<PAGE>
===============================================================================
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
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:
[X] Preliminary Proxy Statement [_] CONFIDENTIAL, FOR USE OF THE
COMMISSION ONLY (AS PERMITTED BY
RULE 14A-6(E)(2))
[_] Definitive Proxy Statement
[_] Definitive Additional Materials
[_] Soliciting Material Pursuant to Rule 14a-11(c) or Rule 14a-12
HOUSTON INDUSTRIES INCORPORATED
- --------------------------------------------------------------------------------
(Name of Registrant as Specified In Its Charter)
- --------------------------------------------------------------------------------
(Name of Person(s) Filing Proxy Statement, if other than the Registrant)
Payment of Filing Fee (Check the appropriate box):
[X] No fee required
[_] Fee computed on table below per Exchange Act Rules 14a-6(i)(4) and 0-11.
(1) Title of each class of securities to which transaction applies:
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(2) Aggregate number of securities to which transaction applies:
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(3) Per unit price or other underlying value of transaction computed
pursuant to Exchange Act Rule 0-11 (Set forth the amount on which
the filing fee is calculated and state how it was determined):
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(4) Proposed maximum aggregate value of transaction:
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(5) Total fee paid:
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[_] Fee paid previously with preliminary materials.
[_] Check box if any part of the fee is offset as provided by Exchange
Act Rule 0-11(a)(2) and identify the filing for which the offsetting fee
was paid previously. Identify the previous filing by registration statement
number, or the Form or Schedule and the date of its filing.
(1) Amount Previously Paid:
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(4) Date Filed:
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Notes:
<PAGE>
[Logo of Reliant Energy]
Houston
Industries
Incorporated
doing business as
Reliant Energy, Incorporated
Notice of Annual Meeting of Shareholders
to be held on May 5, 1999
and Proxy Statement
<PAGE>
Table of Contents
<TABLE>
<CAPTION>
Page
----
<S> <C>
Notice of Annual Meeting of Shareholders
Proxy Statement........................................................... 1
Voting Information...................................................... 1
Information About Directors............................................. 1
Stock Ownership......................................................... 5
Executive Compensation Tables........................................... 6
Retirement Plans, Related Benefits and Other Arrangements............... 8
Report of the Compensation Committee.................................... 12
Stock Performance Graph................................................. 15
Proposal to Change the Company's Name by Amending the Restated Articles
of Incorporation....................................................... 16
Ratification of Appointment of Independent Accountants and Auditors..... 16
Shareholder Proposals for 2000 Annual Meeting........................... 16
Director Nominations for 2000 Annual Meeting of Shareholders............ 17
General Information..................................................... 17
Section 16(a) Beneficial Ownership Reporting Compliance................. 17
Annual Report to Shareholders........................................... 17
</TABLE>
<PAGE>
[Logo of Reliant Energy appears here]
Notice of Annual Meeting of Shareholders
Dear Shareholder:
You are cordially invited to attend the Houston Industries Incorporated 1999
Annual Meeting of shareholders. The meeting will be held in the Auditorium of
Reliant Energy Plaza, 1111 Louisiana, Houston, Texas, at 9:00 a.m. Central
time, on Wednesday, May 5, 1999. At the meeting, shareholders will be asked
to:
. elect five Class III Directors for three-year terms;
. vote to approve changing the corporate name to Reliant Energy,
Incorporated, by amending the Company's Restated Articles of
Incorporation;
. ratify the appointment of Deloitte & Touche LLP as independent
accountants and auditors for the Company for 1999; and
. conduct other business if properly raised.
Shareholders of record at the close of business on March 8, 1999 are
entitled to vote. Each share entitles the holder to one vote. You may vote by
either attending the meeting or by proxy card. For specific voting
information, please see "Voting Information" on page 1. Even if you plan to
attend the meeting, please sign, date and return the enclosed proxy card.
Sincerely,
/s/ Hugh Rice Kelly
Hugh Rice Kelly
Executive Vice President
and General Counsel
Dated and first mailed
to Shareholders
on March 25, 1999
<PAGE>
HOUSTON INDUSTRIES INCORPORATED
(d/b/a Reliant Energy, Incorporated)
1111 Louisiana, Houston, Texas 77002
(713) 207-3000
PROXY STATEMENT
Voting Information
Who may vote. Shareholders recorded in our stock register on March 8, 1999,
may vote at the meeting. As of March 8, 1999, there were shares of
common stock outstanding. Each share of common stock has one vote.
Voting by proxy or in person. Your vote is important. You may vote in person
at the meeting or by proxy. We recommend you vote by proxy even if you plan to
attend the meeting. You may always change your vote at the meeting. Giving us
your proxy means that you authorize us to vote your shares at the meeting in
the manner you indicated on your proxy card. You may vote for all, some or
none of our director candidates. You may also vote for or against the other
proposals or abstain from voting.
If you sign and return the enclosed proxy card but do not specify how to
vote, we will vote your shares in favor of the director candidates, in favor
of the corporate name change and in favor of the ratification of independent
accountants.
Your proxy may be revoked before it is voted by submitting a new proxy with
a later date, by voting in person at the meeting, or by giving written notice
to Mr. Robert E. Smith, Assistant Corporate Secretary, at the Company's
address shown above.
If you plan to attend the meeting and your shares are held by banks, brokers
or investment plans (in "street name"), you will need proof of ownership to be
admitted to the meeting. A recent brokerage statement or letter from your
broker or bank are examples of proof of ownership.
Quorum needed. In order to carry on the business of the meeting we must have
a quorum. This means at least a majority of the outstanding shares eligible to
vote must be represented at the meeting, either by proxy or in person. Shares
owned by the Company are not voted and do not count for this purpose.
Votes needed. The director candidates receiving the most votes will be
elected to fill the Class III seats on the Board. Approval of the amendment to
the Company's Restated Articles of Incorporation to change the corporate name
requires the favorable vote of a majority of the outstanding shares of common
stock. Ratification of the appointment of independent accountants requires the
favorable vote of a majority of the shares of common stock voted for or
against the matter. Abstentions and broker non-votes count for quorum
proposes. For voting purposes, abstentions and broker non-votes have the same
effect as a vote against the amendment to change the corporate name but do not
affect the determination of whether the appointment of independent accountants
is ratified. Broker non-votes occur when a broker returns a proxy but does not
have authority to vote on a particular proposal.
Information About Directors
The Company's Board of Directors is divided into three classes having
staggered terms of three years. The term of office of the directors in Class
III expires at this year's meeting. The terms of office of the Class I and
Class II directors will expire in 2000 and 2001, respectively. At each annual
meeting, directors are elected to succeed the Class of directors whose terms
have expired.
Under the Company's bylaws, no director is permitted to stand for reelection
after serving on the Board for 10 years, unless such director was a director
as of April 1, 1992, or is an employee of the Company or one of its
<PAGE>
affiliates. A director is not permitted under the Bylaws to serve as a
director after the next annual meeting following the month in which the
director reaches age 70. In accordance with this age policy, Mr. Robert C.
Hanna will retire from the Board at the meeting, prior to the end of his Class
II term. The directors will continue to serve until their terms expire, unless
they die, resign or are removed before such time.
Each Class III director is up for election to a three-year term ending at
the annual meeting in 2002. Those nominees are current directors James A.
Baker, III, Richard E. Balzhiser, O. Holcombe Crosswell, Joseph M. Grant and
Don D. Jordan. If a Class III nominee becomes unavailable for election before
the meeting, the Board of Directors can name a substitute nominee and proxies
will be voted for such substitute nominee pursuant to discretionary authority.
Information about each of the nominees and the continuing directors is
provided below.
