination of employment or layoff.
(d) Code -- means the Internal Revenue Code of 1986, as amended.
(e) Committee -- means the Compensation Committee of the Board of Directors
with respect to Participants who are subject to Section 16 of the Securities
Exchange Act of 1934, as amended, if required, and the Management Committee
(consisting of the Chief Executive Officer and such other senior officers of the
Company as he or she may designate) with respect to all other Participants.
(f) Common Stock -- means the common stock, par value $3.00 per share, of
the Company.
(g) Eligible Employees -- means those employees of the Company and its
Subsidiaries who are eligible to participate in the Plan pursuant to Section 4.
(h) Exercise Date -- means the last Trading Day of each calendar quarter;
provided, however, that with respect to the first Offering Period, the first
Exercise Date shall be the last Trading Day of the calendar quarter following
stockholder approval of the Plan.
(i) Exercise Price -- means, with respect to any Offering Period, the
lesser of (i) 85% of the Fair Market Value of a share of the Company's Common
Stock on the Grant Date, and (ii) 85% of the Fair Market Value of such share on
the Exercise Date.
(j) Fair Market Value -- means the average between the highest and lowest
quoted selling prices at which the Company Common Stock is sold for a particular
date as reported in the NYSE-Composite Transactions by The Wall Street Journal
(or such other source as the Committee deems reliable) for such date, or if no
Common Stock was traded on such date, on the next preceding day on which Common
Stock was so traded. In the absence of an established market for the Common
Stock, the Fair Market Value thereof shall be determined in good faith by the
Committee.
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(k) Grant Date -- means the first Trading Day of the calendar year, or with
respect to the 1999 calendar year, the first Trading Day of the Plan's first
Offering Period.
(l) Offering Period -- means any twelve-month period beginning on the first
Trading Day of a particular calendar year and ending on the last Trading Day of
such calendar year, except that with respect to the 1999 calendar year, the
Offering Period shall begin on the effective date of the Plan and end on the
last Trading Day of such calendar year.
(m) Participating Employee -- means an Eligible Employee who elects to
participate in the Plan pursuant to Section 5 hereof.
(n) Plan Account -- means an account maintained by the Company or its
designated record keeper/custodian for each Eligible Employee participating in
the Plan to which payroll deductions are credited, against which funds used to
purchase shares of Common Stock are charged, and to which shares of Common Stock
purchased are credited.
(o) Subsidiary -- means a corporation (or other form of business
association that is treated as a corporation for tax purposes) that is
designated by the Committee from time to time from among a group consisting of
the Company and its subsidiary corporations, for the purposes of participation
in the Plan, of which shares (or other ownership interests) having more than
fifty percent (50%) of the voting power are owned or controlled, directly or
indirectly, by the Company so as to qualify such corporation as a "subsidiary
corporation" within the meaning of Section 424(f) of the Code. The participating
Subsidiaries are set forth on Appendix A hereto, and are subject to change by
the Committee.
(p) Trading Day -- means any day on which the New York Stock Exchange (or
any other established stock exchange or national market system the Committee
deems appropriate) is open for trading.
3. COMMON STOCK SUBJECT TO THE PLAN
(a) Subject to Section 3(b), the Company shall make available two million
(2,000,000) shares of its Common Stock for purchase under the Plan from shares
held in the Company's treasury or out of authorized but unissued shares of the
Company, or partly out of each, as shall be determined by the Committee.
(b) In the event of a recapitalization, stock split, stock dividend,
exchange of shares, merger, reorganization, change in corporate structure or
shares of the Company or similar event, the Board of Directors, upon the
recommendation of the Committee, may make appropriate adjustments in the number
of shares authorized for the Plan and with respect to number of shares credited
to each Participating Employee's Plan Account.
4. ELIGIBLE EMPLOYEES
(a) An "Eligible Employee" is any individual who, as of the beginning of an
Offering Period, is a common law employee of the Company or a Subsidiary and
whose customary employment with the Company or such Subsidiary is at least
twenty (20) hours per week and more than five (5) months in any calendar year.
For purposes of the Plan, the employment relationship shall be treated as
continuing while the individual is on a short-term leave, approved by the
Company or any Subsidiary, during which the employee receives no Compensation.
To the extent required under Section 423 of the Code, where the period of unpaid
leave exceeds 90 days and the individual's right to reemployment is not
guaranteed by statute or by contract, the employee relationship will be deemed
to have terminated on the 91st day of such leave.
(b) No Eligible Employee shall be granted an option to purchase shares of
Common Stock on any Grant Date if such employee, immediately after the option is
granted, owns stock possessing five percent (5%) or more of the Company's
outstanding Common Stock or five percent (5%) or more of the total combined
voting power or value of all classes of stock of the Company or any Subsidiary.
For purposes of this Section 4(b), the rules of Code Section 424(d) (relating to
attribution of stock ownership) shall apply in determining the stock ownership
of an Eligible Employee, and stock which the employee may purchase under
outstanding options
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(whether or not subject to the special tax treatment provided by the Plan) shall
be treated as stock owned by such employee.
