<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
/X/ Definitive proxy statement
/ / Definitive additional materials
/ / Soliciting material pursuant to Rule 14a-11(c) or Rule 14a-12
Panhandle Eastern Corporation
- --------------------------------------------------------------------------------
(Name of Registrant as Specified in Its Charter)
Robert W. Reed
- --------------------------------------------------------------------------------
(Name of Person(s) Filing Proxy Statement)
Payment of filing fee (Check the appropriate box):
/X/ $125 per Exchange Act Rule 0-11(c)(1)(ii), 14a-6(i)(1), or 14a-6(j)(2).
/ / $500 per each party to the controversy pursuant to Exchange Act Rule
14a-6(i)(3).
/ / Fee computed on table below per Exchange Act Rules 14a-6(i)(4) and
0-11.
(1) Title of each class of securities to which transaction applies:
- --------------------------------------------------------------------------------
(2) Aggregate number of securities to which transactions applies:
- --------------------------------------------------------------------------------
(3) Per unit price or other underlying value of transaction computed
pursuant to Exchange Act Rule 0-11:(1)
- --------------------------------------------------------------------------------
(4) Proposed maximum aggregate value of transaction:
- --------------------------------------------------------------------------------
/ / 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:
- --------------------------------------------------------------------------------
- ---------------
(1) Set forth the amount on which the filing fee is calculated and state how
it was determined.
<PAGE> 2
PANHANDLE EASTERN CORPORATION
March 11, 1994
Dear Stockholder:
You are cordially invited to attend the Annual Meeting of Stockholders of
Panhandle Eastern Corporation, on Wednesday, April 27, 1994, at 10:00 a.m., in
the Ballroom of the J. W. Marriott Hotel, 5150 Westheimer, Houston, Texas.
Information about the business of the meeting is set forth in the formal
meeting notice and the Proxy Statement on the following pages. In addition, I
will discuss the general operations of the Company, described in the Company's
1993 Annual Report to Stockholders, and stockholders will be offered an
opportunity to ask questions.
The Board of Directors is recommending approval of the Panhandle Eastern
Corporation 1994 Long Term Incentive Plan. A description of this proposal is
contained in the Proxy Statement along with the reasoning of the Board in
seeking your approval. We urge you to read this material before completing your
Proxy. For the reasons set forth in the Proxy Statement, your Board of Directors
recommends a vote FOR this matter.
The stockholders also will be voting on the election of the 1997 Class of
Directors. Dr. Christopher C. Kraft, Jr., is retiring from the Board of
Directors after serving the Company as a Director since 1986, and, therefore, is
not a nominee for election this year. Additionally, Dr. George E. Rupp will not
stand for re-election upon the expiration of his current term at the Annual
Meeting. We are extremely grateful to both for their many contributions to the
Company's success over the years and we will miss their counsel.
Your participation in the Company's affairs is important, regardless of the
number of shares you hold. To ensure your representation, even if you cannot
attend the meeting, please return your proxy to the Company as soon as possible.
To vote, simply place an "X" in the appropriate box on the enclosed form of
proxy, sign and date it, and mail it in the self-addressed, postage-paid return
envelope. We encourage you to participate in this year's Annual Meeting in
person or by mailing your proxy.
Sincerely,
/s/ Dennis Hendrix
------------------------
DENNIS HENDRIX
Chairman and
Chief Executive Officer
<PAGE> 3
PANHANDLE EASTERN CORPORATION
NOTICE OF ANNUAL MEETING OF STOCKHOLDERS
TO BE HELD APRIL 27, 1994
To the Stockholders of Panhandle Eastern Corporation:
The 1994 Annual Meeting of Stockholders of Panhandle Eastern Corporation
will be held in the Ballroom of the J. W. Marriott Hotel, 5150 Westheimer,
Houston, Texas, on Wednesday, April 27, 1994, at 10:00 a.m., for the purposes
of:
1. Electing four Directors, constituting the 1997 Class of the
Company's Board of Directors, for terms of three years, each to hold office
until the 1997 Annual Meeting or until a successor shall have been elected
and shall have qualified;
2. Considering and acting upon a proposal to approve the Panhandle
Eastern Corporation 1994 Long Term Incentive Plan, as described in Section
E of the Proxy Statement; and,
3. Transacting such other business as may properly come before the
Annual Meeting or any adjournment or adjournments thereof.
Stockholders of record on February 28, 1994, are entitled to receive notice
of, and to vote at, the meeting or any adjournment or adjournments thereof. The
transfer books of the Company will not be closed. The list showing stockholders
entitled to vote at the meeting will be located in the office of the Secretary
at the Company's headquarters, 5400 Westheimer Court, Houston, Texas, for
examination for at least 10 days prior to the Annual Meeting.
WHETHER OR NOT YOU EXPECT TO BE PRESENT AT THE MEETING, PLEASE SIGN, DATE
AND RETURN THE ENCLOSED PROXY IN THE ENVELOPE PROVIDED, WHICH REQUIRES NO
POSTAGE IF MAILED IN THE UNITED STATES.
BY ORDER OF THE BOARD OF DIRECTORS
/S/ ROBERT W. REED
----------------------------------
ROBERT W. REED
Secretary
Dated: March 11, 1994
Houston, Texas
<PAGE> 4
PANHANDLE EASTERN CORPORATION
PROXY STATEMENT
------------------------
ANNUAL MEETING OF STOCKHOLDERS
APRIL 27, 1994
------------------------
This statement is furnished in connection with the solicitation by the
Board of Directors (the "Board") of Panhandle Eastern Corporation (the
"Company") of proxies for use at the Annual Meeting of Stockholders (the "Annual
Meeting") to be held on Wednesday, April 27, 1994, at 10:00 a.m., in the
Ballroom of the J. W. Marriott Hotel, 5150 Westheimer, Houston, Texas, for the
purposes set forth in the accompanying Notice of Annual Meeting. Business at the
Annual Meeting is limited to matters properly brought before the meeting.
Unless revoked prior to its exercise, any proxy given pursuant to this
solicitation will be voted at the Meeting. A stockholder may revoke a proxy at
any time prior to the Annual Meeting by giving written notice of such revocation
addressed to the Secretary of the Company, P.O. Box 1642, Houston, Texas
77251-1642. Also, a stockholder may attend the Annual Meeting and vote in
person, whether or not such stockholder has previously given a proxy. Proxy
material is being mailed to stockholders on or about March 11, 1994.
On February 28, 1994, the record date for the determination of stockholders
entitled to vote at the Annual Meeting, the Company had outstanding 120,262,733
shares of Common Stock, par value $1.00 per share (the "Common Stock"). Each of
such shares is entitled to one vote at the Annual Meeting. Votes cast by proxy
or in person at the Annual Meeting will be tabulated by the election inspectors
appointed for the Meeting. The holders of a majority of the shares entitled to
vote at the Annual Meeting, whether present in person or represented by proxy,
will constitute a quorum for the transaction of business at the Meeting. All
elections will be decided by a plurality of the votes cast in respect thereof.
Approval of the 1994 Long Term Incentive Plan ("1994 LTIP" or "the Plan") will
require the affirmative vote of the holders of a majority of the issued and
outstanding shares present in person or by proxy and entitled to vote at the
Annual Meeting. If no voting direction is indicated on the proxy card, the
shares will be considered votes FOR the election of the nominees for Director
and approval of the 1994 LTIP. Proxy cards that are not signed or that are not
returned are treated as not voted for any purposes. If a broker indicates on a
proxy that it does not have discretionary authority as to certain shares to vote
on a particular matter, those shares will not be considered as present and
entitled to vote with respect to that matter. If a stockholder indicates on a
proxy card that he or she abstains from voting with respect to the 1994 LTIP,
the stockholder's shares will be considered present and entitled to vote with
respect to that matter and the abstention will have the effect of a vote against
the 1994 LTIP.
The cost of preparing, assembling, and mailing the material in connection
with the solicitation of proxies will be borne by the Company. In addition to
use of the mails, proxies may be solicited by officers and other employees of
the Company personally, by telephone, or other means. To assist in the
solicitation of proxies, the Company has engaged Corporate Investor
Communications, Inc., for approximately $9,000. The Company will also request
brokerage houses and other nominees or fiduciaries to forward copies of its
proxy material and Annual Report to beneficial owners of Common Stock held in
their names, and the Company will reimburse them for reasonable out-of-pocket
expenses incurred in doing so.
1
<PAGE> 5
STOCKHOLDER PROPOSALS
The Company knows of no proposals to be considered at the Annual Meeting
other than those set forth in the Notice of Annual Meeting. Stockholder
proposals will be eligible for consideration for inclusion in the Proxy
Statement for the 1995 Annual Meeting if they are received by the Secretary of
the Company no later than November 11, 1994 at the address set forth above.
A. ELECTION OF DIRECTORS
Currently, there are 13 authorized members of the Board of Directors and
one Advisory Director. In accordance with the Company's By-Laws, the Board of
Directors is divided into three Classes of Directors of approximately equal
size, with staggered terms in office. At each Annual Meeting, Directors
constituting one Class are elected for three-year terms. Each Class is
designated by the year in which its current term ends. At this year's Meeting,
the 1997 Class of Directors is to be elected to hold office until the 1997
Annual Meeting or until a successor shall have been elected and shall have
qualified. The terms of the Directors constituting the other two Classes will
continue as indicated below.
The terms of Directors William T. Esrey, Christopher C. Kraft, Jr., George
L. Mazanec, and George E. Rupp expire at the 1994 Annual Meeting. Dr. Kraft will
retire at the Annual Meeting and Dr. Rupp will not stand for re-election.
Accordingly, at its February 23, 1994, regular meeting, the Board selected Ms.
Ann Maynard Gray to fill the vacancy created by Dr. Kraft's retirement, subject
to election by the stockholders; reassigned Director Paul M. Anderson from the
1995 Class of Directors to the 1997 Class, thereby equalizing the membership of
each Class at four Directors; and, on the recommendation of the
Compensation/Organization/Nominating Committee ("Compensation Committee"),
nominated the 1997 Class for election. The Board also reduced the authorized
number of Directors from 13 to 12, effective at the Annual Meeting.
The proxy holders named on the proxy card will vote FOR the election of the
nominees listed below, unless otherwise instructed on proxy cards that have been
signed or returned. If you do not wish your shares to be voted for particular
nominees, please identify the exceptions on the proxy card. If any of these
nominees should be unable to serve, the proxies will be voted by the proxy
holders for the election of such other person as they shall determine, in
accordance with their judgment.
INFORMATION REGARDING NOMINEES FOR ELECTION AS DIRECTORS (1997 CLASS)
NAME BUSINESS EXPERIENCE AND AGE IN 1994
Paul M. Anderson........... Age 49. President of the Company since December
1993 and Director of the Company since December
1992. Executive Vice President of the Company from
March 1991 to December 1993. President and Chief
Executive Officer from April 1991 to January 1994,
Director since 1991, and Chairman of the Board
since January 1994 of Panhandle Eastern Pipe Line
Company, ("PEPL"). Chairman of the Board of
Trunkline Gas Company ("Trunkline") since April
1991. Director of Texas Eastern Transmission
Corporation ("TETCO") and Algonquin Gas
Transmission Company ("Algonquin") since April 1991
and Chairman of the Board of TETCO and Vice
Chairman of the Board of Algonquin since January
1994. Vice President, Finance and Chief Financial
Officer, Inland Steel Industries Inc., 1990-1991.
Senior Vice President, Texas Eastern Corporation
("TEC"), 1987-1989. PEPL, Trunkline, TEC, TETCO,
and Algonquin are subsidiaries of the Company.
Director of Temple-Inland, Inc.
2
<PAGE> 6
NAME BUSINESS EXPERIENCE AND AGE IN 1994
William T. Esrey........... Age 54. Chairman, President, and Chief Executive
Officer of Sprint Corporation ("Sprint"), Westwood,
Kansas, a diversified telecommunications holding
company, since April 1990. President and Chief
Executive Officer of Sprint from April 1985 to
April 1990. Director of the Company since 1985.
Director of Sprint, Equitable Life Assurance
Society of the United States, Boettcher Venture
Capital Partners, L.P., and General Mills, Inc.
Ann Maynard Gray........... Age 49. Since 1991, President, Diversified
Publishing Group of Capital Cities/ABC, Inc., New
York, New York, involved in television, radio, and
publishing, and Corporate Vice President since
1986. Senior Vice President -- Finance, ABC
Television Network from 1988 to 1991. Director of
Cyprus Amax Minerals Company and Trustee of
Neuberger & Berman Income Funds, Neuberger & Berman
Income Trust, and Neuberger & Berman Income
Managers Trust.
George L. Mazanec.......... Age 58. Vice Chairman of the Board of Directors of
the Company since December 1993. Director of the
Company since December 1992. Executive Vice
President of the Company from March 1991 to
December 1993. Director of TEC from January 1990 to
the present, and Executive Vice President of TEC
from April 1991 to the present. Director since
January 1990, Vice Chairman of the Board since
January 1994, and President and Chief Executive
Officer from January 1991 to January 1994 of TETCO.
Director of PEPL and Trunkline since January 1990
and Vice Chairman of the Board of PEPL and
Trunkline since January 1994; Chairman of the Board
of Algonquin Energy, Inc. ("AEI"), and Algonquin.
AEI is a subsidiary of the Company. From 1989 to
1991, Group Vice President of the Company. Senior
Vice President, TEC and TETCO, 1987-1989.
