ARKLA INC, DEF 14A, 1994-04-07

ARKLA INC
DEF 14A, 1994-04-07
NATURAL GAS TRANSMISISON & DISTRIBUTION

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<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

ARKLA, INC.
- --------------------------------------------------------------------------------
(Name of Registrant as Specified in Its Charter)

ARKLA, INC.
- --------------------------------------------------------------------------------
(Name of Person(s) Filing Proxy Statement)
Payment of filing fee (Check the appropriate box):
/ / $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:

- --------------------------------------------------------------------------------
/X/ 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:
$125
- --------------------------------------------------------------------------------
(2) Form, schedule or registration statement no.:
Schedule 14A
- --------------------------------------------------------------------------------
(3) Filing party:
Arkla, Inc.
- --------------------------------------------------------------------------------
(4) Date filed:
March 3, 1994
- --------------------------------------------------------------------------------
- ---------------
(1) Set forth the amount on which the filing fee is calculated and state how
it was determined.
<PAGE> 2

ARKLA, INC.
P.O. Box 2628
Houston, Texas 77252

April 6, 1994

Dear Stockholder:

You are cordially invited to attend the 1994 Annual Meeting of Stockholders
of Arkla, Inc. to be held in the Pavilion Room of the Holiday Inn Downtown Hotel
of Shreveport in Shreveport, Louisiana on May 10, 1994, at 2:00 p.m., local
time.

The attached Notice of Annual Meeting and Proxy Statement describe the
formal business to be transacted at the meeting. During the meeting there will
be a brief report on the operations of the Company. After the business of the
meeting has been concluded, stockholders will be given the opportunity to ask
questions.

It is important that your shares be represented at the meeting. Please
mark, sign, date and return promptly the enclosed proxy in the envelope
furnished for that purpose. If you are present at the meeting, you may, if you
wish, revoke your proxy and vote in person. I look forward to seeing you at the
Annual Meeting.

/s/ T. Milton Honea

T. MILTON HONEA
Chairman of the Board, President
and Chief Executive Officer
<PAGE> 3

ARKLA, INC.
P. O. Box 2628
Houston, Texas 77252

NOTICE OF ANNUAL MEETING OF STOCKHOLDERS
TO BE HELD MAY 10, 1994

TO THE STOCKHOLDERS:

Notice is hereby given that the Annual Meeting of Stockholders of Arkla,
Inc., (the "Company") a Delaware corporation, will be held in the Pavilion Room
of the Holiday Inn Downtown Hotel of Shreveport, 102 Lake Street, Shreveport,
Louisiana, at 2:00 p.m., local time, on Tuesday, May 10, 1994.

This meeting is being held for the following purposes:

Proposals of the Board of Directors

(a) To elect a Board of 13 directors;
(b) PROPOSAL NO. 1 -- To consider and act upon a proposal of the Board
of Directors to amend the Certificate of Incorporation of the Company to
change the name of the Company to NorAm Energy Corp.;
(c) PROPOSAL NO. 2 -- To consider and act upon a proposal of the Board
of Directors to approve the Incentive Equity Plan;
(d) PROPOSAL NO. 3 -- To consider and act upon a proposal of the Board
of Directors to approve the Employee Stock Purchase Plan;
(e) PROPOSAL NO. 4 -- To consider and act upon a proposal of the Board
of Directors to approve the Restricted Stock Plan for Nonemployee
Directors; and

Proposal of Stockholder

(f) PROPOSAL NO. 5 -- Concerning prior stockholder approval of
agreements providing for the payment of Executive Compensation contingent
upon a change in control of the Company; and
(g) To transact any other business that properly comes before the
meeting.

Only stockholders of record at the close of business on March 15, 1994,
will be entitled to notice of or to vote at the meeting. Whether or not you plan
to be present at the meeting, please mark, sign and return the accompanying form
of proxy in the enclosed postage prepaid envelope at your earliest convenience.

By Order of the Board of Directors

HUBERT GENTRY, JR.
Secretary
Houston, Texas
April 6, 1994

IMPORTANT

WE HOPE THAT YOU CAN ATTEND THIS MEETING IN PERSON.
WHETHER OR NOT YOU PLAN TO BE PRESENT AT THE MEETING,
PLEASE MARK, DATE, SIGN AND RETURN THE ENCLOSED PROXY.
NO POSTAGE IS NECESSARY IF MAILED IN THE UNITED STATES.
<PAGE> 4

ARKLA, INC.
P.O. BOX 2628
HOUSTON, TEXAS 77252

PROXY STATEMENT

ANNUAL MEETING OF STOCKHOLDERS
MAY 10, 1994

This Proxy Statement is furnished to stockholders of Arkla, Inc. (the
"Company") in connection with the solicitation of proxies on behalf of the Board
of Directors for use at the Annual Meeting of Stockholders of the Company to be
held on May 10, 1994 (the "Annual Meeting"), for the purposes set forth in the
accompanying Notice of Annual Meeting. The approximate mailing date of this
Proxy Statement is April 6, 1994.

The cost of preparing, assembling and mailing the Notice of Annual Meeting,
this Proxy Statement and the forms of proxy will be borne by the Company. To
assist in the solicitation of proxies, the Company has engaged Georgeson & Co.,
Inc. for a fee not to exceed $12,500, plus out-of-pocket expenses. Proxies may
also be solicited personally or by telephone by directors, officers and regular
employees of the Company, who will receive no additional compensation therefor.

The accompanying form of proxy, if properly executed by a stockholder
entitled to vote, will be voted at the Annual Meeting, but may be revoked at any
time before the vote is taken. A proxy may be revoked at any time before it is
exercised by notifying the Secretary of the Company in writing before the proxy
is exercised, or by delivering to the Secretary of the Company a proxy bearing a
later date or by attending the Annual Meeting and voting in person.

The close of business on March 15, 1994 has been fixed by the Board of
Directors as the record date for the determination of stockholders entitled to
notice of and to vote at the Annual Meeting. At such date the Company had
outstanding 122,369,914 shares of common stock, $0.625 par value per share (the
"Common Stock"). See "Voting."

The Company will provide upon request, without charge, to any stockholder
entitled to vote at the Annual Meeting, a copy of its Annual Report on Form 10-K
filed with the Securities and Exchange Commission (the "SEC") for its most
recent fiscal year. Such request should be made to the Secretary of the Company
at the address shown above. The Annual Report to Stockholders, including
financial statements, for the fiscal year ended December 31, 1993, has been
mailed with this Proxy Statement to all stockholders. The Annual Report is not a
part of the proxy solicitation materials.
<PAGE> 5

VOTING

Each holder of record of Common Stock at the close of business on March 15,
1994, is entitled to one vote for each share of such Common Stock outstanding in
such holder's name on the books of the Company on such date; provided, however,
that in the election of directors, cumulative voting is permitted so that each
such holder, in person or by proxy, has a number of votes equal to the number of
shares of Common Stock standing in such holder's name on the record date
multiplied by the number of directors to be elected. A stockholder may cast all
such votes for a single nominee for director or may distribute them among any
two or more of them as such stockholder sees fit. A stockholder may, in the
manner set forth on the enclosed proxy card, instruct the proxy holders not to
vote such stockholder's shares for one or more of the named nominees.
Abstentions from voting in the election of directors are not included in
determining the outcome. If a stockholder wishes to cast such cumulative votes
other than pro rata, such stockholder should clearly indicate on the proxy card
the number of votes such stockholder wishes to cast for each nominee. By virtue
of cumulative voting, the proxy holders will have 13 votes for each share held
by each stockholder granting them proxies (unless voting authority is withheld)
and could likely offset a particular stockholder's instruction not to vote for
one or more of the nominees or his exercise of cumulative voting by the use of
votes granted in other proxies.

Shares represented by a properly signed and returned proxy card will be
voted as specified by the stockholder. If a proxy card is signed and returned,
but no specification is made, the shares represented by such proxy card will be
voted "FOR" all the listed nominees for director, "FOR" Proposal Nos. 1, 2, 3
and 4 and "AGAINST" Proposal No. 5.

The approval and adoption of Proposal No. 1 will require the affirmative
vote of the holders of a majority of the outstanding shares of Common Stock
entitled to vote thereon. The approval and adoption of Proposals No. 2, 3, 4 and
5 will require the affirmative vote of the majority of the shares of Common
Stock present in person or represented by proxy at the meeting, provided a
majority of the voting power of the shares of Common Stock entitled to vote is
represented in person or by proxy. Abstentions are not counted as votes "for" or
"against" a proposal, but are counted in determining the number of shares of
Common Stock present or represented by proxy at the meeting. Therefore, since
approval of Proposals 2 through 5 requires the affirmative vote of a majority of
the shares of Common Stock present in person or represented by proxy at the
meeting, abstentions have the same effect as a vote "against" these proposals.
New York Stock Exchange rules prohibit brokers from voting on Proposal 5 without
receiving instructions from the beneficial owner of the shares. In the absence
of instructions, shares subject to such "broker non-votes" will not be counted
as voted or as present or represented on this proposal.

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<PAGE> 6

ELECTION OF DIRECTORS AND BENEFICIAL
OWNERSHIP OF COMMON STOCK FOR OFFICERS AND DIRECTORS

Unless otherwise indicated on the proxy card, the proxyholders will vote
the shares represented by such proxy card for the election of each of the
nominees listed below, to serve until the next annual meeting of the
stockholders and until their successors are elected and qualified. The form of
proxy solicits and the proxyholders reserve the right to vote such proxies
cumulatively and for the election of less than all of the nominees for director.
If for any reason any nominee shall be unavailable for election to the Board of
Directors, the holders of proxies will vote for a substitute.

The 13 nominees who receive the most affirmative votes will be elected
directors of the Company.

NOMINEES

All of the nominees are members of the present Board of Directors and were
elected by the stockholders at the 1993 annual meeting.

The following table sets forth certain additional information regarding the
nominees including the amount and percent of equity securities of the Company
beneficially owned, directly or indirectly, on March 15, 1994, by the nominees,
by the current and two former executive officers named in the Summary
Compensation Table (the "Named Executives", see "Executive Compensation"), as
well as by the directors and executive officers as a group. Unless otherwise
indicated, each nominee has held his or her current position for more than the
last five years.

(continues on following page)

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<TABLE>
<CAPTION>
FIRST SHARES
BECAME A OF COMMON
DIRECTOR STOCK
NOMINEE AND OF THE BENEFICIALLY
BIOGRAPHICAL SUMMARY(1) AGE COMPANY OWNED(2)
- ------------------------------------------------------ ----- ---------- -------------
<S> <C> <C> <C>
Joe E. Chenoweth 58 1990 5,127
Mr. Chenoweth was Senior Corporate Vice President,
International, Honeywell Inc., a multinational ad-
vanced technology Company, Minneapolis, Minnesota,
from December, 1990 until his retirement on Decem-
ber 31, 1992. Prior to that, he served Honeywell
Inc. in other executive positions.
O. Holcombe Crosswell 53 1988 4,600(3)
Mr. Crosswell is President of Griggs Corporation, a
real estate and investment Company in Houston,
Texas.
Walter A. DeRoeck 51 1986 10,000
Mr. DeRoeck has been Chairman of the Board for Susan
Crane, Inc., a privately held Company, since January
1992. Susan Crane manufactures gift wrapping and
decorating products. In addition to his role at
Susan Crane, he has ownership in a commercial real
estate firm. Prior to that, he was Chairman of the
Board and Chief Executive Officer for Union National
Bank of Texas, Austin, Texas from February, 1991
until May, 1993. He served as President of such bank
from February 1989 until February, 1991.
Donald H. Flanders 69 1986 4,000
Mr. Flanders is Chairman of the Board and Chief
Executive Officer of Flanders Industries, Inc. and
Lloyd/Flanders Industries, Inc., furniture
manufacturing companies, Fort Smith, Arkansas.
James O. Fogleman 68 1988 1,905(4)
Mr. Fogleman is Chairman of the Board, McNeese
Enterprises, Inc., Baton Rouge, Louisiana.
</TABLE>

(continues on following page)

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<TABLE>
<CAPTION>
FIRST SHARES
BECAME A OF COMMON
DIRECTOR STOCK
NOMINEE AND OF THE BENEFICIALLY
BIOGRAPHICAL SUMMARY(1) AGE COMPANY OWNED(2)
- ------------------------------------------------------ ----- ---------- -------------
<S> <C> <C> <C>
John P. Gover 65 1976 3,704
Mr. Gover is engaged in personal investments. Addi-
tionally, he was President and Chief Operating
Officer of First Bank & Trust Company, Duncan,
Oklahoma from December 9, 1988 to February 1989.
Prior to that he was Chairman and Chief Executive
Officer of the National Bank of Commerce, Altus,
Oklahoma.
Robert C. Hanna 65 1989 10,016(5)
Mr. Hanna is a director and Vice Chairman of the
Board of Imperial Holly Corporation, Sugar Land,
Texas. He was President and Chief Executive Officer
of Imperial Holly Corporation and Chairman of Holly
Sugar Corporation, Colorado Springs, Colorado, prior
to his retirement on September 30, 1993.
T. Milton Honea 61 1992 70,054
Mr. Honea has been Chairman of the Board and Chief
Executive Officer of the Company since December
1992. He was Vice Chairman of the Board from July
1992 through December 1992. He was Executive Vice
President of the Company from October 1991 until
July 1992. He was President & Chief Operating
Officer of Arkansas Louisiana Gas Company, a
division of the Company from October, 1984 to
October, 1991. He is a director of Worthen National
Bank of Arkansas, Little Rock, Arkansas.
Myra Jones 58 1981 3,447
Mrs. Jones is a Partner of Human Investment Counsel-
ors, Little Rock, Arkansas, and the owner of The
Hunter, a personalized shopping service in Little
Rock, Arkansas.
</TABLE>

(continues on following page)

5
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<TABLE>
<CAPTION>
FIRST SHARES
BECAME A OF COMMON
DIRECTOR STOCK
NOMINEE AND OF THE BENEFICIALLY
BIOGRAPHICAL SUMMARY(1) AGE COMPANY OWNED(2)
- ------------------------------------------------------ ----- ---------- -------------
<S> <C> <C> <C>
Sidney Moncrief 36 1985 2,500
Mr. Moncrief has been President of Sidney Moncrief
Pontiac-Buick-GMC Truck Inc., Little Rock, Arkansas
since September 1987. He was a professional
basketball player with the Atlanta Hawks during
1990/1991 and with the Milwaukee Bucks, prior to
1989.
Larry C. Wallace 50 1984 1,000
Mr. Wallace is an Associate Director of the law firm
of Ackerson & Bishop, Washington, D.C. Prior to this
and since the beginning of 1993, he was engaged in
the practice of law as a sole practitioner. Prior to
1993 he was a partner in the law firm of Gill
Wallace Clayton Fleming Elrod & Green, P.A., Little
Rock, Arkansas since February 1, 1992. Prior to that
he was Senior Partner in the law firm of Wallace,
Clayton & Green, P.A., Little Rock, Arkansas.
D. W. Weir 80 1958 10,000
Mr. Weir is engaged in personal investments and is a
director of Commercial National Bank in Shreveport,
Louisiana. Prior to March 1988, Mr. Weir was a
Consultant to the Chief Executive Officer of the
Company.
------------------------
Named Executives who are not nominees
Howard E. Bell 19,200
Daniel L. Dienstbier 47,419
Hubert Gentry, Jr. 23,138
William A. Kellstrom 13,100
Jimmy L. Terrill 30,394
All directors and executive officers
as a group (24 persons) 410,382(6)
</TABLE>

(continues on following page)

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<PAGE> 10

- ------------

(1) All directors and executive officers of the Company may be reached through
the Company at Arkla, Inc., P.O. Box 2628, Houston, Texas 77252.

