<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 Section 240.14a-11(c) or
Section 240.14a-12
El Paso Natural Gas Company
- --------------------------------------------------------------------------------
(Name of Registrant as Specified in its Charter)
- --------------------------------------------------------------------------------
(Name of Person(s) Filing Proxy Statement, if other than the Registrant)
Payment of Filing Fee (Check the appropriate box):
/X/ $125 per Exchange Act Rules 0-11(c)(1)(ii), 14a-6(i)(1), or 14a-6(i)(2)
or Item 22(a)(2) of Schedule 14A.
/ / $500 per each party to the controversy pursuant to Exchange Act Rule
14a-6(i)(3).
/ / Fee computed on table below per Exchange Act Rules 14a-6(i)(4) and
0-11.
(1) Title of each class of securities to which transaction applies:
- --------------------------------------------------------------------------------
(2) Aggregate number of securities to which 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:
- --------------------------------------------------------------------------------
<PAGE> 2
[EL PASO NATURAL GAS COMPANY LOGO]
Dear Stockholder:
You are cordially invited to attend the 1996 Annual Meeting of Stockholders
of El Paso Natural Gas Company (the "Company"), which will be held on Tuesday,
April 30, 1996, at 9:00 a.m. (mountain standard time), in the Crescent III
meeting room, The Sheraton Crescent Hotel, 2620 West Dunlap Avenue, Phoenix,
Arizona. The accompanying Notice of Annual Meeting of Stockholders and Proxy
Statement describe the business to be transacted at the Annual Meeting.
Whether or not you plan to attend the Annual Meeting, please complete,
date, sign and return the enclosed proxy card in the accompanying envelope as
promptly as possible to ensure that your shares are represented and voted in
accordance with your wishes. You can help the Company avoid the necessity and
expense of sending follow-up letters to ensure a quorum is represented by
promptly returning the enclosed proxy card in the accompanying envelope.
Sincerely,
/s/ WILLIAM A. WISE
WILLIAM A. WISE
Chairman of the Board, President
and Chief Executive Officer
El Paso, Texas
March 22, 1996
<PAGE> 3
EL PASO NATURAL GAS COMPANY
100 NORTH STANTON STREET
EL PASO, TEXAS 79901
NOTICE OF ANNUAL MEETING OF STOCKHOLDERS
APRIL 30, 1996
The Annual Meeting of Stockholders of El Paso Natural Gas Company (the
"Company") will be held on Tuesday, April 30, 1996, at 9:00 a.m. (mountain
standard time), in the Crescent III meeting room, The Sheraton Crescent Hotel,
2620 West Dunlap Avenue, Phoenix, Arizona, for the following purposes:
1. To elect seven Directors, each to hold office for a term of one year;
2. To ratify the appointment of Coopers & Lybrand as independent certified
public accountants to audit the Company's financial statements for the
fiscal year ending December 31, 1996; and
3. To transact any other business which may be properly brought before the
Annual Meeting.
Only stockholders of record at the close of business on March 15, 1996, are
entitled to notice of, and to vote at, the Annual Meeting and any adjournment or
postponement thereof. Whether or not you plan to attend the Annual Meeting,
please complete, date, sign and return the enclosed proxy card in the
accompanying envelope 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/ STACY J. JAMES
STACY J. JAMES
Corporate Secretary
El Paso, Texas
March 22, 1996
<PAGE> 4
EL PASO NATURAL GAS COMPANY
100 NORTH STANTON STREET
EL PASO, TEXAS 79901
PROXY STATEMENT
ANNUAL MEETING OF STOCKHOLDERS -- APRIL 30, 1996
This Proxy Statement with the accompanying Notice of Annual Meeting of
Stockholders and proxy card are being mailed to stockholders beginning on or
about March 22, 1996. The proxy is solicited by the Board of Directors of El
Paso Natural Gas Company (the "Company") for use at the Annual Meeting of
Stockholders (the "Annual Meeting") on Tuesday, April 30, 1996. Shares of the
Company's common stock, par value $3.00 per share (the "Common Stock"),
represented by a properly executed proxy in the accompanying form, 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 Ms. Stacy J. James, Corporate
Secretary, El Paso Natural Gas Company, 100 North Stanton Street, El Paso, Texas
79901, by signing and delivering a subsequently dated proxy or by attending the
Annual Meeting in person and giving notice of revocation to the Inspectors of
Election.
March 15, 1996, was the record date for the determination of stockholders
entitled to notice of, and to vote at, the Annual Meeting. On that date there
were outstanding and entitled to vote 35,963,389 shares of Common Stock, 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 the Company's ordinary business hours at The Sheraton Crescent Hotel,
2620 West Dunlap Avenue, Phoenix, Arizona.
Each stockholder is entitled to one vote on each proposal for each share of
Common Stock held as of the record date. Two Inspectors of Election, both from
The First National Bank of Boston 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, an abstention by a stockholder will be a vote of abstention with
respect to the proposal voted upon and will not be 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. A non-vote
by a stockholder will be tallied as a vote "for" management.
INFORMATION ABOUT THE BOARD OF DIRECTORS AND COMMITTEES
The Board of Directors of the Company held seven meetings during the fiscal
year ended December 31, 1995. 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. Each Director has attended at least 75% of
the meetings of the Board of Directors and the committees on which he served
during the fiscal year 1995, except for Mr. Eugenio Garza Laguera.
THE AUDIT COMMITTEE
During fiscal year 1995, the Audit Committee held five meetings. The Audit
Committee currently consists of Kenneth L. Smalley (Chairman), Eugenio Garza
Laguera and Malcolm Wallop, each a non-employee Director. Until April 1995,
Byron Allumbaugh, James F. Gibbons and Ben F. Love were also members of the
Audit Committee. 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, and the Company's basic accounting and financial policies
and practices.