INFORMATION REGARDING DIRECTORS CONTINUING IN OFFICE
NAME BUSINESS EXPERIENCE AND AGE IN 1994
1995 CLASS
Charles W. Duncan, Jr...... Age 68. Engaged in private investments in Houston,
Texas, since 1981. Deputy Secretary of the United
States Department of Defense, January 1977 to
August 1979; Secretary of the United States
Department of Energy, August 1979 until January
1981. Director of TEC from 1981 until 1989.
Director of the Company since 1990. Director of
American Express Company, The Coca-Cola Company,
Chemical Banking Corporation, Newfield Exploration
Company, Texas Commerce Bancshares, Inc., and
United Technologies Corporation.
Harry E. Ekblom............ Age 66. Vice Chairman of A. T. Hudson & Co., Inc.,
Oradell, New Jersey, a management consulting firm,
since 1985, and, since January 1984, President of
Harry E. Ekblom & Co., Inc., Ridgewood, New Jersey,
a financial consulting firm. Director of the
Company since 1971. Director of Harris & Harris
Group, Inc., and The Commercial Bank of New York.
3
<PAGE> 7
NAME BUSINESS EXPERIENCE AND AGE IN 1994
Dennis R. Hendrix.......... Age 54. Chairman of the Board and Chief Executive
Officer of the Company since November 1990.
President of the Company from November 1990 to
December 1993. President of TEC, November 1985
through December 1989. TEC's Chief Executive
Officer from June 1987 to July 1989. Director of
Texas Commerce Bancshares, Inc.
Ralph S. O'Connor.......... Age 68. From June 1, 1987, to the present,
principally engaged in investments as Chairman and
Chief Executive Officer of Ralph S. O'Connor &
Associates, Houston, Texas. Prior thereto,
President and Chief Executive Officer of HRI
Resources, Inc., and President of Highland
Resources, Inc., for more than five years. Member
of the Board of Directors of TEC from 1963 until
1989. Director of the Company since 1991. Director
of First City Bancorporation of Texas, Inc.
1996 CLASS
Milton Carroll............. Age 44. Chairman, President, and Chief Executive
Officer of Instrument Products, Inc., Houston,
Texas, a manufacturer of oilfield tools and other
precision products, since 1977. Director of the
Company since 1993. Advisor with Lazard Freres &
Co. since 1993. Director of the Federal Reserve
Bank of Dallas, Houston Industries, Inc., Houston
Lighting & Power Co., and Houston Endowment, Inc.
Robert Cizik............... Age 63. Chairman of the Board and Chief Executive
Officer of Cooper Industries, Inc. ("Cooper"),
Houston, Texas, a diversified, international
manufacturing company, since 1983. From 1975 to
1983, President and Chief Executive Officer of
Cooper. Director of TEC from April 1988 until July
1989. Director of the Company since 1991. Director
of Cooper, Temple-Inland, Inc., Harris Corporation,
and Air Products and Chemicals, Inc.
Harold S. Hook............. Age 63. Chairman and Chief Executive Officer of
American General Corporation ("American General"),
Houston, Texas, an insurance-based, diversified
financial services organization, for more than five
years. Member of the Board of Directors of TEC from
April 1989 through July 1989. Director of the
Company since 1978. Director of American General,
American General Finance, Inc., Chemical Banking
Corporation, Chemical Bank, Cooper, Sprint, and
Texas Commerce Bancshares, Inc.
Leo E. Linbeck, Jr......... Age 60. Since 1975, Chairman, President, and Chief
Executive Officer of Linbeck Construction
Corporation, Houston, Texas, a construction
management and general construction firm. Director
of the Company since 1986. Director of Transamerica
Group of Mutual Funds and Daniel Industries, Inc.
4
<PAGE> 8
B. ADDITIONAL INFORMATION
Mr. Max R. Lents, a Director and former Chairman of the Board of Miller and
Lents, Ltd., an independent oil and gas consulting firm, Houston, Texas, has
been elected by the Board as an Advisory Director for ten one-year terms since
his retirement as a member of the Board in January 1985. His current term began
in January 1994 and expires in January 1995. An Advisory Director has no voting
rights but attends meetings of the Board and certain Board committees in an
advisory capacity only.
The Board's policy with respect to the retirement of Directors provides
that a Nonemployee Director will retire at the first meeting of the Board
following the Director's 70th birthday. Accordingly, Dr. Christopher C. Kraft,
Jr., will retire from the Board at the time of the Annual Meeting.
MEETINGS OF THE BOARD AND ITS COMMITTEES
During 1993, the Board met seven times. Each Director attended at least 75
percent of the aggregate of the Board meetings and the meetings of Board
committees on which he served.
Among the Board's standing committees are the Audit Committee, the
Compensation Committee, and the Executive Committee. The Audit and Compensation
Committees are composed solely of Nonemployee Directors.
Mr. Ekblom is Chairman, and Messrs. Hook, Lents, O'Connor, and, until his
retirement from the Board, Dr. Kraft, are members, of the Audit Committee. The
Audit Committee recommends the appointment of independent auditors and reviews
with them the plan, scope, and results of their audit. It monitors their fees
for audit and other services; reviews the recommendations resulting from such
audit and management responses thereto; and reviews the Company's accounting
principles, policies, internal accounting controls, and the internal auditing
department plans and procedures. The Audit Committee also reviews the Company's
annual financial statements and recommends accounting and internal auditing
policies which, in its judgment, should receive the attention of the Board. The
Audit Committee met two times in 1993.
Mr. Esrey is Chairman of the Compensation Committee and Messrs. Cizik,
Duncan, Ekblom, and Linbeck are members. The Compensation Committee establishes
the compensation policies for the Chief Executive Officer and other senior
officers; approves the salaries and certain remuneration arrangements of senior
officers; recommends the adoption of compensation plans in which officers and
certain key employees are eligible to participate; and recommends awards
pursuant thereto, including bonuses, stock option grants, and other awards. It
acts on management recommendations for the election of officers and recommends
the election of a Chief Executive Officer when appropriate. It reviews
management succession plans; makes recommendations to fill Board vacancies and
considers nominees for election as Directors at the Annual Meeting; considers
the removal of Directors; and reviews the Board retirement policy. In addition,
the Compensation Committee will consider stockholders' suggestions of nominees
for Director that are submitted in writing to the Compensation Committee, in
care of the Secretary of the Company. The Compensation Committee met four times
in 1993.
Mr. Hendrix is Chairman, and Messrs. Anderson, Carroll, Cizik, Duncan,
Hook, Lents, Mazanec, and O'Connor are members, of the Executive Committee,
which reviews and, where appropriate, authorizes corporate action with respect
to, the conduct of the business of the Company between Board meetings. Actions
taken by the Executive Committee are regularly submitted to the Board for review
and ratification at the next meeting. The Executive Committee met once in 1993.
SECURITY OWNERSHIP OF MANAGEMENT
As of December 31, 1993, all Directors and executive officers of the
Company as a group owned beneficially, or had the right to acquire within 60
days of December 31, 1993, under the 1982 Key Employee Stock Option Plan, as
amended (the "1982 Plan"), the 1989 Nonemployee Directors Stock Option Plan (the
"1989 Plan"), and the 1990 Long Term Incentive Plan (the "1990 LTIP"), less than
1 percent of the presently issued and outstanding Common Stock.
5
<PAGE> 9
The following table shows the number of shares of Common Stock beneficially
owned as of December 31, 1993, or as to which there was a right to acquire
beneficial ownership within 60 days of such date, by each Director or nominee
for Director, each executive officer of the Company named in the Summary
Compensation Table on page 10 ("Named Executive Officers"), and all Directors
and executive officers of the Company as a group.
<TABLE>
<CAPTION>
NUMBER
NUMBER OF
OF SHARES
SHARES WHICH
BENEFICIALLY MAY BE
OWNED(1) ACQUIRED(2)
------- -------
<S> <C> <C>
Paul M. Anderson.................................... 42,842 18,278
Milton Carroll...................................... 500 --
Robert Cizik........................................ 1,322 6,000
Charles W. Duncan, Jr............................... 7,767(3) 7,000
Harry E. Ekblom..................................... 7,276(4) 8,000
William T. Esrey.................................... 2,500 8,000
Ann Maynard Gray.................................... 500(5) --
Dennis R. Hendrix................................... 439,000 --
James B. Hipple..................................... 10,320(6) 12,185
Harold S. Hook...................................... 5,000 8,000
Carl B. King........................................ 19,831 6,667
Christopher C. Kraft, Jr............................ 423 8,000
Leo E. Linbeck, Jr.................................. 1,200 8,000
George L. Mazanec................................... 22,333 18,278
Ralph S. O'Connor................................... 35,502(7) 6,000
George E. Rupp...................................... 1,000(8) 6,000
All Directors, nominees for Director, and eleven
executive officers as a group, including those
named above....................................... 642,154 170,946
</TABLE>
- ---------------
(1) Included are beneficially owned and undistributed shares of Common Stock
held as of December 31, 1993, in the Employees' Savings Plan of Panhandle
Eastern Corporation and in the Panhandle Eastern Corporation Dividend
Reinvestment and Stock Purchase Plan.
(2) Shares of Common Stock which the Directors or executive officers of the
Company have the right to acquire, within 60 days of December 31, 1993,
pursuant to options outstanding under the 1982 Plan, the 1989 Plan, and the
1990 LTIP. Nonemployee Directors do not participate in the 1982 Plan or the
1990 LTIP and Employee Directors do not participate in the 1989 Plan.
(3) Includes 4,531 shares held by Duncan Investors, a partnership in which Mr.
Duncan is a limited and general partner.
(4) Includes 3,000 shares held by Mrs. Ekblom.
(5) Shares of Common Stock purchased by Ms. Gray after December 31, 1993.
(6) Includes 48 shares held by Mrs. Hipple.
(7) Includes 4,502 shares of Common Stock held by a trust of which Mr. O'Connor
is co-trustee and 1,000 shares of Common Stock held by a foundation of which
Mr. O'Connor is president. Mr. O'Connor disclaims beneficial ownership of
all such shares.
(8) Includes 1,000 shares of Common Stock held by a foundation of which Dr. Rupp
is a vice president and of which Mr. O'Connor is president. Dr. Rupp
disclaims beneficial ownership of all of such shares.
To the Company's knowledge, based on information furnished to it pursuant
to Rule 16a-3 of the Securities Exchange Act of 1934 ("Exchange Act") and
written representations that no other reports were required, during the year
ended December 31, 1993, all applicable Section 16(a) filing requirements were
complied with, except that one such report covering one transaction in Common
Stock was filed late by Milton Carroll.
6
<PAGE> 10
Texas Eastern Products Pipeline Company, a wholly owned subsidiary of TEC,
is the general partner of TEPPCO Partners, L.P. ("TEPPCO"), a publicly traded
master limited partnership. The following table shows the number of units of
limited partnership interests in TEPPCO beneficially owned as of December 31,
1993, or as to which there was a right to acquire beneficial ownership within 60
days of such date, by each Director or nominee for Director, each of the Named
Executive Officers, and all Directors and executive officers of the Company as a
group. As of December 31, 1993, the percentage of units beneficially owned by
all Directors and executive officers as a group does not exceed 1 percent of the
presently issued and outstanding units.
<TABLE>
<CAPTION>
NUMBER
OF
NUMBER UNITS
OF WHICH
UNITS MAY
BENEFICIALLY BE
OWNED ACQUIRED
------ ---
<S> <C> <C>
Paul M. Anderson........................................ 1,000 --
Milton Carroll.......................................... -- --
Robert Cizik............................................ -- --
Charles W. Duncan, Jr. ................................. -- --
Harry E. Ekblom......................................... -- --
William T. Esrey........................................ -- --
Ann Maynard Gray........................................ -- --
Dennis R. Hendrix....................................... 10,000 --
James B. Hipple......................................... 500 --
Harold S. Hook.......................................... 2,000 --
Carl B. King............................................ -- --
Christopher C. Kraft, Jr. .............................. 500 --
Leo E. Linbeck, Jr. .................................... -- --
George L. Mazanec....................................... 1,000 --
Ralph S. O'Connor....................................... 6,000* --
George E. Rupp.......................................... -- --
All Directors, nominees for Director, and eleven
executive officers as a group, including those named
above................................................. 23,000* --
</TABLE>
- ---------------
* Includes 5,000 units owned by an individual for whom Mr. O'Connor acts as
guardian pursuant to a declaration of interest in guardianship. Mr. O'Connor
disclaims beneficial ownership of all such units.
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS
The following table shows the number of shares of Common Stock held by
beneficial owners of more than 5 percent of the Common Stock as of December 31,
1993, and the percentage of the total outstanding shares of Common Stock as of
that date.
<TABLE>
<CAPTION>
NUMBER PERCENT
OF OF
SHARES OUTSTANDING
NAME AND ADDRESS BENEFICIALLY SHARES
OF BENEFICIAL OWNER OWNED OWNED
---------------------------------------------------- -------- ---
<S> <C> <C>
Sonatrach Petroleum Investment Corp., B.V.
c/o De Brauw Blackstone Westbroek
Atrium -- 7th Floor
Strawinskylaan 3115
1077 ZX Amsterdam, The Netherlands.................. 7,500,000 6.25
Employees' Savings Plan of
Panhandle Eastern Corporation
5400 Westheimer Ct.,
Houston, Texas 77056................................ 8,925,162 7.44
FMR Corp.
82 Devonshire Street
Boston, Massachusetts 02109......................... 7,492,464 6.24
</TABLE>
7
<PAGE> 11
Sonatrach Petroleum Investment Corp., B.V., is a Dutch corporation owned by
two shareholders: Sonatrach (the national oil and gas company of Algeria), which
owns a 99.9 percent interest, and Banque Algerienne du Commerce Exterieur
("BACE"), a Swiss bank, which owns a 0.1 percent interest. The principal
executive offices of Sonatrach are located at 10, Rue du Sahara, Hydra, Algiers
(Algeria), and the principal executive offices of BACE are located at
Schutzengasse 4, Postfach, 8023 Zurich, Switzerland. Sonatrach and BACE are
wholly owned by the government of Algeria.