(2) Represents less than 1% of the shares outstanding for each nominee as well
as for all directors and executive officers as a group.

(3) Includes 4,600 shares owned by a corporation of which Mr. Crosswell is
president. Mr. Crosswell shares voting and investment power in these shares.

(4) Includes 606 shares owned by a corporation of which Mr. Fogleman is the
principal stockholder and shares voting and investment power, 1,115 shares
owned of record by his wife and 184 shares by her as custodian for her
child, as to which Mr. Fogleman shares voting and investment power but as to
which he disclaims beneficial ownership.

(5) Includes 1,000 shares owned by his stepson, as to which Mr. Hanna does not
possess any voting or investment power and as to which he disclaims
beneficial ownership.

(6) Includes 6,071 shares of Common Stock as to which certain executive officers
of the Company have the right to acquire beneficial ownership, within 60
days, by exercise of options granted under the Company's stock option plans
and Long-Term Incentive Compensation Plan.

As required by SEC rules under Section 16 of the Securities Exchange Act of
1934 (the "Exchange Act"), the Company notes that Mr. Robert C. Hanna, director
of the Company, did not report timely two transactions in Company common stock
that occurred during 1993 and did not report timely one indirect holding of
Company common stock. Messrs. John P. Gover, director of the Company and Michael
H. Means, an officer, each did not report timely one transaction in Company
common stock that occurred in 1993. Messrs. T. Milton Honea and Gary N.
Petersen, officers of the Company, each did not report timely one common stock
option expiration. The options expired for no value during 1992.

ORGANIZATION OF THE BOARD OF DIRECTORS

During 1993, the Company's Board of Directors held a total of nine
regularly scheduled and special meetings. Mr. Moncrief is the only nominee for
reelection who during 1993 attended fewer than 75% of the aggregate of (1) the
total number of meetings of the Board of Directors while he was a member and (2)
the total number of meetings held by all committees of the Board of Directors on
which they served (during the period he served).

During 1993, Directors who were not officers or employees of the Company or
a subsidiary received an annual retainer of $15,000, $500 for each meeting of
the Board attended, $350 for attendance at meetings of committees of the Board
held on the same day as Board meetings and $550 per meeting for committee
meetings held on any other day. Directors were reimbursed for out of

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pocket expenses incurred in connection with attending Board meetings. Officers
and employees of the Company are not compensated for serving on the Board of
Directors or any of the Board committees.

The Company has revised the compensation structure for nonemployee
directors. Some of the revisions are subject to approval by the stockholders of
the Company at the Annual Meeting. See "Proposal No. 4". Beginning in 1994,
nonemployee directors will receive an annual retainer of $24,000, $1,000 for
each meeting of the Board attended, $500 for participation in telephonic board
meetings, $500 for attendance at meetings of committees of the board held on the
same day as Board meetings and $1,000 per meeting for committee meetings held on
any other day. Committee Chairmen will each receive an annual retainer of
$2,000. Subject to approval by the stockholders, one-half of the annual retainer
that each nonemployee director receives and one-half of the retainer Committee
Chairmen receive will be paid in restricted stock. This revised compensation
structure is intended to assist directors in achieving the stock ownership
guidelines discussed below. See "Proposal No. 4". Directors may defer the cash
portion of the retainer and attendance fees.

In addition to this revised compensation structure, to encourage greater
stock ownership by directors, in the first quarter of 1994, the Company
established stock ownership guidelines for its nonemployee directors. The
guidelines suggest that nonemployee directors should own Company Common Stock
equal in value to five times their annual retainer and that directors should
strive to meet these guidelines within five years.

The Company has also adopted a mandatory director retirement age
qualification and a retirement plan for nonemployee directors (the "Director
Retirement Plan"). Effective May 11, 1994, a director will not be eligible to
stand for election as a director at any annual or special meeting of
stockholders that occurs after such director's 70th birthday.

The Director Retirement Plan provides a retirement benefit to any
nonemployee director who has served as a nonemployee director for at least five
(5) years and who serves as a Director on or after the effective date of the
Director Retirement Plan. The Director Retirement Plan will pay an annual
benefit equal to the annual cash retainer in effect at the time of the
Director's retirement, provided such Director retires from service as a Director
no later than the next annual meeting of stockholders following his or her 70th
birthday. Directors who have attained age 70 by the 1994 Annual Meeting of
stockholders will be eligible for the retirement benefit described in the
preceding sentence, provided such director retires from service as a Director by
the 1995 Annual Meeting of stockholders. Payment of the benefit will commence on
the first day of the month following the later of the month in which the
Director attains age 65 or the month of the Director's retirement and will be
paid annually to the Director for a number of years equal to the Director's full
years of service but in no event for more than ten (10) years.

Audit Committee. The Company has a standing Audit Committee which currently
consists of Mr. Crosswell, Mr. Flanders, Mr. Fogleman and Mr. Wallace. The
functions of the Audit Committee

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<PAGE> 12

include recommending each year to the Board of Directors the engagement of a
firm of independent auditors for the Company and its subsidiaries; reviewing the
proposed scope of the audit, the reports to be rendered and the fees to be
charged by the Company's independent auditors; reviewing the annual financial
statements and the results of the audit with management and the independent
auditors; reviewing with management and the independent auditors the
recommendations made, if any, by the independent auditors with respect to
significant changes in accounting policies, procedures and internal controls;
and holding themselves available to meet with the independent auditors to
resolve matters that arise in connection with the audit if and when it should
become necessary. During 1993 the Audit Committee held four meetings.

Compensation and Benefits Committee. The Company has a standing
Compensation and Benefits Committee which currently consists of Mr. Chenoweth,
Mr. DeRoeck, Mr. Hanna, Mr. Wallace, and Mr. Weir. The Compensation and Benefits
Committee considers and recommends, to the Board of Directors, salary schedules
and other remuneration for compensating the officers and directors of the
Company. During 1993 the Compensation and Benefits Committee held ten meetings.

Nominating Committee. The Company has a standing Nominating Committee which
currently consists of Mr. Gover, Mr. Honea, Mr. Moncrief and Mr. Wallace. The
Nominating Committee recommends to the Board of Directors nominees for election
as directors. Pursuant to the Company's By-Laws, any stockholder entitled to
vote in the election of directors may nominate one or more persons for election
as directors at an annual meeting of stockholders if notice in writing of such
stockholder's intent has been delivered to or mailed and received at the office
of the Secretary of the Company no later than 90 days prior to the anniversary
date of the immediately preceding annual meeting of stockholders of the Company.
During 1993 the Nominating Committee held one meeting.

The Company has several other standing committees, each having the
responsibility for particular functions of the Company. The other committees are
as follows: the Environmental Committee, which recommends environmental policy
for the Company; the Executive Committee, which may exercise and perform the
powers and duties of the Board of Directors when the board is not in session;
the Finance Committee, which recommends financial policy for the Company; the
Investment Committee, which recommends policies and actions regarding Company
retirement plans and programs; and, the Social Responsibility Committee, which
is charged with developing consumer relations policies and monitoring
philanthropy activities of the Company.

COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION

Mr. Weir, a member of the Compensation and Benefits Committee of the board,
was Chairman and CEO of the Company until his retirement in 1979. In addition to
the retainer fees received as a director, Mr. Weir was paid $79,731 during 1993
in supplemental retirement pay under an arrangement with the Company. Under a
separate arrangement, at his death, Mr. Weir's estate will receive certain life
insurance benefits equal to $201,600.

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<PAGE> 13

1993 COMPENSATION AND BENEFITS COMMITTEE REPORT

The Compensation and Benefits Committee (the "Compensation Committee") of
the Board of Directors of Arkla, Inc. has prepared the following report
regarding 1993 executive compensation. The Compensation Committee, which is
composed entirely of nonemployee directors, is responsible for all components of
the Company's officer compensation programs and some aspects of non-officer
compensation. This Report describes the basis on which 1993 compensation
determinations were made by the Compensation Committee with respect to the
Company's executive officers, including the Named Executives. The Compensation
Committee works closely with the entire Board in the execution of its duties.
This report is required by rules established by the SEC and provides specific
information regarding compensation for Arkla's Chairman and Chief Executive
Officer and for the four other most highly compensated executive officers as
well as compensation information about all executive officers of the Company.

PRINCIPLES OF EXECUTIVE COMPENSATION

OVERALL OBJECTIVES OF THE EXECUTIVE COMPENSATION PROGRAM

Arkla's executive compensation program is designed to help the Company
attract, motivate and retain the executive talent that the Company needs in
order to improve its return to stockholders. Toward that end, the Company's
executive compensation program attempts to provide competitive compensation
levels and incentive pay that varies based on corporate, business unit (for
business unit positions), and individual performance. Further, the Company's new
Incentive Equity Plan proposes to increase the focus on executive stock
ownership, in order to ensure that executives have an ongoing stake in the
Company. See "Proposal No. 2"

COMPETITIVE LEVELS OF COMPENSATION

Arkla attempts to provide its executives with a total compensation package
that -- at targeted levels of performance -- is competitive with those provided
to executives who hold comparable positions in the industry or have similar
qualifications. Total compensation is defined to include base salary, annual
incentives and long-term incentives.

The Company's philosophy is to target the market median for all elements of
executive pay. The Company determines competitive levels of compensation for
executive positions based on information drawn from compensation surveys, proxy
statements for comparable organizations and compensation consultants. The proxy
statement analyses on pay levels use the same group of 18 companies shown as
industry peers in Arkla's total stockholder return performance graph.

It should be noted that the value of any individual executive's
compensation package will vary significantly based on performance. As a result,
while the expected value of an executive's compensa-

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<PAGE> 14

tion package may be competitive, actual payments made to executives in a given
year may be higher or lower than competitive market rates because of
performance.

IMPACT OF FINANCIAL AND INDIVIDUAL PERFORMANCE ON INCENTIVE PAYMENTS

Arkla's incentive plans are designed to ensure that incentive compensation
varies in a consistent and predictable manner with the financial performance of
the Company. Some of the Company's incentive payouts are based on annual
performance while other incentive values are based on long-term (i.e.,
multi-year) performance. In addition to consolidated financial performance,
Arkla considers business unit and individual performance in its annual incentive
plan. As a result, the total compensation levels for an executive in any given
year may not directly reflect the Company's overall financial performance in
that year.

DESCRIPTION OF THE CURRENT EXECUTIVE COMPENSATION PROGRAM

This section describes each of the principal elements of the Company's
executive compensation program with specific reference to the objectives
discussed above.

BASE SALARY PROGRAM

Arkla's base salary program is based on a philosophy of providing salaries
that approximate the market median for peer gas pipeline and distribution
companies.

Base salary levels are also determined by each individual employee's
performance over time and each individual's role in the Company. Consequently,
employees with higher levels of sustained performance over time and/or employees
assuming greater responsibilities will be paid correspondingly higher salaries.

Salaries for executives as a group are reviewed annually considering a
variety of factors, including individual performance, general levels of market
salary increases, and Arkla's overall financial results. All salary increases
are granted within a pay-for-performance framework.

ANNUAL INCENTIVE PLAN

Arkla's annual incentive plan is intended to (1) reward key employees based
on Company, business unit, and individual performance; (2) motivate key
employees; and (3) provide competitive cash compensation opportunities to plan
participants. As a pay-for-performance plan, incentive awards are paid annually
based on the achievement of performance objectives for the most recently
completed fiscal year.

For 1993, corporate performance measures in the annual incentive plan
included earnings per share from continuing operations, return on capital
employed and net cash flow from continuing

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<PAGE> 15

operations. These measures are weighted equally for the corporate component of
the annual incentive. Business unit performance measures varied by unit, but
included (in addition to the measures cited above) expense management, operating
income, net cash flow (before dividends), customer satisfaction, and operations
and maintenance expense management per customer. These measures are weighted
equally for the business unit component of the annual incentive.

For corporate positions, the size of the annual incentive funding pool is
determined based 50% on corporate financial performance and 50% on departmental
performance (which is assessed in a non-formula fashion). For business unit
positions, 50% of the annual incentive funding pool is based on corporate
performance and 50% is based on business unit performance. For both corporate
positions and business unit positions, individual performance factors are used
to allocate the fund pools among participants in a non-formula fashion.

In the first quarter of 1994, the Compensation Committee decided to
require, subject to stockholder approval, that for awards earned in 1994 (to be
paid in 1995) 50% of such awards will be paid in the form of Company stock. This
program is intended to support the philosophy of encouraging greater executive
officer stock ownership and to assist executive officers in achieving the stock
ownership guidelines discussed below. Thus, the 1994 Incentive Equity Plan which
is contained in this proxy statement for stockholder approval includes a
provision (and shares) for making a portion of annual incentive awards which
otherwise would be paid in cash in the form of Company common stock. See
"Proposal No. 2".

LONG-TERM INCENTIVES

Arkla believes that certain key employees should have an ongoing stake in
the success of the business. The Company also believes these key employees
should have a considerable portion of their total compensation paid in the form
of stock, since stock related compensation is directly tied to stockholder
value.

Under the Company's existing long-term incentive plan, the Committee has
authority to grant stock options, stock appreciation rights, and performance
based restricted stock. During 1993, all long-term incentive grants (with the
exception of the CEO, as described below) were made in the form of performance
based restricted stock.

The performance based restricted stock grants made in 1993 (as in prior
years) are fully at risk based on both the performance of the Company and the
continued employment of the officer. This means that shares of restricted stock
that are granted may never be earned (or vested) by the officer unless the
Company achieves certain pre-set performance objectives which are set by the
Committee and unless the officer remains in the employ of the Company for the
specified period of time. These objectives include return on capital employed in
relation to the peer group of 18 gas pipeline and local distribution companies
and total stockholder returns compared to an internal target. Both of these

12
<PAGE> 16

objectives are measured over a three-year performance period, and at the
conclusion of each performance period, shares are vested or actually delivered
to the officer, based on measured performance against the two objectives. The
number of shares that may vest ranges from zero to a maximum number of shares
equal to 150% of the original grant. The number of shares of stock granted to
officers is based on competitive practices in the industry.

The 18 gas pipeline and local distribution companies referred to in the
above paragraph have also been used in the Performance Graph disclosing the
relative total stockholder return for Arkla. See "Performance Graph". These
companies were selected by the Committee as being the best representation of the
two industry segments in which Arkla operates. The Committee did not feel that
any published index for the industry provided a reasonable data base.

Grants of restricted stock were made to all executive officers in 1993
under Cycle VI (January, 1993 to December, 1995) of the Long-Term Incentive
Compensation Plan. Beginning with Cycle VI the Board of Directors amended the
Long-Term Incentive Compensation Plan to eliminate tax gross-up payments,
dividend rights on shares while restricted, and the three year holding period
after restrictions lapse.