Class III Directors--Term Expiring 2002
James A. Baker, III, age 68, has been a director since 1996. Mr. Baker is
currently a senior partner in the law firm of Baker & Botts, L.L.P. in
Houston, Texas, Senior Counselor to The Carlyle Group, a merchant banking firm
in Washington, D. C., and a director of Electronic Data Systems. He served as
the U.S. Secretary of State from January 1989 through August 1992 and as White
House Chief of Staff and Senior Counselor to President Bush from August 1992
to January 1993. From 1985 to 1988, Mr. Baker was the U.S. Secretary of the
Treasury and Chairman of the President's Economic Policy Council in the
administration of President Reagan, having previously served as President
Reagan's White House Chief of Staff from 1981 to 1985 and as President Ford's
Under Secretary of Commerce in 1975.
Richard E. Balzhiser, Ph.D., age 66, has been a director since 1996. Dr.
Balzhiser is President Emeritus of the Electric Power Research Institute
(EPRI) in Palo Alto, California, a collaborative research and development
organization funded by member electric utilities. Dr. Balzhiser joined EPRI in
1973 as Director of the Fossil Fuel Advanced Systems Division. He became Vice
President of Research and Development in 1979 and Executive Vice President in
1987 and served as President and Chief Executive Officer from 1988 through
August 1996. He is a director of Electrosource Inc.
O. Holcombe Crosswell, age 58, has been a director since 1997. Mr. Crosswell
is President of Griggs Corporation, a real estate and investment company in
Houston, Texas.
Joseph M. Grant, age 60, has been a director since 1997. Mr. Grant is
Chairman and Chief Executive Officer of Texas Capital Bancshares, Inc. in
Dallas, Texas. He previously served as Executive Vice President and Chief
Financial Officer of Electronic Data Systems until his retirement in March
1998.
Don D. Jordan, age 66, has been a director since 1974. Mr. Jordan is
Chairman and Chief Executive Officer of the Company. He also serves as an
advisory director of Chase Bank of Texas, National Association and a director
of AEGIS Insurance Services, Inc., American Residential Services, Inc. and BJ
Services Company, Inc.
The Board of Directors recommends a vote FOR all nominees for Class III
Director.
Class I Directors--Term Expiring 2000
Robert J. Cruikshank, age 68, has been a director since 1993. Mr. Cruikshank
is primarily engaged in managing his personal investments in Houston, Texas.
Prior to his retirement in 1993, he was a Senior Partner in the accounting
firm of Deloitte & Touche. Mr. Cruikshank serves as a director of American
Residential Services, Inc., Kaiser Aluminum Corporation, MAXXAM Inc., Texas
Biotechnology Corporation, Weingarten Realty Investors and as an advisory
director of Compass Bank.
Linnet F. Deily, age 53, has been a director since 1993. Ms. Deily is
President, Schwab Retail Group of Charles Schwab & Co., Inc. in San Francisco,
California and is a member of the firm's management committee.
2
<PAGE>
She previously served as Chairman, Chief Executive Officer and President of
First Interstate Bank of Texas, N.A. until April 1996, having been Chairman
since 1992, Chief Executive Officer since 1991 and President of First
Interstate Bank of Texas since 1988.
Lee W. Hogan, age 54, has been a director since 1995. Mr. Hogan is Executive
Vice President of the Company and President and Chief Executive Officer of its
Reliant Energy Retail Group, having served in those capacities since January
1997. He has served since 1990 in various positions as an executive officer of
the Company and its corporate predecessors and subsidiaries.
T. Milton Honea, age 66, has been a director since 1997. Mr. Honea was
Chairman of the Board, President and Chief Executive Officer of NorAm Energy
Corp. (NorAm) until its acquisition by the Company in 1997, having served in
that capacity since December 1992. He was Executive Vice President of NorAm
from October 1991 until July 1992 and President and Chief Operating Officer of
Arkansas Louisiana Gas Company, a division of NorAm, from October 1984 to
October 1991.
Alexander F. Schilt, Ph.D., age 58, has been a director since 1992. Dr.
Schilt is the President of the InterAmerican University Council for Economic
and Social Development. He served as Chancellor of the University of Houston
until August 1995. Prior to 1990, he was President of Eastern Washington
University in Cheney and Spokane, Washington.
Class II Directors--Term Expiring 2001
Milton Carroll, age 48, has been a director since 1992. Mr. Carroll is
Chairman, President and Chief Executive Officer of Instrument Products, Inc.,
an oil-tool manufacturing company in Houston, Texas. He is a director of
Health Care Service Corporation, Seagull Energy Corporation and TEPPCO
Partners, L.P.
John T. Cater, age 63, has been a director since 1983. Mr. Cater is
President of Compass Bank--Houston. He previously served as Chairman and a
director of River Oaks Trust Company and as President, Chief Operating Officer
and a director of MCorp, a Texas bank holding company.
R. Steve Letbetter, age 50, has been a director since 1995. Mr. Letbetter is
President and Chief Operating Officer of the Company, having served in that
capacity since January 1997. He has served since 1978 in various positions as
an executive officer of the Company and its corporate predecessors. Mr.
Letbetter is a director of Chase Bank of Texas--Houston.
Board Organization and Committees
The Board of Directors directs the management of the business and affairs of
the Company. The Board appoints committees to help carry out its duties.
Several committees oversee specific matters affecting the Company, including
the Executive Committee, the Audit Committee, the Finance Committee, the
Compensation Committee, the Nuclear Committee and the Unregulated Business
Committee. Last year the Board met nine times and the committees met a total
of 23 times. Each director attended more than 75 percent of the meetings of
the Board of Directors and the committees on which he or she served.
The Executive Committee consists of seven members: Mr. Carroll, Mr. Cater,
Mr. Cruikshank, Ms. Deily, Mr. Honea, Mr. Jordan and Mr. Letbetter. This
committee reviews management recommendations for organizational changes,
consults on duties of executive officers and recommends potential candidates
for election to the Board of Directors. The committee met twice in 1998.
The Audit Committee consists of five non-employee directors: Mr. Carroll,
Mr. Crosswell, Mr. Cruikshank, Mr. Grant and Dr. Schilt. This committee
oversees accounting and internal control matters. The committee recommends to
the Board of Directors the selection of the firm of independent public
accountants to audit the financial statements of the Company and its
subsidiaries and reviews and approves the plan and scope of the
3
<PAGE>
independent public accountants' audit and non-audit services and related fees.
The committee met four times in 1998.
The Finance Committee consists of five members: Mr. Cater, Ms. Deily, Mr.
Grant, Mr. Hogan and Mr. Jordan. This committee reviews the Company's
financial policies and strategies, including capital structure, and approves
specific debt and equity offerings within limits set by the Board. The
committee met five times in 1998.
The Compensation Committee consists of four non-employee directors: Dr.
Balzhizer, Mr. Cruikshank, Ms. Deily and Mr. Hanna. This committee oversees
compensation and benefits for the Company's senior officers, including salary,
bonus and incentive awards. The committee reviews human resource programs and
monitors and, in certain cases, administers employee benefit plans. The
committee's report on executive compensation begins on page 12. The committee
met four times in 1998.
The Nuclear Committee consists of three non-employee directors: Dr.
Balzhizer, Mr. Crosswell and Dr. Schilt. This Committee reviews the Company's
nuclear development efforts and operations and makes recommendations about
nuclear regulatory reports and licensing requirements, management evaluations
of nuclear engineering and construction, and operations progress and
performance. The committee met three times in 1998.
The Unregulated Business Committee consists of four directors: Dr.
Balzhizer, Ms. Deily, Mr. Honea and Mr. Jordan. This committee reviews the
Company's strategy and activities in the areas of domestic and foreign
independent power generation projects and the privatization of foreign
generating and distribution facilities. The committee met five times in 1998.
Compensation of Directors
Company employees receive no extra pay for serving as directors. Each non-
employee director receives an annual retainer fee of $20,000, a fee of $1,000
for each board and committee meeting attended and 500 shares of Company common
stock annually under the Stock Plan for Outside Directors. Directors may defer
all or part of their annual retainer fees and meeting fees under the Company's
deferred compensation plan. The deferred compensation plan currently provides
for accrual of interest on deferred director compensation at a rate equal to
the average annual yield on the Moody's Long-Term Corporate Bond Index plus
two percentage points.