The Company and Sonatrach, directly and through subsidiaries, are parties
to agreements entered into in 1987 providing for the importation of liquefied
natural gas ("LNG") over a period of up to 20 years at volumes and prices and
upon other terms to be agreed upon from time to time. The agreements provide
that if LNG is purchased by the Company from Sonatrach, Sonatrach will receive
an f.o.b. payment equal to approximately 63 percent of the average gross selling
price of an equivalent quantity of regasified LNG, with the Company receiving
the balance. For the year ended December 31, 1993, payments to Sonatrach under
this program for LNG and shipping were approximately $52.2 million.
Employees' Savings Plan of Panhandle Eastern Corporation ("ESP"), holds
shares of Common Stock for the account of participants, who are employees of the
Company and participating affiliates. Generally, the ESP passes through to
participants the right to vote shares of Common Stock allocated to their
accounts and to tender such shares in response to a tender or exchange offer for
Common Stock. The ESP is administered by an administrative committee whose
members are H. D. Church, Senior Vice President of TETCO; Paul F. Ferguson, Jr.,
Vice President of the Company; D. R. Hennig, Vice President of PEPL, TETCO, and
Trunkline; James B. Hipple, Senior Vice President and Chief Financial Officer of
the Company; T. Holeman, Vice President of Trunkline; Sandra P. Meyer,
Controller of the Company; J. D. Rogers, General Manager, Administration, of
Algonquin; and J. D. Thomas, Treasurer of the Company.
FMR Corp. ("FMR") is the parent company of Fidelity Management & Research
Company and other investment advisors. According to Amendment No. 1 to Schedule
13G, dated February 11, 1994, filed with the Securities and Exchange Commission
("SEC") and provided to the Company by FMR, FMR may be deemed to be the
beneficial owner of and to have sole dispositive power with respect to 7,492,464
shares of Common Stock and to have sole voting power with respect to 491,010
shares of Common Stock. Such shares are owned by a number of FMR's investment
advisory clients.
COMPENSATION OF DIRECTORS
Directors who also are employees of the Company (Messrs. Anderson, Hendrix,
and Mazanec) receive no fees for their service as Directors or for attendance at
Board and Committee meetings. Nonemployee Directors receive an annual retainer
fee of $30,000, and $1,000 for each Board meeting and each Committee meeting
attended. Nonemployee Committee Chairmen receive an additional annual retainer
of $4,000. Nonemployee Directors are reimbursed for expenses incurred in
attending Board and Committee meetings.
In addition to the foregoing, the Company maintains, or formerly
maintained, the following plans for Nonemployee Directors:
1. The 1982 Directors Deferred Compensation Plan permits Nonemployee
Directors to elect, on a year-to-year basis, to defer either 50 percent or
100 percent of their Directors' fees. Deferrals earn interest based on
six-month Certificate of Deposit rates. Amounts accrued are payable either
in a lump sum or over a period of five or 10 years, as elected by the
Nonemployee Director, commencing on January 15th of the year next
succeeding the year in which the Nonemployee Director either ceases to be a
Director or upon the attainment of the age the Nonemployee Director
previously elected. For the year ended December 31, 1993, amounts deferred
under this Plan and interest accrued relative to such deferrals were
$159,266 for the four participating Nonemployee Directors as a group.
2. The 1989 Nonemployee Directors Stock Option Plan ("1989 Plan")
provides for the granting of non-qualified options for the purchase of
shares of Common Stock to each Nonemployee Director, other than an Advisory
Director. Stock appreciation rights ("SARs") are not permitted. All options
are granted at the fair market value of the Common Stock on the date of
grant. On May 1, 1989, each
8
<PAGE> 12
Nonemployee Director was granted an option to purchase 5,000 shares of
Common Stock, and any new Nonemployee Director is granted an option to
purchase 5,000 shares of Common Stock effective on the May 1 next following
election to the Board. Additional options to purchase 1,000 shares of
Common Stock are granted to each Nonemployee Director on May 1 of each
year, through and including May 1, 1998. On May 1, 1993, options to
purchase a total of 14,000 shares of Common Stock were granted under the
1989 Plan at an exercise price of $21.3125 per share. Options granted under
the 1989 Plan become exercisable one year from the date of grant and expire
on the tenth anniversary of the date of grant. Accordingly, the options
granted on May 1, 1993, are not included in the table on page 6 hereof. No
options were exercised during 1993 under the 1989 Plan.
3. The Nonemployee Directors Retirement Plan provides an annual
unfunded retirement benefit for each Nonemployee Director of the Company
upon the later to occur of the Director's retirement date or the attainment
of age 65. A retired Nonemployee Director with 10 years or more of service
on the Board will receive annually for life (a guaranteed minimum of 10
years) an amount equal to 60 percent of the annual retainer fee in effect
on the Director's retirement date. For a Nonemployee Director retiring with
less than 10 years of service, the annual benefit accrues at a rate of 6
percent of the annual retainer fee in effect on the Director's retirement
date for each year of service, not to exceed a total of 60 percent of such
annual retainer fee. In the event of a "change of control" (as defined), a
Nonemployee Director shall be deemed to have served as such until the
earlier of the tenth anniversary of the Director's service on the Board or
attainment of age 70. There are also certain pre-retirement supplemental
death benefits provided under this plan.
4. At the time it was acquired by the Company in 1989, TEC maintained
an unfunded plan, the TEC Directors' Retirement Plan, which provided an
annual benefit payable for 10 years following a Nonemployee Director's
retirement from active service on the TEC Board of Directors. Upon the
Nonemployee Director's death following retirement, any unpaid installments
will be paid to the named beneficiary. Under this plan, Messrs. Duncan and
O'Connor have vested rights to annual benefits of $18,000 commencing
January 1, 1999.
5. The Directors Deferred Compensation Plan of Panhandle Eastern
Corporation ("Nonemployee Directors Plan") was available until December 31,
1986, to Nonemployee Directors and permitted deferral of up to 100 percent
of each participating Nonemployee Director's annual retainer fee. Benefit
payment amounts related to retainer fees deferred, to interest accrued at
seniority-based rates, and to age at the time of deferral. For the year
ended December 31, 1993, interest accrued relative to amounts deferred
under the Nonemployee Directors Plan was $120,747.
9
<PAGE> 13
EXECUTIVE COMPENSATION AND OTHER INFORMATION
The following table and notes present the cash and certain other
compensation paid or accrued by the Company to or on behalf of the Company's
Chief Executive Officer and each of the four other most highly compensated
executive officers of the Company ("Named Executive Officers"), as of December
31, 1993, for the years ended December 31, 1991, 1992, and 1993:
SUMMARY COMPENSATION TABLE
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
ANNUAL COMPENSATION LONG TERM COMPENSATION
--------------------------------------------------------------------
AWARDS
-------------------------
SECURITIES PAYOUTS ALL OTHER
OTHER ANNUAL RESTRICTED UNDERLYING ------- COMPEN-
NAME AND PRINCIPAL SALARY BONUS COMPENSATION STOCK OPTIONS/SARS LTIP SATION
POSITION(1) YEAR ($) ($) ($)(2) AWARD(S)($) (#)(3) PAYOUTS ($) ($)(2)(4)
(A) (B) (C) (D) (E) (F) (G) (H) (I)
<S> <C> <C> <C> <C> <C> <C> <C> <C>
- --------------------------------------------------------------------------------------------------------------
Dennis R.
Hendrix......... 1993 -- -- 23,578(5) 6,525,000(6) -- -- 55,532
1992 -- -- 23,087(5) -- -- -- 60,560
1991 -- -- -- -- -- -- --
Paul M.
Anderson........ 1993 337,917 160,153 -- -- 250,000 -- 61,066
1992 315,000 160,000 53,909(5) -- -- -- 35,712
1991 262,500 108,240 -- 565,000(7) 30,000 -- --
George L.
Mazanec......... 1993 336,667 177,710 -- -- 250,000 203,644 76,851
1992 297,917 175,000 -- -- -- 99,388 41,162
1991 275,000 124,163 -- -- 30,000 43,500 --
James B. Hipple... 1993 253,750 113,016 -- -- -- 66,644 63,104
1992 238,333 112,500 -- -- -- 53,786 49,064
1991 220,000 94,380 -- -- 20,000 34,438 --
Carl B. King...... 1993 253,833 103,709 -- -- -- 67,744 31,485
1992 241,000 103,630 -- -- -- 53,786 13,008
1991 241,000 99,533 -- -- 20,000 34,438 --
- -------------------------------------------------------------------------------------------------------------
</TABLE>
(1) The principal positions of Messrs. Hendrix, Anderson, and Mazanec are
described on pages 2 and 3. Mr. King is Senior Vice President and General
Counsel of the Company and TEC. Mr. Hipple is Senior Vice President and
Chief Financial Officer of the Company, PEPL, TEC, TETCO, and Trunkline.
(2) In accordance with the transitional provisions applicable to the revised
rules on executive and director compensation disclosure adopted by the SEC,
presentation of amounts of Other Annual Compensation and All Other
Compensation, if any, is not required for the Company's 1991 fiscal year.
(3) In December 1991, the Compensation Committee granted 126 executives and
management employees, including Messrs. Anderson, Mazanec, King, and Hipple,
options to purchase 778,500 shares of Common Stock, together with an
equivalent amount of EPS Performance Units. Stock options for 40,500 shares
of Common Stock, together with an equivalent number of EPS Performance
Units, were also granted in April 1992 to seven executives and management
employees; 12,000 options and EPS Performance Units were granted to one
executive in July 1992; and in January 1993, 41,000 options and EPS
Performance Units were granted to eight management employees. In December
1993, Messrs. Anderson and Mazanec each were granted options to purchase
250,000 shares of Common Stock, together with an equivalent number of EPS
Performance Units. Furthermore, in January 1994, 129 executive and
management employees were granted options to purchase 324,300 shares,
together with an equivalent number of EPS Performance Units. Each EPS
Performance Unit creates a credit to an employee's EPS Performance Unit
account when earnings per share exceed a threshold, which was $0.80 per
share for awards made in 1991 and 1992, $1.10 for awards made in January
1993, and $1.50 for awards made in December 1993 and January 1994. When
earnings for a calendar year (exclusive of certain special items) exceed the
threshold, the excess amount is credited to the employee's EPS Performance
Unit account. The balance in the account may be used to exercise stock
options granted in connection with the EPS Performance
10
<PAGE> 14
Units or may be withdrawn two years after the underlying options expire,
usually 10 years from the date of grant. Under the agreements for such stock
options, the options become exercisable in equal installments over periods
of one, two, and three years from the date of grant. Options may also be
exercised by normal means once vesting requirements are met.
(4) Amounts reported include (a) amounts contributed by the Company for the
Named Executive Officers under the ESP, (b) that portion of interest credits
on deferred compensation amounts that are considered, pursuant to rules
promulgated by the SEC, to be at above-market rates, (c) the value of EPS
Performance Units credited to EPS Performance Unit accounts of the Named
Executive Officers in 1993, and (d) the imputed value of premiums paid by
the Company for insurance on the Named Executive Officers' lives. None of
the Named Executive Officers has any cash value rights related to such
insurance. Such amounts include:
<TABLE>
<CAPTION>
VALUE OF EPS
INTEREST AT PERFORMANCE VALUE OF LIFE
ESP ABOVE MARKET RATES UNITS INSURANCE PREMIUMS
------------------- ------------------- ---------------- -------------------
1992 1993 1992 1993 1992 1993 1992 1993
------- ------- ------- ------- ---- ------- ------- -------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Mr. Hendrix.... $ 0 $ 0 $46,275 $41,247 $0 $ 0 $14,285 $14,285
Mr. Anderson... 14,984 15,372 19,806 16,494 0 28,200 922 1,002
Mr. Mazanec.... 11,149 12,691 25,100 30,352 0 28,200 4,913 5,610
Mr. Hipple..... 12,967 14,067 27,931 25,062 0 18,800 8,166 5,176
Mr. King....... 10,520 10,049 0 0 0 18,800 2,488 2,636
</TABLE>
(5) Pursuant to rules on executive and director compensation disclosure adopted
by the SEC, Other Annual Compensation is reportable if in the aggregate the
components thereof exceed the lesser of $50,000 or 10 percent of the sum of
the Named Executive Officer's salary and bonus. Each component thereof that
exceeds 25 percent of the total for each Named Executive Officer for whom
disclosure is required must be identified. Accordingly, the amounts reported
in column (e) include:
<TABLE>
<CAPTION>
USE OF COMPANY REIMBURSED MOVING
AIRCRAFT EXPENSES
------------------- -------------------
1992 1993 1992 1993
------- ------- ------- -------
<S> <C> <C> <C> <C>
Mr. Hendrix................................. $18,300 $19,203 -- --
Mr. Anderson................................ -- -- $43,452 --
</TABLE>
(6) In November 1990, Mr. Hendrix and the Company entered into an agreement
whereby he would receive no salary for 1991, 1992, and 1993. Instead, Mr.
Hendrix was awarded 300,000 shares of restricted Common Stock under the
terms of the 1990 LTIP as compensation for that period. Mr. Hendrix received
dividends payable to holders of record of Common Stock on the restricted
shares. These shares were initially restricted as to the transfer of
ownership, with such restrictions being removed on 25,000 shares every three
months, beginning in February 1991 and continuing through November 1993. The
value of the 300,000 restricted shares, based on the fair market value of
the Company's Common Stock as reported on The New York Stock Exchange
Composite Reporting System on November 12, 1990, which was $11.00 per share,
was $3,300,000. Based on the December 31, 1993, fair market value of $23.625
per share, the 300,000 restricted shares would be valued at $7,087,500.