(c) Notwithstanding any other provision of the Plan to the contrary, no
Eligible Employee shall be granted an option to purchase shares of Common Stock
under the Plan which permits such employee's rights to purchase stock under all
employee stock purchase plans that are intended to qualify under Code Section
423 and that are maintained by the Company and its Subsidiaries to accrue at a
rate which exceeds twenty-five thousand U.S. dollars ($25,000) (or the
equivalent thereof in other currencies) worth of stock determined at the Fair
Market Value of the shares on the Grant Date for each calendar year. This
paragraph shall be interpreted in accordance with applicable Code rules and
regulations.
5. PARTICIPATION IN THE PLAN
An Eligible Employee may participate in the Plan by completing and filing
with the Company, or its designated record keeper/custodian, an election form or
responding to enrollment procedures as set forth in a voice response system
which authorizes payroll deductions from the employee's Compensation. Such
deductions shall commence with the first pay period in the Offering Period
beginning after such form is filed and recorded with the Company or its
designated record keeper/custodian and shall continue until the employee ceases
participation in the Plan or the Plan is terminated. Notwithstanding the
foregoing, with respect to the first Offering Period, payroll deductions will
commence in the month immediately following stockholder approval of the Plan.
6. PAYROLL DEDUCTIONS
Payroll deductions shall be made from the Compensation paid to each
Participating Employee for each regular payroll period in such amounts as the
Participating Employee shall authorize in his or her election form. The minimum
payroll deduction shall be ten U.S. dollars ($10) per month up to a maximum of
twenty-one thousand two hundred fifty U.S. dollars ($21,250) per calendar year,
with such deductions to be made from only the regular base salary payroll
processing cycle (and not from bonus or other special payroll processing
events). All payroll deductions made for a Participating Employee shall be
credited to his or her Plan Account. Unless the Committee otherwise provides, if
a Participating Employee's Compensation is insufficient in any pay period to
allow the entire payroll deduction contemplated under the Plan, all such
available amounts shall be deducted and credited to the Participating Employee's
Plan Account for such pay period. Payroll deductions under the Plan shall be
made only after all other withholdings, deductions, garnishments and the similar
deductions have been made. Notwithstanding any other provision to the contrary,
the Committee may allow, subject to such terms and conditions as the Committee
determines appropriate, Participating Employees to provide other sources of
funds to satisfy such Participating Employees elected contributions, but in no
event shall the total annual contribution by a Participating Employee exceed
such Participating Employee's Compensation.
7. CHANGES IN THE PAYROLL DEDUCTIONS
Subject to Section 8 below, a Participating Employee may change the amount
of his or her payroll deduction by filing a new election form with the Company
or its designated record keeper/custodian or responding to a voice response
enrollment system during an enrollment period, as specified by the Company. The
change shall become effective for the next Offering Period. Except as set forth
in Section 8, other changes shall not be allowed during an Offering Period.
8. TERMINATION OF PARTICIPATION IN THE PLAN
(a) Voluntary Cessation of Plan Participation. A Participating Employee, at
any time and for any reason, may voluntarily terminate participation in the Plan
by written notification, or appropriate procedures set forth in a voice response
system or otherwise as the Company may determine, of withdrawal delivered to the
appropriate payroll office or designated record keeper/custodian sufficiently in
advance, generally ten (10) Trading Days, to process such changes before the
next pay period. In such event, any payroll deductions
B-3
<PAGE> 64
and other funds credited to such Participating Employee's Plan Account shall be
used to purchase shares of Common Stock on the next Exercise Date unless such
Participating Employee requests to receive such amounts, in a manner determined
by the Committee. An employee whose participation in the Plan has voluntarily
terminated may not rejoin the Plan until the next Offering Period following the
date of such termination.
(b) Employment Termination and Death. Unless otherwise provided in this
Section 8, a Participating Employee's participation in the Plan shall be
terminated involuntarily upon (i) termination of his or her employment with the
Company or its Subsidiaries for any reason, or (ii) death of the Participating
Employee. In each event, payroll deductions shall cease as of such termination
and all payroll deductions and other funds (exclusive of dividends and other
distributions, if any) credited to the Participating Employee's Plan Account,
but not yet used to purchase shares of Common Stock, shall be refunded, without
interest, to the Participating Employee or his or her beneficiary or estate, as
applicable, as soon as practicable following such termination. However, if such
termination occurs without sufficient time, generally ten (10) Trading Days, to
process such termination prior to an Exercise Date, the Committee may allow all
payroll deductions, dividends and other distributions credited to such
Participating Employee's Plan Account to be used to purchase additional shares
of Common Stock on the next Exercise Date.
(c) Retirement and Permanent Disability. In the event the Participating
Employee retires or becomes permanently disabled, any payroll deductions and
other funds credited to such employee's Plan Account shall be used to purchase
shares of Common Stock on the next Exercise Date unless the employee requests to
receive such amounts, in a manner determined by the Committee and such notice is
received sufficiently in advance of the next Exercise Date, generally ten (10)
Trading Days, to process such request.