Non-employee directors participate in a director benefits plan under which a
director who serves at least one full year will receive an annual cash amount
equal to the annual retainer in the year the director terminates service.
Benefits under this plan commence the January following the later of the
director's termination of service or attainment of age 65, for a period equal
to the number of full years of service of the director.
Non-employee directors may also participate in the Company's executive life
insurance plan described under "Retirement Plans, Related Benefits and Other
Agreements." This plan provides split-dollar life insurance with a death
benefit equal to six times the director's annual retainer with coverage
continuing after termination of service as a director. The plan also permits
the Company to provide for a tax reimbursement payment to make the directors
whole for any imputed income recognized with respect to the term portion of
the annual insurance premiums. Upon death, the Company will receive the
balance of the insurance proceeds payable in excess of the specified death
benefit. The plan is designed so that the proceeds received by the Company are
expected to be at least sufficient to cover the Company's cumulative outlays
to pay premiums and the after-tax cost to the Company of the tax reimbursement
payments.
Baker and Botts, L.L.P. has provided legal services to the Company and its
subsidiaries during 1998, and is continuing to provide legal services during
1999. Class III nominee Mr. Baker is a senior partner at such firm.
Mr. Carroll performed consulting services for the Company during 1998 in
connection with deregulation issues, for which he was paid an aggregate of
$260,000.
4
<PAGE>
Stock Ownership
The following table gives information as of February 1, 1999, about the
stock ownership of any beneficial owner of more than 5% of the Company's
common stock, the directors, the Chief Executive Officer, the four most highly
compensated other executive officers, and the executive officers and directors
as a group. Each director and officer and the directors and officers as a
group beneficially owns less than 1% of the Company's outstanding common
stock.
<TABLE>
<CAPTION>
Number of
Name Shares
- ---- ----------
<S> <C>
Northern Trust Corporation................................. 31,054,460(1)
50 South LaSalle Street
Chicago, Illinois 60675
James A. Baker, III........................................ 2,500
Richard E. Balzhiser....................................... 1,600
Milton Carroll............................................. 3,900
John T. Cater.............................................. 3,500(2)
O. Holcombe Crosswell...................................... 11,095
Robert J. Cruikshank....................................... 3,500
Linnet F. Deily............................................ 3,500(3)
Joseph M. Grant............................................ 5,311
Robert C. Hanna............................................ 30,433
Lee W. Hogan............................................... 67,272(4)(5)
T. Milton Honea............................................ 101,971
Don D. Jordan.............................................. 555,718(4)(5)(6)
Hugh Rice Kelly............................................ 117,288(4)(5)
R. Steve Letbetter......................................... 139,277(4)(5)
Stephen W. Naeve........................................... 49,196(4)(5)
Alexander F. Schilt........................................ 2,300
All of the above and other executive officers as a group
(20 persons).............................................. 1,296,119(4)(5)
</TABLE>
- --------
(1) This represents 10.5% of the outstanding common stock of the Company. This
information is as of December 31, 1998 and is based on a Schedule 13G
filed with the Securities and Exchange Commission (SEC) on February 9,
1999 by Northern Trust Corporation and certain of its subsidiaries. The
13G reports sole voting power for 657,533 shares, shared voting power for
30,375,625 shares, sole dispositive power for 996,760 shares and shared
dispositive power for 74,501 shares. The Company understands that the
shares reported include 29,962,679 shares held as trustee of the Company's
savings plans.
(2) Includes 2,000 shares held by adult children.
(3) Owned jointly with spouse.
(4) Includes shares held under the Company's savings plan, as to which the
participant has sole voting power (subject to such power being exercised
by the plan's trustee in the same proportion as directed shares in the
savings plan are voted in the event the participant does not exercise
voting power).
(5) Includes shares covered by exercisable stock options as follows: Mr.
Hogan--24,334 shares; Mr. Jordan--166,872 shares; Mr. Kelly--49,884
shares; Mr. Letbetter--72,463 shares; Mr. Naeve--31,349 shares; and the
group--444,585 shares.
(6) Includes 1,152 shares owned jointly with spouse.
5
<PAGE>
Executive Compensation Tables
These tables show the compensation of the Company's chief executive officer
and the four other most highly compensated executive officers.
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
Long-Term Compensation
---------------------------------
Annual Compensation Awards Payouts
------------------------------------------ ---------------------- ----------
Restricted Securities
Name and Principal Other Annual Stock Underlying LTIP All Other
Position Year Salary(1) Bonus(1) Compensation(2) Award(3) Options (#) Payouts(4) Compensation(5)
------------------ ---- ---------- ---------- --------------- ---------- ----------- ---------- ---------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Don D. Jordan........... 1998 $1,235,000 $1,852,500 $97,653 $1,025,825 $1,361,548
Chairman and Chief 1997 1,000,000 1,080,000 640,754 $3,525,000 33,803 621,392 2,047,142
Executive Officer 1996 962,292 1,050,000 13,300 27,985 767,440 819,105
R. Steve Letbetter...... 1998 559,583 624,750 65,225 100,000 307,714 101,093
President and Chief 1997 481,250 447,525 266 9,938 151,612 77,401
Operating Officer 1996 416,000 330,750 228 7,815 138,831 45,151
Lee W. Hogan............ 1998 429,167 405,000 61,126 50,000 335,000 60,847
Executive Vice
President 1997 372,917 324,000 1,616 43,981
of the Company and
Chief 1996 310,000 401,722 1,260 42,360 20,913
Executive Officer of
the Retail Energy Group
Hugh Rice Kelly......... 1998 370,500 311,850 837 50,000 241,672 86,907
Executive Vice
President, 1997 355,417 218,700 782 6,292 141,497 69,091
General Counsel and 1996 344,833 209,400 705 5,563 176,311 37,495
Corporate Secretary
Stephen W. Naeve........ 1998 344,167 328,500 61 50,000 105,758 38,496
Executive Vice
President 1997 294,167 191,363 55 4,777 55,724 30,128
and Chief Financial 1996 237,917 159,000 43 2,462 62,457 20,682
Officer
</TABLE>
- --------
(1) The amounts shown include salary and bonus earned as well as earned but
deferred.
(2) In 1998, the Company discontinued providing vehicles for its executive
officers and paid to the executive officers a one-time transition payment
as follows: Mr. Jordan, $46,700; Mr. Letbetter, $46,700; and Mr. Hogan,
$46,700.
(3) On February 25, 1997, Mr. Jordan received a grant of 150,000 shares of
restricted stock, to vest on June 1, 1999, pursuant to an employment
agreement with the Company. The amount shown is the closing market price of
150,000 shares of Common Stock on February 25, 1997. The closing market
price of 150,000 shares of common stock on December 31, 1998 was
$4,809,375.
(4) 1998 amounts represent the dollar value of the Company common stock paid in
1998 based on the achievement of performance goals for the 1995-1997
performance cycle, plus dividend equivalent accruals during the performance
period.
(5) 1998 amounts include (i) matching contributions to the Company's savings
plans and accruals under the savings restoration plans as follows: Mr.
Jordan, $142,983; Mr. Letbetter, $92,404; Mr. Hogan, $55,068; Mr. Kelly,
$64,131; and Mr. Naeve $30,479; (ii) the term portion of the premiums paid
by the Company under split-dollar life insurance policies purchased in
connection with the Company's executive life insurance plan, as follows:
Mr. Jordan, $28,200; Mr. Letbetter, $436; Mr. Hogan, $2,496; Mr. Kelly,
$1,202; and Mr. Naeve, $88; and (iii) accrued interest on deferred
compensation that exceeds 120% of the applicable federal long-term rate as
follows: Mr. Jordan, $1,190,365; Mr. Letbetter, $8,253; Mr. Hogan, $3,283;
Mr. Kelly, $21,574 and Mr. Naeve, $7,931.