Consistent with the Company's belief that compensation should be tied more
directly to stockholder value, the Compensation Committee has proposed a 1994
Incentive Equity Plan for stockholder approval. See "Proposal No. 2", (a copy of
the plan document is attached as Appendix B to the Proxy Statement). The
proposed plan provides authority for the Compensation Committee to use a range
of long-term incentive devices to motivate, attract and retain high quality
executive talent. In addition, the plan is flexible enough to allow the
Compensation Committee to make long-term incentive awards in a form responsive
to changes in legislation and regulations affecting taxation and accounting
treatment for the Company.

While the proposed plan contains a variety of alternative compensation
methods, the Compensation Committee, in January of 1994, made grants consisting
solely of stock options and performance based restricted stock to Arkla
executives. These grants are contingent upon stockholder approval of the
proposed 1994 Incentive Equity Plan.

The long-term incentive plan is periodically reviewed to ensure an
appropriate mix of base salary, annual incentive, and long-term incentive within
the philosophy of providing competitive total direct compensation opportunities.

STOCK OWNERSHIP PLANS

In order to encourage greater executive stock ownership, in the first
quarter of 1994, the Company established stock ownership guidelines for its
officers. These guidelines are intended to strengthen the link between executive
and stockholder interests. The level of ownership specified under the guidelines
ranges from 75% to 150% of 1993 base salary depending on the level of the
officer. It should

13
<PAGE> 17

be noted that these guidelines have been established as a fixed number of shares
given a November 1993 share price and that it is suggested that officers meet
these ownership guidelines within five years.

The Company has also proposed for stockholder approval the 1994 Employee
Stock Purchase Plan. This plan is a qualified stock purchase plan under Section
423 of the Internal Revenue Code and is intended to provide a strong incentive
for employee stock ownership at all levels of the Company. A detailed
description of the plan appears in this proxy. See "Proposal No. 3". A copy of
the Employee Stock Purchase Plan is attached as Appendix C to the Proxy
Statement.

1993 CEO COMPENSATION

During the third quarter of 1993, the Compensation Committee undertook a
detailed study of the CEO's Compensation package in order to determine both the
appropriate level of compensation and the mix of base salary and incentive pay.
During the course of this review, the Compensation Committee, considering the
strongly expressed views of the CEO, decided that it was in the best interest of
the Company's stockholders to place as much focus on stock-based compensation
for the CEO as practical.

To this end, the CEO's compensation program was revised as follows:

- Base Salary -- The form of the CEO's base salary, effective October 1,
1993, was changed to provide 2 forms of compensation: (1) a time vested
restricted stock grant (described below), which is subject to stockholder
approval as part of the Incentive Equity Plan, and (2) a cash payment (the
"Cash Payment") equal to the estimated tax and benefit liability for the
CEO on the restricted stock grant. It should be noted that the salary
figures shown in the Summary Compensation Table for 1993 include salary
actually paid to Mr. Honea from January 1, 1993 through September 30, 1993
and the Cash Payment only for the period of October 1, 1993 through
December 31, 1993. As a result, the 1993 salary figure disclosed in the
Summary Compensation Table is higher than the expected Cash Payment for an
entire year in the new compensation arrangement. The value, at the date of
grant, of the restricted stock granted Mr. Honea in 1993 in lieu of a
portion of his base salary, is disclosed under the Restricted Stock Award
column of the Summary Compensation Table. The CEO's base salary, was
determined solely with reference to market data on CEO's salaries within
the industry and a review of Mr. Honea's performance.

- Other Stock Based Compensation -- In lieu of a portion of his base
salary, effective as of October 1, 1993, the CEO received a grant,
covering the October through December 1993 period, of 10,169 shares of
time vested restricted stock. These shares vest if the CEO continues
employment with the Company through the vesting date. Under the terms of
his new compensation arrangement, in which stock compensation is the
principal component, these

14
<PAGE> 18

shares will vest on June 30, 1994, contingent upon stockholder approval of
the proposed 1994 Incentive Equity Plan. The number of shares awarded to
Mr. Honea, pursuant to his new compensation arrangement, was determined
solely with reference to market data on CEO compensation packages within
the industry and a review of Mr. Honea's performance. The performance
sensitivity of this program is tied to the Company's share price
performance.

The structure of the CEO's new compensation program calls for the CEO to
receive, in lieu of a portion of his base salary, a grant of 8,336 shares
of time vested restricted stock on the first day of each 1994 fiscal year
quarter, with the transferability restrictions scheduled to lapse 6 months
following the grant date. During this restriction period, the value of the
CEO's restricted stock will vary based on Arkla's stock price performance.
As is the case for all restricted stock at Arkla beginning with Cycle VI,
no dividends will be paid on restricted stock for the CEO until the
transferability restrictions lapse.

- Annual Incentive -- The CEO's actual annual incentive for the 1993
performance year was $300,000. The CEO elected to take 100% of this annual
incentive in shares of Company common stock, except for a cash payment
equal to the estimated tax and benefit liability for the CEO on this
annual incentive payment. The value of this award was above target because
the CEO's performance, based on certain individual performance objectives,
and Arkla's corporate performance, based on the performance objectives
discussed under the annual incentive plan above, were above target.

As part of the increased focus on stock compensation for the CEO, 100% of
the CEO's annual incentive for fiscal year 1994 performance will be paid,
subject to stockholder approval, in shares of Company stock under the
proposed 1994 Incentive Equity Plan, except for a cash payment equal to
the estimated tax and benefit liability. Target award levels under the
annual incentive plan for the CEO are consistent with market norms for
peer pipeline and distribution companies.

- Long-Term Incentives -- In 1993, the CEO received a grant of
performance-based restricted stock under Cycle VI of the Long-Term
Incentive Plan. The performance sensitivity of this program is tied to
corporate performance on the relative return on capital employed and total
shareholder return objectives described in the long-term incentive section
above.

PAY DEDUCTIBILITY CAP

In 1993, the U.S. Treasury Department issued regulations that prevent
publicly traded companies from receiving a tax deduction on compensation paid to
executive officers in excess of $1 million. Many companies with executive pay
levels exceeding the $1 million limit are considering revising or amending
current compensation programs to qualify for exclusion from the pay cap.

15
<PAGE> 19

At this time, cash compensation opportunities do not exceed the $1 million
pay deductibility cap level for any Named Executive. However, the stock option
element of the proposed 1994 Incentive Equity Plan has been structured to allow
the stock options to qualify as being exempt from the $1 million pay
deductibility cap. As part of qualifying the stock option plan as performance
based compensation under the law, no Arkla officer may receive a grant in excess
of 80,000 stock options in a single fiscal year under the proposed Incentive
Equity Plan.

THE COMPENSATION AND BENEFITS COMMITTEE

Mr. Walter A. DeRoeck, Chairman
Mr. Joe E. Chenoweth
Mr. Robert C. Hanna
Mr. Larry C. Wallace
Mr. D. W. Weir, Sr.

EXECUTIVE COMPENSATION

The following table sets forth information with respect to the Chief
Executive Officer, the four other most highly compensated executive officers of
the Company at the end of 1993 as to whom the total annual salary and bonus for
1993 exceeded $100,000 and two additional individuals who would have been
included in the list of the four other most highly compensated executive
officers had they been serving as an executive officer at the end of 1993:

SUMMARY COMPENSATION TABLE

<TABLE>
<CAPTION>
LONG-TERM COMPENSATION
ANNUAL COMPENSATION -------------------------------------
-----------------------------
AWARDS
OTHER ---------------------- PAYOUTS
ANNUAL RESTRICTED -----------
COMPEN- STOCK OPTIONS/ LONG-TERM ALL OTHER
NAME AND SALARY BONUS SATION AWARD(S) SARS INCENTIVE COMPENSATION
PRINCIPAL POSITION YEAR ($) ($) ($)(1) ($)(2) ($) PAYOUTS ($) ($)(3)
- -------------------------- ---- ------- ------- ------- ---------- -------- ----------- ------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
T. Milton Honea, Jr....... 1993 346,593 131,557 5,976 249,795(4) 0 0 26,000(5)
Chairman & CEO, 1992 320,652 0 25,140 0 0 30,395 19,239
Arkla, Inc. 1991 241,284 0 0 0 0 0 0

William A. Kellstrom(6)... 1993 275,004 184,000 679 0 0 0 22,647(7)
President, Arkla 1992 82,293 50,000 0 0 75,000 0 0
Energy Marketing

Michael B. Bracy.......... 1993 300,000 119,000 3,668 0 0 0 18,000(8)
EVP & CFO, 1992 300,000 0 31,579 0 0 47,003 18,000
Arkla, Inc. 1991 300,000 0 0 0 0 0 0
</TABLE>

(Table continued on following page)

16
<PAGE> 20

<TABLE>
<CAPTION>
LONG-TERM COMPENSATION
ANNUAL COMPENSATION -------------------------------------
-----------------------------
AWARDS
OTHER ---------------------- PAYOUTS
ANNUAL RESTRICTED -----------
COMPEN- STOCK OPTIONS/ LONG-TERM ALL OTHER
NAME AND SALARY BONUS SATION AWARD(S) SARS INCENTIVE COMPENSATION
PRINCIPAL POSITION YEAR ($) ($) ($)(1) ($)(2) ($) PAYOUTS ($) ($)(3)
- -------------------------- ---- ------- ------- ------- ---------- -------- ----------- ------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Jimmy L. Terrill(9)....... 1993 134,250 268,500(10) 2,156 0 0 0 839,068(11)
Former Chairman &
CEO, LIG 1992 268,500 0 19,653 0 0 29,656 16,110
EVP, Arkla, Inc. 1991 268,500 0 0 0 0 0 0

Howard E. Bell............ 1993 293,004 102,000 2,156 0 0 0 17,554(12)
President & COO, 1992 276,588 0 18,370 0 0 30,395 16,597
Entex Division 1991 264,722 60,000 0 0 0 0 0
Daniel L.
Dienstbier(13).......... 1993 300,006 50,000 207,675 0 0 0 1,062,250(14)
Former President & COO, 1992 200,004 122,645 256,250 0 250,000 0 6,000
Arkla, Inc.

Hubert Gentry, Jr......... 1993 252,090 90,000 1,820 0 0 0 15,101(15)
SVP, General Counsel and 1992 243,692 0 12,928 0 0 19,573 14,604
Secretary Arkla, Inc. 1991 237,384 0 0 0 0 0 0
</TABLE>

- ---------------

(1) The total value of executive perquisites and benefits did not exceed
$50,000 for any executive. For all named executives except Mr. Dienstbier,
the amounts shown for 1992 represent tax gross-up payments for lapse of
restrictions on restricted stock and dividends paid on restricted stock
awarded prior to Cycle VI. The amounts shown for 1993 represent dividends
paid on restricted stock awarded prior to Cycle VI. In 1993, Mr. Dienstbier
received $115,127 as a tax gross-up for stock purchased at par value in
1992. He also received $92,548 as a tax gross-up for stock awarded in 1993.

(2) As of the end of Fiscal 1993, the aggregate restricted stock holdings of
each named executive were as follows (using 12/31/93 close of $7.88, and
noting that these target grants are fully at risk and any payout will be
earned over three-year performance cycles based on Company performance as
previously described, except as noted in the following sentence):

<TABLE>
<CAPTION>
SHARES VALUE
------ --------
<S> <C> <C>
Honea......................................... 63,012 $496,220
Bracy......................................... 27,200 $214,200
Terrill....................................... 15,950 $125,606
Bell.......................................... 15,950 $125,606
Kellstrom..................................... 13,100 $103,163
Dienstbier.................................... 0 $ 0
Gentry........................................ 13,550 $106,706
</TABLE>

17
<PAGE> 21

The shares and value shown for Mr. Honea include 10,169 restricted shares
received in lieu of a portion of his base salary. These shares are
scheduled to vest on July 1, 1994 pending stockholder approval.

(3) Stated amount represents severance payments and the Company's contribution
to ESIP and ESIP Restoration Plans.

(4) Mr. Honea received 10,169 restricted shares on November 11, 1993, valued at
$81,352, in lieu of a portion of his base salary. Mr. Honea elected to
receive common stock valued at $168,443 in lieu of a portion of his annual
incentive award for 1993.

(5) Amount represents the Company's contribution to ESIP and ESIP Restoration
Plans.

(6) Mr. Kellstrom began employment with the Company on September 4, 1992 at an
annual base salary of $275,000. During 1993, he and certain other Arkla
Pipeline Group executives were participants in an enhanced annual incentive
program designed to retain their services in connection with Arkla's
strategic evaluation of its pipeline business.

(7) Amount represents ESIP and ESIP Restoration Plan Company contributions.

(8) Amount represents ESIP and ESIP Restoration Plan Company contributions.

(9) Mr. Terrill terminated on June 30, 1993.

(10) Mr. Terrill received $268,500 as a bonus paid in connection with achieving
the sale of Louisiana Intrastate Gas.

(11) Amount includes severance payments of $831,013 and ESIP Company
contributions of $8,055.

(12) Amount represents ESIP and ESIP Restoration Plan Company contributions.

(13) Mr. Dienstbier began employment with the Company on July 1, 1992 at an
annual base salary of $400,000. He terminated on September 30, 1993.

(14) Amount includes severance payments of $887,500, ESIP Company contributions
of $8,500, and 25,000 shares of stock received per employment contract
valued at $166,250.

(15) Amount represents ESIP and ESIP Restoration Plan Company contributions.

Prior to the end of any calendar year, executive officers may elect to
defer receipt, for a specified period of time, of a portion of that officer's
salary and annual incentive award, if any. Until receipt, these deferred
compensation accounts earn interest. The amounts in the Summary Compensation
Table include the compensation deferred for the Named Executives, if any.

EMPLOYMENT AGREEMENTS

Since March of 1993, it has been the philosophy of the Company and the
Board that employment agreements for officers are not generally essential to the
employment and retention of management. However, the Company recognizes that
special circumstances may exist that call for detailed

18
<PAGE> 22

agreements, describing certain objectives that the Company wishes to achieve
during a specified period of time. The following employment agreements were in
effect for all or part of 1993 for the Named Executives:

Effective with his promotion to Chairman and CEO, Mr. Honea requested and
the Board agreed that his employment agreement be discontinued. As a result of
this discontinuance, Mr. Honea served as CEO and President during 1993 without
an employment agreement.

Mr. Bracy had an employment agreement which expired on August 10, 1993.
Consistent with the Company's philosophy, Mr. Bracy continued to serve in his
present position without an employment agreement, after the expiration of the
agreement. While in effect, the agreement called for severance pay in the amount
of 150% of his annual salary in the event of his termination under certain
conditions and to the partial vesting in the Non-Qualified Unfunded Supplemental
Income Retirement Plan (as described under "Retirement Plans"). If Mr. Bracy
left the employment of the Company, voluntarily or involuntarily, following a
"change of control" (as defined in his employment agreement), subject to certain
limits, he was entitled to receive a payment that was 2.99 times his base
amount, as defined in Section 280G of the Code. This contract provided for an
annual salary of not less than $278,496.