<PAGE> 5
THE COMPENSATION COMMITTEE
During fiscal year 1995, the Compensation Committee held four meetings. The
Compensation Committee currently consists of Ben F. Love (Chairman), Byron
Allumbaugh and James F. Gibbons, each a non-employee Director. Until April 1995,
Eugenio Garza Laguera and Kenneth L. Smalley were also members of the
Compensation Committee. 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 12 of this Proxy Statement.
DIRECTOR COMPENSATION
Each member of the Company's 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 $50,000, which
may be paid in cash, deferred cash, deferred shares of Common Stock (plus a
conversion premium) or a combination thereof. No additional fees are currently
paid to non-employee Directors for serving on the Board of Directors or
committees thereof.
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 his
initial election to the Board of Directors and an annual stock option grant of
1,000 options upon each re-election to the Board of Directors. Non-employee
Directors are also eligible to participate in the Company's Retirement Income
Plan for Non-Employee Directors (which provides for retirement benefits based
upon the number of years of service as a Director).
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 of the Company is entitled to participate
upon the completion of two consecutive years of service on the Board of
Directors. Currently, Messrs. Allumbaugh, Garza Laguera, Gibbons, Love, Smalley
and Wise are eligible to participate in the plan.
PROPOSALS
PROPOSAL NO. 1 -- ELECTION OF DIRECTORS
In accordance with the By-laws of the Company, the Board of Directors has
fixed at seven the number of Directors constituting the full Board. The Company
proposes to elect seven 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 seven 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
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 the Company's 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.
2
<PAGE> 6
Each of the following nominees is currently a Director of the Company:
<TABLE>
<CAPTION>
NAME, PRINCIPAL OCCUPATION SERVED AS
AND SELECTED OTHER INFORMATION DIRECTOR
CONCERNING NOMINEES FOR DIRECTOR SINCE
------------------------------------------------------------------ ---------
<S> <C>
BYRON ALLUMBAUGH 1992
Chairman of the Board,
Ralphs Grocery Company,
Los Angeles, California -- Supermarket Chain.
Age -- 64
Member -- Compensation Committee
Mr. Allumbaugh has been Chairman of the Board of Ralphs Grocery Company since
February 1996. He served as Chief Executive Officer of Ralphs Grocery Company
from June 1995 until February 1996. For more than five years prior to such
date, 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 H. F. Ahmanson & Company and Ultramar Inc.
EUGENIO GARZA LAGUERA 1993
Chairman of the Board of Directors,
Valores Industriales, S.A. ("VISA"),
Monterrey, Mexico -- Mexican Holding Company
principally involved in beer and
soft drink bottling and distribution;
Chairman of the Board of Directors, Fomento Economico Mexicano,
S.A. de C.V. ("FEMSA"),
Monterrey, Mexico -- Beer and soft
drink bottling and distribution;
Chairman of the Board of Directors,
Grupo Financiero Bancomer, S.A. de C.V.,
Mexico City, Mexico -- Mexican Financial Services
Holding Company principally involved in commercial banking;
Chairman of the Board of Directors,
BANCOMER,
Mexico City, Mexico --
Commercial Banking Institution;
Chairman of the Board of Regents,
Instituto Tecnologico Y de
Estudios Superiores de Monterrey, A.C.,
Monterrey, Mexico -- Higher Education.
Age -- 72
Member -- Audit Committee
Mr. Garza Laguera has served as Chairman of the Board of Directors of VISA
and FEMSA and Chairman of the Board of Regents of Instituto Tecnologico Y
de Estudios Superiores de Monterrey, A.C. for more than five years. He has
been Chairman of the Board of Directors of Grupo Financiero Bancomer and
BANCOMER since 1991.
JAMES F. GIBBONS, PH.D. 1994
Dean of the School of Engineering,
Stanford University,
Stanford, California -- Higher Education.
Age -- 64
Member -- Compensation Committee
Dr. Gibbons has been on the faculty of Stanford University since 1957 and has
been the Dean of the School of Engineering since September 1984. He is a
member of the Board of Directors of Amati Communications Corp., Centigram
Communications Corp., Cisco Systems, Inc., Lockheed Martin, Inc. and Raychem
Inc.
</TABLE>
3
<PAGE> 7
<TABLE>
<CAPTION>
NAME, PRINCIPAL OCCUPATION SERVED AS
AND SELECTED OTHER INFORMATION DIRECTOR
CONCERNING NOMINEES FOR DIRECTOR SINCE
------------------------------------------------------------------ ---------
<S> <C>
BEN F. LOVE 1992
Investor.
Age -- 71
Chairman -- Compensation Committee
Since December 1989, Mr. Love's principal occupation has been as shown above.
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 Burlington Northern Santa Fe Corporation
and Mitchell Energy & Development Corp.
KENNETH L. SMALLEY 1992
Retired.
Age -- 66
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.
MALCOLM WALLOP 1995
President,
Frontiers of Freedom Foundation,
Arlington, Virginia -- Political Foundation.
Age -- 63
Member -- Audit Committee
Since January 1995, Mr. Wallop's principal occupation has been as shown
above. 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.
WILLIAM A. WISE 1984
Chairman of the Board, President and
Chief Executive Officer,
El Paso Natural Gas Company,
El Paso, Texas -- Natural Gas Transmission.
Age -- 50
Mr. Wise has been Chairman of the Board since January 1994. Mr. Wise has been
the President and Chief Executive Officer (the "CEO") of the Company since
January 1990. 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.
</TABLE>
SECURITY OWNERSHIP OF BENEFICIAL OWNERS AND MANAGEMENT
The following table sets forth certain information as of January 15, 1996,
regarding the beneficial ownership of the Company's Common Stock by (i) each
Director of the Company, (ii) each of the Company's named executives (as
hereinafter defined), (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.
4
<PAGE> 8
<TABLE>
<CAPTION>
TITLE OF BENEFICIAL OWNERSHIP STOCK PERCENT
CLASS NAME (EXCLUDING OPTIONS)(1) OPTIONS(6) TOTAL OF CLASS
- ------------- ---- ---------------------- ---------- ---------- --------
<S> <C> <C> <C> <C> <C>
Common Stock Loomis, Sayles & Company, L.P.