6
<PAGE>
OPTION GRANTS IN 1998
<TABLE>
<CAPTION>
Individual Grants
-------------------
Shares % of 1998 Exercise/ Grant
Underlying Employee Base Date
Options Option Price Per Expiration Present
Name Granted(1) Grants Share ($) Date Value(2)
- ---- ---------- --------- --------- ---------- --------
<S> <C> <C> <C> <C> <C>
R. Steve Letbetter........... 100,000 4.49% 25.8125 3/2/08 $427,000
Lee W. Hogan................. 50,000 2.24% 25.8125 3/2/08 213,500
Hugh Rice Kelly.............. 50,000 2.24% 25.8125 3/2/08 213,500
Stephen W. Naeve............. 50,000 2.24% 25.8125 3/2/08 213,500
</TABLE>
- --------
(1) Option grants vest in one-third increments per year from the date of grant
(so long as the officer remains an employee). All options would
immediately vest upon a change in control as defined in the Company's
long-term incentive plan. A "change in control" generally is deemed to
have occurred if (a) any person or group becomes the direct or indirect
beneficial owner of 30% or more of the Company's outstanding voting
securities; (b) the majority of the Board changes as a result of or in
connection with, certain transactions; (c) as a result of a merger or
consolidation, less than 70% of the surviving corporation's outstanding
voting securities is owned by former shareholders of the Company
(excluding any party to the transaction or their affiliates); (d) a tender
offer or exchange offer is made and consummated for the ownership of 30%
or more of the Company's outstanding voting securities; or (e) the Company
transfers all or substantially all of its assets to another corporation
that is not wholly owned by the Company.
(2) Grant date value is based on the Black-Scholes option pricing model
assuming a ten-year term, volatility of 24.012%, an annual dividend of
$1.50 per share, and a risk-free interest rate of 5.65%. Actual gains, if
any, will be dependent on future performance of the common stock.
1998 YEAR END OPTION VALUES
<TABLE>
<CAPTION>
Number of Unexercised Value of Unexercised
Options at December 31, In-the-Money Options at
1998 December 31, 1998(2)
------------------------- --------------------------
Name(1) Exercisable/Unexercisable Exercisable/Unexercisable
- ------- ------------------------- --------------------------
<S> <C> <C> <C> <C>
Don D. Jordan............... 146,277 31,863 $ 1,102,052 $ 202,636
R. Steve Letbetter.......... 33,213 109,230 255,479 396,412
Lee W. Hogan................ 7,668 50,000 51,798 168,750
Hugh Rice Kelly............. 29,266 56,049 221,257 207,037
Stephen W. Naeve............ 12,269 54,006 93,466 194,996
</TABLE>
- --------
(1) None of the named officers exercised any options in 1998.
(2) Based on the average of the high and low sales prices of the Common Stock
on the New York Stock Exchange Composite Tape, as reported in The Wall
Street Journal for December 31, 1998.
7
<PAGE>
LONG-TERM INCENTIVE PLAN--AWARDS IN 1998(1)
<TABLE>
<CAPTION>
Estimated Future Payouts
Under Non-Stock Price-
Based Plans(2)
Performance ------------------------
Period Target Maximum
Number Until Threshold Number Number
of Maturation Number of of of
Name Shares or Payout Shares Shares Shares
- ---- ------ ----------- --------- ------ -------
<S> <C> <C> <C> <C> <C>
R. Steve Letbetter.................. 12,952 12/31/00 6,476 12,952 19,428
Lee W. Hogan........................ 8,466 12/31/00 4,233 8,466 12,699
Hugh Rice Kelly..................... 6,095 12/31/00 3,048 6,095 9,143
Stephen W. Naeve.................... 5,333 12/31/00 2,667 5,333 8,000
</TABLE>
- --------
(1) Amounts shown are potential payouts of awards of common stock under the
Company's long term incentive plan. Such awards have a three-year
performance cycle. Payouts are based on growth in earnings per share,
total shareholder return and cash return on capitalization. If a change in
control occurs, such amounts will be paid in cash at the maximum level,
without regard to the achievement of performance goals. See the Report of
the Compensation Committee on page 12 for more information about the long-
term plan.
(2) The table does not reflect dividend equivalent accruals during the
performance period.
Retirement Plans, Related Benefits and Other Arrangements
PENSION PLAN TABLE
<TABLE>
<CAPTION>
Final
Average
Annual Estimated Annual Pension Based on Years of Service(2)
Compensation ----------------------------------------------------------------------
At Age 65 15 20 25 30 *35
- ------------ -------- ---------- ---------- ---------- ----------
<S> <C> <C> <C> <C> <C>
$ 500,000 $143,318 $ 191,091 $ 238,863 $ 286,636 $ 334,409
$ 750,000 $216,068 $ 288,091 $ 360,113 $ 432,136 $ 504,159
$1,000,000 $288,818 $ 385,091 $ 481,363 $ 577,636 $ 673,909
$1,250,000 $361,568 $ 482,091 $ 602,613 $ 723,136 $ 843,659
$1,500,000 $434,318 $ 579,091 $ 723,863 $ 868,636 $1,013,409
$1,750,000 $507,068 $ 676,091 $ 845,113 $1,014,136 $1,183,159
$2,000,000 $579,818 $ 773,091 $ 966,363 $1,159,636 $1,352,909
$2,250,000 $652,568 $ 870,091 $1,087,613 $1,305,136 $1,522,659
$2,500,000 $725,318 $ 967,091 $1,208,863 $1,450,636 $1,692,409
$2,750,000 $798,068 $1,064,091 $1,330,113 $1,596,136 $1,862,159
$3,000,000 $870,818 $1,161,091 $1,451,363 $1,741,636 $2,031,909
$3,250,000 $943,568 $1,258,091 $1,572,613 $1,887,136 $2,201,659
</TABLE>
- --------
* Greater than or equal to.
(1) Final average annual compensation means the highest compensation for 36
consecutive months out of the 120 consecutive months immediately preceding
retirement. It includes only salary and bonus amounts. At December 31,
1998, the credited years of service for the following persons were: 35
years for Mr. Jordan; 25 years for Mr. Letbetter; 8 years for Mr. Hogan;
24 years for Mr. Kelly (10 of which result from a supplemental agreement)
and 26 years for Mr. Naeve. Under a supplemental agreement with Mr. Hogan,
upon the earliest of his normal retirement, disability or death, Mr. Hogan
will be eligible for supplemental pension benefits determined as if his
employment had commenced fifteen years prior to his first day of actual
employment with the Company.
(2) Amounts are determined on a single-life annuity basis and are not subject
to any Social Security or other disbursements. The qualified pension plan
limits compensation and benefits in accordance with provisions of the
Internal Revenue Code. Pension benefits based on compensation above the
qualified plan limit or in excess of the limit on annual benefits are
provided through the benefits restoration plan.
8
<PAGE>
The Company maintains an executive benefits plan that provides certain
salary continuation, disability and death benefits to certain key officers of
the Company and certain of its subsidiaries. All of the named officers
participate in this plan pursuant to individual agreements that generally
provide for (i) a salary continuation benefit of 100% of the officer's current
salary for twelve months after death during active employment and then 50% of
salary for nine years or until the deceased officer would have attained age
65, if later, and (ii) if the officer retires after attainment of age 65, an
annual post-retirement death benefit of 50% of the officer's preretirement
annual salary payable for six years. Coverage under this plan has not been
provided to persons attaining executive officer status after July 1, 1996.