In the event a Participating Employee's participation in the Plan is
terminated pursuant to this Section 8, then such Participating Employee may
allow shares of Common Stock credited to the Participating Employee's (or former
employee's) Plan Account to remain therein (at such person's expense, if any),
or at any time, request withdrawal of all or a portion of such account in the
manner specified in the Plan or by the Committee.
9. PURCHASE OF SHARES
(a) On each Grant Date, each Participating Employee shall be deemed to have
been granted an option to purchase up to that number shares of Common Stock as
provided in this Section 9.
(b) Each option shall be for a number of shares up to the maximum number
acquirable through the payroll deductions allowed under Section 6 above, but no
more than two thousand (2,000) shares during any one Offering Period. Each
option shall be for a term of not more than one year and shall be exercised as
provided below.
(c) On each Exercise Date, each Participating Employee shall be deemed to
have exercised his or her option granted, pursuant to Section 9(a). On each
Exercise Date, the Company shall apply the funds (exclusive of dividends and
other distributions, if any) credited to each Participating Employee's Plan
Account, pursuant to Section 6 above, to the purchase (without commissions or
fees) that number of shares of Common Stock determined by dividing the Exercise
Price into the balance in the employee's Plan Account on the Exercise Date,
subject to the limitations in Sections 4(b) and 4(c).
(d) As soon as practicable after each Exercise Date, a statement shall be
delivered to each Participating Employee regarding his or her Plan Account,
which may include, among other things and to the extent necessary and
appropriate, (i) the name, address and federal identification number of the
Company and the Participating Employee; (ii) the amounts of payroll deductions
or other funds credited to the Plan Account; (iii) the Exercise Price; (iv) the
date of purchase or transfer; (v) the number of shares purchased or transferred;
(vi) a statement that the purchase of shares is pursuant to a Code Section 423
plan; and (vii) the balance in the Plan Account.
B-4
<PAGE> 65
10. RIGHTS AS A STOCKHOLDER
(a) As promptly as practicable after each Exercise Date, a Participating
Employee shall be treated as the beneficial owner of his or her shares purchased
pursuant to the Plan, and such shares shall be credited to a book-entry account
maintained for the benefit of the Participating Employee by the record
keeper/custodian selected by the Company. A Participating Employee may request
that a stock certificate for all or a portion of the shares credited to the
Participating Employee's Plan Account be issued, provided the Participating
Employee pays any fees associated with the issuance of such stock certificate. A
cash payment (less any applicable fees to sell a fractional share) shall be made
for any fraction of a share of Common Stock in such account, if necessary to
close the account.
(b) A Participating Employee shall have all ownership rights with respect
to the whole number of shares credited to the Plan Account, including the right
to vote such shares of Common Stock and to receive dividends or other
distributions, if any. Any dividends or distributions which may be declared
thereon by the Board of Directors will be reinvested by the record
keeper/custodian in additional shares of Common Stock for the Participating
Employee within a reasonable time (as determined by the Committee) following
such dividend payment date or distribution date, and shall be invested based
upon the Fair Market Value on the date of such investment (without any
discount).
11. RIGHTS NOT TRANSFERABLE
Rights under the Plan are not transferable by a Participating Employee
other than by will or the laws of descent and distribution, and are exercisable
during the employee's lifetime only by the employee or by the employee's
guardian or legal representative. No rights or payroll deductions of a
Participating Employee under the Plan shall be subject to execution, attachment,
levy, garnishment or similar process.
12. SALE OF SHARES
Should a Participating Employee choose to sell shares purchased under the
Plan, such Participating Employee shall be responsible to pay any and all
applicable brokerage fees and associated costs related to such sale. Sales
requested by a Participating Employee shall occur as soon as administratively
feasible after the receipt of such request, but neither the Committee nor the
Company nor any Subsidiary shall be liable for any delay in the execution of
such request. Participating Employees bear the risk of stock price fluctuation
between the time they place the order to sell and the time the shares are
actually sold. Additionally, Participating Employees who have requested to sell
shares may receive the average of the prices of all shares sold under the Plan
for a particular day.
13. APPLICATION OF FUNDS
All funds of Participating Employees received or held by the Company under
the Plan before purchase of the shares of Common Stock may be held in bank
accounts of the Company or may be used by the Company for general corporate
purposes. The Company shall not be obligated to segregate payroll deductions. No
interest shall accrue on the payroll deductions which are received and held by
the Company under the Plan or credited to the Participating Employee's Plan
Account.