One Financial Center
Boston, MA 02111................. 3,164,618(2) 0 3,164,618 9.06%
Common Stock Bankers Trust New York
Corporation
and Bankers Trust Company
280 Park Avenue
New York, NY 10017............... 2,431,219(3) 0 2,431,219 6.96%
Common Stock Dean Witter, Discover & Co. and
Dean Witter InterCapital Inc.
130 Liberty Street
New York, NY 10006............... 2,087,334(4) 0 2,087,334 5.98%
Common Stock Byron Allumbaugh................. 3,609 6,000 9,609 *
Common Stock Eugenio Garza Laguera............ 0 5,000 5,000 *
Common Stock James F. Gibbons................. 1,748 5,000 6,748 *
Common Stock Ben F. Love...................... 11,000 3,000 14,000 *
Common Stock Kenneth L. Smalley............... 6,496 4,000 10,496 *
Common Stock Malcolm Wallop................... 0 4,000 4,000 *
Common Stock William A. Wise.................. 78,036(5) 428,592 506,628 1.43%
Common Stock H. Brent Austin.................. 5,600 106,822 112,422 *
Common Stock Richard Owen Baish............... 11,757 89,841 101,598 *
Common Stock Michael C. Holland............... 3,151 46,400 49,551 *
Common Stock Britton White, Jr................ 16,000 69,067 85,067 *
Common Stock Directors and executive
officers as a group (15
persons in total, including
those individuals listed
above)........................... 393,436 983,055 1,376,491 3.83%
</TABLE>
- ---------------
* Less than 1%.
(1) Directors and executive officers have sole voting and investment power of
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 2,113, 1,000,
2,000, 159 and 1,000 shares of Common Stock, respectively. Shares of Common
Stock held by executive officers under the Company's Retirement Savings Plan
are as of December 31, 1995. Some shares of Common Stock reflected in this
column for certain individuals are subject to restrictions. Loomis, Sayles &
Company, L.P. ("Loomis") has sole voting power over 1,223,440 shares of
Common Stock and shared dispositive power over 3,164,618. Bankers Trust New
York Corporation and Bankers Trust Company (collectively, "Bankers Trust")
disclaims beneficial ownership on 1,280,303 shares of Common Stock. Bankers
Trust has sole voting power over 765,807 shares of Common Stock, shared
voting power over 55,584 shares of Common Stock, sole dispositive power over
1,093,000 shares of Common Stock and shared dispositive power over 57,916
shares of Common Stock. Dean Witter, Discover & Co. and Dean Witter
InterCapital Inc. (collectively, "Dean Witter") has shared voting and
dispositive power over 2,087,334 shares of Common Stock.
(2) Represents the number of shares owned by Loomis as of December 31, 1995, as
reported by Loomis in a Schedule 13G dated February 12, 1996.
(3) Represents the number of shares owned by Bankers Trust as of December 31,
1995, as reported by Bankers Trust in a Schedule 13G dated as of December
31, 1995.
(4) Represents the number of shares owned by Dean Witter as of December 31,
1995, as reported by Dean Witter in a Schedule 13G dated February 13, 1996.
(5) Mr. Wise's beneficial ownership excludes 200 shares of Common Stock owned by
his children under the Uniform Gifts to Minors Act, of which Mr. Wise
disclaims beneficial ownership.
5
<PAGE> 9
(6) The Directors and executive officers have the right to acquire the shares of
Common Stock reflected in this column within 60 days through the exercise of
stock options and/or tandem stock appreciation rights ("SARs").
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 President and CEO
or acting in a similar capacity during the last completed fiscal year, and the
Company's four other most highly compensated executive officers (collectively
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 1995.
SUMMARY COMPENSATION TABLE(1)
<TABLE>
<CAPTION>
ANNUAL COMPENSATION LONG-TERM COMPENSATION
---------------------------------- -------------------------------------
AWARDS PAYOUTS
------------------------- ---------
LONG-TERM
OTHER SECURITIES INCENTIVE
ANNUAL RESTRICTED UNDERLYING PLAN ALL OTHER
NAME AND PRINCIPAL SALARY BONUS COMPENSATION STOCK AWARDS OPTIONS PAYOUTS COMPENSATION
POSITION YEAR ($) ($)(2) ($) (3) ($) (4) (#) ($) (5) ($) (6)
- ----------------------- ---- -------- -------- ------------ ------------ ---------- --------- ------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
William A. Wise 1995 $535,417 $412,500 $229,943 $412,487 62,000 -- $ 93,457
Chairman, 1994 $525,096 $550,000 $126,025 -- 83,000 $1,348,390 $ 42,008
President & CEO 1993 $400,000 $400,000 $ 24,187 -- 80,000 -- $752,681(7)
H. Brent Austin 1995 $213,750 $168,750 $ 80,738 $168,735 15,000 -- $ 24,059
Executive Vice 1994 $193,333 $168,000 $ 8,542 -- 16,400 $264,819 $ 11,595
President and Chief 1993 $185,000 $148,000 $ 1,409 -- 15,000 -- $ 19,993
Financial Officer
Richard Owen Baish 1995 $225,000 $168,750 $ 76,999 $168,735 15,000 -- $ 39,685
Executive Vice 1994 $201,667 $180,000 $ 1,883 -- 16,400 $264,819 $ 16,133
President 1993 $190,000 $152,000 $ 724 -- 15,000 -- $ 27,387
Michael C. Holland 1995 $176,250 $221,982 $122,870 -- 15,000 -- $ 26,027
Senior Vice President 1994 $175,000 $125,800 $ 55,242 -- 16,400 $264,819 $ 14,000
1993 $170,000 $136,000 $ 43,379 -- 15,000 -- $ 24,480
Britton White, Jr. 1995 $185,417 $120,000 $ 80,841 $119,978 15,000 -- $ 25,405
Senior Vice President 1994 $183,333 $160,000 $ 7,608 -- 16,400 $264,819 $ 11,000
and General Counsel 1993 $175,000 $140,000 $ 2,009 -- 15,000 -- $ 18,911
</TABLE>
- ---------------
(1) The Company did not have any executive officer terminate employment during
fiscal year 1995 who would otherwise have been included as a named executive
in this table.