The Company has an executive life insurance plan providing split-dollar life
insurance in the form of a death benefit for officers and members of the Board
of Directors. The death benefit coverage varies but in each case is based on
coverage (either single life or second to die) that is available for the same
amount of premium that could purchase coverage equal to four times current
salary for Messrs. Letbetter and Hogan; two times current salary for Mr. Kelly
and Mr. Naeve; thirty million dollars for Mr. Jordan; and six times the annual
retainer for the Company's non-employee directors. The plan also provides that
the Company may make payments to the covered individuals to compensate for tax
consequences of imputed income that they must recognize for federal income tax
purposes based on the term portion of the annual premiums. If a covered
executive retires at age 65 or at an earlier age under circumstances approved
by the Board of Directors, rights under the plan vest so that coverage is
continued based on the same death benefit in effect at the time of retirement.
Upon death, the Company will receive the balance of the insurance proceeds
payable in excess of the specified death benefit which is expected to be at
least sufficient to cover the Company's cumulative outlays to pay premiums and
the after-tax cost to the Company of the tax reimbursement payments. There is
no arrangement or understanding under which any covered individuals will
receive or be allocated any interest in any cash surrender value under the
policy.
Since 1985, the Company has had in effect deferred compensation plans which
permit eligible participants to elect each year to defer a percentage of that
year's salary (prior to December 1993 up to 25% or 40%, depending on age, and
beginning in December 1993, 100%) and up to 100% of that year's annual bonus.
In general, employees who attain the age of 60 during employment and
participate in the Company's deferred compensation plans may elect to have
their deferred compensation amounts repaid in fifteen equal annual
installments commencing at the later of age 65 or termination of employment,
in lieu of a lump sum distribution at termination of employment. Directors
participating in these plans are entitled to receive distributions at age 70
or upon leaving the Board, whichever is later. Interest generally accrues on
deferrals made in 1989 and subsequent years at a rate equal to Moody's Long-
Term Corporate Bond Index plus 2%, determined annually until termination when
the rate is fixed at the greater of the rate in effect at age 64 or at age 65.
Rates of 19% to 24% were established for deferrals made in 1985 through 1988,
as a result of then higher prevailing rates and the Company's projected
ability to offset a substantial portion of the related cost, on an after-tax
basis, through life insurance policies purchased by the Company. Current
accruals of the above-market portion of the interest on deferred compensation
amounts are included in the "All Other Compensation" column of the Summary
Compensation Table.
The Company and one of its subsidiaries, Reliant Energy International, Inc.,
are parties to a trust agreement with an independent trustee establishing a
"rabbi trust" for the purpose of funding benefits payable to participants
(which include each of the named officers) under the Company's deferred
compensation plans, executive incentive compensation plans, benefits
restoration plan and savings restoration plan (Designated Plans). The trust is
a grantor trust, irrevocable except in the event of an unfavorable ruling by
the Internal Revenue Service as to the tax status of the trust or certain
changes in tax law. It is currently funded with a nominal amount of cash. The
Company and Reliant Energy International, Inc. are required to make future
contributions to the grantor trust when required by the provisions of the
Designated Plans or when required by the Company's benefits committee. The
benefits committee consists of officers of the Company designated by the Board
of Directors and has general responsibility for funding decisions and
selection of investment managers for the Company's retirement plan and other
administrative matters in connection with other employee benefit plans of
9
<PAGE>
the Company. If there is a change in control (defined in a manner generally
the same as the comparable definition in the Company's long-term incentive
compensation plan), the Company and Reliant Energy International are required
to fully fund the grantor trust, within 15 days following the change in
control, with an amount equal to the entire benefit to which each participant
would be entitled under the Designated Plans as of the date of the change in
control (calculated on the basis of the present value of the projected future
benefits payable under the Designated Plans). The assets of the grantor trust
are required to be held separate and apart from the other funds of the Company
and its subsidiaries, but remain subject to claims of general creditors under
applicable state and federal law.
In 1997, the Company entered into an amended and restated employment
agreement with Mr. Jordan extending his employment for two years beyond his
normal retirement date (June 1, 1997). The new agreement, entered into in
February 1997 and subsequently amended in November 1997, replaced an agreement
entered in 1994 which also provided for an extension of Mr. Jordan's
employment period. The 1997 agreement provides for the employment of Mr.
Jordan as Chairman of the Board and Chief Executive Officer of the Company
until June 1, 1999, subject to early termination or extension in certain
circumstances (Employment Period). The agreement provides that during the
Employment Period, Mr. Jordan will receive benefits including (i) base salary
in an amount not less than his salary in effect on January 8, 1997, (ii)
annual bonus awards based on amounts payable under the Company's executive
incentive compensation plan and long-term incentive compensation plan, and
(iii) participation in other employee benefit plans and programs on generally
the same basis as other peer executives, except that Mr. Jordan will not
receive any long-term incentive compensation plan award for performance cycles
commencing in 1998 and 1999 but has instead received an award of 300,000
restricted shares of Common Stock.
Mr. Jordan's right to 150,000 shares of the restricted shares of Common
Stock will vest if he continues to be employed by the Company until June 1,
1999, subject to earlier vesting if the Company terminates his employment
without Cause (as defined), if he terminates employment for Good Reason (as
defined) or if his employment terminates by reason of death, disability or
retirement with the consent of the Board of Directors or by reason of the
occurrence of a Change in Control (as defined). His right to the other 150,000
restricted shares of Common Stock is generally subject to vesting provisions
based on achievement of the same performance goals that are applicable to his
performance-based restricted stock award under the long-term incentive
compensation plan for the 1997-1999 performance cycle (as estimated on the
June 1, 1999 vesting date), subject to earlier vesting of the entire award if
the Company terminates his employment without Cause, if he terminates
employment for Good Reason or if his employment terminates by reason of the
occurrence of a Change in Control, or of a prorated, performance-based portion
of the award if his employment terminates by reason of death, disability or
retirement with the consent of the Board of Directors.
Mr. Jordan's employment agreement provides for an extension of the
commencement date of the fifteen annual installment payments of salary and
bonus previously deferred under the Company's deferred compensation plans for
one year following the end of the Employment Period, if Mr. Jordan remains
employed through the end of the Employment Period, in consideration of Mr.
Jordan's agreement to make himself available for up to 40 hours per month as a
consultant during that year.
The employment agreement with Mr. Jordan provided for an election at
retirement to retain the group life insurance coverage normally provided to
similarly situated active employees of the Company. In lieu of providing this
coverage through the group program, the Company elected to purchase an
individual policy for Mr. Jordan for a single sum premium, which is included
in the "All Other Compensation" column of the Summary Compensation Table for
1997, and to make an additional payment to him in an amount necessary to make
him whole on an after-tax basis against the tax liability incurred by him as a
result of the receipt of the policy, which is included in the "Other Annual
Compensation" column for 1997.
The agreement provides for termination of the Employment Period prior to
June 1, 1999 upon the occurrence of a Change in Control or, if a binding
agreement to effect a Change in Control is in effect on June 1, 1999, for
extension of the Employment Period to the earlier of the date a Change in
Control occurs or the termination of such agreement.