14. ADMINISTRATION OF THE PLAN
The Plan shall be administered by the Committee, which shall have full and
exclusive discretionary authority to construe, interpret and apply the terms of
the Plan, to determine eligibility and to adjudicate all disputed claims filed
under the Plan. Without limiting the full discretion of the Committee in the
administration of the Plan, the Committee may limit the percentage or dollar
amount of Compensation that may be contributed under the Plan, change the
frequency of payroll deductions, modify the frequency or number of changes in
the amount of payroll deductions to be made during an Offering Period, establish
the exchange ratio applicable to amounts withheld in a currency other than U.S.
dollars, permit payroll withholding in excess of the amount designated by a
Participating Employee in order to adjust for delays or mistakes in the
Company's processing of properly completed withholding elections, establish
reasonable
B-5
<PAGE> 66
waiting and adjustment periods and/or accounting and crediting procedures to
ensure that amounts applied toward the purchase of shares of Common Stock for
each Participating Employee properly correspond with amounts withheld from the
Participating Employee's Compensation, establish, collect, amend or waive
administrative or other fees to be assessed Participating Employees incident to
their participation in the Plan (including those fees set forth in Section 12),
and establish such other limitations or procedures as the Committee determines
in its sole discretion are advisable and consistent with the Plan and with the
requirements (including any non-discrimination requirements) of the Code. The
Plan is intended to qualify as an "employee stock purchase plan" within the
meaning of Section 423 of the Code. Accordingly, the provisions of the Plan
shall be construed so as to extend and limit participation in a manner
consistent with the requirements of that Section of the Code. Every finding,
decision and determination made by the Committee shall, to the fullest extent
permitted by law, be final and binding upon all parties.
15. AMENDMENTS TO THE PLAN
The Board of Directors may at any time and for any reason terminate or
amend the Plan, and/or delegate authority for any amendments to the Committee.
Except as provided in Section 16 hereof, no such termination or amendment shall
affect options previously granted or adversely affect the rights of any
Participating Employee with respect thereto. Without shareholder consent and
without regard to whether any Participating Employee rights may have been
considered to have been "adversely affected," the Plan may be amended to change
the Offering Periods, change the Exercise Dates, increase the Exercise Price or
change the amount of allowable payroll deductions. To the extent necessary to
comply with Section 423 of the Code (or any successor rule or provision or any
other applicable law, regulation or stock exchange rule), the Company shall
obtain shareholder approval of any amendment to the Plan in such a manner and to
such a degree as required.
16. CHANGE IN CONTROL
In the event of a Change in Control of the Company, any Offering Period
then in progress shall be shortened by setting a new Exercise Date (the "Change
of Control Exercise Date") and any Offering Period then in progress shall end on
the Change of Control Exercise Date. The Change of Control Exercise Date shall
be before the date of the Company's proposed sale or merger. The Committee shall
notify each Participating Employee in writing, at least ten (10) Trading Days
prior to the Change of Control Exercise Date, that the Exercise Date for the
Participating Employee's option has been changed to the Change of Control
Exercise Date and that the Participating Employee's option shall be exercised
automatically on the Change of Control Exercise Date, unless prior to such date
the Participating Employee has withdrawn from the Offering Period, as provided
for in Sections 5 and 8 hereof. For purposes of the Plan, a "Change in Control"
shall be deemed to occur: (a) if any person (as such term is used in Sections
13(d) and 14(d)(2) of the Securities Exchange Act of 1934, as amended (the
"Exchange Act")) is or becomes the "beneficial owner" (as defined in Rule 13d-3
of the Exchange Act), directly or indirectly, of securities of the Company
representing twenty percent (20%) or more of the combined voting power of the
Company's then outstanding securities; (b) upon the first purchase of the Common
Stock pursuant to a tender or exchange offer (other than a tender or exchange
offer made by the Company); (c) upon the approval by the Company's stockholders
of a merger or consolidation, a sale, or disposition of all or substantially all
the Company's assets or a plan of liquidation or dissolution of the Company; or
(d) if, during any period of two (2) consecutive years, individuals who at the
beginning of such period constitute the Board cease for any reason to constitute
at least a majority thereof, unless the election or nomination for the election
by the Company's stockholders of each new director was approved by a vote of at
least two-thirds (2/3) of the directors then still in office who were directors
at the beginning of the period. Notwithstanding the foregoing, a Change in
Control shall not be deemed to occur if the Company either merges or
consolidates with or into another company or sells or disposes of all or
substantially all of its assets to another company, if such merger,
consolidation, sale or disposition is in connection with a corporate
restructuring wherein the stockholders of the Company immediately before such
merger, consolidation, sale or disposition own, directly or indirectly,
immediately following such merger, consolidation, sale or disposition at least
eighty percent (80%) of the combined voting power of all outstanding classes of
securities of the company resulting from such merger or consolidation, or to
which the Company sells or disposes of its assets,
B-6
<PAGE> 67
in substantially the same proportion as their ownership in the Company
immediately before such merger, consolidation, sale or disposition.
17. EFFECTIVE DATE, SUSPENSION AND TERMINATION OF THE PLAN
(a) The Board of Directors adopted the Plan effective January 20, 1999,
provided that it is approved within twelve months therefrom by the stockholders
of the Company. Should the Plan fail to become effective because of lack of
approval by the stockholders of the Company, then any credit balances in the
respective employees' Plan Accounts shall be returned to the employees for whom
such Plan Accounts were established, without the payment of interest.
