<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 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] 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):
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(4) Proposed maximum aggregate value of transaction:
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(5) Total fee paid:
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[ ] 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.:
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(3) Filing Party:
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(4) Date Filed:
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<PAGE> 2
[EL PASO ENERGY LOGO]
Dear Stockholder:
You are cordially invited to attend the 1998 Annual Meeting of Stockholders
of El Paso Natural Gas Company, doing business as El Paso Energy Corporation
(the "Company"), which will be held on Tuesday, May 12, 1998, at 10:00 a.m.
(mountain standard time), at The Radisson Hotel, 7171 North Scottsdale Road,
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
and Chief Executive Officer
Houston, Texas
April 6, 1998
<PAGE> 3
EL PASO NATURAL GAS COMPANY
1001 LOUISIANA
HOUSTON, TEXAS 77002
NOTICE OF ANNUAL MEETING OF STOCKHOLDERS
MAY 12, 1998
The Annual Meeting of Stockholders of El Paso Natural Gas Company, doing
business as El Paso Energy Corporation (the "Company"), will be held on Tuesday,
May 12, 1998, at 10:00 a.m. (mountain standard time), at The Radisson Hotel,
7171 North Scottsdale Road, Phoenix, Arizona, for the following purposes:
1. To elect eight Directors, each to hold office for a term of one year;
2. To ratify the appointment of Coopers & Lybrand L.L.P. as independent
certified public accountants to audit the Company's financial statements
for the fiscal year ending December 31, 1998; 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 16, 1998 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/ DAVID L. SIDDALL
DAVID L. SIDDALL
Corporate Secretary
Houston, Texas
April 6, 1998
<PAGE> 4
EL PASO NATURAL GAS COMPANY
1001 LOUISIANA
HOUSTON, TEXAS 77002
PROXY STATEMENT
ANNUAL MEETING OF STOCKHOLDERS -- MAY 12, 1998
This Proxy Statement with the accompanying Notice of Annual Meeting of
Stockholders and proxy card are being mailed to stockholders beginning on or
about April 6, 1998. The proxy is solicited by the Board of Directors of El Paso
Natural Gas Company, doing business as El Paso Energy Corporation (the
"Company"), for use at the Annual Meeting of Stockholders (the "Annual Meeting")
on Tuesday, May 12, 1998. 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 Mr.
David L. Siddall, Corporate Secretary, El Paso Natural Gas Company, 1001
Louisiana, Houston, Texas 77002, by signing and delivering a subsequently dated
proxy or by attending the Annual Meeting in person and giving notice of
revocation to the Inspector of Election.
March 16, 1998, 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 60,904,761 shares of Common Stock, which
is the Company's only class of voting securities. All Common Stock numbers
reflected in this Proxy Statement are on a pre-stock split basis. 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 Radisson
Hotel, 7171 North Scottsdale Road, Phoenix, Arizona.
Each stockholder is entitled to one vote on each proposal for each share of
Common Stock held as of the record date. One Inspector of Election, 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, 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 tallied as a vote "for" the management
proposal.
INFORMATION ABOUT THE BOARD OF DIRECTORS AND COMMITTEES
The Board of Directors of the Company held six meetings during the fiscal
year ended December 31, 1997. 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 fiscal year 1997, and during his
term, each Director has attended at least 75% of the meetings of the Board of
Directors and the committees on which he served.
THE AUDIT COMMITTEE
During fiscal year 1997, the Audit Committee held five meetings. 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
<PAGE> 5
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.
THE COMPENSATION COMMITTEE
During fiscal year 1997, 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. 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
11 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. Effective May 12, 1998, the annual
retainer will increase to $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 taken in cash, deferred cash or 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. Effective January 1, 1998, 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.
Effective December 31, 1997, the Company's Retirement Income Plan for
Non-Employee Directors (which provided for a retirement benefit equal to the
years of service on the Board) terminated and any benefits accrued under that
plan were converted to deferred shares of Common Stock.
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
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 of the Company is entitled to participate
upon the completion of two consecutive years of service on the Board of
Directors. Currently, all Directors other than Messrs. Braniff and Flawn 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 eight the number of Directors constituting the full Board. 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
2
<PAGE> 6
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.