10
<PAGE>
Upon any termination of the Employment Period by reason of the occurrence of
a Change in Control, or, while the Company is a party to any agreement to
effect a Change in Control, the Company terminates Mr. Jordan's employment
without Cause or Mr. Jordan terminates his employment for Good Reason or by
reason of death, disability or retirement with the consent of the Company, the
employment agreement provides that the Company will pay Mr. Jordan a cash
payment equal to 2.99 times the sum of his base salary, target annual bonus
(currently 100% of his base salary) and the fair market value of 150,000
shares of Common Stock, and will fulfill certain other obligations generally
applicable upon termination of employment. To the extent that payments made to
Mr. Jordan would result in the imposition of an excise tax (and related loss
of deduction to the Company), the agreement provides for additional payments
to Mr. Jordan in an amount necessary to offset the effect of the excise tax
and any consequent income tax. Generally, a Change in Control will be deemed
to occur under the employment agreement if (i) the individuals constituting
the Board of Directors of the Company on September 1, 1997, including their
designated successors (Incumbent Directors) cease to constitute a majority of
the Board, (ii) an individual, entity or group acquires beneficial ownership
of 30% or more of the Company's outstanding voting stock, unless the
acquisition is from the Company in a transaction approved by a majority of the
Incumbent Directors, (iii) a merger or other business combination involving
the Company is consummated unless, immediately following the transaction, (a)
the Company's stockholders prior to the business combination own more than 70%
of the outstanding shares of voting stock of the resulting parent entity in
the same relative proportions, (b) the total fair market value of any
consideration paid to another entity or its stockholders, plus the amount of
long-term debt of the entity acquired does not exceed 50% of the sum
(determined prior to the transaction) of the fair market value of the
Company's outstanding voting stock and the amount of its consolidated long-
term debt, (c) there is not a 30% stockholder of the resulting parent entity
and (d) a majority of the board of the resulting parent entity after the
transaction were Incumbent Directors immediately prior to consummation of the
business combination or (iv) there is a disposition of 70% or more of the
assets of the Company and its consolidated subsidiaries unless, immediately
following the transaction, the Company's stockholders prior to such
transaction own more than 70% of the then outstanding shares of voting stock
of the Company and of the parent entity that acquires the largest portion of
such assets and a majority of the members of the board of directors of the
Company and of such acquiring parent entity were Incumbent Directors
immediately prior to the transaction.
In November 1997, the Company entered into severance agreements with certain
executive officers, including Mr. Letbetter, Mr. Hogan, Mr. Kelly and Mr.
Naeve. These severance agreements provide for the payment of certain benefits
in the event of a covered termination of employment occurring within three
years after the occurrence of a Change in Control. The meaning of a Change in
Control is generally the same as in the employment agreement between the
Company and Mr. Jordan described above. A covered termination occurs if the
officer's employment is terminated for reasons other than death, disability,
termination on or after age 65, termination for Cause (as defined), or
resignation by the officer unless the resignation occurs during a 61-day
period commencing on the date the officer experiences a significant reduction
in his duties, remuneration, or principal place of employment following or in
anticipation of a Change in Control. Under the agreements an officer
experiencing a covered termination of employment will be entitled to payment
of three times a prescribed covered compensation amount as well as certain
welfare benefits. An officer's covered compensation amount for this purpose is
the sum of his annual salary, target annual bonus (currently ranging from 45%
to 100% of base salary) and an amount (stated as a percentage of base salary,
currently ranging from 45% to 105%) based on the maximum payout under the
officer's grant of performance-based restricted stock under the Company's
long-term incentive compensation plan. In addition, in the event of a covered
termination, the agreements provide for certain additional benefits, including
reimbursement of certain expenses associated with obtaining new employment,
provision of financial planning services, provision of benefits under the
Company's supplemental retirement plans calculated as if the affected officer
had remained employed throughout a three-year period following the Change in
Control, and a tax gross-up payment in an amount necessary to make the officer
whole after payment of any excise tax resulting from payments under the
severance agreement and any associated income and other taxes. The agreements
expire in September 2000.
11
<PAGE>
Report of the Compensation Committee
The Compensation Committee (Committee) is composed entirely of nonemployee
directors. Committee members are not eligible to participate in any of the
compensation programs that the Committee administers. The Committee reviews
and makes recommendations to the Board concerning all executive officer
compensation, including salary and non-incentive based compensation, and the
design of the Company's incentive compensation plans for executives. The
Committee oversees and administers the Company's incentive compensation
programs including the determination of the annual and long-term incentive
awards to the Company's executive officers.
Compensation Policy. The Company's executive compensation policy is to have
compensation programs that:
. strengthen the relationship between pay and performance;
. attract, retain and encourage the development of highly qualified and
experienced executives;
. promote overall corporate performance; and
. provide compensation that is competitive externally and equitable
internally.
The Company retains an independent consulting firm to provide, at least
biennially, a review of the executive compensation practices of companies
considered comparable to the Company in terms of size, performance, position
and compensation philosophy. This data is used primarily for establishing
ranges for base salary and target and opportunity levels for annual and long-
term incentive awards. (The companies included in the data are not identical
to the group of companies identified in the Standard & Poor's group index of
electric utility companies (S&P Electric Companies Index) used in the creation
of the "Stock Performance Graph" included in this proxy statement because the
Committee believes that the Company's most direct competitors for executive
talent are not in all cases the same as the companies included in the index
chosen for comparing shareholder returns.)
The Committee also obtains peer group data regarding the performance of
groups of companies in the utility industry, the nonregulated power industry
and other industries. This industry-specific data is used primarily in the
formulation of performance measurements related to the Company's individual
subsidiaries or business units.
In addition to considering comparative data and other peer groups, the
Committee makes its own subjective determination of executive officer
performance. In making such determinations, the Committee also takes into
account the chief executive officer's evaluations of other executive officers'
performance.
The Committee periodically evaluates the Company's executive compensation
programs in light of the provisions of the Internal Revenue Code relating to
the disallowance of deductions for compensation in excess of $1 million for
certain executive officers unless certain requirements are met. The Committee
does not anticipate any payment of compensation in 1999 or 2000 in excess of
that which is deductible under those rules, taking into account expected
deferrals of compensation by affected executive officers. Except for the long-
term performance incentive awards established for the Company's nonregulated
power business, the performance goals for awards under the Company's long-term
incentive awards program qualify for an exception to the deductibility limit
applicable to certain performance-based compensation for which the performance
goals have been approved by shareholders. The Committee may consider in the
future whether or not to submit for shareholder approval the performance goals
applicable to the annual incentive awards or the long-term incentive awards
established for the Company's nonregulated power business, or make any
adjustments to the performance goals for those incentive awards that would be
necessary in order to qualify for the performance-based exception of the tax
provisions. The Company reserves the right to structure compensation in a
manner not eligible for exception from the deductibility limit.
Components of Compensation. The key elements of the Company's executive
compensation program are base salary, annual incentive awards and long-term
incentive awards. The Committee evaluates each element of compensation
separately and in relation to the other elements of an executive's total
compensation package,
12
<PAGE>
taking into consideration relevant comparative data for compensation at the
50th percentile and 75th percentile. Compared to companies in the database,
total targeted compensation may vary from below the 50th percentile to above
the 75th percentile depending on an executive officer's tenure, experience,
leadership and level of responsibility. Because a significant portion of an
executive officer's compensation includes at-risk components based on business
performance, if the performance exceeds that of the relevant peer group,
compensation should be above the targeted levels; likewise, if performance
falls below that of the peer group, compensation should be below the targeted
level.
Base Salaries. The Committee's annual recommendations to the Board
concerning each executive officer's base salary are based on the Committee's
analysis of salary levels for comparable executive officer positions, its
subjective evaluation and, except in the case of Mr. Jordan, management's
evaluation of each executive officer's individual performance and level of
responsibility.
Annual Incentive Compensation. The annual incentive awards program provides
executive officers with annual bonuses based on the achievement of Committee-
approved performance goals. Those annually determined performance goals
generally are based upon financial objectives of the Company and its
subsidiaries or business units and are designed to encourage improved
operating results and foster achievement of particular strategic objectives.
Performance goals for 1998 were primarily based on earnings per share. Certain
officers also had business unit goals that affected a portion of their
performance goals.
Annual incentive awards for executive officers in 1998 had target award
levels that ranged from 45% to 100% of base salary depending on the executive
officer's level of responsibility. A threshold level of performance results in
an award that is 50% of target, and a maximum level of performance results in
an award that is either 50% or 100% over the target level depending on the
applicable business unit plan. For 1998, the goals for the Company's executive
officers were achieved at levels that resulted in bonuses ranging from 15%
over target to 100% over target.