Mr. Bell has an employment agreement with the Company which expires on
December 31, 1994, at which time he will retire from employment with the
Company. His agreement contains the same severance pay provisions as noted for
Mr. Bracy, except that under certain conditions, an additional incentive payment
as determined by the Board may be paid for the last year of his employment, as
well as the balance of his salary due through the end of the term. At the normal
expiration of the agreement, the Company will pay an amount equal to 150% of his
annual salary at such time plus an incentive payment as determined, at that
time, by the Board. Mr. Bell has agreed to make himself available to the Company
for 18 months upon expiration or termination of his agreement. Mr. Bell was
covered by an employment agreement when Entex was acquired by the Company. The
contract calls for annual salary at least equal to his annual base salary in
effect at the time this agreement was renewed. This amount was $286,000.

Mr. Kellstrom has an employment agreement with the Company which expires on
September 30, 1995 and provides for an annual base salary of not less than
$275,000. The agreement also awarded Mr. Kellstrom 75,000 common stock
appreciation rights pursuant to the Company's Long Term Incentive Compensation
Plan, with 35,000 having an exercise price of $11.00 per right and 40,000 having
an exercise price of $13.00 per right. If as a result of a "change of control"
in the Company, Mr. Kellstrom voluntarily terminates his employment, the Company
will pay his then unpaid annual base salary for the period from termination
through September 30, 1995. If the Company terminates Mr. Kellstrom for cause,
the Company shall pay to Mr. Kellstrom his annual base salary through the date
of termination. If the Company terminates him without cause, the Company shall
pay Mr. Kellstrom all of the base salary, compensation and benefits provided for
under the agreement as if his employment had not been terminated.

19
<PAGE> 23

Effective September 30, 1993, Mr. Dienstbier terminated his employment with
the Company. Pursuant to an Employment Agreement dated January 20, 1993, which
agreement superseded and replaced his original agreement dated, July 1, 1992,
Mr. Dienstbier was employed for the specific purpose of repositioning the
pipeline group. In mid-1993, the Company decided to retain full ownership and
operating control of the pipeline group. Subsequent to this decision, Mr.
Dienstbier notified the board of his intention to exercise his right under his
Employment Agreement to voluntarily terminate employment with the Company, as of
June 30, 1993, and receive the following compensation and benefits all in
accordance with the terms of his January 1993 agreement: (i) a payment of
$750,000, representing the sum of the annual base salary through June 30, 1994
(the Employment Agreement termination date), an annual award and a completion
bonus; (ii) an award of 15,000 shares of Common Stock (including an income tax
gross-up); and, (iii) confirmation that an award of 250,000 Arkla common stock
appreciation rights, 125,000 having an exercise price of $11.00 per right and
125,000 having an exercise price of $13.00 per right, would remain outstanding
and exercisable for one year from termination of employment. The Employment
Agreement was also amended to secure Mr. Dienstbier's services through September
30, 1993. Pursuant to such amendment, Mr. Dienstbier received (i) a payment of
$137,500 payable upon conclusion of his service in addition to his base salary
through September 30, 1993; and, (ii) an award of 2,500 shares of Common Stock
(including an income tax gross-up).

In connection with the Company's sale of Louisiana Intrastate Gas
Corporation ("LIG"), effective June 30, 1993, Mr. Terrill terminated employment
with the Company. Mr. Terrill was covered by an employment agreement when the
Company acquired LIG and his agreement with the Company essentially duplicated
that prior LIG agreement. The agreement called for an annual salary of not less
than $250,000, and upon termination provided for payments to Mr. Terrill at the
same annual rate provided for in his agreement, from the date of termination
through the balance of the contract's term. Mr. Terrill also received an
incentive bonus of $268,500 related to the sale of LIG and a "change of control"
(as was defined in his employment agreement) payment that was 2.99 times his
base amount as defined in Section 280G of the Code. In addition he is eligible
to receive an annual retirement benefit in the amount of $221,100, reduced by
amounts actually received by Mr. Terrill under a qualified defined benefit plan
maintained on his behalf by his former employer (unaffiliated with the Company),
the Company's Retirement Plan and Retirement Restoration Plan (see "Retirement
Plans") and any Social Security benefits.

LONG TERM INCENTIVE COMPENSATION PLAN

The Company currently maintains a Long-Term Incentive Compensation Plan
(the "LTIP") for key employees as determined by the Compensation Committee of
the Board of Directors, including the Named Executives who are still employed by
the Company. The Board of Directors has adopted an Incentive Equity Plan to
replace the LTIP. The new Incentive Equity Plan, which is subject to approval by
stockholders of the Company at the Annual Meeting, authorizes the granting of
options to

20
<PAGE> 24

purchase shares of common stock, stock appreciation rights, restricted stock,
opportunity shares, performance units and annual incentive awards. See "Proposal
No. 2".

The LTIP provided for performance based grants of restricted stock awards,
stock options and stock appreciation rights from time to time. The following
table shows, as to the Named Executives, information about restricted stock
awards granted in the last fiscal year. As previously described, these grants
are fully at risk and any payment will be earned over three year performance
cycles based on Company performance. No stock options or stock appreciation
rights were granted pursuant to the LTIP in 1993.

LONG-TERM INCENTIVE PLAN AWARDS TABLE

LONG-TERM INCENTIVE PLAN AWARDS IN LAST FISCAL YEAR

<TABLE>
<CAPTION>
ESTIMATED FUTURE PAYOUTS
UNDER NON-STOCK PRICE BASED
NUMBER OF PLANS
SHARES, PERFORMANCE OR --------------------------------
UNITS OTHER PERIOD MINIMUM
OR OTHER UNTIL MATURA- THRESHOLD TARGET ($ OR
NAME RIGHTS($)(1) TION OR PAYOUT ($ OR #) ($ OR #) #)
- -------------------------------------- ------------ -------------- --------- -------- -------
<S> <C> <C> <C> <C> <C>
T. Milton Honea, Jr. ................. 31,500 01/01/93- n/a n/a n/a
12/31/95
Michael B. Bracy...................... 14,100 01/01/93-
12/31/95
Jimmy L. Terrill...................... 8,250 01/01/93-
12/31/95
Howard E. Bell........................ 8,250 01/01/93-
12/31/95
William A. Kellstrom.................. 8,250 01/01/93-
12/31/95
Daniel L. Dienstbier.................. 0 01/01/93-
12/31/95
Hubert Gentry, Jr..................... 7,050 01/01/93-
12/31/95
</TABLE>

- ---------------

(1) Under the Long-Term Incentive Plan, shares vest on the achievement of return
on equity compared to 18 peer companies and total shareholder return
compared to a pre-set objective. Below the threshold performance level, 0%
of the target shares are earned. At threshold performance levels, 50% of
the target shares are earned. At maximum performance levels, 150% of the
target shares are earned.

21
<PAGE> 25

STOCK OPTIONS/STOCK APPRECIATION RIGHTS

The Company currently maintains two plans (the "Plans"), pursuant to which
stock appreciation rights or options to purchase shares of Company common stock
may be granted. The new Incentive Equity Plan is designed to replace these
Plans. See "Proposal No. 2". The purpose of these Plans was to provide other
persons who have substantial responsibility for the management and growth of the
Company with additional incentives by increasing their proprietary interest in
the success of the Company. See also "Long-Term Incentive Compensation Plan".
The Company did not grant any stock options to the Named Executives in 1993.

The following table shows aggregate option and/or stock appreciation rights
exercises in the last fiscal year and fiscal year-end option and/or stock
appreciation rights "in the money" values for the Named Executives.

OPTION/SAR EXERCISES AND YEAR-END VALUE TABLE

AGGREGATED OPTION/SAR EXERCISES IN LAST FISCAL YEAR
AND FY-END OPTION/SAR VALUE

<TABLE>
<CAPTION>
VALUE OF
NUMBER OF UNEXERCISED
UNEXERCISED IN-THE-MONEY
OPTION/SARS OPTION/SARS
SHARES AT FY-END(#) AT FY-END($)
ACQUIRED ON VALUE EXERCISABLE/ EXERCISABLE/
NAME EXERCISE REALIZED($) UNEXERCISABLE UNEXERCISABLE
- --------------------------------------- ----------- ----------- -------------- --------------
<S> <C> <C> <C> <C>
T. Milton Honea, Jr.................... 0 0 0/0 0/0
Michael B. Bracy....................... 0 0 0/0 0/0
Jimmy L. Terrill....................... 0 0 0/0 0/0
Howard E. Bell......................... 0 0 0/0 0/0
William A. Kellstrom................... 0 0 75,000/0 0/0
Daniel L. Dienstbier(1)................ 0 0 250,000/0 0/0
Hubert Gentry, Jr...................... 0 0 0/0 0/0
</TABLE>

- ---------------

(1) Mr. Diensibler terminated on September 30, 1993. His SARs remain outstanding
and exercisable until September 30, 1994.

RETIREMENT PLANS

The Company has a defined benefit retirement plan (the "Retirement Plan"),
covering all full time employees of the Company (except employees of the
Minnegasco Division of the Company and certain hourly employees of the Entex
Division of the Company who are included in a number of

22
<PAGE> 26

collective bargaining agreements). A participant becomes fully vested after
completing five years of active service with the Company, and the Retirement
Plan also provides disability and spousal death benefits. Benefits are based on
final average monthly compensation and the participant's years of service. The
formula uses final average monthly compensation based on the highest monthly
compensation during 36 consecutive calendar month period within the last 120
calendar months. When an employee is paid on other than a monthly basis, pay for
the appropriate number of pay periods is used to reflect 36, 60 or 120 months as
applicable.

The following table shows the estimated maximum annual benefits payable
upon retirement to persons in specified salary and bonus levels and years of
credited service classifications:

ESTIMATED ANNUAL RETIREMENT BENEFITS

<TABLE>
<CAPTION>
AVERAGE YEARS OF SERVICE
PLAN --------------------------------------------
COMPENSATION 10 20 30 40
- ------------ -------- -------- -------- --------
<S> <C> <C> <C> <C> <C>
$100,000.......................................... $ 21,996 $ 44,004 $ 52,868 $ 67,929
200,000.......................................... 47,004 93,996 109,868 140,679
300,000.......................................... 72,000 144,000 166,868 213,429
400,000.......................................... 97,000 194,000 223,868 286,179
500,000.......................................... 122,000 244,000 280,868 358,929
600,000.......................................... 147,000 294,000 337,868 431,679
700,000.......................................... 172,000 344,000 394,868 504,429
</TABLE>

The compensation covered by the Retirement Plan consists of salaries and
bonuses paid to Retirement Plan participants, including salaries and bonuses set
forth in the Summary Compensation Table. The Named Executives have credited
years of service under the Retirement Plan as follows: Mr. Honea 9, Mr. Bell,
17, Mr. Bracy, 9, Mr. Dienstbier, 1, Mr. Gentry, 15, Mr. Kellstrom, 1, and Mr.
Terrill, 26. All amounts shown in the table reflect the general method for
payment of benefits, which is a straight life annuity. The benefits shown
reflect reductions, where applicable, for Social Security benefits or other
offsetting amounts.

Currently, Code Sections 401(a)(17) and 415 contain rules that limit the
amounts payable from the Retirement Plan. The Company maintains an unfunded
non-qualified retirement income plan (the "Retirement Restoration Plan") to
offset these limitations. The Retirement Restoration Plan provides that the
Company will pay a participant in the Retirement Plan the difference between the
amount paid and that which would have been paid to the participant under the
Retirement Plan if the Code limitations had not been applicable.

23
<PAGE> 27

The Company also maintains a Non-qualified Unfunded Executive Supplemental
Income Retirement Plan for certain key employees as designated by the Board of
Directors. Participation in this plan was frozen on May 11, 1985 to employees
participating as of April 11, 1985. The annual base salary amount used to
determine the benefit payable from this plan was frozen as of May 11, 1985, or
the date the participating individual's agreement was signed, whichever was
later. A participant whose employment is terminated at age 65 or thereafter,
with a minimum 10 years of service will receive benefits equal to five times his
final annual compensation at May 11, 1985, plus interest. A participant whose
employment is terminated prior to age 65, but after 10 years of service, is
entitled to receive reduced benefits which are payable beginning not earlier
than age 55. This plan also provides for payment of similar benefits to the
participant's beneficiaries in event of the participant's death. The estimated
annual benefit payable upon retirement at normal retirement age for Mr. Honea is
$110,613 and $117,987 for Mr. Bracy. The other Named Executives do not
participate in this plan.

The Minnegasco Division and certain subsidiaries of the Company related to
Minnegasco operations, maintain a defined benefit pension plan for eligible
employees. None of the Named Executives are covered by the Minnegasco Pension
Plan. Benefits under this plan are determined on the basis of an employee's
years of service, highest average compensation paid during a 60-month period
prior to retirement and other factors. Compensation used for the benefit
determination does not include incentive compensation payments or deferrals to
non-qualified plans.

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<PAGE> 28

PERFORMANCE GRAPH

In accordance with the requirements of the SEC, the following line graph
presents a comparison of the cumulative five-year stockholder returns (including
the reinvestment of dividends) for the Company, the Standard and Poor's 500
Stock Index and an index of peer companies selected by the Company. These peer
companies include the following:

- Pipeline Companies: KN Energy, Inc., Enron Corporation, Sonat, Inc.,
Coastal Corporation, Williams Companies, Inc., Enserch Corporation,
Panhandle Eastern Corporation, Transco Energy Company and Columbia Gas
System.

- Distribution Companies: Nicor, Inc., Peoples Energy Corporation, MCN
Corporation, Washington Gas Light Company, Brooklyn Union Gas Company,
Atlanta Gas Light Company, Energen Corporation, Oneok, Inc. and Pacific
Enterprises.

ARKLA, INC.
COMPARISON OF FIVE-YEAR
CUMULATIVE SHAREHOLDER RETURNS

<TABLE>
<CAPTION>
TRANS./DIST.
MEASUREMENT PERIOD S&P 500 IN- CO. PEER IN-
(FISCAL YEAR COVERED) ARKLA DEX DEX
--------------------- ----- ----------- ------------
<S> <C> <C> <C>
1988 100.00 100.00 100.00
1989 141.83 131.59 147.83
1990 109.43 127.49 129.14
1991 72.80 166.17 120.81
1992 52.01 176.81 137.71
1993 49.78 196.75 170.24
</TABLE>

25
<PAGE> 29

CERTAIN TRANSACTIONS WITH MANAGEMENT

Mr. Bracy's brother is a partner in Bracy, Williams & Co., a Washington
D.C. firm which has performed legislative consulting services for the Company.
The Company's payments for such services during 1993 totalled $120,000 which
amount is less than 10% of the firm's gross revenues for 1993. In the opinion of
management, all such fees paid to the firm were the same as those which would
have been charged by an unaffiliated third party for comparable services.

PROPOSAL NO. 1

APPROVAL OF THE AMENDMENT TO THE CERTIFICATE OF INCORPORATION
TO CHANGE THE NAME OF THE COMPANY TO NORAM ENERGY, CORP.

The Board of Directors on January 12, 1994, adopted an amendment to the
Company's Certificate of Incorporation to change the Company name to NorAm
Energy Corp., subject to approval by the stockholders of the Company. The
purpose of the name change is to more accurately describe the geographical base
of the Company. It is the Board's belief, that "NorAm" for North America, gives
a broader geographical description of the Company strengthening its identity as
a Company with national operations, while the current name, Arkla, Inc., too
narrowly identifies the Company as a regional natural gas company. The selection
of "NorAm" is a conscious effort to demonstrate that all of the business units
are equal partners in a strong national alliance. The word "Energy" encompasses
natural gas and other related businesses.