(2) 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 for fiscal
year 1995 represent the market value of the restricted Common Stock and
cash awarded under that plan. Dividends are paid directly to the holder of
the restricted Common Stock during the four-year vesting schedule.
(3) The amounts reflected in this column for fiscal year 1995 include a one-time
automobile transfer to compensate the named executive for the termination
of the Company-provided automobile program and an allowance compensating
for the discontinuation of other perquisites and benefits previously
provided. For fiscal year 1995 these amounts were $40,999 (representing
termination of the automobile program) and $36,000 (representing
termination of other executive perquisites and benefits) for Messrs.
Austin, Baish, Holland and White. For Mr. Wise, the value representing the
termination of the automobile program was $105,000 in fiscal year 1995. In
addition, Mr. Holland's amount for fiscal year 1995 includes
6
<PAGE> 10
a cost of living adjustment of $45,312. The amount reflected for Mr. Wise
in fiscal year 1994 includes $46,102 in value attributed to the use of the
Company's aircraft (which was based on the thirteen-month period of
December 1993 through December 1994 due to a change in the period the
Company uses to report aircraft usage -- all other amounts for all fiscal
years reflected is based upon fiscal year amounts). The amounts reflected
for Mr. Holland in fiscal years 1994 and 1993 include a cost of living
adjustment of $45,626 and $41,256, respectively. The aggregate value of the
perquisites and other personal benefits received by the other named
executives in fiscal years 1994 and 1993 has not been reflected for such
fiscal years because the amount was 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 restricted Common Stock. The amounts reflected in this column represent
the market value of restricted Common Stock, subject to a four-year vesting
schedule, received by each of the named executives pursuant to such
election. Other than indicated, no named executive received a grant of
restricted Common Stock from the Company during fiscal years 1995, 1994 and
1993. The total shares of restricted Common Stock held on December 31, 1995
by Messrs. Wise, Austin, Baish, Holland and White was 18,000, 0, 4,000, 0
and 4,000, respectively. The aggregate dollar value on December 31, 1995,
of all shares of restricted Common Stock held by Messrs. Wise, Austin,
Baish, Holland and White was $517,500, $0, $115,000, $0 and $115,000,
respectively. On December 31, 1995, Mr. Holland held 4,000 shares of
phantom restricted stock units, with an aggregate dollar value on that date
of $115,000. Mr. Holland receives dividend equivalents on such phantom
restricted stock units until they are cashed out. Dividends are paid
directly to the holder of the restricted Common Stock.
(5) The amounts reflected in this column for fiscal year 1994 are payouts made
with respect to performance share units granted under the Company's Omnibus
Compensation Plan as a result of the early termination of the applicable
performance cycle during fiscal year 1994 as a result of the termination of
that Plan and the Company's desire to preserve its deduction for such
compensation in light of Section 162(m) of the Internal Revenue Code (the
"IRC"). No named executive received a long-term incentive plan payout from
the Company during the fiscal years 1995 and 1993.
(6) The compensation reflected in this column for fiscal year 1995 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 1995 were $12,000, $74,833 and $6,624 for Mr.
Wise; $9,000, $13,905 and $1,154 for Mr. Austin; $12,000, $20,400 and
$7,285 for Mr. Baish; $12,000, $12,164 and $1,863 for Mr. Holland; and
$9,000, $11,725 and $4,680 for Mr. White, respectively.
(7) The fiscal year 1993 compensation reflected in this column for Mr. Wise
includes (a) $64,369 which 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, and (b) $688,312 attributable to the exercise of
rights relating to the common stock of Burlington Resources Inc. ("BR"),
the Company's former parent company, which were granted by BR to Mr. Wise
in fiscal year 1992 for services rendered to the Company prior to the
Company's separation from BR. The amount discussed in (b) above was paid by
BR.
STOCK OPTION GRANTS
The following table sets forth the number of stock options granted at fair
market value to each of the named executives during the fiscal year 1995. In
satisfaction of applicable SEC regulations, the table further sets forth the
potential realizable value of such stock options in the year 2005 (the
expiration date of the stock options) at arbitrarily assumed annualized rates of
stock price appreciation of five and ten percent over the full ten-year term of
the stock options. As the table indicates, the annualized stock price
appreciation of five and ten percent will result in stock prices in the year
2005 of approximately $48.77 and $77.65, respectively. The amounts shown in the
table as potential realizable values for all shareholders' stock (approximately
7
<PAGE> 11
$657 million and $1.7 billion) represent the corresponding increases in the
market value of 34,904,148 outstanding shares of the Company's Common Stock held
as of December 31, 1995. No gain to the named executives is possible without an
increase in stock price which will benefit all shareholders proportionately.
Actual gains, if any, on stock option exercises and Common Stock holdings are
dependent on the future performance of the Company's Common Stock and overall
stock market conditions. There can be no assurance that the potential realizable
values shown in this table will be achieved.