Long-term Incentive Compensation. The long-term incentive awards program
provides stock-based incentive compensation for executive officers in the form
of grants of performance shares, stock options, stock appreciation rights. In
addition, the Committee has adopted a stock ownership guideline applicable to
all of the Company's officers that establishes a goal of ownership of the
Company's common stock representing a value of at least two times the
officer's base salary.
Performance goals for the long-term incentive awards program are generally
based on financial objectives measurable over a three-year performance cycle.
For the performance cycle that ended in 1997, under which payments were made
in 1998, goals included a combination of consolidated and subsidiary or
business unit goals, weighted 25% and 75% of the total, respectively. The
Company's consolidated goal for this performance cycle was based on the
Company's ranking in total return to shareholders compared to a group of other
electric utilities and utility holding companies. The subsidiary or business
unit goals for this performance cycle were based on the following financial
objectives: for the electric utility operations, establishing a model for
competitive pricing in a deregulated market and achieving certain cash flow
performance in relation to a group of 21 other electric utility companies and
for the nonregulated power business, closing transactions related to certain
projects. The performance goals for the performance cycle that commenced in
1998 consist of three objectives: growth in earnings per share, total return
to shareholders relative to the S&P 500 Electric Utilities Index, and cash
return on capitalization relative to the same peer group.
The target number of performance shares granted is based on a percentage of
base salary divided by the average market price of common stock over a
prescribed period prior to the beginning of the performance cycle. In
determining the size of the grant, the Committee reviews comparative data,
considers the level of responsibility of each of the Company's executive
officers and the recommendations of the chief executive officer, and then
makes a subjective determination of the appropriate target so that the award
is in a range of 30% to 70% of base salary.
Achievement of the performance goals at the target level results in a payout
level of 100% of the performance shares for both the performance cycle that
paid out in 1998 and the performance cycle that commenced in 1998. For both of
these performance cycles, attainment of the threshold level of performance
13
<PAGE>
results in payouts of 50% of the target number of shares and the attainment of
the maximum level results in payouts of up to 50% over the target number of
shares.
For the performance cycle concluding in 1997 that paid out in 1998, the
composite goals for the Company's executive officers were achieved at levels
that resulted in payouts ranging from 1% under target to 4% over target.
Annual grants of stock options are made at an option price not less than the
fair market value of the common stock on the date of grant. This design is
intended to focus executive officers on the creation of shareholder value over
the long-term and encourage equity ownership in the Company.
In determining the size of stock option grants to executive officers, the
Committee reviews comparative data. Because the policies with respect to stock
options vary widely, the Committee's objective of delivering a competitive
award opportunity based on the dollar value of the award granted necessarily
involves a subjective determination by the Committee. In making its
determination, however, the Committee considers the recommendations of the
chief executive officer with respect to the awards for other executive
officers. For 1998, grants ranged from 35,000 to 100,000 options, depending on
the executive officer's position.
The Committee also grants long-term awards under a long-term incentive plan
established for the Company's nonregulated power business. Awards were made to
one executive officer of the Company under this plan during 1998 in lieu of
the grant of performance shares and stock options as discussed above.
Chief Executive Officer Compensation. Under Mr. Jordan's employment
contract, Mr. Jordan's base salary must be in an amount not less than his
salary in effect in January 1997, which was $1,000,000 per year. In 1998, Mr.
Jordan's base salary was increased to $1,235,000 primarily as a result of a
review of comparative data and consideration of Mr. Jordan's extensive
involvement as President of the World Energy Congress. Mr. Jordan's annual
incentive bonus for 1998 was determined using the criteria described above for
executive officers generally. His target annual incentive award for 1998 was
100% of his base salary, with the payment level based on earnings per share.
The 1998 annual incentive award payment was based on achievement of his goal
at 50% over the target level. In the case of awards under the long-term
incentive program, the target number of performance shares was valued at 70%
of Mr. Jordan's base salary for the performance cycle that paid out in 1998
and was based 25% on achievement of the Company's consolidated goal and 75% on
achievement of the subsidiary or business unit goals for the electric utility
operations and the nonregulated power business (85% and 15%, respectively).
Long-term incentive awards paid out in 1998 represent a composite achievement
of 4% over the target level of performance.
In 1997, the Committee and the full Board of Directors determined that
entering into an employment contract with Mr. Jordan to extend his employment
for two years beyond his normal retirement date was in the best interests of
the Company and its shareholders because of the extremely rapid pace of change
in the industry and the Committee's subjective evaluation of the benefits of
Mr. Jordan's experience, knowledge and industry leadership in positioning the
Company to best meet the challenges and exploit the opportunities of this
period of transition. In connection with this agreement, it was agreed that
Mr. Jordan would not participate in the Company's long-term incentive program
for any performance cycle beginning after the one that commenced in 1997.
Instead, he received a grant of 150,000 restricted shares of Common Stock
which vest based solely on his continued service during the extended
employment period, and an additional 150,000 restricted shares of Common Stock
which vest based both on continued service and on achievement of the same
performance goals that are applicable to his award under the long-term
incentive compensation plan for the cycle that commenced in 1997. In addition,
the agreement provides for the extension of the commencement date of deferred
payments under the Company's deferred compensation plan, providing him the
continued benefit of above-market interest rates on the deferrals during the
period of the extension. Additional details regarding the employment contract
are shown elsewhere in this Proxy Statement.
Robert J. Cruikshank
Richard E. Balzhizer
Linnet F. Deily
Robert C. Hanna
14
<PAGE>
Stock Performance Graph
The graph below compares the yearly percentage change in the cumulative
total shareholder return on the common stock with the cumulative total return
of the S&P 500 Index and the S&P Electric Companies Index for the period
commencing December 31, 1993 and ending December 31, 1998.
FIVE YEAR CUMULATIVE TOTAL RETURN(1)(2)
[Graph appears here]
<TABLE>
<CAPTION>
December 31,
-----------------------------
1993 1994 1995 1996 1997 1998
---- ---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C> <C>
Reliant Energy, Incorporated..................... $100 $ 81 $119 $119 $150 $190
S&P Electric Companies Index..................... $100 $ 87 $114 $114 $144 $166
S&P 500 Index.................................... $100 $101 $139 $171 $229 $294
</TABLE>
(1) Assumes that the value of the investment in common stock and each index
was $100 on December 31, 1993 and that all dividends were reinvested.
(2) Historical stock price performance is not necessarily indicative of future
price performance.
15
<PAGE>
Proposal to Change the Company's Name by Amending the Restated Articles of
Incorporation
The Board of Directors has unanimously approved a proposal to change the
Company's name to "Reliant Energy, Incorporated" by amending the Company's
Restated Articles of Incorporation. The proposed amendment would replace the
first sentence of Article I of the Restated Articles of Incorporation with the
following: "The name of the corporation is Reliant Energy, Incorporated."
In 1997, we engaged in a merger that made us one of the largest combination
electric and natural gas companies in the nation. A natural fit, the merger
provided a number of significant strategic advantages. This new single entity
became a stronger, more capable company, quickly becoming highly respected,
not only in our own community, but also throughout the entire country and in
international markets. In 1998, as we established a strong presence throughout
the energy industry, we adopted one common vision--We will be the one people
choose for energy, innovation, opportunity, and investment. However, because
we were operating under many different names (i.e., Arkla, Entex, Minnegasco,
HL&P and NorAm), consumers were unaware of the true breadth and depth of the
company's scope, resources and capabilities. With our common vision, we knew
we needed to bring all our operating companies together in order to implement
our long-term strategies and support our common vision of being the "one"
people choose. Management began a comprehensive study to find out what
identity would best support our vision. In February 1999, we adopted a single
name and a visual identity that could be shared by all business units, clearly
communicating the links between us. Please assist us in this endeavor by
voting in favor of the amendment to the Restated Articles of Incorporation to
change the corporate name to Reliant Energy, Incorporated.