If the recommended name change is approved by the stockholders, the Company
plans to have Arkansas Louisiana Gas, Entex, Minnegasco and Mississippi River
Transmission Corporation retain their identity. It is likely that the marketing
unit of the Company, Arkla Energy Marketing, and Arkla Energy Resources, one of
its transmission units, will be renamed to reflect the NorAm Energy name.

The description contained herein is qualified in its entirety by reference
to the proposed amendment to Article First of the Certificate of Incorporation,
as heretofore amended, which is attached as Appendix A.

RECOMMENDATION

The Board of Directors believes that approval of the amendment to the
Certificate of Incorporation is in the best interests of the Company and the
stockholders, because the new name, NorAm Energy Corp., will more accurately
identify the Company as a national energy company.

THE BOARD OF DIRECTORS RECOMMENDS A VOTE FOR APPROVAL OF THE AMENDMENT TO
THE CERTIFICATE OF INCORPORATION FOR THE PURPOSE OF CHANGING THE NAME.

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<PAGE> 30

PROPOSAL NO. 2

APPROVAL OF THE 1994 INCENTIVE EQUITY PLAN

GENERAL

The Board of Directors adopted the Arkla, Inc. 1994 Incentive Equity Plan
(the "Incentive Plan") on January 12, 1994, subject to approval by the
stockholders of the Company at the Annual Meeting. The Incentive Plan will
replace the Arkla, Inc. Long Term Incentive Compensation Plan (the "LTIP"),
under which no grants will be made from and after January 12, 1994 with respect
to performance periods beginning on or after January 1, 1994.

The purpose of the Incentive Plan is to enable the Company to attract and
retain key employees and provide them with appropriate incentives and rewards
for superior performance. The Incentive Plan affords the Compensation and
Benefits Committee of the Board of Directors (the "Compensation Committee"),
which has been authorized by the Board of Directors to administer the Incentive
Plan, the flexibility to respond to changes in the competitive and legal
environments, thereby protecting and enhancing the Company's current and future
ability to attract and retain key employees.

The Incentive Plan authorizes the granting of options to purchase shares of
Common Stock ("Option Rights"), stock appreciation rights ("Appreciation
Rights"), restricted stock ("Restricted Stock"), opportunity shares
("Opportunity Shares"), performance units ("Performance Units") and annual
incentive awards ("Annual Incentive Awards"). The terms applicable to these
various types of awards, including those terms that may be established by the
Compensation Committee when making or administering particular awards, are set
forth in detail in the Incentive Plan.

SUMMARY OF INCENTIVE PLAN

The following general description of certain features of the Incentive Plan
is qualified in its entirety by reference to the Incentive Plan, which is
attached as Appendix B.

Shares Available under the Incentive Plan. Subject to adjustment as
provided in the Incentive Plan, the number of shares of Common Stock that may be
issued or transferred and covered by outstanding awards granted under the
Incentive Plan will not in the aggregate exceed 3,800,000 shares, which may be
shares of original issuance or treasury shares or a combination thereof. The
number of shares of Common Stock that may be issued or transferred as Restricted
Stock under the Incentive Plan will not in the aggregate exceed 2,000,000
shares, taking into account an aggregate of 43,513 shares of Common Stock
previously issued and to be issued to the Chairman of the Company through the
end of 1994 pursuant to an equity based compensation arrangement approved by the
Board of Directors on September 15, 1993. The number of shares of Common Stock
that may be issued as Annual Incentive Awards granted under the Incentive Plan
will not in the aggregate exceed 700,000. Stock options and

27
<PAGE> 31

stock appreciation rights with respect to no more than 80,000 shares may be
granted to any participant during any calendar year. All shares that may be
issued or transferred under the Incentive Plan are subject to adjustment as
provided in the Incentive Plan.

Eligibility. Key employees of the Company and its subsidiaries, including
key employees who are members of the Board of Directors, may be selected by the
Compensation Committee to receive benefits under the Incentive Plan.
Approximately 60 officers and other key employees of the Company and its
subsidiaries are currently eligible to participate in the Incentive Plan.

Option Rights. The Compensation Committee may grant Option Rights that
entitle the optionee to purchase shares of Common Stock at a price equal to or
greater than market value on the date of grant. The market value of a share of
Common Stock was $8.00 on February 25, 1994, which was the closing price of the
Common Stock on the New York Stock Exchange, Inc. on that date. The option price
is payable at the time of exercise (i) in cash, (ii) by the transfer to the
Company of nonforfeitable, nonrestricted shares of Common Stock that are already
owned by the optionee and have a value at the time of exercise equal to the
option price, or (iii) by any combination of the foregoing methods of payment.
Any grant may provide for deferred payment of the option price from the proceeds
of sale through a broker of some or all of the shares of Common Stock to which
the exercise relates. The Compensation Committee has the authority to specify at
the time Option Rights are granted that shares of Common Stock will not be
accepted in payment of the option price until they have been owned by the
optionee for a specified period; however, the Incentive Plan does not require
any such holding period and would permit immediate sequential exchanges of
shares of Common Stock at the time of exercise of Option Rights.

Option Rights granted under the Incentive Plan may be Option Rights that
are intended to qualify as "incentive stock options" within the meaning of
Section 422 of the Internal Revenue Code of 1986 (the "Code") or Option Rights
that are not intended to so qualify.

No Option Right may be exercised more than ten years from the date of
grant. Each grant must specify the period of continuous employment with the
Company or any subsidiary and/or the achievement of any specified performance
objectives ("Management Objectives") that are necessary before the Option Rights
will become exercisable and may provide for the earlier exercise of the Option
Rights in the event of a change in control of the Company or other similar
transaction or event. Successive grants may be made to the same optionee
regardless of whether Option Rights previously granted to him or her remain
unexercised.

Appreciation Rights. Appreciation Rights granted under the Incentive Plan
may be either free-standing Appreciation Rights or Appreciation Rights that are
granted in tandem with Option Rights. An Appreciation Right represents the right
to receive from the Company the difference (the "Spread"), or a percentage
thereof not in excess of 100 percent, between the base price per share of Common
Stock in the case of a free-standing Appreciation Right, or the option price of
the related

28
<PAGE> 32

Option Right in the case of a tandem Appreciation Right, and the market value of
the Common Stock on the date of exercise of the Appreciation Right. Tandem
Appreciation Rights may only be exercised at a time when the related Option
Right is exercisable and the Spread is positive, and the exercise of a Tandem
Appreciation Right requires the surrender of the related Option Right for
cancellation. A free-standing Appreciation Right must have a base price that is
at least equal to the fair market value of a share of Common Stock on the date
of grant, must specify the period of continuous employment and/or the
achievement of any Management Objectives that are necessary before the
Appreciation Right becomes exercisable (except that it may provide for its
earlier exercise in the event of a change in control of the Company or other
similar transaction or event). Any grant of Appreciation Rights may specify that
the amount payable by the Company upon exercise may be paid in cash, Common
Stock or a combination thereof as determined by the Compensation Committee.

Restricted Stock. A grant of Restricted Stock involves the immediate
transfer by the Company to a participant of ownership of a specific number of
shares of Common Stock in consideration of the performance of services. The
participant is entitled immediately to voting and other ownership rights in the
shares, except that the Compensation Committee may require the participant to
waive any right to dividends until the shares are no longer subject to one or
more restrictions (as described below). The transfer may be made without
additional consideration or for consideration in an amount that is less than the
market value of the shares on the date of grant, as the Compensation Committee
may determine. The Compensation Committee may condition the award on the
achievement of Management Objectives.

Restricted Stock must be subject to one of more restrictions including,
without limitation, a restriction that constitutes a "substantial risk of
forfeiture" within the meaning of Section 83 of the Code for a period to be
determined by the Compensation Committee. An example would be a provision that
the Restricted Stock would be forfeited if the participant ceased to serve the
Company as a key employee during a specified period. In order to enforce these
forfeiture provisions, the transferability of Restricted Stock will be
prohibited or restricted in a manner and to the extent prescribed by the
Compensation Committee for the period during which the forfeiture provisions are
to continue. The Compensation Committee may provide for a shorter period during
which the forfeiture provisions are to apply in the event of a change in control
of the Company or other similar transaction or event.

Opportunity Shares. An award of Opportunity Shares constitutes an agreement
by the Company to deliver shares of Common Stock to the participant in the
future in consideration of the performance of services, subject to the
fulfillment of such Management Objectives as the Compensation Committee may
specify. Prior to the delivery of the Opportunity Shares, the participant has no
right to transfer any rights under his or her award and no rights as a
stockholder with respect to the shares covered by the award. The Compensation
Committee may provide for the acceleration of the delivery of

29
<PAGE> 33

Opportunity Shares in the event of a change in control of the Company or other
similar transaction or event.

Performance Units. A Performance Unit is the equivalent of $100.00. A
participant may be granted any number of Performance Units, which will become
payable upon achievement of specified Management Objectives. The participant
will be given one or more Management Objectives to meet within a specified
period (the "Performance Period"). The specified Performance Period may be
subject to earlier termination in the event of a change in control of the
Company or other similar transaction or event.

Annual Incentive Awards. The Compensation Committee may authorize the
payment of annual incentive compensation upon the achievement of specified
Management Objectives. Annual incentive compensation may be paid in cash, in
shares of Common Stock, or in any combination thereof. The Compensation
Committee may determine the payment of annual incentive compensation in the
event of a change in control of the Company or other similar transaction or
event.

Management Objectives. The Management Objectives established by the
Compensation Committee in connection with any award under the Incentive Plan may
be described in terms of either Company-wide objectives or objectives that are
related to the performance of the division, subsidiary, department or function
within the Company or a subsidiary in which the participant is employed. A
minimum level of acceptable achievement may also be established by the
Compensation Committee. The Compensation Committee may adjust any Management
Objectives and the related minimum level of acceptable achievement if, in its
judgment, transactions or events have occurred after the date of grant that are
unrelated to the participant's performance and result in distortion of the
Management Objectives or the related minimum level of acceptable achievement. If
the participant has achieved the specified Management Objectives, he or she will
be deemed to have fully earned the award. If the participant has not achieved
the Management Objectives but has attained or exceeded the predetermined minimum
level of acceptable achievement, he or she will be deemed to have partly earned
the award in accordance with a predetermined formula. To the extent earned, the
award will be paid to the participant at the time and in the manner determined
by the Compensation Committee.

Transferability. No Option Right, Appreciation Right or other "derivative
security" within the meaning of Rule 16b-3 under the Exchange Act is
transferable by a participant except by will or the laws of descent and
distribution. Option Rights and Appreciation Rights may not be exercised during
a participant's lifetime except by the participant or, in the event of his or
her incapacity, by his or her guardian or legal representative acting in a
fiduciary capacity on behalf of the participant under state law and court
supervision.

Adjustments. The maximum number of shares that may be issued or transferred
under the Incentive Plan, the number of shares covered by outstanding Option
Rights or Appreciation Rights and the option prices or base prices per share
applicable thereto, the number of shares covered by

30
<PAGE> 34

outstanding grants of Opportunity Shares, and the kind of shares covered by
awards (including shares of another issuer) are subject to adjustment in the
event of stock dividends, stock splits, combinations of shares,
recapitalizations, mergers, consolidations, spin-offs, reorganizations,
liquidations, issuances of rights or warrants, and similar transactions or
events. In the event of any such transaction or event, the Compensation
Committee may in its discretion provide in substitution for any or all
outstanding awards under the Incentive Plan such alternative consideration as it
may in good faith determine to be equitable in the circumstances and may require
the surrender of all awards so replaced.

Administration and Amendments. The Incentive Plan is to be administered by
a committee consisting of not less than three nonemployee directors who are
"disinterested persons" within the meaning of Rule 16b-3 under the Exchange Act.
In connection with its administration of the Incentive Plan, the Compensation
Committee is authorized to interpret the Incentive Plan and related agreements
and other documents. The Compensation Committee may make grants to participants
under any or a combination of all of the various categories of awards that are
authorized under the Incentive Plan.

The Incentive Plan may be amended from time to time by the Board, but
without further approval by the stockholders of the Company no such amendment
may cause Rule 16b-3 under the exchange Act to cease to be applicable to the
Incentive Plan.

INCENTIVE PLAN BENEFITS

Set forth in the table below are the shares of Restricted Stock and the
Option Rights that were granted under the Incentive Equity Plan in January of
1994 to (i) each of the current and former executive officers named in the
Summary Compensation Table, (ii) all current executive officers as a group and
(iii) all employees, including all current officers who are not executive
officers, as a group.

<TABLE>
<CAPTION>
RESTRICTED OPTION
NAME STOCK RIGHTS
---- ------- -------
<S> <C> <C>
T. Milton Honea......................................................... 26,200 54,100
Howard E. Bell.......................................................... 6,300 13,200
Michael B. Bracy........................................................ 12,100 25,600
Hubert Gentry, Jr....................................................... 5,300 11,200
William A. Kellstrom.................................................... 6,300 13,200
Daniel L. Dienstbier.................................................... 0 0
Jimmy L. Terrill........................................................ 0 0
Executive Officers as a group........................................... 146,500 301,400
All Employees as a group................................................ 146,500 301,400
</TABLE>

In addition, the Chairman of the Company was awarded 10,169 shares of
Common Stock as of October 1, 1993, and 8,336 shares of Common Stock as of
January 1, 1994, in lieu of a portion of the

31
<PAGE> 35

Chairman's base salary pursuant to a revised compensation arrangement approved
by the Board of Directors on September 15, 1993 (see "1993 CEO Compensation").
No other awards of any kind have been granted under the Incentive Equity Plan to
date.

FEDERAL INCOME TAX CONSEQUENCES

The following is a brief summary of certain of the federal income tax
consequences of certain transactions under the Incentive Plan based on federal
income tax laws in effect on January 1, 1994. This summary is not intended to be
exhaustive and does not describe state of local tax consequences.

TAX CONSEQUENCES TO PARTICIPANTS

Non-qualified Option Rights. In general: (i) no income will be recognized
by an optionee at the time a non-qualified Option Right is granted; (ii) at the
time of exercise of a non-qualified Option Right, ordinary income will be
recognized by the optionee in an amount equal to the difference between the
option price paid for the shares and the fair market value of the shares if they
are nonrestricted on the date of exercise; and (iii) at the time of sale of
shares acquired pursuant to the exercise of a non-qualified Option Right, any
appreciation (or depreciation) in the value of the shares after the date of
exercise will be treated as either short-term or long-term capital gain (or
loss) depending on how long the shares have been held.

Incentive Stock Options. No income generally will be recognized by an
optionee upon the grant or exercise of an incentive stock option. If shares of
Common Stock are issued to an optionee pursuant to the exercise of an incentive
stock option and no disqualifying disposition of the shares is made by the
optionee within two years after the date of grant or within one year after the
transfer of the shares to the optionee, then upon the sale of the shares any
amount realized in excess of the option price will be taxed to the optionee as
long-term capital gain and any loss sustained will be a long-term capital loss.