Effective February 24, 1993, the agreement with Mr. Hendrix was amended to
extend the term through November 1996 and to award him an additional 300,000
shares of restricted Common Stock in lieu of salary for the period November
1993 through November 1996. The restrictions, and the removal thereof, were
the same as for the 1990 award, and Mr. Hendrix receives dividends payable
to holders of record of Common Stock on these restricted shares. However, in
December 1993 this award was amended to provide for the accelerated removal
of restrictions in that month of 200,000 shares. Accordingly, at December
31, 1993, Mr. Hendrix's aggregate ownership of restricted stock was 100,000
shares. The restrictions on the remaining 100,000 shares will be removed as
follows: 36,000 shares in quarterly installments of 9,000 shares each in
1994, 34,000 shares in quarterly installments of 8,500 shares each in 1995,
and 30,000 shares in quarterly installments of 7,500 shares each in 1996.
The full amount reported in the table for 1993 represents the value of the
300,000 restricted shares based on the fair market value of the Company's
Common Stock on February 24, 1993, which was $21.75. Based on the December
31, 1993, fair market value, these 300,000 shares also would be valued at
$7,087,500.
11
<PAGE> 15
(7) In March 1991, Mr. Anderson was awarded 40,000 shares of restricted Common
Stock under the terms of the 1990 LTIP. These shares are initially
restricted as to the transfer of ownership, with such restriction being
removed on 10,000 shares on March 1 of each year, beginning on March 1,
1992, and continuing through March 1, 1995. The amount reported in the table
for 1991 represents the value of the 40,000 restricted shares, based on the
fair market value of the Company's Common Stock as reported on The New York
Stock Exchange Composite Reporting System on March 1, 1991, which was
$14.125 per share. Based on the December 31, 1993, fair market value of
$23.625 per share, the 40,000 restricted shares would be valued at $945,000.
At December 31, 1993, Mr. Anderson's aggregate restricted stock holdings
were 20,000 shares, which, based on the fair market value at that date,
would be valued at $472,500. Of the remaining restricted shares, 10,000 will
have their restrictions removed in 1994. Mr. Anderson receives dividends
payable to holders of record of Common Stock on the restricted shares.
STOCK OPTION/SAR GRANTS IN 1993
The following table shows all grants of stock options to the Named
Executive Officers in 1993. No SARs were granted to any Named Executive Officer
in 1993 nor were the exercise prices on stock options previously awarded to any
of them amended or adjusted.
OPTION/SAR GRANTS IN LAST FISCAL YEAR
<TABLE>
<S> <C> <C> <C> <C> <C>
- -----------------------------------------------------------------------------------------------
GRANT DATE
INDIVIDUAL GRANTS VALUE
- -----------------------------------------------------------------------------------------------
<CAPTION>
PERCENT OF
TOTAL
NUMBER OF OPTIONS/
SECURITIES SARS GRANTED GRANT DATE
UNDERLYING TO EMPLOYEES EXERCISE OR PRESENT
OPTIONS/SARS IN BASE PRICE EXPIRATION VALUE(2)
NAME GRANTED(#) FISCAL YEAR ($/SH) DATE $
<S> <C> <C> <C> <C> <C>
(A) (B) (C) (D) (E) (F)
- -----------------------------------------------------------------------------------------------
Mr. Hendrix.................... 0 0 0 N/A 0
Mr. Anderson................... 250,000(1) 46 21.3125 12-1-03 1,603,766
Mr. Mazanec.................... 250,000(1) 46 21.3125 12-1-03 1,603,766
Mr. Hipple..................... 0 0 0 N/A 0
Mr. King....................... 0 0 0 N/A 0
- -----------------------------------------------------------------------------------------------
</TABLE>
(1) On December 1, 1993, the Board of Directors granted stock options to Messrs.
Anderson and Mazanec to purchase 250,000 shares each of Common Stock at an
exercise price of $21.3125, which was the fair market value of the Common
Stock on the date of grant. The options, which have a term of ten years,
vest in three equal installments on the first, second, and third anniversary
dates of the grants. The grants include the award of an equivalent number of
EPS Performance Units, but do not include SARs. Each EPS Performance Unit
creates a credit to the grantee's EPS Performance Unit account when the
Company's earnings per share, exclusive of certain special items, have
exceeded a threshold of $1.50. When earnings for a calendar year, beginning
with 1994, exceed the threshold, the excess amount is credited to the
grantee's EPS Performance Unit account. The balance of the account may be
used to exercise the stock options or it may be withdrawn two years after
the expiration of the options. The options may also be exercised by normal
means once vesting requirements are met.
(2) Based on the Black-Scholes option valuation model. The key input variables
used in valuing the options were: risk-free interest rate - 7 percent;
dividend yield - 4 percent; stock price volatility - .301; option term - ten
years. The Standard and Poor's Compustat Database was used and the
volatility variable reflected 20 months of stock price trading data. No
adjustments for non-transferability or risk of forfeiture were made. The
actual value, if any, a grantee may realize will depend on the excess of the
stock price over the exercise price on the date the option is exercised, so
that there is no assurance the value realized will be at or near the value
estimated by the Black-Scholes model.
12
<PAGE> 16
EXERCISES OF STOCK OPTIONS IN 1993 AND YEAR-END OPTION VALUES
The following table provides information concerning the stock options
exercised by each of the Named Executive Officers during 1993 and the value of
unexercised stock options to the Named Executive Officers as of December 31,
1993. The value assigned to each unexercised, "in the money" stock option is
based on the positive spread between the exercise price of such stock option and
the fair market value of the Common Stock on December 31, 1993. The fair market
value is the average of the high and low prices of a share of Common Stock on
that date as reported on The New York Stock Exchange, Inc., Composite
Transactions Reporting System. In assessing the value, it should be kept in mind
that no matter what theoretical value is placed on a stock option on a
particular date, its ultimate value will be dependent on the market value of the
Company's Common Stock at a future date. That future value will depend in part
on the efforts of the Named Executive Officers to foster the future success of
the Company for the benefit of all stockholders.
AGGREGATED OPTION/SAR EXERCISES IN LAST FISCAL YEAR AND
FY-END OPTION/SAR VALUES
<TABLE>
<CAPTION>
- -----------------------------------------------------------------------------------------------
NUMBER OF
SECURITIES VALUE OF
UNDERLYING UNEXERCISED
UNEXERCISED IN-THE-MONEY
OPTIONS/SARS AT OPTIONS/SARS
SHARES FY-END (#) AT FY-END ($)
ACQUIRED ON VALUE EXERCISABLE/ EXERCISABLE/
NAME EXERCISE(#) REALIZED($) UNEXERCISABLE* UNEXERCISABLE
(A) (B) (C) (D) (E)
- -----------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Mr. Hendrix........................... 0 0 0/0 0/0
Mr. Anderson.......................... 1,722 6,673 18,278/260,000 132,516/650,625
Mr. Mazanec........................... 1,722 7,103 18,278/260,000 132,516/650,625
Mr. Hipple............................ 1,148 4,449 28,291/ 6,667 132,610/ 48,336
Mr. King.............................. 6,666 15,832 6,666/ 6,667 48,336/ 48,336
- -----------------------------------------------------------------------------------------------
</TABLE>
* Future exercisability of currently unexercisable stock options depends on the
grantee remaining employed by the Company throughout the vesting period of the
options, subject to provisions applicable at retirement, death, or total
disability. The currently unexercisable options will vest, and become
exercisable, on the following schedule:
<TABLE>
<CAPTION>
DECEMBER 1, DECEMBER 4, DECEMBER 1, DECEMBER 1,
1994 1994 1995 1996
----------- ----------- ----------- -----------
<S> <C> <C> <C> <C>
Mr. Anderson....................... 83,333 10,000 83,333 83,334
Mr. Mazanec........................ 83,333 10,000 83,333 83,334
Mr. Hipple......................... 6,667
Mr. King........................... 6,667
</TABLE>
EMPLOYMENT CONTRACTS, TERMINATION OF EMPLOYMENT, AND CHANGE IN CONTROL
ARRANGEMENTS
In November 1990, Mr. Hendrix and the Company entered into a five-year
employment agreement pursuant to which he received no salary for the first three
years of his employment. Instead, he was awarded 300,000 shares of Common Stock
under the terms of the 1990 LTIP, which shares were initially restricted as to
the transfer of ownership. Such restriction was removed on 25,000 shares every
three months, beginning in February 1991 and continuing through November 1993.
Mr. Hendrix received dividends on the restricted shares. The restriction would
have terminated early as to all of the restricted shares in the event of death
or disability, involuntary termination by the Company for any reason other than
cause (as defined), or change in control of the Company.
Effective February 24, 1993, the employment agreement with Mr. Hendrix was
amended to extend the term for one additional year. The amendment provides that
Mr. Hendrix will continue to receive no salary for the three years from November
1993 through November 1996. Instead, he was awarded an additional 300,000 shares
of Common Stock on the same terms and subject to the same restrictions as those
described above,
13
<PAGE> 17
with restrictions being removed at the rate of 25,000 shares every three months,
beginning in February 1994. Mr. Hendrix began receiving dividends on the
additional shares in December 1993.
On January 1, 1994, the Omnibus Budget Reconciliation Act of 1993 (the
"Budget Act") became effective. Certain provisions of the Budget Act would have
denied to the Company a tax deduction for a substantial portion of compensation
expenses related to Mr. Hendrix in 1994, 1995, and 1996. In order to preserve
the deduction, on December 20, 1993, the agreement was amended again to provide
for the restrictions on 200,000 shares to be removed immediately and for the
restrictions on the remaining shares to be removed over the next 36 months.
Based on certain assumptions as to stock price, preserving the deduction was
estimated to result in tax savings to the Company of approximately $1.8 million.
In addition to the restricted shares, Mr. Hendrix participates in the
welfare plans available to employees generally; however, to the extent permitted
by law, he has waived and relinquished his right to participate in the ESP, the
Retirement Income Plan of Panhandle Eastern Corporation and Participating
Affiliates, and certain other plans available to Company employees and
executives.
The Company and Mr. Mazanec entered into a five-year employment agreement
in November 1989 which set a minimum base salary of $250,000 per year. In
addition to maintaining certain non-qualified retirement benefits to which he
was entitled as an executive of TEC, the agreement provides Mr. Mazanec a
supplemental lump sum cash benefit of $750,000 plus 8 percent interest
compounded semi-annually from November 1, 1989, payable within 30 days of his
termination from the Company for any reason. If Mr. Mazanec terminates
employment due to a material breach of the agreement by the Company which is not
remedied within 30 days after written notice by Mr. Mazanec, or if the Company
terminates the agreement without cause, the Company also will pay him, in a lump
sum, base pay and incentive compensation projected through the employment
period, as well as providing him an extension of welfare plan benefits through
the employment period. Effective November 1, 1992, the Company and Mr. Mazanec
entered into an amendment to the employment agreement, extending the period of
employment covered by the agreement through October 31, 1996.
On March 1, 1991, the Company and Mr. Anderson entered into an employment
agreement, the primary term of which originally was to expire on December 31,
1993. Unless either party serves notice of termination, on December 31 of each
year, the term is automatically extended for an additional one-year period. On
December 31, 1991, December 31, 1992, and December 31, 1993, the primary term
was automatically extended through December 31, 1994, December 31, 1995, and
then through December 31, 1996, respectively. The Company may terminate the
agreement for cause, death, or disability. Under such circumstances, or if Mr.
Anderson terminates the agreement for other than good reason (as defined), Mr.
Anderson or his estate will be paid base pay and incentive compensation earned
for that fraction of the year which he was actually employed. If the agreement
is terminated by Mr. Anderson for good reason, or by the Company for reasons
other than cause, death, or disability, Mr. Anderson will receive in a lump sum
the present value of his base pay and incentive compensation projected through
the employment period, as well as an extension of welfare plan benefits through
the employment period.
Effective March 1, 1991, Mr. Anderson was awarded 40,000 shares of
restricted Common Stock under the terms of the 1990 LTIP. These shares are
initially restricted as to the transfer of ownership, with such restriction
being removed on 10,000 shares on March 1 of each year, beginning on March 1,
1992, and continuing through March 1, 1995, provided Mr. Anderson remains in the
employ of the Company during that period. The restriction will terminate early
as to all of the restricted shares in the event of death or disability,
involuntary termination by the Company for any reason other than cause (as
defined), or change in control of the Company. Mr. Anderson receives dividends
payable to holders of record of Common Stock on the restricted shares.
The Company's Executive Severance Program ("Program") provides that in the
event of a "change in control," as defined in the agreements entered into
between the Company and the participants in the Program, such participants will
have certain benefits provided to them in the event of the termination of their
employment within three years of the effective date of such change in control.
Such benefits are provided unless such termination of employment is (i) because
of the death or retirement of the executive, (ii) by the
14
<PAGE> 18
Company or its subsidiaries for "cause" (as defined) or disability, or (iii) by
the executive other than for "good reason" (as defined). Generally, benefits
include a lump-sum cash payment equal to two and one-half times the average of
the participant's annual compensation for the five years preceding the change in
control (including deferred amounts, bonuses, and employer contributions to the
ESP); cash payment for the participant's account in the ESP; a continuation of
various medical, insurance, and certain other benefits for a period of two and
one-half years; and a lump-sum cash payment, at termination, equal to the
present value of the additional retirement benefits the participant would have
received as a result of two and one-half years additional service. The aggregate
of each participant's benefits, when combined, will not exceed three times the
"base amount" (as defined in the Internal Revenue Code). In consideration of
these benefits, the participant agrees, in the event a person seeks to effect a
change in control, not to leave the employ of the Company, and to continue to
render services commensurate with the participant's position, until such person
has abandoned or terminated efforts or the change in control has occurred. The
participant also agrees to retain in confidence all of the confidential business
information of the Company or its subsidiaries known to the participant. The
Program presently covers four executive officers of the Company, including
Messrs. Hipple and King.