Requisite Vote. To approve the amendment to the Restated Articles of
Incorporation we need the affirmative vote of a majority of the outstanding
shares of common stock. If the requisite vote is not obtained, the amendment
will not become effective.
The Board of Directors recommends a vote FOR approval of the Amendment.
Ratification of Appointment of Independent Accountants and Auditors
The Board of Directors, upon the recommendation of the Audit Committee, has
appointed Deloitte & Touche LLP as independent accountants and auditors to
conduct the annual audit of the Company's accounts for the year 1999. Deloitte
& Touche LLP (and their predecessors) have served as independent accountants
and auditors for the Company and its predecessors since 1932. Approval
requires the affirmative vote of a majority of shares of Common Stock voted
for or against the matter. If ratification of the appointment is not approved,
the Board will reconsider the appointment.
Representatives of Deloitte & Touche LLP will be present at the annual
meeting and will have an opportunity to make a statement if they wish. They
will be available to respond to appropriate questions from shareholders at the
meeting.
The Board of Directors recommends a vote FOR the ratification of the
appointment of Deloitte & Touche LLP as independent accountants and auditors.
Shareholder Proposals for 2000 Annual Meeting
Any shareholder who intends to present a proposal at the 2000 annual meeting
of shareholders and who requests inclusion of the proposal in the Company's
proxy statement and form of proxy relating to that meeting in accordance with
applicable rules of the SEC must file such proposal with the Company by
November 26, 1999.
The Company's bylaws also require advance notice of other proposals by
shareholders to be presented for action at an annual meeting. In the case of
the 2000 annual meeting, the required notice must be received by the Company's
Corporate Secretary between November 8, 1999 and February 6, 2000. The
proposal must constitute a proper subject to be brought before the meeting and
the notice must contain prescribed information including a
16
<PAGE>
description of the proposal and the reasons for bringing it before the
meeting, proof of the proponent's status as a shareholder and the number of
shares held and a description of all arrangements and understandings between
the proponent and anyone else in connection with the proposal. If the proposal
is for an amendment of the bylaws, the notice must also include the text of
the proposal and be accompanied by an opinion of counsel to the effect the
proposal would not conflict with the Company's Restated Articles of
Incorporation or Texas law. A copy of the Bylaws describing the requirements
for notice of shareholder proposals may be obtained by writing Mr. Hugh Rice
Kelly, Corporate Secretary, at the Company's address shown above.
Director Nominations for 2000 Annual Meeting of Shareholders
The Company's bylaws provide that a shareholder may nominate a director for
election if the shareholder sends a notice to the Company's Corporate
Secretary identifying any other person making such nomination with the
shareholder and providing proof of shareholder status. This notice must be
received at the Company's principal executive offices between November 8, 1999
and February 6, 2000. The shareholder must also provide the information about
the nominee that would be required to be disclosed in next year's proxy
statement. The Company is not required to include any shareholder proposed
nominee in the proxy statement. A copy of the Bylaws describing the
requirements for nomination of director candidates by shareholders may be
obtained by writing Mr. Hugh Rice Kelly, Corporate Secretary at the Company's
address shown above.
General Information
The Company began mailing this proxy statement and the accompanying proxy
card to shareholders on March 25, 1999. The proxy statement and proxy card are
being furnished at the direction of the Board of Directors. The Company will
pay all solicitation costs including the fee of Morrow & Co., who will help
the Company solicit proxies for $9,500, plus expenses. The Company will
reimburse brokerage firms, nominees, fiduciaries, custodians and other agents
for their expenses in distributing proxy material to the beneficial owners of
the Company's common stock. In addition, certain of the Company's directors,
officers and employees may solicit proxies by telephone and personal contact.
The Board of Directors does not intend to bring any other matters before the
meeting and has not been informed that any other matters are to be properly
presented to the meeting by others. If other business is properly raised, your
proxy card authorizes the people named as proxies to vote as they think best.
Section 16(a) Beneficial Ownership Reporting Compliance
Section 16(a) of the Securities Exchange Act of 1935 requires the Company's
directors, executive officers, and holders of more than 10% of the Company's
common stock to file with the SEC initial reports of ownership and reports of
changes in ownership of the Company's common stock. The Company believes that
during the fiscal year ended December 31, 1998, its officers and directors
complied with all these filing requirements.
Annual Report to Shareholders
The Summary Annual Report to Shareholders, together with the Appendix A--
1998 Financial Statements, which contains the Company's consolidated financial
statements for the year ended December 31, 1998, accompany the proxy material
being mailed to all shareholders. The Summary Annual Report is not a part of
the proxy solicitation material.
By Order of the Board of Directors,
/s/ Don D. Jordan
Don D. Jordan
Chairman and Chief Executive Officer
March 25, 1999
17
<PAGE>
HOUSTON INDUSTRIES INCORPORATED d/b/a RELIANT ENERGY, INCORPORATED
PROXY - COMMON STOCK
THIS PROXY IS SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS
The undersigned hereby appoints D. D. Jordan, R. Steve Letbetter and Lee W.
Hogan, and each of them as proxies, with full power of substitution, to vote as
designated on the reverse side, all shares of common stock held by the
undersigned at the annual meeting of shareholders of Houston Industries
Incorporated to be held May 5, 1999, at 9 AM (CDT) in the Auditorium of Reliant
Energy Plaza, 1111 Louisiana Street, Houston, Texas, or any adjournments
thereof, and with discretionary authority to vote on all other matters that may
properly come before the meeting.
IF YOU WISH TO VOTE IN ACCORDANCE WITH THE
RECOMMENDATIONS OF THE BOARD OF DIRECTORS, YOU MAY
JUST SIGN AND DATE BELOW AND MAIL IN THE POSTAGE-
PAID ENVELOPE PROVIDED. SPECIFIC CHOICES MAY BE
MADE ON THE REVERSE SIDE. IN THE ABSENCE OF
INSTRUCTIONS TO THE CONTRARY, THE SHARES
REPRESENTED WILL BE VOTED IN ACCORDANCE WITH THE
BOARD'S RECOMMENDATION.
Dated:_____________________________________, 1999
Signature:________________________________________
SIGNATURE:________________________________________
NOTE: PLEASE SIGN EXACTLY AS NAME(S) APPEARS
HEREON. JOINT OWNERS SHOULD EACH SIGN. WHEN
SIGNING AS ATTORNEY, EXECUTOR, ADMINISTRATOR,
TRUSTEE OR GUARDIAN, PLEASE GIVE FULL TITLE.
DO YOU PLAN TO ATTEND THE ANNUAL MEETING?________
DETACH AND MAIL CARD
[Insert Reliant Energy Logo]
<PAGE>
HOUSTON INDUSTRIES INCORPORATED d/b/a RELIANT ENERGY, INCORPORATED
PROXY (CONTINUED)
1999 ANNUAL MEETING OF SHAREHOLDERS
The nominees for Class III directors are James A. Baker, III, Richard E.
Balzhiser, O. Holcombe Crosswell, Joseph M. Grant and Don D. Jordan. Their
terms will expire in 2002. Your Board of Directors recommends that you vote FOR
all nominees for director, FOR the amendment to the Company's Restated Articles
of Incorporation to change the corporate name and FOR the appointment of
Deloitte & Touche LLP as independent accountants and auditors for 1999. To
withhold authority to vote for any individual nominee, please write that
nominee's name in the space provided below.
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C> <C> <C> <C>
WITH- FOR ALL FOR AGAINST ABSTAIN
FOR HOLD EXCEPT
2. Amendment of Restated Articles [ ] [ ] [ ]
1. Election of nominees [ ] [ ] [ ] of Incorporation to change the
for director in corporate name
Class III
3. Appoint Deloitte & Touche LLP [ ] [ ] [ ]
as independent accountants
Exceptions:___________________________________ and auditors for 1999
____________________________________________
____________________________________________
</TABLE>
DETACH AND MAIL CARD
[INSERT MAP OF DOWNTOWN]