(b) The Plan shall terminate upon the earliest of (i) the termination of
the Plan by the Board of Directors, as specified below, (ii) December 31, 2009,
or (iii) when no more shares remain to be purchased under the Plan. The Board of
Directors may terminate the Plan, but only as of the Trading Day immediately
following an Exercise Date. If on an Exercise Date, Participating Employees in
the aggregate have options to purchase more shares of Common Stock than are
available for purchase under the Plan, each Participating Employee shall be
eligible to purchase a reduced number of shares of Common Stock on a pro rata
basis and any excess payroll deductions or other monies contributed by such
employee shall be returned to such employees, all as provided by rules and
regulations adopted by the Committee.
18. COSTS
All costs and expenses incurred in administering the Plan shall be paid by
the Company, except that any brokerage fees or certificate costs incurred in the
sale of the shares of Common Stock by any Participating Employee shall be
handled in accordance with Sections 10 and 12 of the Plan, and any
administrative or other fees established by the Committee pursuant to Section 14
of the Plan shall be handled as specified by the Committee.
19. PURCHASE FOR INVESTMENT PURPOSES
The Plan is intended to provide shares of Common Stock for investment and
not for resale. The Company does not, however, intend to restrict or influence
any Participating Employee in the conduct of such employee's own affairs. A
Participating Employee may therefore sell shares of Common Stock purchased under
the Plan at any time the Participating Employee chooses, subject to compliance
with any applicable federal or state securities laws. Because of certain federal
tax requirements, each Participating Employee agrees, by enrolling in the Plan,
to notify the Company of any sale or other disposition of shares of Common Stock
held by the Participating Employee less than two (2) years from the beginning of
the Offering Period during which they were purchased or one (1) year from the
Exercise Date, whichever is longer, indicating the number of such shares of
Common Stock disposed of. The Company shall be entitled to presume that a
Participating Employee has disposed of any shares of Common Stock for which the
Participating Employee has requested a certificate. All certificates for shares
of Common Stock delivered under the Plan shall be subject to such stock transfer
orders and other restrictions as the Company may deem advisable under all
applicable laws, rules, and regulations, and the Company may cause a legend or
legends to be put on any such certificates to make appropriate references to
such restrictions.
20. GOVERNMENTAL REGULATIONS
Notwithstanding anything else in the Plan, options shall not be exercisable
or exercised and shares of Common Stock shall not be issued with respect to an
option to purchase unless the exercise of such option and the issuance and
delivery of shares of Common Stock pursuant thereto shall comply with all
applicable provisions of law, domestic or foreign, including, without
limitation, the Securities Act of 1933, as amended, the Securities Exchange Act
of 1934, as amended, the rules and regulations promulgated thereunder, and the
requirements of any stock exchange upon which the shares of Common Stock may
then be listed. As a condition to the exercise of an option, the Company may
require a Participating Employee to represent and warrant at the time of any
such exercise that the shares of Common Stock are being purchased only for
B-7
<PAGE> 68
investment and without any present intention to sell or distribute such shares
of Common Stock if, in the opinion of counsel for the Company, such a
representation is required by any of the aforementioned applicable provisions of
law.
21. APPLICABLE LAW
The Plan shall be interpreted under the laws of the State of Texas, unless
preempted by federal law. The Plan is not to be subject to the Employee
Retirement Income Security Act of 1974, as amended, but is intended to comply
with Section 423 of the Code. Any provisions required to be set forth in the
Plan by such Code section are hereby included as fully as if set forth in the
Plan in full.
22. EFFECT ON EMPLOYMENT
The provisions of the Plan shall not affect the right of the Company or any
Subsidiary or any Participating Employee to terminate his or her employment with
the Company or Subsidiary. Any income Participating Employees may realize as a
result of participating in the Plan shall not be considered as part of a
Participating Employee's salary or used for the calculation of any other pay,
allowance, pension or other benefit unless otherwise permitted by other benefit
plans provided by the Company or its Subsidiaries, or required by law or by
contractual obligations of the Company or its Subsidiaries.
23. TAXES
At the time an option to purchase is exercised, in whole or in part, or at
the time all or a portion of the shares of Common Stock purchased under the Plan
are disposed of, the Participating Employee must make adequate provision for the
Company's federal, state, or other tax withholding obligations, if any, which
arise upon the exercise of the option or the disposition of the shares of Common
Stock. At any time, the Company may, but shall not be obligated to, withhold
from the Participating Employee's Compensation or other wages or amounts payable
to the Participating Employee (whether or not such person at the time continues
to participate or to be eligible to participate in the Plan, and regardless of
whether or not such person at the time continues to be employed by the Company
or any Subsidiary) the amount necessary for the Company to meet applicable
withholding obligations, including any withholding required to make available to
the Company any tax deductions or benefits attributable to any sale or early
disposition of shares of Common Stock by the Participating Employee.