OPTION GRANTS IN 1995
<TABLE>
<CAPTION>
POTENTIAL REALIZABLE VALUE AT
ASSUMED ANNUAL RATES OF STOCK
PRICE APPRECIATION FOR OPTION TERM
INDIVIDUAL GRANTS(1)
---------------------------------------------------- ----------------------------------
IF STOCK IF STOCK
NUMBER OF % OF TOTAL PRICE PRICE
SECURITIES OPTIONS AT $48.77 AT $77.65
UNDERLYING GRANTED TO IN 2005 IN 2005
OPTIONS EMPLOYEES EXERCISE EXPIRATION ------------- --------------
NAME GRANTED(#) IN 1995 PRICE ($/SH) DATE 5% ($) 10% ($)
- ----------------------- ---------- ---------- ------------ --------- ------------- --------------
<S> <C> <C> <C> <C> <C> <C>
ALL SHAREHOLDERS' STOCK
APPRECIATION......... N/A N/A N/A N/A $657,158,994 $1,665,369,917
William A. Wise........ 59,000 8.43% $29.9375 01/13/05 $ 1,110,824 $ 2,815,047
3,000 0.43% $29.9375 01/12/05 $ 56,483 $ 143,138
H. Brent Austin........ 12,000 1.71% $29.9375 01/13/05 $ 225,930 $ 572,552
3,000 0.43% $29.9375 01/12/05 $ 56,483 $ 143,138
Richard Owen Baish..... 12,000 1.71% $29.9375 01/13/05 $ 225,930 $ 572,552
3,000 0.43% $29.9375 01/12/05 $ 56,483 $ 143,138
Michael C. Holland..... 12,000 1.71% $29.9375 01/13/05 $ 225,930 $ 572,552
3,000 0.43% $29.9375 01/12/05 $ 56,483 $ 143,138
Britton White, Jr...... 12,000 1.71% $29.9375 01/13/05 $ 225,930 $ 572,552
3,000 0.43% $29.9375 01/12/05 $ 56,483 $ 143,138
</TABLE>
- ---------------
(1) The stock options were granted on January 13, 1995 at the fair market
value on that date, and became exercisable on January 13, 1996. There
were no SARs granted in 1995. Any unvested stock options become fully
exercisable in the event of a "change in control" (see page 15 of this
Proxy Statement for a description of the Company's 1995 Omnibus
Compensation Plan and the term "change in control"). Under the terms of the
1995 Omnibus Compensation Plan, the Compensation Committee may, in its sole
discretion and at any time, change the vesting of the stock options.
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 14 of this Proxy Statement).
N/A -- Not Applicable
OPTION EXERCISES AND YEAR-END VALUE TABLE
The table on the following page sets forth information concerning the
fiscal year-end value of the unexercised stock options (and tandem SARs),
provided on an aggregate basis, for each of the named executives.
8
<PAGE> 12
AGGREGATED OPTION/SAR EXERCISES IN 1995
AND FISCAL YEAR-END OPTION/SAR VALUES(1)
<TABLE>
<CAPTION>
NUMBER OF SECURITIES VALUE OF UNEXERCISED
UNDERLYING UNEXERCISED IN-THE-MONEY
OPTIONS/SARS OPTIONS/SARS
AT FISCAL YEAR-END(#) AT FISCAL YEAR-END($)(2)
---------------------------- ----------------------------
NAME EXERCISABLE UNEXERCISABLE EXERCISABLE UNEXERCISABLE
- --------------------------------------------- ----------- ------------- ----------- -------------
<S> <C> <C> <C> <C>
William A. Wise.............................. 366,592 62,000 $ 2,060,295 $ 0
H. Brent Austin.............................. 91,822 15,000 $ 617,220 $ 0
Richard Owen Baish........................... 74,841 15,000 $ 442,535 $ 0
Michael C. Holland........................... 31,400 15,000 $ 0(3) $ 0
Britton White, Jr............................ 54,067 15,000 $ 226,670 $ 0
</TABLE>
- ---------------
(1) No named executive exercised any stock options or SARs during fiscal year
1995.
(2) The figures presented in this column have been calculated based upon the
difference between $29.00, the fair market value of the Common Stock on
December 31, 1995 for each in-the-money stock option/SAR, and its exercise
price. Mr. Wise has tandem SARs attached to some of his stock options. If
his stock options are exercised, the tandem SARs expire and vice versa. The
exercise of a tandem SAR would have the equivalent market value as the
exercise of a stock option.
(3) Mr. Holland also had 22,667 exercisable in-the-money phantom stock option
units with an aggregate value on December 31, 1995 of $226,670.
LONG-TERM INCENTIVE AWARDS
The following table provides information concerning long-term incentive
awards of performance units ("PUs") under the Company's 1995 Omnibus
Compensation Plan. The units granted vest 25% per year over a four-year
performance period, at the end of which the Company's total shareholder return
is compared to that of its peer group (comprised of those companies in the
Standard & Poor's Natural Gas Index). If the Company's total shareholder return
ranks in the first, second, third or fourth quartiles, the value of each unit is
$150, $100, $50 and $0, respectively. The payouts, if any, will consist of
Common Stock and cash. All the amounts shown are potential assumed amounts.
There is no assurance that the Company will achieve the results that would lead
to payments under that plan.
LONG-TERM INCENTIVE PLANS -- AWARDS IN 1995
<TABLE>
<CAPTION>
ESTIMATED FUTURE PAYOUTS UNDER
NON-STOCK PRICE-BASED PLANS(1)
PERIOD UNTIL -----------------------------------------------------
NUMBER OF MATURATION BELOW
NAME UNITS(#) OR PAYOUT THRESHOLD($) THRESHOLD($) TARGET($) MAXIMUM($)
- ----------------------------- --------- ------------ ------------ ------------ ---------- ----------
<S> <C> <C> <C> <C> <C> <C>
William A. Wise.............. 29,600 4 years $0 $1,480,000 $2,960,000 $4,440,000
H. Brent Austin.............. 10,000 4 years $0 $ 500,000 $1,000,000 $1,500,000
Richard Owen Baish........... 10,000 4 years $0 $ 500,000 $1,000,000 $1,500,000
Michael C. Holland........... 7,100 4 years $0 $ 355,000 $ 710,000 $1,065,000
Britton White, Jr............ 7,100 4 years $0 $ 355,000 $ 710,000 $1,065,000
</TABLE>
- ---------------
(1) Each unit is assigned an initial value of $100, subject to adjustment based
upon the Company's relative total shareholder value to the other companies
in the Standard & Poor's Natural Gas Index group. If the Company's relative
total shareholder value is in the first or second quartile at the end of
the second year, participants may receive up to one-half of the value of
any vested units.