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
Retired.
Age -- 66
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 H. F. Ahmanson & Company, CKE Restaurants, Inc.
and Ultramar Diamond Shamrock Inc.
JUAN CARLOS BRANIFF 1997
Deputy Chief Executive Officer of Service Banking,
BANCOMER,
Mexico City, Mexico -- Commercial Banking Institution.
Age -- 40
Member -- Audit Committee
Mr. Braniff is the Deputy Chief Executive Officer of Service Banking at
BANCOMER. 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. ("VISA")-Fomento Economico Mexicano, S.A. de C.V.
("FEMSA") and affiliates. Mr. Braniff is currently a member of the
Board of Directors of FEMSA, Coca Cola FEMSA, VISA, Seguros Monterrey
Aetna, Maizoro and Grupo Financiero Bancomer, S.A. de C.V.
PETER T. FLAWN, PH.D. 1997
Retired.
Age -- 72
Member -- Audit Committee
Dr. Flawn has been retired since 1985. During that time, 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 Communications, Inc.
and Tenneco Inc.
</TABLE>
3
<PAGE> 7
<TABLE>
<CAPTION>
NAME, PRINCIPAL OCCUPATION SERVED AS
AND SELECTED OTHER INFORMATION DIRECTOR
CONCERNING NOMINEES FOR DIRECTOR SINCE
-------------------------------- ---------
<S> <C>
JAMES F. GIBBONS, PH.D. 1994
Professor, Electrical Engineering,
Stanford University,
Stanford, California -- Higher Education.
Age -- 66
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. He is now 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
Corp., Cisco Systems, Inc., Lockheed Martin Corporation and Raychem
Inc.
BEN F. LOVE 1992
Investor.
Age -- 73
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 -- 68
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 -- 65
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. and Sheridan State Bank.
</TABLE>
4
<PAGE> 8
<TABLE>
<CAPTION>
NAME, PRINCIPAL OCCUPATION SERVED AS
AND SELECTED OTHER INFORMATION DIRECTOR
CONCERNING NOMINEES FOR DIRECTOR SINCE
-------------------------------- ---------
<S> <C>
WILLIAM A. WISE 1984
Chairman of the Board and
Chief Executive Officer,
El Paso Natural Gas Company,
doing business as El Paso Energy Corporation
Houston, Texas -- Diversified Energy Company.
Age -- 52
Mr. Wise has been Chairman of the Board since January 1994 and Chief
Executive Officer (the "CEO") since January 1990. He was President of
the Company from January 1990 until April 1996. 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 CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The following table sets forth certain information as of February 28, 1998,
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.
<TABLE>
<CAPTION>
TITLE OF BENEFICIAL OWNERSHIP STOCK PERCENT
CLASS NAME (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 3,452,971 0 3,452,971 5.68%
Common Stock Oppenheimer Capital
Oppenheimer Tower
World Financial Center
New York, NY 10281 3,120,655 0 3,120,655 5.13%
Common Stock B. Allumbaugh.................... 10,623 8,000 18,623 *
Common Stock J.C. Braniff..................... 204 3,000 3,204 *
Common P.T. Flawn....................... 2,176 4,000 6,176 *
Stock.....
Common Stock J.F. Gibbons..................... 5,947 7,000 12,947 *
Common Stock B.F. Love........................ 19,704 1,000 20,704 *
Common Stock K.L. Smalley..................... 12,367 6,000 18,367 *
Common Stock M. Wallop........................ 3,403 6,000 9,403 *
Common Stock W.A. Wise........................ 568,573(2) 586,592 1,155,165 1.88%
Common Stock H.B. Austin...................... 84,185 101,505 185,190 *
Common Stock J.W. Somerhalder II.............. 76,835 97,733 174,568 *
Common Stock B. White, Jr..................... 86,357 86,400 172,757 *
Common Stock J. Richards III.................. 84,161 86,400 170,561 *
Common Stock Directors and executive officers
as a group (17 persons total,
including those individuals
listed above).................... 1,452,004 1,293,389 2,745,393 4.42%
</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 2,238, 4,000,
5
<PAGE> 9
5,400, 159 and 1,000 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, 1997, Morgan Stanley, Dean Witter, Discover &
Co. had shared voting power over 3,441,924 shares of Common Stock and
shared dispositive power over 3,452,971 shares of Common Stock. As of
December 31, 1997, Oppenheimer Capital had shared voting and dispositive
power over 3,120,655 shares of Common Stock.