The Company's Change in Control Severance Pay Plan ("Severance Plan") is
available for all employees of the Company and certain of its subsidiaries,
except those employees covered by an agreement under the Executive Severance
Program or a collective bargaining agreement. The Severance Plan provides a
number of severance benefits for eligible employees, which would be triggered by
certain specific events occurring subsequent to a "change in control" (as
defined) of the Company. In addition to the variable cash payments provided for
in the Severance Plan, eligible employees and dependents would receive, at no
cost to the employee, six months' continuation of medical and dental benefits at
the current benefit level, or at the benefit level immediately prior to the
change in control, whichever is greater. As of December 31, 1993, no benefits
had been provided under the Severance Plan.
PENSION PLAN
The Company's qualified retirement plan provides benefits, expressed in the
form of a single life annuity commencing at normal retirement date (age 65, or,
if later, the fifth anniversary of participation in the retirement plan) based
on a benefit formula that, in part, uses final five-year average pay, which
considers the regular compensation of the participant, including overtime
payments, bonus payments, and some forms of deferred compensation.
Qualified retirement plan benefits may be subject to statutory limitations
if the participant receives compensation in excess of a maximum, is covered by
other qualified plans, if benefits are paid before social security retirement
age, if the participant has less than 10 years of plan participation, or if
benefits are paid in a more valuable form than a single life annuity. Benefits
are not reduced by the amount of any social security payments received by the
participant. When qualified plan benefits are limited by statute, non-qualified
plans restore certain benefits for participants covered by the non-qualified
plans to a level which would have been available if such statutory limits did
not exist.
15
<PAGE> 19
The table below shows the estimated annual benefits payable at age 65 under
the qualified and non-qualified retirement plans at various levels of final
average compensation and assuming various years of benefit accrual service
(dollars in thousands):
PENSION PLAN TABLE
<TABLE>
<CAPTION>
YEARS OF SERVICE
------------------------------------
REMUNERATION 15 20 25 30 35
------------ ---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C>
$200...................................... $ 46 $ 62 $ 77 $ 93 $108
300...................................... 70 94 117 141 164
400...................................... 94 126 157 189 220
500...................................... 118 158 197 237 276
600...................................... 142 190 237 285 332
</TABLE>
The years of benefit accrual service for each Named Executive Officer,
except Mr. Hendrix, who does not actively participate in the plan, are as
follows: Paul M. Anderson, 15; Carl B. King, 3; James B. Hipple, 36; and George
L. Mazanec, 6. The covered compensation is the sum of the salary and bonus
reported in the Summary Compensation Table on page 10.
In connection with the 1989 acquisition of TEC by the Company, the TEC
Retirement Plan was amended to offer enhanced early retirement benefits to
active employees age 50 or older whose primary work location was in the
headquarters office. Mr. Hipple was among those employees eligible for these
enhanced retirement benefits. The Company entered into a contract with Mr.
Hipple in 1989 under which, in consideration of his agreement to remain in the
employ of the Company through December 1992, the Company agreed to pay him the
actuarial equivalent of the enhanced retirement benefits which he lost by not
exercising his option to retire early. During 1992, the Board of Directors
extended the effectiveness of this contract until Mr. Hipple retires.
C. BOARD COMPENSATION COMMITTEE REPORT ON EXECUTIVE COMPENSATION
The Compensation Committee, composed exclusively of Nonemployee Directors,
is responsible for the Company's executive compensation program. The following
is the report of the Compensation Committee on compensation policies regarding
executive officers and the basis of compensation actions it has taken.
The overriding objectives of the Company's executive compensation programs
are (i) to attract and retain executive officers and key employees who provide
valuable experience and skills to the Company and who contribute materially on a
consistent basis to its long term success, and (ii) to support and reward
individual and team performance that increases stockholder value. Toward those
ends, the executive compensation programs attempt to provide compensation based
on these principles:
1. Competitive Compensation Opportunities. The Company desires that
its executive compensation programs provide total compensation (consisting
of base salaries, annual cash incentive opportunities, and long term
incentive opportunities) competitive with the mean total compensation
offered other executives employed by companies of similar size, complexity,
and line of business. The Compensation Committee considers data from
surveys, proxies, independent compensation consultants, and those peer
group companies listed in the Stockholder Return graphs in Section D,
below.
2. Performance-Based Pay. Payouts from the short-and long-term
compensation programs in which executive officers and key employees
participate are reflective of the achievement of both group and individual
goals. The programs provide significant rewards for performance at
exceptional levels and less than competitive compensation when performance
goals are not achieved.
Description of the Current Executive Compensation Program
Base Salaries. The base salaries of the Company's executive officers, other
than the Chief Executive Officer, are consistent with average comparable base
salaries determined from data described above. Base
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<PAGE> 20
salaries are reviewed annually by the Compensation Committee and revised, if
appropriate, based on factors which include individual performance and general
levels of comparable salary increases. At its most recent meetings in December
1993 and January 1994, the Compensation Committee considered the base salaries
of executive officers and key employees and elected not to adjust the base
salaries of fifteen of them, including Messrs. Anderson, Mazanec, and King.
Instead, their long term incentive opportunities were increased so as to keep
total compensation opportunities at competitive levels and to reflect past
individual performance. Salary increases to executive officers were granted only
in the case of certain promotions or individual situations where, due to
impending retirement, additions to long term incentives were deemed
inappropriate.
Annual Cash Incentive Opportunities. The Compensation Committee administers
the Annual Cash Bonus Plan ("ACBP") which permits the granting of cash incentive
compensation awards. The ACBP requires the Compensation Committee annually to
establish administrative guidelines that define who may earn an incentive award,
what performance is required to earn it, and how much may be earned. Guidelines
effective for 1993 called for the Chief Executive Officer to recommend, and the
Compensation Committee to approve, an annual bonus opportunity for each
participant. This opportunity, or "target," is expressed as a percentage of base
salary and is determined by the Compensation Committee's judgment of the direct
or indirect impact each individual could have on the Company's performance, as
measured by operating income. Depending on performance, executive officers could
receive up to 125 percent of the bonus target. Of the eleven executive officers
of the Company, ten are participants in the ACBP. Mr. Hendrix is not a
participant.
In 1993, each of the executive officers, in consultation with the Chief
Executive Officer, established six to ten specific personal objectives. These
objectives were primarily directed toward the accomplishment of a successful
transition to operating under FERC Order 636, achieving new market initiatives,
reducing debt, and making meaningful progress in the expansion of the Company's
earnings base. Fifty percent of each executive officer's 1993 bonus was
determined by the degree to which, in the opinion of the Chief Executive Officer
and the Compensation Committee, the executive officer achieved the personal
objectives. Further, each business unit had operating income objectives approved
by the Compensation Committee, and fifty percent of each executive officer's
bonus was contingent upon achievement of those objectives. If any one business
unit failed to reach a minimum level of income established in the guidelines,
the executive officer received no compensation for the proportion of the bonus
contingent upon that business unit's results. In 1993, six business units met or
exceeded their target operating income objectives and two business units did
not. Five of the ten participating executive officers achieved 100 percent of
their personal objectives, while the other five participating executive officers
had results ranging from 89 to 99 percent.
Long Term Incentive Opportunities. Through the 1990 LTIP, which was
approved by the stockholders in 1990, the Compensation Committee has the
flexibility to structure long-term awards to meet particular business needs. To
date, four types of awards have been made under the 1990 LTIP:
1. Restricted Stock. Since 1990, the Compensation Committee has
awarded 640,000 shares of stock that is restricted as to transferability to
two executive officers. Mr. Hendrix received two grants of 300,000 shares
of restricted stock each, in 1990 and in 1993, in lieu of salary, bonus,
and certain employee benefits. Mr. Anderson received a grant of 40,000
shares of restricted stock in 1991. Restrictions are removed as vesting
requirements are met. The purpose of these awards was to make the
recipients' compensation substantially contingent on stock price and
dividend yield and to ensure significant share ownership. See footnotes 6
and 7 to the Summary Compensation Table on pages 11 and 12, respectively.
2. Conditional Stock. This form of award was employed in November 1990
and January and April 1991 when the Company's current management team was
being assembled following the merger of the Company and TEC and in
conjunction with the Company's reorganization into distinct business units.
The awards, some of which were granted to Messrs. Mazanec, Hipple, and
King, as well as other officers of the Company, were for the purpose of
focusing the recipients' attention on long-term objectives by adding,
through the ownership of Common Stock, a meaningful long-term incentive
opportunity that previously did not exist. Conditional stock awards vest
and are distributed in scheduled annual installments within four to six
years of grant. Recipients are paid dividend equivalents in cash on
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<PAGE> 21
unvested, undistributed shares. These awards were designed for a unique
purpose and time and the Compensation Committee has no plans to make
additional conditional stock awards.
3. Stock Options. Stock options have been granted to executive
officers and others by the Compensation Committee at various times since
the inception of the 1990 LTIP and, currently, are intended to be the
primary vehicle for providing long-term incentive opportunities to
executive officers. The practice is to grant stock options to individuals
no more than every three years, except where promotions or changes in
responsibility may, in the opinion of the Compensation Committee, dictate
otherwise. The number of stock options granted is determined through a
process which, first, utilizes survey data to determine the annualized
value of long term incentive grants made to other executives and management
employees in the Company's compensation data base ("target value"). Next,
the Black-Scholes stock option pricing model is used to calculate a ratio
which, when multiplied by the exercise price of the option, produces an
expected present value of the option. Finally, the number of options
required to make a competitive long-term grant is calculated by dividing
the target value by the expected present value of a single option. The
result of this equation, expressed as a number of options, may be adjusted
by the Compensation Committee depending upon the grant recipient's
qualitative and quantitative performance, the size of stock option grants
awarded the recipient in the past, and expectations of future performance.
4. EPS Performance Units. Although stock options are the primary
vehicle for long-term incentive opportunities for executive officers, the
Compensation Committee considers them insufficient for the purpose of
rewarding specific management actions that enhance earnings and stockholder
return. Therefore, the Compensation Committee has granted EPS Performance
Units in conjunction with stock options to further encourage stock
ownership by executive officers and key employees and to strengthen the
linkage among financial performance, stockholder return, and long-term
incentives. In December 1991, the Compensation Committee granted 126
executives and management employees, including Messrs. Anderson, Mazanec,
King, and Hipple, options to purchase an aggregate 778,500 shares of Common
Stock, together with an equivalent number of EPS Performance Units. In
April 1992, the Compensation Committee granted seven executives and
management employees options to purchase 40,500 shares; in July 1992 it
granted one executive an option to purchase 12,000 shares; and in January
1993, it granted eight executives and management employees options to
purchase 41,000 shares. In December 1993 the Compensation Committee granted
Messrs. Anderson and Mazanec options to purchase 250,000 shares each.
Furthermore, in January 1994, 129 executive and management employees were
granted options to purchase 324,300 shares. In each instance, an equivalent
number of EPS Performance Units were granted.
Each EPS Performance Unit creates a credit to the grantee's EPS
Performance Unit account when the Company's earnings per share has exceeded
a threshold, which was $.80 per share for grants made in 1991 and 1992,
$1.10 per share for grants made in January 1993, and $1.50 per share for
grants made in December 1993 and January 1994. When earnings for a calendar
year, exclusive of certain special items, exceed the threshold, the excess
amount is credited to the grantee's EPS Performance Unit account. The
balance in the account may be used to exercise stock options granted in
connection with the EPS Performance Units or it may be withdrawn two years
after the underlying options expire, usually ten years from the date of
grant. Options may also be exercised by normal means once vesting
requirements are met.
Compensation of the Chief Executive Officer
Effective February 24, 1993, the employment agreement between the Company
and Mr. Hendrix was amended to extend its term for one additional year and to
establish an appropriate amount of compensation for the final three years of the
agreement. The amendment provided that Mr. Hendrix would continue to receive no
salary or bonus for three years from November 1993 through November 1996.
Instead, his compensation would take the form of restricted Common Stock.
Considering the market price of the Common Stock on the date of amendment of the
agreement, and the total compensation of other chief executive officers in the
natural gas pipeline industry (including those peer group companies used in the
Stockholder Return
18
<PAGE> 22
Comparisons in Section D hereof), the Compensation Committee, with the aid of an
independent compensation consultant, concluded that the appropriate grant would
be 300,000 shares, with restrictions on transferability being removed on 25,000
shares every three months, beginning in February 1994. Mr. Hendrix receives
dividends payable to stockholders of record of Common Stock on the restricted
shares. The Compensation Committee believes that the value of Mr. Hendrix's
compensation is approximately at the mean of that for the chief executive
officers of the peer group companies.
Provisions of the Budget Act enacted after the amendment date, generally
remove the Company's ability to deduct compensation expense in excess of $1
million paid to any of the five highest paid executives, including the Chief
Executive Officer, in any year beginning in 1994 unless such compensation is
"performance-based" as defined by the Budget Act. Although the award to Mr.
Hendrix was set at a competitive level, by its nature achieves the ultimate goal
of aligning management and stockholder interests, and has well-served the
interests of the stockholders, the terms of the award did not meet the legal
definition of "performance-based" compensation under the Budget Act. In the
Company's opinion, compensation in excess of $1 million paid to Mr. Hendrix
under the terms of the agreement would not have been deductible beginning in
1994 and could have resulted in increased tax cost to the Company of
approximately $1.8 million during the period 1994 through 1996.