24. LOANS
Subject to applicable laws, the Committee may allow Participating Employees
to borrow money against the value of the Common Stock held in such Participating
Employee's Plan Account. In such event, the Participating Employee and his or
her Plan Account will be subject to certain terms, conditions and restrictions
as the Committee, its designated record keeper/custodian, or financial
institution may deem necessary or appropriate to secure the shares in the Plan
Account as collateral for such loan.
25. BENEFICIARIES
A Participating Employee may file with the Company or its designated record
keeper/custodian, a written designation of a beneficiary who is entitled to
receive any shares of Common Stock, accumulated payroll deductions, dividends or
other distributions, if any, held for the Participating Employee under the Plan,
in the event of the employee's death. If the Participating Employee is married
and the designated beneficiary is not the spouse, written spousal consent shall
be required for such designation to be effective. A Participating Employee may
change the designation of a beneficiary at any time by written notice, unless
the current designated beneficiary is a spouse, in which case, written spousal
consent shall be required. If no beneficiary is designated, the designation is
ineffective, or in the event the beneficiary dies before the balance of a
Participating Employee's Plan Account is paid, the balance shall be paid to the
Participating Employee's spouse or, if there is no surviving spouse, to his or
her lineal descendants, pro rata, or, if there is no surviving spouse or any
lineal descendant, to the employee's estate.
B-8
<PAGE> 69
26. NOTICES
All notices or other communications by an Eligible Employee to the Company
or a Subsidiary under or in connection with the Plan shall be deemed to have
been duly given when received in the form specified by the Company at the
location, or by the person, designated by the Company for the receipt thereof.
All notices and other communications to any Eligible Employee or Participating
Employee shall be made to the address maintained on the Company's payroll
records.
B-9
<PAGE> 70
CONFIDENTIAL VOTING INSTRUCTIONS
EL PASO ENERGY CORPORATION
ANNUAL MEETING OF STOCKHOLDERS -- APRIL 22, 1999
SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS
TO: BANKERS TRUST COMPANY, TRUSTEE UNDER EL PASO ENERGY CORPORATION RETIREMENT
SAVINGS PLAN
The undersigned hereby directs the Trustee to vote, in person or by proxy,
the full and fractional shares of common stock of El Paso Energy Corporation
credited to my account under the referenced Plan at the close of business on
February 24, 1999, the record date, at the Annual Meeting of Stockholders to be
held at The Windsor Court Hotel, 300 Gravier Street, New Orleans, Louisiana
70130 on April 22, 1999, and at any adjournment(s) or postponement(s) of such
meeting for the purpose identified on the reverse side of this proxy and with
discretionary authority as to any other matters that may properly come before
the Annual Meeting, in accordance with and as described in the Notice of Annual
Meeting of Stockholders and Proxy Statement.
If this proxy is completed, dated, signed and returned in the accompanying
envelope to the Trustee by April 20, 1999, the shares of stock represented by
this proxy will be voted in the manner directed herein by the undersigned. IF
THIS PROXY IS RETURNED TO THE TRUSTEE WITHOUT DIRECTION BEING GIVEN, THIS PROXY
WILL BE VOTED FOR PROPOSALS 1, 2, 3, 4 AND 5 AND AGAINST PROPOSAL 6.
PLEASE MARK YOUR CHOICE LIKE THIS M IN DARK INK AND SIGN AND DATE BELOW
THE BOARD OF DIRECTORS RECOMMENDS A VOTE FOR PROPOSALS 1, 2, 3, 4 AND 5.
1. Election of Directors -- Nominees:
Byron Allumbaugh, Juan Carlos Braniff, Peter T. Flawn, James F. Gibbons, Ben
F. Love, Kenneth L. Smalley, Malcolm Wallop, William A. Wise
[ ] FOR all nominees [ ] WITHHOLD AUTHORITY to vote for all
nominees
[ ] FOR all nominees except as noted
----------------------------------------------------------------
2. Approval of El Paso Energy Corporation 1999 Omnibus Incentive Compensation
Plan
[ ] FOR [ ] AGAINST [ ] ABSTAIN
3. Approval of El Paso Energy Corporation Employee Stock Purchase Plan
[ ] FOR [ ] AGAINST [ ] ABSTAIN
<PAGE> 71
4. Approval of Amendment to the Restated Certificate of Incorporation of El Paso
Natural Gas Company to eliminate the provision relating to Section 251(g) of
the Delaware General Corporation Law
[ ] FOR [ ] AGAINST [ ] ABSTAIN
5. Ratification of the appointment of PricewaterhouseCoopers LLP as Independent
Certified Public Accountants for fiscal year 1999
[ ] FOR [ ] AGAINST [ ] ABSTAIN
THE BOARD OF DIRECTORS RECOMMENDS A VOTE AGAINST PROPOSAL 6.
6. Approval of Stockholder Proposal relating to Corporate Democracy
[ ] FOR [ ] AGAINST [ ] ABSTAIN
If acting as attorney,
executor, trustee or in other
representative capacity, sign
name and title. If a
corporation, please sign in
full corporate name by
President or other authorized
officer. If a partnership,
please sign in partnership name
by authorized person.