(2) 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.
(3) 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 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 1997.
SUMMARY COMPENSATION TABLE(1)
<TABLE>
<CAPTION>
ANNUAL COMPENSATION LONG-TERM COMPENSATION
------------------------------------- ------------------------------------------
AWARDS PAYOUTS
------------------------- --------------
OTHER SECURITIES LONG-TERM
ANNUAL RESTRICTED UNDERLYING INCENTIVE PLAN ALL OTHER
NAME AND PRINCIPAL SALARY BONUS COMPENSATION STOCK AWARDS OPTIONS PAYOUTS COMPENSATION
POSITION YEAR ($) ($)(3) ($)(4) ($)(5) (#) ($)(7) ($)(8)
------------------ ---- -------- ---------- ------------ ------------ ---------- -------------- ------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
William A. Wise 1997 -- $1,105,000 $203,182 $1,104,971 -- -- $106,209
Chairman, 1996 --(2) $1,275,000 $124,967 $3,537,481(6) 395,000 $740,000 $ 69,731
President & CEO 1995 $535,417 $ 412,500 $229,943 $ 412,487 62,000 -- $ 93,457
El Paso Energy
Corporation
H. Brent Austin 1997 $300,000 $ 330,000 $ 93,435 $ 329,970 -- -- $ 36,150
Executive Vice 1996 $228,125 $ 450,000 $ 178 $ 149,987 60,000 $176,658 $ 22,855
President & Chief 1995 $213,750 $ 168,750 $ 80,738 $ 168,735 15,000 -- $ 24,059
Financial Officer
El Paso Energy
Corporation
John W. Somerhalder
II 1997 $300,000 $ 330,000 $ 578 $ 329,970 -- -- $ 34,837
President 1996 $206,458 $ 450,000 $ 15,597 $ 149,987 60,000 $154,927 $ 19,664
Tennessee Gas 1995 $173,333 $ 111,000 $ 76,999 $ 110,973 15,000 -- $ 25,953
Pipeline
Company
Britton White, Jr. 1997 $275,000 $ 302,500 $ 34,899 $ 302,472 -- -- $ 35,219
Executive Vice 1996 $203,125 $ 412,500 $ 223 $ 137,472 60,000 $133,145 $ 20,550
President & 1995 $185,417 $ 120,000 $ 80,841 $ 119,978 15,000 -- $ 25,405
General Counsel
El Paso Energy
Corporation
Joel Richards III 1997 $275,000 $ 302,500 $ 27,514 $ 302,472 -- -- $ 35,088
Executive Vice 1996 $183,958 $ 412,500 $ 223 $ 137,472 60,000 $133,145 $ 21,361
President 1995 $168,333 $ 108,000 $ 80,841 $ 107,993 15,000 -- $ 27,313
El Paso Energy
Corporation
</TABLE>
6
<PAGE> 10
- ---------------
(1) The Company did not have any executive officer terminate employment during
fiscal year 1997 who would otherwise have been included as a named executive
in this table.
(2) 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.
(3) 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 holder 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.
(4) The amount reflected for Mr. Wise in fiscal year 1997 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 2 above. 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, Somerhalder, White and
Richards. For Mr. Wise, the value representing the termination of the
automobile program was $105,000 in fiscal year 1995. The amounts reflected
for fiscal year 1997 for the other named executives, except for Mr.
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 1997 and 1996 have not been
reflected because the amount was below the Securities and Exchange
Commission's (the "SEC") required reporting threshold.
(5) 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 such restricted
Common Stock plus all other restricted stock held on December 31, 1997 by
Messrs. Wise, Austin, Somerhalder, White and Richards was 473,272, 76,748,
73,066, 73,140 and 72,376, respectively. The aggregate dollar value on
December 31, 1997, of all shares of restricted Common Stock held by Messrs.