In light of these changes in tax treatment of executive compensation, at
its December 20, 1993, meeting, the Compensation Committee reaffirmed its
decision to compensate Mr. Hendrix solely with restricted stock. However, due to
the significant potential tax cost of the original agreement, the Compensation
Committee elected to accelerate the removal of restrictions on 200,000 shares
into 1993 when the compensation realized by Mr. Hendrix remained fully
deductible by the Company. The restrictions on the remaining 100,000 shares of
the award will be removed as follows: 36,000 shares in quarterly installments of
9,000 shares each in 1994, 34,000 shares in quarterly installments of 8,500
shares each in 1995, and 30,000 shares in quarterly installments of 7,500 shares
each in 1996.
The Compensation Committee intends to continue to structure compensation
programs that reward performance while preserving maximum deductibility of all
compensation awards. It is not anticipated that compensation realized by any
officer under programs now in effect will, in the immediate future, result in
any material loss of tax deductions under the Budget Act.
THE COMPENSATION/ORGANIZATION/NOMINATING COMMITTEE:
WILLIAM T. ESREY, CHAIRMAN
ROBERT CIZIK
CHARLES W. DUNCAN, JR.
HARRY E. EKBLOM
LEO E. LINBECK, JR.
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<PAGE> 23
D. STOCKHOLDER RETURN COMPARISON
SEC rules require that the Company include in this Proxy Statement a line
graph presentation comparing cumulative, five-year stockholder returns on an
indexed basis with the S&P 500 Stock Index and either a nationally recognized
industry standard or an index of peer companies selected by the Company. This
information is set forth on the graph below, which covers the period from
year-end 1988 through year-end 1993. The Company has chosen the Dow Jones
Pipeline Group for its peer comparison. The Dow Jones Pipeline Group includes
Coastal Corp., El Paso Natural Gas Company, Enron Corp., Enserch Corp., Sonat,
Inc., Transco Energy Co., Williams Companies, and the Company.
COMPARISON OF FIVE YEAR CUMULATIVE TOTAL
RETURN* AMONG PANHANDLE EASTERN CORPORATION,
S&P 500 STOCK INDEX, AND DOW JONES PIPELINE GROUP
(* Total return assumes quarterly reinvestment of dividends)
<TABLE>
<CAPTION>
Measurement Period Panhandle East- Dow Jones Pipe-
(Fiscal Year Covered) ern lines S&P 500
<S> <C> <C> <C>
12/88 100.00 100.00 100.00
12/89 126.09 157.63 131.69
12/90 54.14 128.68 127.60
12/91 73.07 125.43 166.47
12/92 84.28 155.03 179.15
12/93 123.83 195.23 197.21
</TABLE>
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<PAGE> 24
The next graph compares the cumulative stockholder return of the Company
with the same indexes, but over a three-year period from year-end 1990 through
year-end 1993, the period roughly coinciding with the tenure of the Company's
current senior management team.
COMPARISON OF THREE YEAR CUMULATIVE TOTAL
RETURN* AMONG PANHANDLE EASTERN CORPORATION,
S&P 500 STOCK INDEX, AND DOW JONES PIPELINE GROUP
(* Total return assumes quarterly reinvestment of dividends)
<TABLE>
<CAPTION>
Measurement Period Panhandle East- Dow Jones Pipe-
(Fiscal Year Covered) ern lines S&P 500
<S> <C> <C> <C>
12/90 100.00 100.00 100.00
3/91 123.62 100.64 114.53
6/91 99.89 98.35 114.26
9/91 112.49 106.67 120.38
12/91 134.96 97.47 130.47
3/92 129.14 95.71 127.17
6/92 138.71 105.86 129.59
9/92 170.13 124.49 133.68
12/92 155.67 120.48 140.41
3/93 215.81 150.42 146.54
6/93 232.05 163.99 147.25
9/93 239.74 175.00 151.06
12/93 228.72 151.72 154.56
</TABLE>
There can be no assurance that the Company's cumulative total return will
continue into the future with the same or similar trends depicted in the graphs
above.
E. PROPOSED PANHANDLE EASTERN CORPORATION 1994 LONG TERM INCENTIVE PLAN
The purpose of the 1994 LTIP is to aid the Company in recruiting,
motivating, and retaining highly qualified and competent individuals as key
employees. The granting of awards will enable such employees to acquire a
substantial personal interest in the Company, thereby aligning the employees'
interests with those of the stockholders. Key employees of the Company and its
affiliates, including Messrs. Hendrix, Mazanec, Anderson, Hipple, and King, and
other officers, will be eligible to participate in the 1994 LTIP, which will
expire on December 31, 2003.
Upon approval of the 1994 LTIP, there will be 3,000,000 shares of Common
Stock made available for grant beginning in 1994. Each year thereafter,
beginning with 1995, the lesser of (i) 55/100's of one percent of the number of
shares of Common Stock outstanding on January 1, together with any shares
remaining from prior year(s), or (ii) 3,000,000 shares, will be available for
grant. However, no grant of shares may be made if the number of shares subject
to the grant, when added to the cumulative shares previously granted, would
exceed 5.5 percent of the average of the total shares outstanding as of the
first day of each calendar year during which the Plan has then been in effect.
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<PAGE> 25
The 1994 LTIP makes available to the Compensation Committee a number of
incentive devices such as incentive stock options ("ISOs"), nonqualified stock
options ("NQOs"), SARs, restricted stock, performance units (including EPS
Performance Units), performance shares, and dividend equivalents. The
Compensation Committee will adopt administrative guidelines from time to time
which will define specific eligibility criteria, the types of awards to be
employed, and the value of such awards. The Compensation Committee may establish
minimum performance targets with respect to each award. Performance targets may
be based on financial criteria, such as the Fair Market Value of Common Stock or
other measures of financial performance of the Company, or may be based on the
performance of a division, subsidiary, or affiliate of the Company or the
performance of an individual participant. Specific terms of each award,
including minimum performance criteria which must be met to receive payment,
will be provided in individual award agreements granted to award participants.
Award agreements may contain change-in-control provisions. Any options to
purchase shares of Common Stock that may be granted pursuant to the 1994 LTIP
will be granted at no less than 100 percent of the Fair Market Value of the
Common Stock on the date of grant. The Fair Market Value, as defined by the
Plan, is the average of the high and low prices of a share of Common Stock
traded on the relevant date, as reported on The New York Stock Exchange, Inc.,
Composite Transactions Reporting System.
During the term of the Plan, no participant may be awarded ISOs, NQOs, and
SARs covering an aggregate of more than one million shares. Additionally,
amounts received in any year pursuant to awards (other than ISOs, NQOs, or SARs)
granted to any participant, the deductibility by the Company of whose awarded
compensation is likely to be subject to the $1 million limitation imposed by
Section 162(m) of the Code ("Covered Employee"), are restricted to a maximum
value of 500 percent of the participant's annual salary at the rate in effect on
the first day of the year of receipt. Additionally, cumulative amounts paid
pursuant to awards (other than ISOs, NQOs, or SARs) granted in any year to any
participant who is a Covered Employee or pursuant to cash-only awards granted in
any year to any participant who is subject to Section 16 of the Exchange Act
(where the Company intends to comply with Rule 16a-1(c)(3) under the Exchange
Act), are restricted to a maximum value of 500% of the participant's annual
salary at the rate in effect on the first day of the year of grant. For purposes
of these dollar maximums, in the event that the participant does not receive a
salary, the participant shall be deemed to have an annual salary, if a Covered
Employee, of $500,000; otherwise, of $250,000.
The Compensation Committee may delegate the authority to grant and
administer awards under the Plan that are made to the Company's Chief Executive
Officer and any other employee that the Committee determines is likely to be
among the four other highest compensated officers of the Company for the year,
as provided in Section 162(m) of the Code, to a subcommittee consisting solely
of two or more "outside directors" as defined under Code Section 162(m) and
appointed by the Committee.
The Compensation Committee will have the right to amend, suspend, or
discontinue the 1994 LTIP or alter or amend any or all award agreements made
pursuant to it to the extent permitted by law. However, no amendment,
suspension, or termination of the 1994 LTIP shall, without the consent of the
participant, adversely alter or change any of the rights or obligations under
any awards or other rights previously granted to the participant under the Plan.
Moreover, the Compensation Committee may not take any such action without
approval of the stockholders, if required by law, Rule 16b-3 under the Exchange
Act or any successor provisions, or the rules of any stock exchange on which the
Common Stock or any other security of the Company is listed.
Federal Income Tax Effects. The following is a general summary of the
principal Federal income tax effects under current law to employee award
recipients and to the Company in connection with the various awards which may be
granted under the 1994 LTIP. These descriptions do not purport to cover all of
the potential tax consequences with respect to such awards.
1. A NQO is a right to purchase a specified number of shares of Common
Stock at a fixed option price over a specified period of time. An optionee will
realize no income for Federal income tax purposes upon the grant of a NQO under
the 1994 LTIP, but will recognize ordinary income upon the exercise of the NQO
in an amount equal to the excess of the Fair Market Value of the shares received
upon exercise over the option price
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<PAGE> 26
of such shares. The Company will be entitled to a deduction for Federal income
tax purposes in the same year as, and in an amount equal to, the income
recognized by the optionee. The optionee's adjusted basis for the shares
received upon exercise will be the Fair Market Value on the date of exercise.
2. An ISO is a right, that complies with the terms of Section 422 of the
Internal Revenue Code, to purchase a specified number of shares of Common Stock
at a fixed option price over a period not to exceed ten years. Except as
described below, an optionee who is granted an ISO under the 1994 LTIP will
recognize no income for Federal income tax purposes upon either the grant or the
exercise of such ISO, and upon any subsequent sale of the shares acquired the
optionee will recognize capital gain or loss in an amount equal to the
difference between the option exercise price and the amount received upon the
sale of the Common Stock. Generally, the Company will not be entitled to a
deduction upon the exercise of an ISO. An optionee who receives Common Stock
pursuant to the exercise of an ISO and (a) within one year of exercise disposes
of the Common Stock, (b) holds the Common Stock for a year or more from the day
such shares are received but disposes of the shares within two years from the
day the ISO was granted, or (c) has not been an employee of the Company or its
affiliates within the last three months, will recognize ordinary income upon the
disposition, or in case (c), upon exercise, in an amount equal to the lesser of
(i) the excess of the value of any property and cash received upon any
disposition over the ISO's exercise price or (ii) the excess of the value of the
Common Stock at the time of the ISO's exercise over the ISO's exercise price.
The Company will be entitled to a corresponding deduction for Federal income tax
purposes. An optionee will also recognize a capital gain to the extent the value
of any property and cash received pursuant to the disposition exceeds the value
of the Common Stock at the time of the exercise of the ISO.
3. An SAR is a right to receive an amount not in excess of the Fair Market
Value on the exercise date of the number of shares of Common Stock for which the
SAR is exercised less the exercise price of the SAR. SARs will be payable in
cash, Common Stock, or a combination thereof. Upon the exercise of any SAR the
employee will recognize ordinary income in the amount of any cash received plus
the Fair Market Value on the exercise date of any Common Stock received. The
Company will be entitled to a deduction in the same year and in the same amount.
4. Restricted stock is Common Stock that is subject to restrictions on
transfer of ownership. Awards of restricted stock may be made with or without
cash payment by the employee. An employee who receives a grant of restricted
stock and who does not elect to be taxed at the time of grant will not recognize
income upon an award of shares of Common Stock and the Company will not be
entitled to a deduction until the termination of the restrictions. Upon such
termination, the employee will recognize ordinary income in an amount equal to
the Fair Market Value of the Common Stock at that time (less any amount paid by
the employee for such shares) and the Company will be entitled to a deduction in
the same amount. However, the employee may elect to recognize ordinary income in
the year the restricted stock is granted in an amount equal to the Fair Market
Value of the shares at that time, determined without regard to the restrictions.
In that event, the Company will be entitled to a deduction in such year and in
the same amount. Any gain or loss recognized by the employee upon subsequent
disposition of the stock will be capital in nature.
5. A performance award is a promise by the Company to make payment to the
employee, contingent upon the achievement of one or more performance targets.
Performance units are payable in cash and performance shares are payable in
Common Stock. A dividend equivalent is the right to receive an amount equal to
the dividends paid on a specified number of shares of Common Stock and is
payable in cash. For performance units, performance shares, and dividend
equivalents, any cash plus the Fair Market Value of any Common Stock received as
payments under the 1994 LTIP will be considered ordinary income to the employee
in the year in which paid and the Company will be entitled to a deduction in the
same year and in the same amount.
In general, special tax timing rules apply to officers and Directors
subject to Section 16(b) of the Exchange Act.
The foregoing summary of the proposed 1994 LTIP is qualified in its
entirety by reference to the specific provisions of the Plan, the full text of
which is set forth as Exhibit I hereto. The Fair Market Value of the Company's
Common Stock on February 28, 1994, was $22.00 per share.
23
<PAGE> 27
THE BOARD HAS RECOMMENDED THE 1994 LTIP FOR APPROVAL BY THE STOCKHOLDERS
AND RECOMMENDS A VOTE FOR THE 1994 LTIP. THE ADOPTION OF THE PLAN WILL REQUIRE
FOR APPROVAL THE AFFIRMATIVE VOTE OF THE HOLDERS OF A MAJORITY OF THE ISSUED AND
OUTSTANDING SHARES OF COMMON STOCK PRESENT OR REPRESENTED BY PROXY AND ENTITLED
TO VOTE AT THE ANNUAL MEETING.
F. OTHER MATTERS
INDEPENDENT AUDITORS
KPMG Peat Marwick ("Peat Marwick") served as the Company's independent
auditor during 1993, and was again appointed by the Board to serve in that
capacity for 1994. Representatives of Peat Marwick will be present at the Annual
Meeting to respond to appropriate questions from stockholders and to make a
statement if they desire to do so.