9
<PAGE> 13
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 under
the Pension Plan and the Company's Supplemental Benefits Plan (collectively, the
"Plans") for the 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 IRC provisions, compensation in excess of $150,000 cannot be
taken into account and the maximum payable benefit in 1995 is $120,000. 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 as follows:
PENSION PLAN TABLE
<TABLE>
<CAPTION>
YEARS OF CREDITED SERVICE AT NORMAL RETIREMENT
AGE
FINAL AVERAGE -----------------------------------------------
PENSION EARNINGS 15 20 25 30
- ---------------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C>
$ 100,000........................................... $ 22,470 $ 29,960 $ 37,450 $ 44,940
$ 300,000........................................... $ 70,470 $ 93,960 $117,450 $140,940
$ 500,000........................................... $118,470 $157,960 $197,450 $236,940
$ 700,000........................................... $166,470 $221,960 $277,450 $332,940
$ 900,000........................................... $214,470 $285,960 $357,450 $428,940
$1,100,000........................................... $262,470 $349,960 $437,450 $524,940
$1,300,000........................................... $310,470 $413,960 $517,450 $620,940
</TABLE>
Benefits which accrue under the Plans are based upon the gross salary
amount, 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 16 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 .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, Holland 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 15 of this Proxy
Statement), respectively.
CUMULATIVE TOTAL SHAREHOLDER VALUE
The following graph shows the changes in the value of $100 invested since
March 12, 1992 (the date on which the Company's Common Stock was initially
offered to the public) for the Company's Common Stock and since February 29,
1992 (the month-end date closest to the March 12, 1992 initial public offering
date of the Company's Common Stock) for the Standard & Poor's Natural Gas Index
and the Standard & Poor's 500 Stock Index.
10
<PAGE> 14
COMPARISON OF BIANNUAL CUMULATIVE TOTAL VALUES IN 1992, 1993, 1994
AND 1995 FOR THE COMPANY, THE S&P NATURAL GAS INDEX
AND THE S&P 500 STOCK INDEX.
[CHART]
<TABLE>
<CAPTION>
BIANNUAL CUMULATIVE TOTAL VALUES ($)
BIANNUAL PERIOD -------------------------------------------------------------
ENDED THE COMPANY S&P NATURAL GAS INDEX S&P 500 STOCK INDEX
- --------------- ----------- --------------------- -------------------
<S> <C> <C> <C>
1992:
June $ 129.0 $ 112.9 $ 99.9
December 167.6 122.6 108.3
1993:
June $ 214.0 $ 158.4 $ 113.5
December 200.4 145.6 119.2
1994:
June $ 182.7 $ 144.5 $ 115.1
December 176.1 138.9 120.7
1995:
June $ 168.4 $ 166.3 $ 145.2
December $ 173.9 $ 196.4 $ 165.7
</TABLE>
The biannual 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 shareholder
return from each investment can be calculated from the biannual values given
above.
11
<PAGE> 15
COMPENSATION COMMITTEE REPORT ON EXECUTIVE COMPENSATION
The Company's executive officer compensation program is administered and
reviewed by the Compensation Committee. Until April 1995, the Committee
consisted of five independent, non-employee Directors of the Company (Messrs.
Allumbaugh, Garza Laguera, Gibbons, Love and Smalley). After April 1995, the
Committee consisted 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 operating performance and objectives 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 attributes significant weight to other
factors in determining executive compensation, such as maintaining
competitiveness, implementing capital improvements, expanding markets 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 and each individual executive's performance. The
independent consulting firm provides data and information that compares the
Company with a peer group of companies. Such peer group consists of most of
those companies included in the S&P Natural Gas Index (reflected in the
Performance Graph found on page 11 of this Proxy Statement) and 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 long-term incentive awards for executive
officers, including the CEO, should be targeted in the top one-half of the peer
group, tied directly to the performance of the Company's Common Stock and should
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 year-end incentive bonuses ranging from 0% to 100% of base
salary for the CEO and Executive Vice Presidents, and from 0% to 80% of base
salary for the other named executive officers. The Compensation Committee
determines what percentage bonus will be awarded based upon both the Company's
and the individual executive's performance vis-a-vis objectives established each
year. Mr. Wise's employment agreement, as described on page 14 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 in January
1995 in order to encourage the CEO to elect to have all incentive awards payable
in shares of restricted Common Stock. As a result of the new stock-based
compensation plan discussed below, 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 14 of this Proxy Statement for a description of the
letter agreement and the amendment to employment agreement. None of the other
named executives received compensation governed or affected by employment
agreements.
12
<PAGE> 16
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 executives. To the extent
compensation is "performance-based" within the meaning of Section 162(m), the
Section's limitations will not apply. Accordingly, 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.
On January 19, 1996, the Compensation Committee, based upon the
recommendation of the Company's independent executive compensation consultant,
among other things, decided that it was in the best interest of the Company to
revise the executive compensation arrangements for the CEO to completely align
his compensation with the interests of the Company's stockholders by replacing
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, the CEO's base salary is eliminated and his annual
bonus is reduced by one-half for five years starting February 1, 1996.
COMPANY PERFORMANCE AND CHIEF EXECUTIVE OFFICER COMPENSATION
The Compensation Committee reviewed the Company's 1995 financial
performance targets (consisting of income, earnings, return and cash flow
objectives) and the Company's 1995 non-financial goals consisting of regulatory
matters (primarily Federal Energy Regulatory Commission and other regulatory
filings, approvals and settlements), including the achievement of deregulation
of natural gas gathering and processing activities; operating matters (primarily
initiation and completion of system expansion and maintenance projects,
operating efficiencies and safety), including the construction of the new Chaco
Cryogenic Plant; and growth opportunities (primarily the exploration of
acquisition opportunities in non-regulated areas) and has determined that the
Company's 1995 performance has met the performance targets required to make
incentive awards under the Company's 1995 Incentive Compensation Plan. Although
the attainment of all performance targets is not required, all such performance
is evaluated to determine the maximum incentive award opportunity in a given
year and the incentive awards actually made. In fact, the Compensation Committee
has determined that the Company's 1995 performance warranted a 25% reduction in
incentive award opportunity. The Compensation Committee does not assign relative
weights to each of the factors and criteria used in determining executive
compensation. Moreover, publication of sensitive and proprietary quantifiable
targets and other specific goals for the Company and CEO established and applied
each year could adversely affect the Company.