Wise, Austin, Somerhalder, White and Richards was $31,472,588, $5,103,742,
$4,858,889, $4,863,810 and $4,813,004, respectively. Dividends are paid
directly to the holder of the restricted Common Stock. Most of the foregoing
values can be realized by the named executives if, and only if, they remain
in the employ of the Company for the specified time period and the Company's
stockholders realize the required total stockholder value during the
specified time period.
(6) The amount reflected for Mr. Wise also includes the market value of a
one-time retention oriented restricted Common Stock grant of 100,000 shares,
which began vesting on January 19, 1997 at the rate of 20% per year for five
years.
(7) 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
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 1995.
7
<PAGE> 11
(8) The compensation reflected in this column for fiscal year 1997 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 1997 were $7,200, $88,425 and $10,584 for Mr.
Wise; $7,200, $26,550 and $2,400 for Mr. Austin; $7,200, $26,550 and $1,087
for Mr. Somerhalder; $7,200, $23,737 and $4,282 for Mr. White; and $7,200,
$23,737 and $4,151 for Mr. Richards, respectively.
STOCK OPTION GRANTS
No stock options were granted to the CEO and other named executives during
fiscal year 1997.
OPTION EXERCISES AND YEAR-END VALUE TABLE
The following table sets forth information concerning option exercises and
the fiscal year-end values of the unexercised stock options (and tandem SARs),
provided on an aggregate basis, for each of the named executives.
AGGREGATED OPTION/SAR EXERCISES IN 1997
AND FISCAL YEAR-END OPTION/SAR VALUES
<TABLE>
<CAPTION>
NUMBER OF SECURITIES VALUE OF UNEXERCISED
UNDERLYING UNEXERCISED IN-THE-MONEY
OPTIONS/SARS OPTIONS/SARS
SHARES ACQUIRED VALUE AT FISCAL YEAR-END(#) AT FISCAL YEAR-END($)(2)
ON EXERCISE REALIZED --------------------------- ---------------------------
NAME (#) ($)(1) EXERCISABLE UNEXERCISABLE EXERCISABLE UNEXERCISABLE
---- --------------- ---------- ----------- ------------- ----------- -------------
<S> <C> <C> <C> <C> <C> <C>
William A. Wise......... 0 $ 0 507,592 316,000 $20,140,370 $10,870,625
H. Brent Austin......... 30,211 $1,186,727 81,504 40,001 $ 2,995,072 $ 1,373,783
John W. Somerhalder
II.................... 0 $ 0 77,732 40,001 $ 2,814,605 $ 1,373,783
Britton White, Jr....... 0 $ 0 66,399 40,001 $ 2,272,392 $ 1,373,783
Joel Richards III....... 6,333 $ 259,653 66,399 40,001 $ 2,272,392 $ 1,373,783
</TABLE>
- ---------------
(1) The figures presented in this column have been calculated based upon the
difference between the fair market value of 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 $66.84375, the fair market value of the Common Stock on
December 31, 1997 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 a value equivalent to the exercise of a
stock option.
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 $160,000 cannot be
taken into account and the maximum payable benefit in 1997 is $125,000. 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
table on the next page:
8
<PAGE> 12
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> <C>
$ 200,000................................. 46,290 61,720 77,150 92,580
$ 400,000................................. 94,290 125,720 157,150 188,580
$ 600,000................................. 142,290 189,720 237,150 284,580
$ 800,000................................. 190,290 253,720 317,150 380,580
$1,000,000................................ 238,290 317,720 397,150 476,580
$1,200,000................................ 286,290 381,720 477,150 572,580
$1,400,000................................ 334,290 445,720 557,150 668,580
$1,600,000................................ 382,290 509,720 637,150 764,580
$1,800,000................................ 430,290 573,720 717,150 860,580
</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 15 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, Somerhalder, White and Richards
are 30, 30, 30, 25 (including 7 years of credited service pursuant to Mr.
White's employment agreement, which is described on page 14 of this Proxy
Statement), and 30, 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,
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 or the cash balance benefit. Under the cash
balance formula, participants each have 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> <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.