If shares of Common Stock acquired upon the exercises of an incentive stock
option are disposed of prior to the expiration of either holding period
described above, the optionee generally will recognize ordinary income in the
year of disposition in an amount equal to any excess of the fair market value of
the shares at the time of exercise (or, if less, the amount realized on the
disposition of the shares in a sale or exchange) over the option price paid for
the shares. Any further gain (or loss) realized by the optionee generally will
be taxed as short-term or long-term capital gain (or loss) depending on the
holding period.

Appreciation Rights. No income will be recognized by a participant in
connection with the grant of an Appreciation Right. When the Appreciation right
is exercised, the participant normally will be required to include as taxable
ordinary income in the year of exercise an amount equal to the amount of any
cash, and the fair market value of any nonrestricted shares of Common Stock,
received pursuant to the exercise.

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<PAGE> 36

Restricted Stock. A recipient of Restricted Stock generally will be subject
to tax at ordinary income rates on the fair market value of the Restricted Stock
reduced by any amount paid by the recipient at such time as the shares are no
longer subject to a risk of forfeiture or restrictions on transfer for purposes
of Section 83 of the Code. However, a recipient who so elects under Section
83(b) of the Code within 30 days of the date of transfer of the shares will have
taxable ordinary income on the date of transfer of the shares equal to the
excess of the fair market value of the shares (determined without regard to the
risk of forfeiture or restrictions on transfer) over any purchase price paid for
the shares. If a Section 83(b) election has not been made, any dividends
received with respect to Restricted Stock that are subject at that time to a
risk of forfeiture or restrictions on transfer generally will be treated as
compensation that is taxable as ordinary income to the recipient.

Opportunity Shares. No income generally will be recognized upon the grant
of Opportunity Shares. The recipient of a grant of Opportunity Shares generally
will be subject to tax at ordinary income rates on the fair market value of
nonrestricted shares of Common Stock on the date that the Opportunity Shares are
transferred to him or her, reduced by any amount paid by him or her, and the
capital gains or loss holding period for the Opportunity Shares will also
commence on that date.

Performance Units. No income generally will be recognized upon the grant of
Performance Units. Upon payment in respect of the earn-out of Performance Units,
the recipient generally will be required to include as taxable ordinary income
in the year of receipt an amount equal to the amount of cash received and the
fair market value of any nonrestricted shares of Common Stock received.

Special Rules Applicable to Officers and Directors. In limited
circumstances where the sale of stock that is received as the result of a grant
of an award could subject an officer or Director to suit under Section 16(b) of
the Exchange Act, the tax consequences to the officer or Director may differ
from the tax consequences described above. In these circumstances, unless a
special election has been made, the principal difference usually will be to
postpone valuation and taxation of the stock received so long as the sale of the
stock received could subject the officer or Director to suit under Section 16(b)
of the Exchange Act, but not longer than six months.

Tax Consequences to the Company or Subsidiary

To the extent that a participant recognizes ordinary income in the
circumstances described above, the Company or subsidiary for which the
participant performs services will be entitled to a corresponding deduction
provided that, among other things, (i) the income meets the test of
reasonableness, is an ordinary and necessary business expense and is not an
"excess parachute payment" within the meaning of Section 280G of the Code, (ii)
any applicable withholding obligations are satisfied, and (iii) the $1 million
limitation of Section 162(m) of the Code is not exceeded.

33
<PAGE> 37

RECOMMENDATION

The Board of Directors believes that the approval of the Incentive Plan is
in the best interests of the Company and the stockholders because the Incentive
Plan will enable the Company to attract and retain key employees and provide
these employees with competitive equity incentives.

THE BOARD OF DIRECTORS RECOMMENDS A VOTE FOR APPROVAL OF THE INCENTIVE
EQUITY PLAN.

PROPOSAL NO. 3

APPROVAL OF THE 1994 EMPLOYEE STOCK PURCHASE PLAN

GENERAL

The Board of Directors adopted the Arkla, Inc. 1994 Employee Stock Purchase
Plan (the "Stock Purchase Plan") on January 12, 1994, to be effective July 1,
1994, subject to approval by the stockholders of the Company at the Annual
Meeting. The purpose of the Stock Purchase Plan is to provide an incentive to
employees of the Company to acquire an ownership interest (or to increase an
existing ownership interest) in the Company through the purchase of shares of
Common Stock.

SUMMARY OF STOCK PURCHASE PLAN

The following general description of certain features of the Stock Purchase
Plan is qualified in its entirety by reference to the Stock Purchase Plan, which
is attached as Appendix C.

Shares Available under the Stock Purchase Plan. Subject to adjustment as
provided in the Stock Purchase Plan, the number of shares of Common Stock that
may be purchased by employees under the Stock Purchase Plan will not in the
aggregate exceed 2,000,000 shares, which may be shares of original issuance or
treasury shares or a combination thereof. All shares that may be issued or
transferred under the Stock Purchase Plan are subject to adjustment as provided
in the Stock Purchase Plan.

Eligibility. All employees of the Company and its subsidiaries who are
customarily employed for more than 20 hours a week and for more than five months
in a calendar year are eligible to participate in the Stock Purchase Plan. An
eligible employee may participate as of the calendar quarter that begins
immediately after the date on which the employee has completed one month and one
day of employment. However, an eligible employee may not participate if the
employee would own 5% or more of the total combined voting power of all classes
of stock of the Company, taking into account options to purchase stock and stock
that may be purchased under the Stock Purchase Plan. At the present time, no
employee of the Company would be prevented from participating by reason of this
5% limitation. Approximately 6,907 employees of the Company and its subsidiaries
are currently eligible to participate in the Stock Purchase Plan.

34
<PAGE> 38

Participation. An eligible employee may elect to participate in the Stock
Purchase Plan for any calendar quarter during the period from July 1, 1994 to
December 31, 1996, by authorizing payroll deductions in an amount equal to not
less than 2% nor more than 10% of base pay; provided, however, that no employee
will be permitted to purchase under the Stock Purchase Plan Common Stock with a
total value (determined as of the first day of the calendar quarter) that
exceeds $25,000 in any calendar year. The payroll deductions are credited to an
account established for the participant under the Stock Purchase Plan. Unless
the payroll deductions are withdrawn (as described below), the aggregate payroll
deductions credited to the participant's account will be used to purchase shares
of Common Stock at the end of the calendar quarter. The per share purchase price
of the Common Stock will be 85% of the lesser of the closing price of the Common
Stock as reported on the New York Stock Exchange on the first business day of
the calendar quarter or the closing price of the Common Stock on the last day of
the calendar quarter (or the next business day if the last day of the calendar
quarter is not a business day). One factor considered in selecting this purchase
price percentage was the one-year transfer restriction described below. No
interest is paid on the payroll deductions while credited to the participant's
account. Payroll deductions may be used for any purpose by the Company and are
not required to be segregated.

Suspension and Withdrawal of Payroll Deductions. By delivering written
notice to the Company's Benefits Department at least 15 days prior to the last
day of a calendar quarter, a participant may elect to suspend or discontinue
payroll deductions and/or to withdraw the payroll deductions credited to his or
her account rather than have such deductions used to purchase Common Stock. A
reasonable administrative fee may be imposed on a participant who makes such a
withdrawal to cover the cost of processing a withdrawal.

Delivery of Shares to Participants. Shares of Common Stock purchased with a
participant's payroll deductions may be registered in the name of a nominee, but
the participant will be the beneficial owner of the shares for all purposes,
except that the participant may not transfer or otherwise dispose of the shares
for a period of one year from the date of purchase. During this one-year period,
the Company (or a brokerage firm or other entity selected by the Company) will
retain custody of the shares, and any cash dividends paid on the shares during
this period will be used in the same manner as payroll deductions to purchase
additional shares for the participant at the end of the calendar quarter in
which the dividends are received or, if the participant is not participating in
the Stock Purchase Plan for that quarter, will be credited to the participant's
account.

Termination of Employment. Upon a participant's termination of employment
for any reason other than death, disability or retirement, participation in the
Stock Purchase Plan ceases and all amounts credited to the participant's account
are immediately distributed to the participant, except that shares of Common
Stock that have not been held for at least one year will not be distributed
until the expiration of the one year period. In the event of the participant's
death, disability or retirement, the participant or, in the event of death, the
participant's beneficiary may elect to withdraw all amounts

35
<PAGE> 39

credited to the participant's account, including shares that have not been held
for one year, or may elect to have any cash amounts credited to the
participant's account used to purchase shares of Common Stock at the end of the
calendar quarter in which the participant terminated employment.

Transferability. No interest in the Stock Purchase Plan or in payroll
deductions or Common Stock to be purchased with payroll deductions may be
transferred by a participant except by will or the laws of descent and
distribution.

Adjustments. The maximum number of shares that may be issued or transferred
under the Stock Purchase Plan are subject to adjustment in the event of stock
dividends, stock splits, combinations of shares, recapitalizations, mergers,
consolidations, spin-offs, reorganizations, liquidations, issuances of rights or
warrants, and similar transactions or events.

Administration and Amendments. The Stock Purchase Plan is to be
administered by the Compensation and Benefits Committee of the Board, consisting
of not less than three members who are "disinterested persons" within the
meaning of Rule 16b-3 under the Exchange Act. In connection with its
administration of the Stock Purchase Plan, the Committee is authorized to
interpret the Stock Purchase Plan and related agreements.

The Stock Purchase Plan may be amended from time to time by the Board, but
without further approval by the stockholders of the Company no such amendment
may materially increase benefits to participants, materially increase the number
of shares of Common Stock that may be issued under the Stock Purchase Plan or
materially modify the eligibility requirements for participation under the Stock
Purchase Plan.

FEDERAL INCOME TAX CONSEQUENCES

The following is a brief summary of certain of the federal income tax
consequences of certain transactions under the Stock Purchase Plan based on
federal income tax laws in effect on January 1, 1994. This summary is not
intended to be exhaustive and does not describe state or local tax consequences.

TAX CONSEQUENCES TO PARTICIPANTS

For federal income tax purposes, a participant is considered to have been
granted an option to purchase shares of Common Stock under the Stock Purchase
Plan on the first day of the calendar quarter. If the participant does not
withdraw his or her payroll deductions, the participant is considered to have
exercised the option on the last day of the calendar quarter.

Each participant's payroll deductions made pursuant to the Stock Purchase
Plan are includible in the participant's ordinary income. No additional income
generally will be recognized by a participant upon the grant or exercise of an
option to purchase shares of Common Stock. If shares of Common

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Stock are purchased by a participant pursuant to the exercise of the option and
no disqualifying disposition of the shares is made by the participant within two
years after the date of grant or within one year after the purchase of the
shares, the participant will recognize in the year of disposition (or, if
earlier, the year of the participant's death) ordinary income in an amount equal
to the lesser of the excess of the fair market value of the shares at the time
of disposition (or, if earlier, the participant's death) over the option price
or the fair market value of the shares at the time the option was granted over
the purchase price determined as if the option were exercised on the date of
grant. Upon the sale of the shares, any amount realized in excess of the
ordinary income recognized by the participant will be taxed to the participant
as long-term capital gain and any loss sustained will be a long-term capital
loss.

If shares of Common Stock acquired upon the exercise of an option are
disposed of prior to the expiration of either holding period described above,
the participant generally will recognize ordinary income in the year of
disposition in an amount equal to any excess of the fair market value of the
shares at the time of exercise (or, if less, the amount realized on the
disposition of the shares in a sale or exchange) over the option price paid for
the shares. Any further gain (or loss) realized by the participant generally
will be taxed as short-term or long-term capital gain (or loss) depending on the
holding period.

TAX CONSEQUENCES TO THE COMPANY OR SUBSIDIARY

RECOMMENDATION

The Board of Directors believes that the approval of the Stock Purchase
Plan is in the best interests of the Company and the stockholders because the
Stock Purchase Plan will provide an incentive to employees of the Company to
acquire an ownership interest (or increase their ownership interest) in the
Company.

THE BOARD OF DIRECTORS RECOMMENDS A VOTE FOR APPROVAL OF THE STOCK PURCHASE
PLAN.

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PROPOSAL NO. 4

APPROVAL OF THE RESTRICTED STOCK PLAN FOR NONEMPLOYEE DIRECTORS

GENERAL

The Board of Directors adopted the Arkla, Inc. Restricted Stock Plan for
Nonemployee Directors (the "Director Stock Plan") on January 12, 1994, subject
to approval by the stockholders of the Company at the Annual Meeting.

The purpose of the Director Stock Plan is to provide ownership of the
Company's Common Stock to nonemployee members of the Board of Directors in order
to improve the Company's ability to attract and retain highly qualified
individuals to serve as directors of the Company, to provide competitive
remuneration for Board service, and to strengthen the commonality of interest
between directors and stockholders.

The Director Stock Plan provides for automatic grants of restricted stock
("Restricted Stock") as payment for one-half of the annual retainer that a
nonemployee director receives each year for service as a member of the Board and
any retainer for service as chairman of a committee of the Board. No other
grants of Restricted Stock are authorized by the Director Stock Plan. The terms
applicable to the annual Restricted Stock grants are set forth in detail in the
Director Stock Plan.

SUMMARY OF DIRECTOR STOCK PLAN

The following general description of certain features of the Director Stock
Plan is qualified in its entirety by reference to the Director Stock Plan, which
is attached as Appendix D.

Shares Available under the Director Stock Plan. Subject to adjustment as
provided in the Director Stock Plan, the number of shares of Common Stock that
may be issued or transferred and covered by outstanding awards of Restricted
Stock under the Director Stock Plan will not in the aggregate exceed 125,000
shares, which may be shares of original issuance or treasury shares or a
combination thereof. All shares that may be issued or transferred under the
Director Stock Plan are subject to adjustment as provided in the Director Stock
Plan.

Eligibility. Each director of the Company who at the date of grant is not
also an employee of the Company or any of its subsidiaries will receive grants
of Restricted Stock under the Director Stock Plan. Currently, there are eleven
nonemployee directors eligible to participate in the Director Stock Plan.

Restricted Stock. As soon as practicable after the beginning of the year, a
nonemployee director will be granted shares of Restricted Stock with a total
value equal to one-half of the director's annual retainer for service as a
member of the Board plus one-half of the retainer for service as chairman of a
committee of the Board. The remainder of the director's annual retainer and
chairman's retainer will

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be paid in cash. Currently, the annual retainer for service on the Board is
$24,000 and the retainer for service as chairman of a committee is $2,000. The
number of shares issued in a grant of Restricted Stock will be based on the
market price of the Company's Common Stock on December 31 of the year prior to
the date of grant. In the year that a nonemployee director is first elected to
the Board, the grant of Restricted Stock will be made as soon as practicable
after the director is elected.

A grant of Restricted Stock involves the immediate transfer by the Company
to a participant of ownership of a specific number of shares of Common Stock in
consideration of the performance of services. The participant is entitled
immediately to voting and other ownership rights in the shares, except that the
Compensation Committee may require the participant to waive any right to
dividends during the period in which the shares of Restricted Stock are subject
to substantial risk of forfeiture and restriction on transfer. The transfer will
be made without additional consideration.

Restricted Stock will be subject to forfeiture if the participant ceases to
be a member of the Board before the end of a specified period of time. The
restricted period begins on the date of grant and will expire with respect to
one-third of the shares on January 1 of each of the first three years beginning
after the date of grant, as long as the participant is still a member of the
Board, Except as described below, if a participant ceases to be a member of the
Board before the restricted period has expired, the shares that are still
subject to restriction will be forfeited.