OTHER MATTERS BEFORE THE MEETING
It is not expected that any other matters will come before the Annual
Meeting. However, if any other matters properly come before the Annual Meeting,
it is the intention of the persons named in the accompanying form of proxy to
vote such proxy in accordance with their judgment on such matters.
It is important that the proxies be returned promptly. All stockholders,
whether or not they expect to attend the Annual Meeting in person, are urged to
mark, sign, date, and return the accompanying form of proxy in the enclosed
pre-addressed envelope, which requires no postage if mailed in the United
States.
BY ORDERS OF THE BOARD OF DIRECTORS,
/s/ ROBERT W. REED
-------------------------------
ROBERT W. REED
Secretary
Dated: March 11, 1994
Houston, Texas
24
<PAGE> 28
EXHIBIT I
PANHANDLE EASTERN CORPORATION
1994 LONG TERM INCENTIVE PLAN
Panhandle Eastern Corporation (the "Company") hereby establishes this Plan
for key employees of the Company and its Affiliates, as follows:
1. PURPOSE
The purpose of this Plan is to aid the Company and its Affiliates in
recruiting, motivating and retaining highly qualified and competent individuals
as key employees. It is believed that this purpose will be furthered through the
granting of Awards under this Plan to key employees as an incentive for the
diligent application of their personal efforts to the continued success of the
Company and its Affiliates.
This Plan shall be effective January 1, 1994, subject to approval by the
Company's stockholders at the 1994 Annual Meeting of Stockholders to be held
April 27, 1994, and shall terminate on December 31, 2003, except with respect to
any Award then outstanding.
2. DEFINITIONS
"Administrative Guidelines" means the interpretative guidelines adopted by
the Committee, as amended from time to time by the Committee, which guidelines
shall be treated as a part of this Plan and shall be valid and binding upon the
Participants.
"Affiliate" means any subsidiary corporation (as defined in Section 424 of
the Code) of the Company.
"Award" means an Award described in Section 4 of this Plan.
"Award Agreement" means an agreement entered into between the Company and a
Participant, setting forth the terms and conditions applicable to the Award
granted to the Participant.
"Board" means the Board of Directors of the Company.
"Code" means the Internal Revenue Code of 1986 and the regulations
thereunder, as amended from time to time.
"Committee" means the Compensation/Organization/Nominating Committee of the
Board; provided that to the extent required by Rule 16b-3 under the Exchange Act
or any successor provision, such committee shall be comprised only of members
who shall qualify as "disinterested persons" under such rule.
"Common Stock" means the common stock, $1.00 per share par value, of the
Company and shall include both treasury shares and authorized but unissued
shares and shall also include any security of the Company issued in
substitution, in exchange for, or in lieu of the Common Stock.
"Covered Employee" means, for any Plan Year, the Company's Chief Executive
Officer (or any individual acting in such capacity) and any employee of the
Company or its Affiliates who, in the discretion of the Committee for purposes
of determining those employees who are "covered employees" under Section 162(m)
of the Code, is likely to be among the four other highest compensated officers
of the Company for such Plan Year.
"ERISA" means the Employment Retirement Income Security Act of 1974 and the
regulations thereunder, as amended from time to time.
"Exchange Act" means the Securities Exchange Act of 1934 and the
regulations thereunder, as amended from time to time.
"Fair Market Value" means the average of the high and low sales prices of a
share of Common Stock, or other security for which Fair Market Value is being
determined, as quoted on the New York Stock Exchange, Inc. Composite
Transactions Reporting System (or such other reporting system as shall be
selected by the Committee from time to time) on the relevant date, or if no sale
of Common Stock or such other security is reported for such date, the
immediately preceding day for which there is a reported sale. The Committee
shall
I-1
<PAGE> 29
determine the Fair Market Value of any security that is not publicly traded,
using such criteria as it shall determine, in its sole discretion, to be
appropriate for the purposes of such valuation.
"Participant" means an individual who has been granted an Award pursuant to
this Plan.
"Plan" means this Panhandle Eastern Corporation 1994 Long Term Incentive
Plan, as set forth herein and as it may be amended from time to time.
"Plan Year" means the calendar year.
3. ELIGIBILITY
Key employees (including officers and employee directors) of the Company
and its Affiliates selected by the Committee from time to time shall be eligible
to participate in this Plan. An Award may not be granted to a member of the
Board who is not also an employee of the Company or an Affiliate.
4. AWARDS
An Award is the right to receive compensation under this Plan, payable in
cash, Common Stock or other securities of the Company or an Affiliate, or any
combination thereof, determined in accordance with the Administrative
Guidelines. All Awards made pursuant to this Plan are in consideration of
services performed or to be performed for the Company or its Affiliates. No
awards under this Plan shall be granted after December 31, 2003. The Committee
may establish minimum performance targets with respect to each Award.
Performance targets may be based on financial criteria, such as the Fair Market
Value of Common Stock or other measures of financial performance of the Company,
or may be based on the performance of a division, subsidiary or Affiliate of the
Company, or the performance of an individual Participant. Notwithstanding
anything in this Plan to the contrary, any Awards of stock options or similar
rights, stock appreciation rights, performance units, or performance shares
shall contain the restrictions on assignability in Section 7(a) of this Plan to
the extent required by Rule 16b-3 under the Exchange Act or any successor
provision. The following types of Awards may be granted under this Plan, singly
or in combination or in tandem with other Awards, as the Committee may
determine:
(a) Non-Qualified Stock Options. A non-qualified stock option is a
right to purchase, during such period of time as the Committee may
determine, a specified number of shares of Common Stock or other security,
which does not qualify as an incentive stock option under Section 422 of
the Code, at a fixed option price equal to no less than 100 percent of the
Fair Market Value of the Common Stock or other security on the date the
Award is granted. The option price may be payable in the following form(s)
as determined in accordance with the Administrative Guidelines:
(i) in U.S. dollars by personal check, bank draft or money order
payable to the order of the Company, wire transfer, or direct account
debit;
(ii) through the delivery (together with a blank stock power or
other instrument of assignment) or assignment of the ownership of shares
of Common Stock or other securities of the Company with a Fair Market
Value equal to all or a portion of the option price for the total number
of options being exercised. If the Fair Market Value of the shares of
Common Stock or other securities delivered is less than the total option
price of the options to be exercised, a sequential exercise of the
remaining options to be exercised with the proceeds credited from the
initial exercise and subsequent exercises shall be permitted, pursuant
to a brokerage or similar arrangement, until all requested exercises
have been accomplished; provided that, in the case of the last exercise
in any such sequence, the optionee must pay in cash any fractional
shares required to effect such sequential exercise; or
(iii) by a combination of the methods described in clauses (i) and
(ii) above.
(b) Incentive Stock Options. An incentive stock option is a right to
purchase, during such period of time as the Committee may determine, a
specified number of shares of Common Stock or other security, that shall
comply with the requirements of Section 422 of the Code or any successor
provision, at a fixed option price equal to no less than 100 percent of the
Fair Market Value of the Common Stock or other
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<PAGE> 30
security on the date the Award is granted. Notwithstanding any other
provision of this Plan, the aggregate number of shares that may be subject
to incentive stock options under this Plan shall not exceed 3,000,000
shares of Common Stock, subject to the limitation imposed by Section 6 of
this Plan and subject to the adjustment provisions set forth in Section 11
of this Plan. The aggregate Fair Market Value (determined at the time of
grant of the Award) of the shares with respect to which incentive stock
options are exercisable for the first time by an optionee during a calendar
year shall not exceed $100,000 (or such other limit as may be required by
the Code). The Committee may provide that the option price under an
incentive stock option may be paid by one or more of the methods described
with respect to nonqualified stock options in Sections 4(a)(i), (ii) and
(iii) above.
(c) Stock Appreciation Rights. A stock appreciation right is a right
to receive, without payment, an amount not in excess of (i) the Fair Market
Value on the exercise date of the number of shares of Common Stock for
which the stock appreciation right is exercised less (ii) the exercise
price of such stock appreciation right, which price shall equal the Fair
Market Value of such shares on the date the stock appreciation right was
granted (or, in the case of an option with a tandem stock appreciation
right, the option price that the optionee would otherwise have been
required to pay for such shares). The right to receive such amount shall be
conditioned upon the surrender of the stock appreciation right (or of both
the option and the stock appreciation right in the case of a tandem stock
appreciation right, or a portion of either). Stock appreciation rights
shall be payable in Common Stock, cash or a combination thereof as
determined by the Committee.
(d) Restricted Stock. Restricted stock is Common Stock or other
security of the Company or an Affiliate that is subject to restrictions on
transfer and such other restrictions on the incidents of ownership as the
Committee may determine at the time of the Award. Restricted stock Awards
may be made without cash payment by, or other out-of-pocket consideration
from, the Participant, either on the date of grant or the date the
restriction(s) lapse or are removed.
(e) Performance Units. A performance unit is a promise by the Company
to make a payment to, or on behalf of, the Participant, which may be
contingent upon the achievement of one or more performance targets
specified by the Committee. A performance unit is a right to receive or be
credited with an amount that may be determined by reference to Common
Stock, other securities of the Company or an Affiliate, or by reference to
dollar amounts. Performance units shall be subject to such conditions with
respect to vesting, timing, amount and payment as the Committee shall
determine at the time of the Award. Performance units shall be payable in
cash. Performance unit Awards may be made without cash payment by, or other
out-of-pocket consideration from, the Participant, either on the date of
grant or the date of payment. By way of example, but not limitation,
performance units, called "EPS Units," may be granted in tandem with Awards
of stock options and the credited amount with respect to an EPS Unit shall
be determined with reference to the difference between (i) the Company's
annual earnings per share of Common Stock, as adjusted to exclude items
that the Committee determines to be in-appropriate for purposes of the
Award, and (ii) an amount specified by the Committee that reflects the
level of such earnings at the time of the Award and the principal manner of
payment shall be by application toward the option price upon the
Participant's exercise of the stock option.
(f) Performance Shares. A performance share is a promise by the
Company to make a payment to the Participant, which may be contingent upon
the achievement of one or more performance targets specified by the
Committee at the time of the award. A performance share is a right to
receive an amount that may be determined by reference to Common Stock,
other securities of the Company or an Affiliate, or by reference to dollar
amounts. Performance shares shall be subject to such conditions with
respect to vesting, timing, and amount of payments as the Committee shall
determine at the time of the Award. Performance shares shall be payable in
Common Stock, or other securities of the Company or an Affiliate.
Performance share Awards may be made without cash payment by, or other out
of pocket consideration from, the Participant, either on the date of grant
or the date of payment.
(g) Dividend Equivalents. A dividend equivalent is the right to
receive an amount equal to the dividends paid on a specified number of
shares of Common Stock. A dividend equivalent shall be payable in cash.
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(h) Other Awards. The Committee may, from time to time, grant such
other Awards as the Committee may determine, provided that no such Award
shall be inconsistent with the terms of this Plan.
Amounts received pursuant to cash-only Awards granted under Sections 4(c)
and 4(e) through 4(h) of this Plan, or any combination thereof, if intending to
comply with Rule 16a-1(c)(3)(i) under the Exchange Act or any successor
provision, for each Plan Year to any Participant who is subject to Section 16 of
the Exchange Act shall be limited to a maximum value of 500% of the
Participant's annual salary at the rate in effect on the first day of such Plan
Year. For purposes of the preceding sentence, if a Participant who is not a
Covered Employee, but is subject to Section 16 of the Exchange Act, does not
receive a salary, the Participant shall be deemed to have an annual salary of
$250,000.
5. AWARDS TO COVERED EMPLOYEES
The Committee may determine that any Award granted hereunder for any Plan
Year to a Participant who is a Covered Employee shall be made and administered
by a subcommittee consisting solely of two or more "outside directors" (as
defined in Treasury regulations promulgated under Section 162(m) of the Code)
appointed by the Committee (the "Subcommittee"). Any such Award may be
determined solely on the basis of (a) the achievement by the Company of a
specified target earnings per share, return on equity or net income, all as
adjusted to exclude items that the Subcommittee determines to be inappropriate
for purposes of the Award, (b) the Company's stock price, (c) the achievement by
a business unit of the Company of a specified target net income as adjusted to
exclude items that the Subcommittee determines to be inappropriate for purposes
of the Award, or market share, or (d) any combination of the goals set forth in
(a) through (c) above. If an Award is made on such basis, the Subcommittee shall
establish such goals prior to the beginning of the Plan Year (or such later date
as may be prescribed by the Internal Revenue Service for purposes of Section
162(m) of the Code). Amounts received for each Plan Year pursuant to Awards
granted under Sections 4(d) through 4(h) of this Plan, or any combination
thereof, to each Covered Employee shall be limited to a maximum value of 500% of
the Covered Employee's annual salary at the rate in effect on the first day of
such Plan Year. In no event may the cumulative amounts paid pursuant to Awards
granted in any Plan Year under Sections 4(d) through 4(h) of this Plan, or any
combination thereof, to any Covered Employee exceed 500% of the Covered
Employee's annual salary at the rate in effect on the first day of such Plan
Year. For purposes of the two preceding sentences, if a Covered Employee does
not receive a salary, the Covered Employee shall be deemed to have an annual
salary of $500,000. Any payment of an Award granted under this Section 5, other
than Awards referred to in Sections 4(a), 4(b) or 4(c) of this Plan or any
combination thereof, shall be conditioned on the written certification of the
Subcommittee that the goals used as the basis for any such Award, and any other
material terms, were in fact satisfied.