9
<PAGE> 13
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
BENEFIT
---------
<S> <C>
William A Wise.............................................. $812,580
H. Brent Austin............................................. $159,561
John W. Somerhalder II...................................... $222,921
Britton White, Jr........................................... $158,520
Joel Richards III........................................... $155,624
</TABLE>
CUMULATIVE TOTAL STOCKHOLDER VALUE
The following graph shows the changes in the value of $100 invested since
March 12, 1992 (the date on which the Common Stock was initially offered to the
public) in the Common Stock, the Standard & Poor's Natural Gas Index and the
Standard & Poor's 500 Stock Index.
COMPARISON OF ANNUAL CUMULATIVE TOTAL VALUES IN 1992, 1993, 1994, 1995,
1996 AND 1997 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
</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.
The Company's total equity market capitalization on December 31, 1997 was
$3,977,863,218, compared to $2,791,378,006 on January 1, 1997. The significant
increase in capitalization of $1,186,485,212 during 1997 is attributable
primarily to the increase in stock price (with some increase due to the
secondary equity offering made in the first quarter of 1997).
10
<PAGE> 14
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 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 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 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 10 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.
During 1997, the Compensation Committee requested an independent
compensation consulting firm to conduct an analysis of the Company's executive
compensation and benefit plans, including a survey and comparative analysis of
compensation plans of other companies of similar size engaged in similar
businesses. The Committee believed such an analysis and reevaluation were timely
and necessary in light of the substantial changes in the size, organization and
business focus of the Company following the Tenneco Energy acquisition. After
the study was completed, the Committee met with the compensation consulting firm
to review their conclusions and consider their recommendations for appropriate
changes. In a full-day session with the consultant, the Committee reviewed not
only the compensation levels and components of the total compensation package
for the CEO and other named executives, but also reevaluated the compensation
policies described herein to confirm that they remain consistent with, and
continue to contribute to the accomplishment of, the overall business objectives
of the Company.
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, tied directly to the performance of the Company's Common Stock
and should consist of approximately 50% in stock options and 50% in performance
units ("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.
As a result of the analysis and reevaluation process described above, the
Compensation Committee determined that potential year-end bonuses should range,
depending upon the Company and individual performance, 0% to 160% of base salary
for the CEO and from 0% to 120% of the base salary for the other named
executives. The Compensation Committee determines the specific percentage bonus
to be awarded to
11
<PAGE> 15
each recipient 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 13 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 of
the 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 13 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.
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 these plans during 1997 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 1997 financial
performance targets (consisting of earnings before interest and taxes, earnings
per share, return, cash flow and cost reduction objectives) and this Company's
1997 non-financial goals consisting of regulatory matters (primarily Federal
Energy Regulatory Commission and other regulatory filings, approvals and
settlements); operating matters (primarily safety goals); growth opportunities
(primarily the achievement of substantial progress towards establishing an
international presence, acquisition of Gulf States Pipeline Company and the
Tejas Power Companies, initiation of various construction and expansion
opportunities on domestic pipeline and gathering systems, and the marketing of
pipeline capacity to offset the financial impact of contract expirations); and
organizational matters (strategic implementation of post-merger Tenneco Energy
reengineering plan, integration of Tenneco Energy and Cornerstone Natural Gas,
Inc., and significant progress toward consolidation of marketing activities),
and this Committee hereby certifies that this Company has attained the necessary
performance goals for the 1997 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 is evaluated to determine the
maximum incentive award opportunity in a given year and the incentive awards
actually made. 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, consistent with its policies and mission,
applied the information and performance factors for 1997 to determine the
appropriate compensation for the CEO and other executive officers. The CEO's
accomplishments during 1997 resulted in a successful year that was full of
challenges, including the integration of the El Paso/Tenneco organizations,
reengineering the Tenneco organization, while at the same time pursuing and
closing significant acquisitions of Gulf States Pipeline Company, the Tejas
12
<PAGE> 16
Power Companies, several strategic international projects and the implementation
of expansion projects. In 1997, the CEO 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. The rapid and successful integration of the El
Paso and Tenneco businesses created a solid financial platform which enabled the
Company to take advantage of important acquisitions and other opportunities
which substantially increased the stock price and shareholder value by
leveraging the Company's expertise and assets. In addition, his implementation
of innovative marketing of excess pipeline capacity as well as extensive cost
reduction measures has resulted in a substantial offset to the adverse financial
impact of transportation contract expirations. Having reviewed the contribution
that the CEO made to the Company's performance in 1997, 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 the CEO's overall performance and his responsibility for
the Company's exceptional successes during 1997, the Compensation Committee
determined that he should receive the highest rating, and awarded him the bonus
reflected in the Summary Compensation Table on page 6.