The Compensation Committee, in consultation with the independent consulting
firm, applied the information and performance factors for 1995 to determine the
appropriate compensation for the CEO. The Committee also recognized the
significant leadership, planning and business execution role performed by the
CEO during the fiscal year 1995, and the CEO's role in building strong markets
for the Company's natural gas transportation, gathering and other services and
in maintaining efficient operations to remain competitive in the future. In
addition, the CEO displayed exceptional foresight by directing certain of the
Company's businesses into areas of potential financial growth and opportunity
(including the successful acquisition of Eastex Energy Inc., Premier Gas
Company, an interest in the TransColorado Gas Transmission Company and other
asset acquisitions). Having reviewed the contribution that the CEO made to the
Company's performance in 1995, the Compensation Committee believed that he
continues to demonstrate the motivational, planning and leadership qualities
that the executive compensation program was designed to foster and reward. The
Compensation Committee recognizes and commends the CEO, and certain other
executives, for voluntarily accepting reductions in base salary during 1995 in
an effort to reduce costs.
In recognition of the CEO's overall performance and his responsibility for
the Company's relative success during 1995, the Compensation Committee
determined that he should receive the highest rating available, and awarded him
the maximum incentive bonus available under the reduced incentive award
opportunity discussed above (75% of base salary). In support of the Compensation
Committee's long-term compensation
13
<PAGE> 17
mission to provide competitive compensation incentives to retain and motivate
executive officers, the CEO was granted 62,000 stock options and 29,600 PUs in
January 1995. The number of options and PUs granted to the CEO and other
executives was determined in accordance with the targets and formulas
recommended by the Company's independent consulting firm, as described in more
detail above.
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 contributions to overall Company performance during the
fiscal year 1995, each executive officer should be awarded the maximum incentive
bonus available under the reduced incentive award opportunity discussed above
(75% of base salary for the Executive Vice Presidents and 60% of base salary for
the other executive officers). Stock options and PUs were granted in 1995 to
certain executive officers to provide continuing incentives for future
performance. The number of options and PUs 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.
THE 1995 COMPENSATION COMMITTEE OF THE BOARD OF DIRECTORS
<TABLE>
<S> <C> <C> <C> <C>
Byron Allumbaugh Eugenio Garza Laguera James F. Gibbons Ben F. Love Kenneth L. Smalley
(Member) (Former Member) (Member) (Chairman) (Former Member)
</TABLE>
EMPLOYMENT CONTRACTS, TERMINATION OF EMPLOYMENT AND
CHANGE IN CONTROL ARRANGEMENTS
The Company entered into an employment agreement with Mr. Wise. The term of
the agreement is three years from its initial effective date (July 31, 1992) 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, but 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 voluntary termination for
good reason, the restriction period for restricted Common Stock held by Mr. Wise
shall lapse and all restrictions thereon shall end, 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
14
<PAGE> 18
align the CEO'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, effective February 1, 1996.
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.
In a letter dated February 4, 1992, the Company granted Mr. Holland phantom
restricted Common Stock units and phantom stock option units in connection with
the Company's initial public offering in 1992. These phantom restricted Common
Stock units and the phantom stock option units are subject to the same terms and
conditions as restricted Common Stock and stock options granted under the
Company's Omnibus Compensation Plan, as discussed below.
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 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 Company's 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) there occurs an unapproved
change in the constitution of the majority of the Board of Directors of the
Company within a two-year period. 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.
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 stock automatically lapse. For purposes of the plan, the
term "change in control" has the same meaning given such term in the Severance
Plan.
15
<PAGE> 19
The Company's Omnibus Compensation Plan, which is the predecessor plan to
the Company's 1995 Omnibus Compensation Plan, provided for the grant of stock
options, SARs, LSARs, performance share units and restricted 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 include 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 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 (with a maximum of 100% of the
participant's annual salary) 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.
The Company's Supplemental Benefits Plan provides benefits to officers and
key 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 IRS 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
the Company's matching contribution to the Company's Retirement Savings Plan
that cannot be made because of deferred compensation and IRS 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 bear
interest at a rate based on an index 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.
16
<PAGE> 20
PROPOSAL NO. 2 -- RATIFICATION OF THE APPOINTMENT OF COOPERS & LYBRAND L.L.P. AS
INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS
The Board of Directors desires to obtain stockholder ratification of the
resolution appointing Coopers & Lybrand L.L.P., Norwest Plaza, Suite 1600, El
Paso, Texas 79901, as independent certified public accountants for the Company
for the fiscal year 1996. Coopers & Lybrand 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
1996 will be permitted to stand unless the Board of Directors finds other good
reason for making a change.
A representative from Coopers & Lybrand will attend the Annual Meeting to
respond to appropriate questions raised during the Annual Meeting or submitted
to Coopers & Lybrand 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 COOPERS & LYBRAND AS INDEPENDENT CERTIFIED
PUBLIC ACCOUNTANTS FOR THE COMPANY FOR THE FISCAL YEAR 1996.
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 $7,500, 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 the Company's 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.
COMPLIANCE WITH THE REPORTING REQUIREMENTS OF SECTION 16(A)
Section 16(a) of the Securities Exchange Act of 1934, as amended, requires
the Company's Directors, certain officers and persons holding 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, certain officers and greater than 10% stockholders 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
provided to it, the Company believes that all filing requirements were complied
with during the fiscal year ended December 31, 1995, except for one Form 4 which
was filed late by Mr. Thomas S. Jensen, a former vice president of the Company.