6. SHARES SUBJECT TO THIS PLAN
Subject to adjustment as provided in Section 11 of this Plan, the total
number of shares of Common Stock available for the grant of Awards under this
Plan for the 1994 calendar year shall be 3,000,000 shares of Common Stock and
for each succeeding calendar year prior to 2004 shall be the lesser of (a)
3,000,000 shares of Common Stock, or (b) the sum of (i) the number of shares
available for the grant of Awards under this Plan for the prior year or years
but not covered by Awards granted for such prior year or years, plus (ii) fifty-
five one hundredths of one percent (0.55%) of the total outstanding shares of
Common Stock (not including treasury shares) as of the first day of such
succeeding calendar year; provided that no more than one million (1,000,000)
shares of Common Stock shall be cumulatively available for the grant of Awards
under Sections 4(a), 4(b) or 4(c) of this Plan or any combination thereof
pursuant to this Plan to any Participant, and, further provided, that no Award
shall be granted if the number of shares of Common Stock subject to the Award,
which, when added to the cumulative shares of Common Stock previously granted
under this Plan, would exceed five and five tenths of one percent (5.5%) of the
average of the number of outstanding shares of Common Stock (not including
treasury shares) as of the first day of each calendar year during which this
Plan then has been in effect. In addition, any shares of Common Stock issued by
the Company through the assumption or substitution of outstanding grants of an
acquired entity shall not reduce the shares of Common Stock available for the
grant of Awards under this Plan. Other than for purposes of the per Participant
limitation referred to above, if any shares of Common Stock subject to any Award
under this Plan are forfeited
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or such Award otherwise terminates without the issuance of such shares or of
other consideration in lieu of such shares, the shares of Common Stock subject
to such Award, to the extent of any such forfeiture or termination, shall again
be available for the grant of Awards under this Plan.
7. AWARD AGREEMENTS
Each Award under this Plan shall be evidenced by an Award Agreement setting
forth the terms and conditions, as determined by the Administrative Guidelines
or pursuant to Section 5 hereof, applicable to the Award. Award Agreements may
include:
(a) Non-Assignability. A provision to the effect that no Award shall
be assignable or transferable except by will or by the laws of descent and
distribution or, to the extent permitted by the Committee, except pursuant
to a qualified domestic relations order as defined under the Code or Title
I of ERISA, and that during the lifetime of a Participant, the Award shall
be exercised only by such Participant or by his guardian or legal
representative.
(b) Termination of Employment. Provisions governing the disposition of
an Award in the event of the retirement, disability, death, or other
termination of a Participant's employment by or relationship to the Company
or an Affiliate.
(c) Rights as a Stockholder. A provision concerning what rights, if
any, a Participant shall have as a stockholder with respect to any shares
of Common Stock covered by an Award until the date the Participant or his
nominee becomes the holder of record. Except as provided in Section 11
hereof, no adjustment shall be made for dividends or other rights for which
the record date is prior to such date, unless the Award Agreement
specifically requires such adjustment.
(d) Withholding. A provision requiring the withholding of all taxes as
required by law. In the case of payments of Awards in shares of Common
Stock or other securities, withholding shall be as required by law and the
Administrative Guidelines. The Committee may permit Participants to elect
to satisfy withholding requirements by having the Company withhold shares
of Common Stock or other securities having a Fair Market Value equal to the
amount required to be withheld. In the case of a Participant subject to
Section 16 of the Exchange Act, the Committee may require that the election
be made on or before the date that the amount of tax to be withheld is
determined (the "Tax Date") and be subject to the following restrictions:
(i) The election must be irrevocable;
(ii) if required by the Committee, the election must be subject to the
disapproval of the Committee; and
(iii) the election must (A) if permitted by the Committee, be made six
months or more prior to the Tax Date, (B) be made during a "window period"
beginning on the third business day after release of the Company's
quarterly or annual earnings release and ending on the twelfth business day
following such release date, or (C) if made outside of such a window
period, take effect during such a window period.
(e) Holding Period. A provision that the Award, and any shares of
Common Stock received upon exercise of the Award, be held at least six
months from the date of grant.
(f) Miscellaneous. Such other terms and conditions, including, without
limitation, the criteria for determining vesting of Awards, the amount or
value of Awards, termination of Awards for cause, the exercise of Awards
pursuant to a brokerage or similar arrangement, or adjustments for
nonrecurring or extraordinary items, as are necessary and appropriate to
effect the purposes of this Plan.
8. CHANGE IN CONTROL
Award Agreements may include, as set forth in the Administrative
Guidelines, that any or all of the following actions may occur as a result of,
or in anticipation of, any Change in Control to assure fair and equitable
treatment of Participants:
(a) acceleration of time periods for purposes of vesting in, or
realizing gain from, any outstanding Award made pursuant to this Plan;
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<PAGE> 33
(b) purchase of any outstanding Award made pursuant to this Plan from
the holder for its equivalent cash value, as determined by the Committee,
as of the effective date of the Change in Control; and
(c) adjustments or modifications to outstanding Awards as the
Committee deems appropriate to maintain and protect the rights and
interests of Participants.
For purposes of this Section, a "Change in Control" shall mean the
occurrence of any of the following events:
(i) a third person, including a syndicate or group deemed to be a
person under Section 13(d)(3) of the Exchange Act, becomes the beneficial
owner (as so determined) of Common Stock having thirty percent (30%) or
more of the total number of votes that may be cast for the election of
members of the Board;
(ii) all or substantially all of the assets and business of the
Company are sold, transferred or assigned to, or otherwise acquired by, any
other entity or entities; or
(iii) as a result of, or in connection with, any cash tender or
exchange offer, merger or other business combination, sale of assets or
contested election, or any combination of the foregoing transactions (a
"Transaction"), the persons who are members of the Board before the
Transaction shall cease to constitute a majority of the Board of the
Company or any successor to the Company.
Notwithstanding the foregoing, in no event shall the distribution by the
Company to its stockholders of stock in a subsidiary be deemed a Change in
Control.
9. AMENDMENT AND TERMINATION
The Committee may at any time amend, suspend, or discontinue this Plan or
alter or amend any or all Award Agreements under this Plan; provided, however,
that no amendment, suspension, or termination of this Plan shall, without the
consent of the Participant, adversely alter or change any of the rights or
obligations under any Awards or other rights previously granted the Participant
under this Plan; provided, further, however, that the Committee may not take any
such action without approval of the Company's stockholders if such approval is
required by law, Rule 16b-3 under the Exchange Act or any successor provision,
or the rules of any stock exchange on which the Common Stock or any other
security of the Company is listed.
10. ADMINISTRATION
(a) Except as provided in Section 5 of this Plan, this Plan and all Awards
granted pursuant thereto shall be administered by the Committee. The Committee
shall periodically make determinations with respect to eligible individuals who
shall participate in this Plan and receive Awards pursuant thereto. All
questions of interpretation and administration with respect to the Plan and
Award Agreements shall be determined by the Committee, or the Subcommittee if
applicable, in its absolute discretion, and its determination shall be final and
conclusive upon all parties in interest.
(b) The Committee may authorize persons other than its members to carry out
its policies and directives, including the authority to grant Awards, subject to
the limitations and guidelines set by the Committee, except that any such
delegation shall satisfy any applicable requirements of Rule 16b-3 under the
Exchange Act or any successor provision. Any person to whom such Authority is
granted shall continue to be eligible to receive Awards under this Plan,
provided that such Awards are granted directly by the Committee without
delegation.
11. ADJUSTMENT PROVISIONS
If the outstanding shares of Common Stock shall be changed into or
exchanged for a different number or kind of shares of stock or other securities
or property of the Company or of another corporation (whether by reason of
merger, consolidation, recapitalization, reclassification, split up, combination
of shares, or otherwise), or if the number of such shares of Common Stock shall
be increased by a stock dividend or stock split,
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there shall be substituted for or added to each share of Common Stock
theretofore available for purposes of this Plan, whether or not such shares are
at the time subject to outstanding Awards, the number and kind of shares of
stock or other securities or property into which each outstanding share of
Common Stock shall be so changed or for which it shall be so exchanged, or to
which each such share shall be entitled, as the case may be. Outstanding Awards
may be amended as to price and other terms as the Committee, or the Subcommittee
if applicable, may deem necessary or appropriate to reflect the foregoing
events. If there shall be any other change in the number or kind of the
outstanding shares of Common Stock, or of any stock or other securities or
property into which such Common Stock shall have been changed, or for which it
shall have been exchanged, or any other event affecting the capitalization of
the Company (such as an extraordinary dividend), the Committee, or the
Subcommittee if applicable, may, in its sole discretion, make such adjustment or
adjustments in the number or kind or price or other terms of the shares then
available for the purposes of this Plan, or in any Award theretofore granted or
which may be granted under this Plan, as the Committee, or the Subcommittee if
applicable, may deem necessary or appropriate. Any such adjustment shall be
effective and binding for all purposes of this Plan. In making any substitution
or adjustment pursuant to this Section 11, fractional shares may be ignored.
The Committee shall have the power, in the event of any merger or
consolidation of the Company with or into any other corporation, or the merger
or consolidation of any other corporation with or into the Company, to amend all
outstanding Awards to permit the exercise thereof in whole or in part at any
time, from time to time, prior to the effective date of any such merger or
consolidation (but not more than ten (10) years after the date of grant of any
incentive stock option) and to terminate each such Award as of such effective
date.
12. UNFUNDED PLAN
The adoption of this Plan and any setting aside of amounts by the Company
with which to discharge its obligations hereunder shall not be deemed to create
a trust. The benefits provided under this Plan shall be a general, unsecured
obligation of the Company payable solely from the general assets of the Company,
and neither a Participant nor the Participant's beneficiaries or estate shall
have any interest in any assets of the Company by virtue of this Plan. Nothing
in this Section 12 shall be construed to prevent the Company from implementing
or setting aside funds in a grantor trust subject to the claims of the Company's
creditors. Legal and equitable title to any funds set aside, other than in any
grantor trust subject to the claims of the Company's creditors, shall remain in
the Company and any funds so set aside shall remain subject to the general
creditors of the Company, present and future. Any liability of the Company to
any Participant with respect to an Award shall be based solely upon contractual
obligations created by this Plan, the Administrative Guidelines and the Award
Agreement.
13. RIGHT OF DISCHARGE RESERVED
Nothing in this Plan or in any Award shall confer upon any employee or
other individual the right to continue in the employment or service of the
Company or any Affiliate or affect any right that the Company or any Affiliate
may have to terminate the employment or service of any such employee or other
individual at any time for any reason.
14. RULE 16B-3
This Plan is intended to comply with the applicable provisions of Rule
16b-3 under the Exchange Act or any successor provision and to the extent any
provision of this Plan or any action by the Board or the Committee, or the
Subcommittee if applicable, fails to so comply, the provision or action shall be
deemed to be amended in order to cause the provision or action to so comply.
15. GOVERNING LAW
This Plan shall be governed by, construed and enforced in accordance with
the laws of the State of Texas applicable to transactions that take place
entirely within the State of Texas, and, where applicable, the laws of the
United States.
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PROXY
PANHANDLE EASTERN CORPORATION PLEASE MARK VOTE / / OR /X/
P O Box 1642 Houston, Texas 77251-1642
THIS PROXY IS SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS FOR
THE ANNUAL MEETING OF STOCKHOLDERS ON APRIL 27, 1994
As evidenced by the signature(s) on the reverse side hereof, the
undersigned hereby appoints James B. Hipple, Carl B. King, and
Robert W. Reed, and any one of them, as Proxies, each with full
power of substitution, to represent and vote all shares of the
Common Stock of Panhandle Eastern Corporation (the "Company") which
the undersigned would be entitled to vote if personally present at
the Annual Meeting of Stockholders of the Company to be held at the
J.W. Marriott Hotel, 5150 Westheimer, Houston, Texas, on April 27,
1994, at 10:00 A.M., and at any adjournments thereof, with all power
the undersigned would possess if personally present. This card also
provides voting instructions for shares, if any, held in the
Company's Dividend Reinvestment and Stock Purchase Plan and, if
applicable, shares held in the various employee benefit plans.
ITEM 1--ELECTION OF DULY NOMINATED DIRECTORS (THREE YEAR TERMS)
<TABLE>
<S> <C> <C> <C>
Nominees. Paul M. Anderson, FOR ALL NOMINEES WITHHELD
William T. Esrey, (EXCEPT AS MARKED (AS TO ALL
Ann Maynard Gray, and TO THE CONTRARY NOMINEES)
George L. Mazanec. AS PROVIDED)
/ / / /
</TABLE>
Nominees. (To withhold authority to vote for any individual nomi-
nee write that nominee's name in the space provided
below)
-------------------------------------------------------
ITEM 2--APPROVAL OF THE PANHANDLE EASTERN CORPORATION
1994 LONG TERM INCENTIVE PLAN
FOR AGAINST ABSTAIN
/ / / / / /
ITEM 3--ON ANY OTHER MATTERS THAT MAY PROPERLY COME BEFORE THE
MEETING.
(CONTINUED AND TO BE SIGNED ON REVERSE SIDE)
<PAGE> 36
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THIS PROXY WILL BE VOTED AS DIRECTED,
OR IF NO DIRECTION IS INDICATED, WILL BE VOTED
"FOR" ITEMS 1 AND 2.
Dated , 1994
-----------------------------
SIGNATURE(S) OF
STOCKHOLDER(S)
-----------------------------
SIGNATURE(S) OF
STOCKHOLDER(S)
<TABLE>
<S> <C>
When signing as attorney, executor,
administrator, trustee, or guardian, or in
other representative capacities, please give
PLEASE SIGN EXACTLY AS YOUR NAME APPEARS ABOVE, MARK ANY ADDRESS your full title as such. A Proxy for shares
CORRECTION, DATE, AND RETURN THIS PROXY USING THE ENCLOSED held in joint ownership should be signed by
ENVELOPE. EACH owner.
</TABLE>
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