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 1997, each executive officer should receive
the highest rating and awarded them the bonuses reflected on the Summary
Compensation Table on page 6.
THE 1997 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. 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
13
<PAGE> 17
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 (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 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 during 1996. During 1997, the Company loaned Mr. Wise
$1,564,000 for the purchase of his home 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 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) 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.
14
<PAGE> 18
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.
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 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 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 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 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
15
<PAGE> 19
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.
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) 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 -- 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., 1100 Louisiana, Suite 4100,
Houston, Texas 77002, as independent certified public accountants for the
Company for the fiscal year 1998. 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
1998 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 L.L.P. AS INDEPENDENT
CERTIFIED PUBLIC ACCOUNTANTS FOR THE COMPANY FOR THE FISCAL YEAR 1998.
16
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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 Securities Exchange Act of 1934, as amended, 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, 1997.
SUBMISSION OF STOCKHOLDER PROPOSALS
Stockholder proposals submitted for inclusion in the Proxy Statement to be
issued in connection with the Company's 1999 Annual Meeting of Stockholders must
be mailed to the Corporate Secretary, El Paso Natural Gas Company, 1001
Louisiana, Houston, Texas 77002, and must be received by the Corporate Secretary
on or before December 7, 1998. The Company will consider only proposals meeting
the requirements of applicable SEC rules.
ANNUAL REPORT
A copy of the Company's 1997 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 Mr. David L. Siddall, Corporate Secretary, El Paso Natural
Gas Company, 1001 Louisiana, Houston, Texas 77002, telephone (713) 757-6195.
By Order of the Board of
Directors
/s/ DAVID L. SIDDALL
DAVID L. SIDDALL
Corporate Secretary
Houston, Texas
April 6, 1998
17
<PAGE> 21
1107-AMPS-98
<PAGE> 22
DETACH HERE
SOLICITED BY THE BOARD OF DIRECTORS
EL PASO NATURAL GAS COMPANY,
doing business as EL PASO ENERGY CORPORATION,
ANNUAL MEETING OF STOCKHOLDERS
MAY 12, 1998
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
stock of El Paso Natural Gas Company, doing business as El Paso Energy
Corporation, held of record by the undersigned on March 16, 1998 at the Annual
Meeting of Stockholders to be held at The Radisson Hotel, 7171 North Scottsdale
Road, Phoenix, Arizona on May 12, 1998, 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.
(IMPORTANT - TO BE SIGNED AND DATED ON REVERSE SIDE)
[SEE REVERSE SIDE]
<PAGE> 23
EL PASO ENERGY CORPORATION
C/O BOSTON EQUISERVE
P.O. BOX 8040
BOSTON, MA 02265-8040
DETACH HERE
[X] PLEASE MARK
VOTES AS IN
THIS EXAMPLE.
THE BOARD OF DIRECTORS RECOMMENDS A VOTE FOR PROPOSALS 1 AND 2.
<TABLE>
<S> <C>
FOR AGAINST ABSTAIN
1. Election of Directors. 2. Ratification of the appointment of [ ] [ ] [ ]
Nominees: Byron Allumbaugh, Juan Carlos Coopers & Lybrand L.L.P. as
Braniff, Peter T. Flawn, James F. Independent Certified Public
Gibbons, Ben F. Love, Kenneth L. Accountants of the Company for
Smalley, Malcolm Wallop, William A. Wise. fiscal year 1998.