The restrictions will expire before the end of the normal restricted period
if the participant (i) dies or becomes disabled, (ii) retires with the right to
a benefit under the Arkla, Inc. Director's Retirement Plan, (iii) is nominated
by the Board and stands for election, but is not elected to the Board by the
stockholders, or (iv) is not nominated by the Board for reelection to the Board.
In order to enforce these forfeiture provisions, the transferability of
Restricted Stock will be prohibited or restricted in a manner and to the extent
prescribed by the Compensation Committee for the period during which the
forfeiture provisions are to continue.

Adjustments. The maximum number of shares that may be issued or transferred
under the Director Stock Plan is subject to adjustment in the event of stock
dividends, stock splits, combinations of shares, recapitalizations, mergers,
consolidations, spin-offs, reorganizations, liquidations, issuances of rights or
warrants, and similar transactions or events. In the event of any such
transaction or event, the Compensation Committee may in its discretion provide
in substitution for any or all outstanding awards under the Director Stock Plan
such alternative consideration as it may in good faith determine to be equitable
in the circumstances and may require the surrender of all awards so replaced.

Administration and Amendments. The Director Stock Plan is to be
administered by a committee consisting of not less than three nonemployee
directors who are "disinterested persons" within the meaning of Rule 16b-3 under
the Exchange Act. In connection with its administration of the Director Stock
Plan, the Compensation Committee is authorized to interpret the Director Stock
Plan and related agreements and other documents. No member of the Compensation
Committee will take part

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in any decision of the Compensation Committee with respect to the member's
individual claim under the Director Stock Plan.

The Director Stock Plan may be amended from time to time by the Board, but
without further approval by the stockholders of the Company no such amendment
may cause Rule 16b-3 under the Exchange Act to cease to be applicable to the
Director Stock Plan. In addition, no amendment or modification will be made more
than once every six months, except to comply with changes to the Internal
Revenue Code of 1986 (the "Code") or the Employee Retirement Income Security Act
of 1974.

DIRECTOR STOCK PLAN BENEFITS

No shares of Restricted Stock were granted to nonemployee directors during
the Company's last completed fiscal year.

FEDERAL INCOME TAX CONSEQUENCES

The following is a brief summary of certain of the federal income tax
consequences of certain transactions under the Director Stock Plan based on
federal income tax laws in effect on January 1, 1994. This summary is not
intended to be exhaustive and does not describe state or local tax consequences.

TAX CONSEQUENCES TO PARTICIPANTS

Special Rules Applicable to Directors. In limited circumstances where the
sale of stock that is received as the result of a grant of an award could
subject a Director to suit under Section 16(b) of the Exchange Act, the tax
consequences to the officer of Director may differ from the tax consequences
described above. In these circumstances, unless a special election has been
made, the principal difference usually will be to postpone valuation and
taxation of the stock received so long as the sale of

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the stock received could subject the officer or Director to suit under Section
16(b) of the Exchange Act, but not longer than six months.

TAX CONSEQUENCES TO THE COMPANY OR SUBSIDIARY

RECOMMENDATION

The Board of Directors believes that the approval of the Director Stock
Plan is in the best interests of the Company and the stockholders because the
Director Stock Plan will enable the Company to attract and retain highly
qualified members of the Board and strengthen the commonality of interest
between directors and stockholders.

THE BOARD OF DIRECTORS RECOMMENDS A VOTE FOR APPROVAL OF THE DIRECTOR STOCK
PLAN.

PROPOSAL NO. 5

STOCKHOLDER PROPOSAL CONCERNING PRIOR STOCKHOLDER APPROVAL OF AGREEMENTS
PROVIDING FOR THE PAYMENT OF EXECUTIVE COMPENSATION CONTINGENT UPON A CHANGE IN
CONTROL OF THE COMPANY

The Company has been advised that the Amalgamated Bank of New York LongView
Collective Investment Fund, owner of 5,900 shares of Common Stock, requests that
the following proposal be considered at the meeting. The text of the resolution
and the statement in support thereof are as follows:

Stockholder Proposal

RESOLVED: The shareholders of Arkla, Inc. ("Company" or "Arkla") recommend
that the Board of Directors refrain from entering into any future agreements
providing executive compensation contingent upon a change in control of the
Company unless such agreements are specifically submitted to the shareholders
for approval.

Supporting Statement

WHEREAS the Company has employment agreements with several executive
officers which provide special severance compensation contingent upon a change
in control of the Company.

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<PAGE> 45

WHEREAS these agreements, commonly known as "golden parachutes," provide
that if an officer resigns or is terminated under certain circumstances after a
change of control of the Company, the officer will receive special severance
compensation.

WHEREAS Arkla's parachute agreements were adopted without the approval of
the Company's shareholders.

WHEREAS we believe that if Arkla were to become the target of an attempted
takeover, the introduction of personal financial considerations for executives
may cause these executives to act in a manner which does not maximize
shareholder value.

WHEREAS we believe that shareholders should have the right to vote on any
parachute agreements, in order to assess potential conflicts of interest between
executives and shareholders.

WHEREAS a 1990 study conducted by the United Shareholders Association of
1,000 major U.S. corporations found that the average annualized two-year return
(based on dividends and stock appreciation) was 20% higher for the 559 companies
which did not have golden parachute agreements.

WHEREAS we believe that the Company's performance is unsatisfactory. Out of
1,000 companies studied by the United Shareholders Association in 1993
(evaluating companies on the basis of long and short-term returns to
stockholders, stockholder rights policies and linkage of executive compensation
to stock performance), Arkla was rated near the bottom at number 992.

WE THEREFOR URGE YOU TO VOTE FOR THIS PROPOSAL!

STATEMENT OF THE COMPANY IN OPPOSITION TO THE STOCKHOLDER PROPOSAL

As stated in the Company's 1993 proxy statement and in this proxy statement
(see "Employment Agreements"), the Company maintains the philosophy that
employment agreements are not generally essential to the employment and
retention of management. Further, the Company has historically only provided
special change-in-control severance compensation provisions to executive
officers as part of employment agreements. As a result, the Company does not
currently intend to provide new employment agreements or special
change-in-control severance provisions to executive officers. However, the
Company recognizes that circumstances may arise under which it would be in the
best interests of the Company to enter into a formal arrangement with senior
management personnel to identify specific performance goals and incentive
guidelines. Such arrangements might also include change-in-control provisions.
As discussed below, the Board of Directors believes it is desirable to maintain
the flexibility to provide special change-in-control severance arrangements when
necessary.

Only three executive officers still have employment agreements with the
Company that contain special change-in-control severance compensation
provisions. The expiration dates for these employment agreements are August 31,
1994, August 31, 1995 and September 30, 1995, and although the

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Company does not anticipate renewing these agreements, it does not believe that
such agreements are adverse to the best interests of the Company or its
stockholders.

Contrary to the proponent's assertion that such special change-in-control
severance compensation provisions create a conflict of interest between
management's personal concerns and its responsibility to the Company, the Board
supports the view that the security offered by such severance agreements enables
executives to remain focused and objective during a threatening situation and to
act promptly and decisively to guarantee the preservation of the Company's
strength and value to its stockholders. Requiring stockholder approval of
severance agreements weakens the Board's flexibility to act promptly and
competitively within the industry in attracting and retaining seasoned
executives, thereby potentially depriving the Company and its stockholders of
the strength of leadership necessary to strive for long-term maximization of
stockholder value. It is the belief of the Board that severance agreements
offered at its discretion enhance the current value of the Company by positively
influencing its expected future value.

The proponent asserts that the Company's performance is unsatisfactory and
implies that such performance is a consequence of the existence of special
change-in-control severance compensation arrangements. The Board does not
believe that such arrangements are at all related to the performance of the
Company. There is therefore, no reason to believe that passage of the
proponent's proposal will improve the Company's performance or that a failure to
pass will hinder performance. In fact, with special severance arrangements in
place during 1993, the Company increased its income from continuing operations
by $33.7 million over the amount of income from continuing operations recorded
in 1992. Further, the existence of special compensation arrangements does not
change or affect the legal responsibility of executive officers to the Company's
stockholders with regard to the maximization of shareholder value or with regard
to any other duty or responsibility of executive officers.

In summary, the Board does not believe that the Company's performance is a
relevant or useful consideration in assessing the proposal submitted by the
proponent, and that the limitations on the Board's flexibility imposed by the
implementation of such a proposal is an unnecessary impediment to effective
Board action and the ultimate goal of maximization of stockholder value.

THE BOARD OF DIRECTORS RECOMMENDS A VOTE AGAINST THIS PROPOSAL

RELATIONSHIP WITH INDEPENDENT PUBLIC ACCOUNTANTS

Coopers & Lybrand, independent public accountants, have been the principal
accountants for the Company since August 12, 1986, when they were selected by
the Company's Board of Directors, and the Company expects that they will
continue as principal accountants. Representatives of Coopers & Lybrand are
expected to be present at the Annual Meeting, with the opportunity to make a
statement if they desire to do so and to respond to appropriate questions.

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SUBMISSION OF STOCKHOLDER PROPOSALS

Stockholder proposals must be received at the Company's principal executive
offices, P.O. Box 2628, Houston, Texas 77252, by December 9, 1994, for inclusion
in the proxy materials relating to the 1995 annual meeting of stockholders.

OTHER MATTERS

Management does not know of any other matters to come before the Annual
Meeting. If any other matters do properly come before the meeting, it is the
intention of the persons appointed in the enclosed form of proxy to vote the
proxy in accordance with their judgment on such matters unless such authority is
specifically withheld.

By Order of the Board of Directors

HUBERT GENTRY, JR.
Secretary
Houston, Texas
April 6, 1994

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APPENDIX A

PROPOSED AMENDMENT TO
THE CERTIFICATE OF INCORPORATION TO
CHANGE THE NAME OF THE COMPANY
TO "NORAM ENERGY, CORP."

FIRST: The name of the Corporation is NorAm Energy, Corp.

A-1
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APPENDIX B

ARKLA, INC.

1994 INCENTIVE EQUITY PLAN

Arkla, Inc., a Delaware corporation (the "Company"), hereby establishes
this Arkla, Inc. 1994 Incentive Equity Plan (this "Plan"), generally effective
as of January 1, 1994, subject to shareholder approval.

1. Purpose. The purpose of this Plan is to attract and retain key employees
for the Company and its Subsidiaries and to provide to such persons incentives
and rewards for superior performance. This Plan supersedes and replaces the
Arkla, Inc. Long Term Incentive Compensation Plan ("LTIP") with respect to
performance cycles beginning after December 31, 1993, and the provisions of
Paragraph 6 incorporate the equity based compensation arrangement of the
Chairman of the Company that was approved by the Board of Directors on September
15, 1993. Any shares of common stock of the Company that remain available for
awards under the LTIP may continue to be awarded with respect to Performance
Cycles beginning before January 1, 1994.

2. Definitions. As used in this Plan,

(a) "Annual Incentive Award" means the annual incentive compensation
payment made pursuant to Paragraph 9.

(b) "Appreciation Right" means a right granted pursuant to Paragraph
5.

(c) "Award" means an Annual Incentive Award, an Appreciation Right, an
Option Right, an award of Opportunity Shares, a Performance Unit or an
award of Restricted Stock.

(d) "Board" means the Board of Directors of the Company.

(e) "Code" means the Internal Revenue Code of 1986, as in effect from
time to time.

(f) "Committee" means the Compensation and Benefits Committee of the
Board and, to the extent the administration of this Plan has been assumed
by the Board pursuant to Paragraph 14, the Board.

(g) "Common Stock" means the Common Stock, $.625 par value, of the
Company or any security into which such Common Stock may be changed by
reason of any transaction or event of the type described in Paragraph 11.

(h) "Date of Grant" means the date specified by the Committee on which
a grant of Option Rights, Appreciation Rights, Performance Units or
Opportunity Shares or a grant or sale of Restricted Stock will become
effective (which date will not be earlier than the date on which the
Committee takes action with respect thereto).

B-1
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(i) "Grant Price" means the price per share of Common Stock at which
an Appreciation Right not granted in tandem with an Option Right is
granted.

(j) "Management Objectives" means the objectives, if any, established
by the Committee that are to be achieved with respect to an Award granted
under this Plan, which may be described in terms of Company-wide
objectives, in terms of objectives that are related to performance of the
division, Subsidiary, department or function within the Company or a
Subsidiary in which the Participant receiving the Award is employed or in
other terms, and which will relate to the Performance Cycle determined by
the Committee. The Committee may adjust Management Objectives and any
minimum acceptable level of achievement with respect to any Management
Objectives if, in the sole judgment of the Committee, events or
transactions have occurred which are unrelated to the performance of the
Participant and result in a distortion of the Management Objectives or such
minimum acceptable level of achievement.

(k) "Market Value per Share" means, at any date, the closing sale
price of the Common Stock on that date (or, if there are no sales on that
date, the last preceding date on which there was a sale) in the principal
market in which the Common Stock is traded.

(l) "Opportunity Shares" means shares of Common Stock awarded pursuant
to Paragraph 8.

(m) "Option Price" means the purchase price per share payable on
exercise of an Option Right.

(n) "Option Right" means the right to purchase a share of Common Stock
upon exercise of an option granted pursuant to Paragraph 4.

(o) "Participant" means a person who is selected by the Committee to
receive benefits under this Plan and who is at that time a key employee of
the Company or any of its Subsidiaries. No member of the Board may be
selected to receive benefits under this Plan unless the Board member is at
that time also an employee of the Company or any Subsidiary.

(p) "Performance Cycle" means, in respect of an Award, a period of
time established by the Committee within which the Management Objectives
relating to such Award are to be achieved.

(q) "Performance Unit" means a unit equivalent to $100 (or such other
value as the Committee determines) awarded pursuant to Paragraph 7.

(r) "Restricted Stock" means shares of Common Stock granted or sold
pursuant to Paragraph 6 as to which neither the ownership restrictions nor
the restriction on transfers referred to therein has expired.

(s) "Rule 16b-3" means Rule 16b-3 of the Securities and Exchange
Commission (or any successor rule to the same effect) as in effect from
time to time.

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(t) "Spread" means the excess of the Market Value per Share on the
date when an Appreciation Right is exercised over (a) the Option Price
provided for in the related Option Right or (b) if there is no tandem
Option Right, the Grant Price provided for in the Appreciation Right,
multiplied by the number of shares of Common Stock in respect of which the
Appreciation Right is exercised.

(u) "Subsidiary" means any corporation in which at the time the
Company owns or controls, directly or indirectly, not less than 50% of the
total combined voting power represented by all classes of stock issued by
such corporation.

3. Shares Available Under Plan. Subject to adjustment as provided in
Paragraph 11, the shares of Common Stock which may be issued or transferred and
covered by outstanding Awards granted under this Plan will not exceed in the
aggregate 3,800,000 shares, of which number no more than 2,000,000 shares will
be issued or transferred as Restricted Stock (taking into account an aggregate
of 43,513 shares of Common Stock previously delivered and to be delivered to the
Chairman of the Company through the end of 1994 pursuant his compensation
arrangement approved by the Board on September 13, 1993), stock options and
stock appreciation rights with respect to no more than 80,000 shares will be
granted to any Participant during any calendar year and no more than 700,000
shares will be delivered in payment of any Annual Incentive Award. Such shares
may be shares of original issuance or treasury shares or a combination of the
foregoing. Upon exercise of any Appreciation Rights, there will be deemed to
have been delivered under this Plan for purposes of this Paragraph 3 the number
of shares of Common Stock covered by the Appreciation Rights or the related
Option Rights, regardless of whether such Appreciation Rights were paid in cash
or shares of Common Stock. Subject to the provisions of the preceding sentence,
any shares of Common Stock which are subject to Option Rights or Appreciation
Rights or are awarded or sold as Restricted Stock that are terminated,
unexercised, forfeited or surrendered or which expire for any reason will again
be available for issuance under this Plan.