IMPORTANT: Please mark, sign,
date, and return this proxy
card promptly using the
enclosed envelope.
-------------------------------
SIGNATURE
-------------------------------
DATE
Shares held as of February 24,
1999:
-------------------------------
<PAGE> 72
SOLICITED BY THE BOARD OF DIRECTORS
EL PASO ENERGY CORPORATION
ANNUAL MEETING OF STOCKHOLDERS
APRIL 22, 1999
The undersigned hereby appoints William A. Wise and Britton White Jr., and
each or any of them, with power of substitution, proxies for the undersigned and
authorizes them to represent and vote, as designated, all of the shares of
common stock of El Paso Energy Corporation, held of record by the undersigned on
February 24, 1999 at the Annual Meeting of Stockholders to be held at The
Windsor Court Hotel, 300 Gravier Street, New Orleans, Louisiana on April 22,
1999, and at any adjournment(s) or postponement(s) of such meeting for the
purposes identified on the reverse side of this proxy and with discretionary
authority as to any other matters that may properly come before the Annual
Meeting, including substitute nominees if any of the named nominees for Director
should be unavailable to serve for election, in accordance with and as described
in the Notice of Annual Meeting of Stockholders and Proxy Statement. THIS PROXY
WHEN PROPERLY EXECUTED WILL BE VOTED IN THE MANNER DIRECTED HEREIN BY THE
UNDERSIGNED STOCKHOLDER. IF THIS PROXY IS RETURNED WITHOUT DIRECTION BEING
GIVEN, THIS PROXY WILL BE VOTED FOR PROPOSALS 1, 2, 3, 4 AND 5 AND AGAINST
PROPOSAL 6.
- ---------------- ----------------
SEE REVERSE SEE REVERSE
SIDE SIDE
- ---------------- ----------------
(IMPORTANT - TO BE SIGNED AND DATED ON REVERSE SIDE)
<PAGE> 73
EL PASO ENERGY CORPORATION
C/O EQUISERVE
P.O. BOX 8040
BOSTON, MA 02288-8040
<TABLE>
<S> <C>
------------------- ------------------
VOTE BY TELEPHONE VOTE BY INTERNET
------------------- ------------------
------------------------------------------------ ------------------------------------------------------
It's fast, convenient and immediate! It's fast, convenient, and your vote is immediately
Call Toll-Free on a Touch-Tone Phone confirmed and posted. In addition, after your vote,
1-877-PRX-VOTE(1-877-779-8683) you will have the opportunity to sign up and indicate
your consent to receive future shareholder
communications via the Internet, if available
Follow these four easy steps: Follow these four easy steps:
1. Read the accompanying Proxy Statement 1. Read the accompanying Proxy Statement
and Proxy Card. and Proxy Card.
2. Call the toll-free number 2. Go to the website:
1-877-PRX-VOTE (1-877-779-8683) http://www.eproxyvote.com/epg
3. Enter your 14-digit Control Number located 3. Enter your 14-digit Control Number located on
on your Proxy Card above your name. your Proxy Card above you name.
4. Follow the recorded instructions. 4. Follow the instructions provided.
------------------------------------------------ -------------------------------------------------------
YOUR VOTE IS IMPORTANT! YOUR VOTE IS IMPORTANT!
Call 1-877-PRX-VOTE (1-877-779-8683) anytime! Go to http://www.eproxyvote.com/epg anytime!
IF OUTSIDE THE CONTINENTAL U.S. CALL COLLECT ON
A TOUCH-TONE PHONE, (201-536-8073).
DO NOT RETURN YOUR PROXY CARD IF YOU ARE VOTING BY TELEPHONE OR INTERNET.
</TABLE>
DETACH HERE
- --------------------------------------------------------------------------------
PLEASE MARK
[X] VOTES AS IN
THIS EXAMPLE
- ------------------------------------------------------------------------
THE BOARD OF DIRECTORS RECOMMENDS A VOTE FOR PROPOSALS 1, 2, 3, 4 AND 5.
- ------------------------------------------------------------------------
PLEASE MARK, SIGN, DATE AND RETURN THIS PROXY CARD PROMPTLY
USING THE ENCLOSED ENVELOPE
1. Election of Directors
Nominees:(01) Byron Allumbaugh, (02) Juan Carlos Braniff,
(03) Peter T. Flawn, (04) James F. Gibbons, (05) Ben F. Love,
(06) Kenneth L. Smalley, (07) Malcolm Wallop, (08) William A. Wise
FOR WITHHOLD
ALL NOMINEES [ ] [ ] AUTHORITY TO VOTE
LISTED ABOVE FOR ALL NOMINEES
LISTED ABOVE
[ ]
--------------------------------------
FOR all nominees except as noted above
2. Approval of El Paso Energy Corporation 1999 Omnibus Incentive Compensation
Plan.