FOR [ ] [ ] WITHHOLD
ALL NOMINEES AUTHORITY TO VOTE
LISTED ABOVE FOR ALL NOMINEES
LISTED ABOVE
MARK HERE FOR COMMENTS [ ]
[ ]
---------------------------------------
For all nominees except as noted above
MARK HERE FOR ADDRESS CHANGE AND 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.
Signature: Date: Signature: Date:
---------------------------- -------------- ---------------------------------- -----------------
</TABLE>
<PAGE> 24
CONFIDENTIAL VOTING INSTRUCTIONS
EL PASO NATURAL GAS COMPANY,
DOING BUSINESS AS EL PASO ENERGY CORPORATION
ANNUAL MEETING OF STOCKHOLDERS - MAY 12, 1998
SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS
SHARES HELD AS OF MARCH 16, 1998:
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, par value $3.00 per share
("Common Stock") of El Paso Natural Gas Company, doing business as El Paso
Energy Corporation ("El Paso") credited to my account under the referenced Plan
at the close of business on March 16, 1998, the record date, at the Annual
Meeting of Stockholders to be held at the Radisson Hotel, 7171 North Scottsdale
Road, Phoenix, Arizona on May 12, 1998, and at any adjournment(s) or
postponement(s) of such meeting for the purpose identified below 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. This proxy when properly executed
will be voted in the manner directed herein by the undersigned stockholder.
If this proxy is completed, dated, signed and returned in the accompanying
envelope to the Trustee by May 6, 1998, 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.
THE BOARD OF DIRECTORS RECOMMENDS A VOTE FOR PROPOSALS 1 AND 2
[X] PLEASE MARK YOUR CHOICE IN DARK INK AS INDICATED HERE AND SIGN
AND DATE BELOW:
1. Election of Directors
[ ] VOTE FOR ALL [ ] WITHHOLD FOR
(except as marked to the VOTING FOR ALL
contrary below)
[ ] Byron Allumbaugh [ ] James F. Gibbons [ ] Kenneth L. Smalley
[ ] Juan Carlos Braniff [ ] Ben F. Love [ ] Malcolm Wallop
[ ] Peter T. Flawn [ ] William A. Wise
2. Ratification of the appointment of Coopers & Lybrand LLP as Independent
Certified Public Accountants of the Company for fiscal year 1998.
[ ] FOR [ ] AGAINST [ ] ABSTAIN
If Acting as attorney, trustee or in other representative capacity, sign name
and title. If a corporation, please sign and in full corporation name by
President or other authorized officer. If a partnership, please sign in
partnership name by authorized person.
--------------------------------- ---------------------------------
SIGNATURE DATE
IMPORTANT: PLEASE MARK, SIGN, DATE AND RETURN THIS PROXY PROMPTLY USING THE
ENCLOSED ENVELOPE.
<PAGE> 25
CONFIDENTIAL VOTING INSTRUCTIONS
EL PASO NATURAL GAS COMPANY,
doing business as EL PASO ENERGY CORPORATION,
ANNUAL MEETING OF STOCKHOLDERS - MAY 12, 1998
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,
doing business as El Paso Energy Corporation, credited to my account under the
referenced Plan at the close of business on March 16, 1998, the record date, at
the Annual Meeting of Stockholders to be held at The Radisson Hotel, 7171 North
Scottsdale Road, Phoenix, Arizona, on May 12, 1998, 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 May 6, 1998, 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> 26
THE BOARD OF DIRECTORS RECOMMENDS A VOTE FOR PROPOSALS 1 AND 2.
<TABLE>
<S> <C>
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 [X] to the contrary below) VOTING FOR ALL
[ ] Byron Allumbaugh [ ] James F. Gibbons [ ] Kenneth L. Smalley
[ ] Juan Carlos Braniff [ ] Ben F. Love [ ] Malcolm Wallop
[ ] Peter T. Flawn [ ] William A. Wise
2. Ratification of the appointment of Coopers & Lybrand For Against Abstain
L.L.P. as Independent Certified Public Accountants of the [ ] [ ] [ ]
Company for fiscal year 1998.
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
March 16, 1998:
---------------------------------- -----------------
SIGNATURE DATE
</TABLE>