17
<PAGE> 21
SUBMISSION OF STOCKHOLDER PROPOSALS
Stockholder proposals submitted for inclusion in the Proxy Statement to be
issued in connection with the Company's 1997 Annual Meeting of Stockholders must
be mailed to the Corporate Secretary, El Paso Natural Gas Company, 100 North
Stanton Street, El Paso, Texas 79901, and must be received by the Corporate
Secretary on or before November 22, 1996. The Company will consider only
proposals meeting the requirements of applicable SEC rules.
ANNUAL REPORT
A copy of the Company's 1995 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
by writing or calling Ms. Stacy J. James, Corporate Secretary, El Paso Natural
Gas Company, 100 North Stanton Street, El Paso, Texas 79901, telephone (915)
541-2600.
By Order of the Board of Directors
/s/ STACY J. JAMES
STACY J. JAMES
Corporate Secretary
El Paso, Texas
March 22, 1996
18
<PAGE> 22
DETACH HERE
P
R
O SOLICITED BY THE BOARD OF DIRECTORS
X EL PASO NATURAL GAS COMPANY
Y ANNUAL MEETING OF STOCKHOLDERS
APRIL 30, 1996
The undersigned hereby apponts 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 stock of El Paso Natural Gas Company held of record by the
undersigned on March 15, 1996, at the Annual Meeting of Stockholders to be held
at the Crescent III meeting room, The Sheraton Crescent Hotel, 2620 West Dunlap
Avenue, Phoenix, Arizona on April 30, 1996, and at any adjournment or
postponement 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 and 2.
SEE REVERSE
(IMPORTANT - TO BE SIGNED AND DATED ON REVERSE SIDE) SIDE
<PAGE> 23
DETACH HERE
[X] Please mark
votes as in
this example.
The Board of Directors recommends a vote FOR proposals 1 and 2.
1. Election of Directors.
Nominees: Byron Allumbaugh, Eugenio Garza Laguera,
James F. Gibbons, Ben F. Love, Kenneth L. Smalley,
Malcolm Wallop, 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. Ratification of the appointment FOR AGAINST ABSTAIN
of Coopers & Lybrand LLP as
Independent Certified Public [ ] [ ] [ ]
Accountants of the Company
for fiscal year 1996.
MARK HERE MARK
FOR ADDRESS HERE FOR
CHANGE AND COMMENTS
NOTE AT LEFT
[ ] [ ]
PLEASE MARK, SIGN, DATE AND RETURN THIS PROXY CARD PROMPTLY USING THE ENCLOSED
ENVELOPE.
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 in 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.
<TABLE>
<S> <C> <C> <C>
Signature: Date: Signature: Date:
----------------------- ------------- ------------------------- ---------------
</TABLE>
<PAGE> 24
CONFIDENTIAL VOTING INSTRUCTIONS
EL PASO NATURAL GAS COMPANY
ANNUAL MEETING OF STOCKHOLDERS - APRIL 30, 1996
SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS
TO: BANKERS TRUST COMPANY, TRUSTEE UNDER EL PASO NATURAL GAS
COMPANY 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 Natural Gas Company
credited to my account under the referenced Plan at the close of business on
March 15, 1996, the record date, at the Annual Meeting of Stockholders to be
held at the Crescent III meeting room, The Sheraton Crescent Hotel, 2620 West
Dunlap Avenue, Phoenix, Arizona on April 30, 1996, and at any adjournment or
postponement 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 22,1996, 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 and 2.
<PAGE> 25
1. Election of Directors
PLEASE MARK YOUR CHOICE LIKE THIS [X] IN
DARK INK AND SIGN AND DATE BELOW
[ ] VOTE FOR ALL [ ] WITHHOLD FROM
(except as marked VOTING FOR ALL
[X] to the contrary
below)
[ ] Byron Allumbaugh [ ] James F. Gibbons [ ] Kenneth L. Smalley
[ ] Ben F. Love [ ] Malcolm Wallop
[ ] Eugenio Garza Laguera [ ] William A. Wise
2. Ratification of the appointment of Coopers & Lybrand L.L.P. as Independent
Certified Public Accountants of the Company for fiscal year 1996.
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.
Shares held as of January 31, 1996
-------------------------- -------------
SIGNATURE DATE
<PAGE> 26
CONFIDENTIAL VOTING INSTRUCTIONS
EL PASO NATURAL GAS COMPANY
ANNUAL MEETING OF STOCKHOLDERS - APRIL 30, 1996
SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS
TO: BANKERS TRUST COMPANY, TRUSTEE UNDER EL PASO
NATURAL GAS COMPANY 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 Natural Gas Company
credited to my account under the referenced Plan at the close of business on
March 15, 1996, the record date, at the Annual Meeting of Stockholders to be
held at the Crescent III meeting room, The Sheraton Crescent Hotel, 2620 West
Dunlap Avenue, Phoenix, Arizona on April 30, 1996, and at any adjournment or
postponement 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 unavaible 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 22, 1996, 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 and 2.
<PAGE> 27
1. Election of Directors
PLEASE MARK YOUR CHOICE LIKE THIS [X] IN
DARK INK AND SIGN AND DATE BELOW
[ ] VOTE FOR ALL
(except as marked [X] to the contrary below)
[ ] WITHHOLD FROM
VOTING FOR ALL
[ ] Byron Allumbaugh [ ] James F. Gibbons [ ] Kenneth L. Smalley
[ ] Eugenio Garza Laguera [ ] Ben F. Love [ ] Malcolm Wallop
[ ] William A. Wise
2. Ratification of the appointment of Coopers & Lybrand L.L.P. as Independent
Certified Public Accountants of the Company for fiscal year 1996.
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.
Shares held as of
January 31, 1996:
----------------------------- ----------
SIGNATURE DATE