[ ] FOR [ ] AGAINST [ ] ABSTAIN
3. Approval of El Paso Energy Corporation Employee Stock Purchase Plan.
[ ] FOR [ ] AGAINST [ ] ABSTAIN
4. Approval of Amendment to Restated Certificate of Incorporation of El Paso
Natural Gas Company to eliminate the provision relating to Section 251(g) of
the Delaware General Corporation Law.
[ ] FOR [ ] AGAINST [ ] ABSTAIN
5. Ratification of the appointment of PricewaterhouseCoopers LLP as Independent
Certified Public Accountants of the Company for fiscal year 1999.
[ ] FOR [ ] AGAINST [ ] ABSTAIN
- --------------------------------------------------------------------------------
THE BOARD OF DIRECTORS RECOMMENDS A VOTE AGAINST PROPOSAL 6.
- --------------------------------------------------------------------------------
6. Approval of Stockholder Proposal relating to Corporate Democracy.
[ ] FOR [ ] AGAINST [ ] ABSTAIN
- --------------------------------------------------------------------------------
MARK HERE MARK HERE
FOR ADDRESS [ ] FOR COMMENTS [ ]
CHANGE AND
NOTE AT LEFT
Please sign exactly as your name
appears. If acting as attorney,
executor, trustee or in other
representative capacity, sign
name and title. If a
corporation, please sign full
corporate name by President or
other authorized officer. If a
partnership, please sign in
partnership name by authorized
person. If held jointly, both
parties must sign and date.
Signature: Date: Signature: Date:
----------------- ------- ---------------- -------
<PAGE> 74
CONFIDENTIAL VOTING INSTRUCTIONS
EL PASO ENERGY CORPORATION
ANNUAL MEETING OF STOCKHOLDERS - APRIL 22, 1999
SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS
TO: BANKERS TRUST COMPANY, TRUSTEE UNDER EL PASO
ENERGY CORPORATION BENEFITS PROTECTION TRUST
The undersigned hereby directs the Trustee to vote, in person or by proxy, the
full and fractional shares of common stock of El Paso Energy Corporation,
credited to my account under the referenced Plan at the close of business on
February 24, 1999, the record date, at the Annual Meeting of Stockholders to be
held at The Windsor Court Hotel, 300 Gravier Street, New Orleans, Louisiana
70130, on April 22, 1999, and at any adjournment(s) or postponement(s) of such
meeting for the purposes identified on the reverse side of this proxy and with
discretionary authority as to any other matters that may properly come before
the meeting, including substitute nominees if any of the named nominees for
Director should be unavailable to serve, in accordance with and as described in
the Notice of Annual Meeting of Stockholders and Proxy Statement.
If this proxy is completed, dated, signed and returned in the accompanying
envelope to the Trustee by April 12, 1999, the shares of stock represented by
this proxy will be voted in the manner directed herein by the undersigned. If
this proxy is returned to the Trustee without direction being given, this proxy
will be voted FOR proposals 1, 2, 3, 4 and 5 and AGAINST proposal 6.
<PAGE> 75
PLEASE MARK YOUR CHOICE LIKE THIS [X] IN
DARK INK AND SIGN AND DATE BELOW
THE BOARD OF DIRECTORS RECOMMENDS A VOTE FOR PROPOSALS 1,2,3,4 AND 5.
<TABLE>
<CAPTION>
<S> <C> <C> <C>
1. Election of Directors-Nominees:
Byron Allumbaugh, Juan Carlos Braniff, Peter T. Flawn, For All Nominees Withhold Authority to
James F. Gibbons, Ben F. Love, Kenneth L. Smalley, Vote for all nominees
Malcolm Wallop, William A. Wise
[ ] [ ]
[ ] --------------------------------
For all Nominees Except as Noted
2. Approval of El Paso Energy Corporation 1999 Omnibus For Against Abstain
Incentive Compensation Plan [ ] [ ] [ ]
3. Approval of El Paso Energy Corporation Employee Stock For Against Abstain
Purchase Plan [ ] [ ] [ ]
4. Approval of Amendment to the Restated Certificate of For Against Abstain
Incorporation of El Paso Natural Gas Company to [ ] [ ] [ ]
eliminate the provision relating to Section 251(g) of the
Delaware General Corporation Law
5. Ratification of the appointment of PricewaterhouseCoopers For Against Abstain
LLP as Independent Certified Public Accountants for fiscal [ ] [ ] [ ]
year 1999
THE BOARD OF DIRECTORS RECOMMENDS A VOTE AGAINST PROPOSAL 6.
6. Approval of Stockholder Proposal relating to Corporate For Against Abstain
Democracy [ ] [ ] [ ]
If acting as attorney, executor, trustee or in other representative capacity,
sign name and title. If a corporation, please sign in full corporate name by
President or other authorized officer. If a partnership, please sign in
partnership name by authorized person.
IMPORTANT: Please mark, sign, date, and return this proxy card promptly using
the enclosed envelope.
Shares held as of
February 1, 1999:
------------------------------------------------------ ---------------------
SIGNATURE DATE
</TABLE>
<PAGE> 76
SKU # 1107-AMPS-99