4. Option Rights. The Committee may from time to time authorize grants to
any Participant of options to purchase shares of Common Stock upon such terms
and conditions as it may determine in accordance with the following provisions:

(a) Each grant will specify the number of shares of Common Stock to
which it pertains.

(b) Each grant will specify the Option Price, which will not be less
than 100% of the Market Value per Share on the Date of Grant.

(c) Each grant will specify that the Option Price will be payable (i)
in cash or by check acceptable to the Company, (ii) by the transfer to the
Company of shares of Common Stock having an aggregate Market Value per
Share at the date of exercise equal to the aggregate Option Price or (iii)
by a combination of such methods of payment. Any grant may provide for
deferred

B-3
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payment of the Option Price from the proceeds of sale through a broker of
some or all of the shares to which such exercise relates.

(d) Successive grants may be made to the same Participant whether or
not any Option Rights previously granted to such Participant remain
unexercised.

(e) Each grant will specify the required period or periods of
continuous service by the Participant with the Company or any Subsidiary
and/or the Management Objectives to be achieved before the Option Rights or
installments thereof will become exercisable, and any grant may provide for
the earlier exercise of the Option Rights in the event of a change in
control of the Company or other similar transaction or event.

(f) Each grant the exercise of which, or the timing of the exercise of
which, is dependent, in whole or in part, on the achievement of Management
Objectives may specify a minimum level of achievement in respect of the
specified Management Objectives below which no Options Rights will be
exercisable and may set forth a formula or other method for determining the
number of Option Rights that will be exercisable if performance is at or
above such minimum but short of full achievement of the Management
Objectives.

(g) Option Rights granted under this Plan may be (i) options which are
intended to qualify under particular provisions of the Code, (ii) options
which are not intended to so qualify or (iii) combinations of the
foregoing.

(h) No Option Right will be exercisable more than ten years from the
Date of Grant.

(i) Each grant of Option Rights will be evidenced by an agreement
executed on behalf of the Company by any officer and delivered to the
Participant and containing such terms and provisions, consistent with this
Plan, as the Committee may approve.

5. Appreciation Rights. The Committee may also from time to time authorize
grants to any Participant of Appreciation Rights upon such terms and conditions
as it may determine in accordance with this Paragraph. Appreciation Rights may
be granted in tandem with Option Rights or separate and apart from a grant of
Option Rights. An Appreciation Right will be a right of the Participant granted
such Award to receive from the Company upon exercise an amount which will be
determined by the Committee at the Date of Grant and will be expressed as a
percentage of the Spread (not exceeding 100%) at the time of exercise. An
Appreciation Right granted in tandem with an Option Right may be exercised only
by surrender of the related Option Right. Each grant of an Appreciation Right
may utilize any or all of the authorizations, and will be subject to all of the
limitations, contained in the following provisions:

(a) Each grant will state whether it is made in tandem with Option
Rights and, if not made in tandem with any Option Rights, will specify the
number of shares of Common Stock in respect of which it is made.

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(b) Each grant made in tandem with Option Rights will specify the
Option Price and each grant not made in tandem with Option Rights will
specify the Grant Price, which in either case will not be less than 100% of
the Market Value per Share on the Date of Grant.

(c) Any grant may specify that the amount payable on exercise of an
Appreciation Right may be paid by the Company in (i) cash, (ii) shares of
Common Stock having an aggregate Market Value per Share equal to the Spread
or (iii) any combination thereof, as determined by the Committee in its
sole discretion at the time of payment.

(d) Any grant may specify that the amount payable on exercise of an
Appreciation Right may not exceed a maximum specified by the Committee at
the Date of Grant (valuing shares of Common Stock for this purpose at their
Market Value per Share at the date of exercise).

(e) Each grant will specify the required period or periods of
continuous service by the Participant with the Company or any Subsidiary
and/or Management Objectives to be achieved before the Appreciation Rights
or installments thereof will become exercisable, and will provide that no
Appreciation Right may be exercised except at a time when the Spread is
positive and, with respect to any grant made in tandem with Option Rights,
when the related Option Right is also exercisable. Any grant may provide
for the earlier exercise of the Appreciation Rights in the event of a
change in control of the Company or other similar transaction or event.

(f) Each grant the exercise of which, or the timing of the exercise of
which, is dependent, in whole or in part, on the achievement of Management
Objectives may specify a minimum level of achievement in respect of the
specified Management Objectives below which no Appreciation Rights will be
exercisable and may set forth a formula or other method for determining the
number of Appreciation Rights that will be exercisable if performance is at
or above such minimum but short of full achievement of the Management
Objectives.

(g) Each grant of an Appreciation Right will be evidenced by an
agreement executed on behalf of the Company by any officer and delivered to
and accepted by the Participant receiving the grant, which agreement will
describe such Appreciation Right, identify any Option Right granted in
tandem with such Appreciation Right, state that such Appreciation Right is
subject to all the terms and conditions of this Plan and contain such other
terms and provisions, consistent with this Plan, as the Committee may
approve.

6. Restricted Stock. The Committee may also from time to time authorize
grants or sales to any Participant of Restricted Stock upon such terms and
conditions as it may determine in accordance with the following provisions:

(a) Each grant or sale will constitute an immediate transfer of the
ownership of shares of Common Stock to the Participant in consideration of
the performance of services, entitling such Participant to voting and other
ownership rights, but subject to the restrictions hereinafter

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referred to. Each grant or sale may limit the Participant's dividend rights
during the period in which the shares of Restricted Stock are subject to
any such restrictions.

(b) Each grant or sale will specify the Management Objectives, if any,
that are to be achieved in order for the ownership restrictions to lapse.
Each grant or sale that is subject to the achievement of Management
Objectives will specify a minimum acceptable level of achievement in
respect of the specified Management Objectives below which the shares of
Restricted Stock will be forfeited and may set forth a formula or other
method for determining the number of shares of Restricted Stock with
respect to which restrictions will lapse if performance is at or above such
minimum but short of full achievement of the Management Objectives.

(c) Each such grant or sale may be made without additional
consideration or in consideration of a payment by such Participant that is
less than the Market Value per Share at the Date of Grant.

(d) Each such grant or sale will provide that the shares of Restricted
Stock covered by such grant or sale will be subject, for a period to be
determined by the Committee at the Date of Grant, to one or more
restrictions, including, without limitation, a restriction that constitutes
a "substantial risk of forfeiture" within the meaning of Section 83 of the
Code and the regulations of the Internal Revenue Service thereunder, and
any grant or sale may provide for the earlier termination of such period in
the event of a change in control of the Company or other similar
transaction or event.

(e) Each such grant or sale will provide that during the period for
which such restriction or restrictions are to continue, the transferability
of the Restricted Stock will be prohibited or restricted in a manner and to
the extent prescribed by the Committee at the Date of Grant (which
restrictions may include, without limitation, rights of repurchase or first
refusal in the Company or provisions subjecting the Restricted Stock to
continuing restrictions in the hands of any transferee).

(f) Each grant or sale of Restricted Stock will be evidenced by an
agreement executed on behalf of the Company by any officer and delivered to
and accepted by the Participant and containing such terms and provisions,
consistent with this Plan, as the Committee may approve.

(g) Shares of Common Stock transferred pursuant to a grant of
Restricted Stock will be held in escrow pursuant to an agreement
satisfactory to the Committee until such time as the restrictions on
transfer have expired.

7. Opportunity Shares. The Committee may also from time to time authorize
grants to any Participant of Opportunity Shares, the ownership of which will be
transferred to the Participant upon

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achievement of specified Management Objectives, upon such terms and conditions
as it may determine in accordance with the following provisions:

(a) Each grant will specify the number of Opportunity Shares to which
it pertains.

(b) Each grant will specify the Management Objectives that are to be
achieved.

(c) Each grant will specify a minimum acceptable level of achievement
in respect of the specified Management Objectives below which no delivery
of Opportunity Shares will occur and may set forth a formula or other
method for determining the number of Opportunity Shares to be delivered if
performance is at or above such minimum but short of full achievement of
the Management Objectives.

(d) Each grant will specify the time and manner of delivery of
Opportunity Shares which have been earned.

(e) Each grant of Opportunity Shares will be evidenced by an agreement
executed on behalf of the Company by any officer and delivered to and
accepted by the Participant and containing such terms and provisions,
consistent with this Plan, as the Committee may approve, including
provisions relating to a change in control of the Company or other similar
transaction or event.

8. Performance Units. The Committee may also from time to time authorize
grants to any Participant of Performance Units, which will become payable upon
achievement of specified Management Objectives, upon such terms and conditions
as it may determine in accordance with the following provisions:

(a) Each grant will specify the number of Performance Units to which
it pertains.

(b) Each grant will specify the Management Objectives that are to be
achieved.

(c) Each grant will specify a minimum acceptable level of achievement
in respect of the specified Management Objectives below which no payment
will be made and may set forth a formula or other method for determining
the amount of the payment to be made if performance is at or above such
minimum but short of full achievement of the Management Objectives.

(d) Each grant will specify the time and manner of payment of
Performance Units which have become payable, which payment may be made in
(i) cash, (ii) shares of Common Stock having an aggregate Market Value per
Share equal to the aggregate value of the Performance Units which have
become payable or (iii) any combination thereof, as determined by the
Committee in its sole discretion at the time of payment.

(e) Each grant of a Performance Unit will be evidenced by an agreement
executed on behalf of the Company by any officer and delivered to and
accepted by the Participant and containing

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such terms and provisions, consistent with this Plan, as the Committee may
approve, including provisions relating to a change in control of the
Company or other similar transaction or event.

9. Annual Incentive Awards. The Committee may from time to time authorize
payment of annual incentive compensation, which will become payable upon
achievement of specified Management Objectives. Annual incentive compensation
will be payable upon such terms and conditions as the Committee may determine in
accordance with the following provisions:

(a) The Committee will specify the Management Objectives that are to
be achieved, which will be based on a one-year Performance Cycle beginning
with the Performance Cycle that ends on December 31, 1993.

(b) The Committee will specify a minimum acceptable level of
achievement in respect of the specified Management Objectives below which
no payment will be made and may set forth a formula or other method for
determining the amount of the payment to be made if performance is at or
above such minimum but short of full achievement of the Management
Objectives. The Committee may adopt a method for determining the amount of
payment to be made in the event of a change in control of the Company or
other similar transaction or event.

(c) The Committee will specify the time and manner of payment of
annual incentive compensation which becomes payable, which payment may be
made in (i) cash, (ii) shares of Common Stock having an aggregate Market
Value per Share equal to the aggregate value of the incentive compensation
which has become payable or (iii) any combination thereof, as determined by
the Committee in its sole discretion at the time of payment.

(d) As soon as practicable after the beginning of a Performance Cycle,
the Committee will notify each Participant of the terms of the annual
incentive compensation program for that Performance Cycle, which
notification will state that such incentive compensation is subject to all
the terms and conditions of this Plan, and contain such other terms and
provisions, consistent with this Plan, as the Committee may approve.

10. Transferability. No Option Right, Appreciation Right, Performance Unit
that has not become payable, Annual Incentive Award that has not become payable
or Opportunity Share that has not been delivered will be transferable by a
Participant other than by will or the laws of descent and distribution. Option
Rights or Appreciation Rights will be exercisable during the Participant's
lifetime only by the Participant or by the Participant's guardian or legal
representative.

11. Adjustments.The Board may make or provide for such adjustments in the
maximum number of shares specified in Paragraph 3, in the numbers of shares of
Common Stock covered by outstanding Option Rights, Appreciation Rights and
Opportunity Shares granted hereunder, in the Option Price or Grant Price
applicable to any such Option Rights and Appreciation Rights, and/or in the kind
of shares covered thereby (including shares of another issuer), as the Board in
its sole discretion, exercised in

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good faith, may determine is equitably required to prevent dilution or
enlargement of the rights of Participants that otherwise would result from any
stock dividend, stock split, combination of shares, recapitalization or other
change in the capital structure of the Company, merger, consolidation, spin-off,
reorganization, partial or complete liquidation, issuance of rights or warrants
to purchase securities or any other corporate transaction or event having an
effect similar to any of the foregoing.

12. Fractional Shares. The Company will not be required to issue any
fractional share of Common Stock pursuant to this Plan. The Committee may
provide for the elimination of fractions or for the settlement of fractions in
cash.

13. Withholding Taxes. To the extent that the Company is required to
withhold federal, state, local or foreign taxes in connection with any payment
made or benefit realized by a Participant or other person under this Plan, or is
requested by a Participant to withhold additional amounts with respect to such
taxes, and the amounts available to the Company for such withholding are
insufficient, it will be a condition to the receipt of such payment or the
realization of such benefit that the Participant or such other person make
arrangements satisfactory to the Company for payment of the balance of such
taxes required or requested to be withheld, which arrangements in the discretion
of the Committee may include relinquishment of a portion of such benefit.

14. Administration of the Plan. (a) Unless the administration of this Plan
has been expressly assumed by the Board pursuant to a resolution of the Board,
this Plan will be administered by the Committee, which at all times will consist
ENTIRELY of not less than three nonemployee directors appointed by the Board,
each of whom will be a "disinterested person" within the meaning of Rule 16b-3.
A majority of the Committee will constitute a quorum, and the action of the
members of the Committee present at any meeting at which a quorum is present, or
acts unanimously approved in writing, will be the acts of the Committee.

(b) The interpretation and construction by the Committee of any provision
of this Plan or of any agreement, notification or document evidencing the grant
of an Award and any determination by the Committee pursuant to any provision of
this Plan or of any such agreement, notification or document will be final and
conclusive. No member of the Committee will be liable for any such action or
determination made in good faith.

15. Amendments, Etc. (a) This Plan may be amended from time to time by the
Board but may not be amended by the Board without further approval by the
shareholders of the Company if such amendment would result in this Plan no
longer satisfying the requirements of Rule 16b-3.

(b) In case of termination of employment by reason of death, disability or
retirement, or in the event of hardship or other special circumstances, of a
Participant who holds an Option Right or Appreciation Right not immediately
exercisable in full, or any Restricted Stock as to which ownership restrictions
or the prohibition or restriction on transfer has not lapsed, or any Performance
Units or Annual Incentive Awards which have not become fully payable or any
Opportunity Shares that have

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not been delivered, the Board may, in its sole discretion, take any action that
it deems to be equitable under the circumstances or in the best interests of the
Company, including waiving or modifying any limitation or requirement with
respect to any Award under this Plan.

(c) This Plan will not confer upon any Participant any right with respect
to continuance of employment or other service with the Company or any
Subsidiary, nor will it interfere in any way with any right the Company or any
Subsidiary would otherwise have to terminate such Participant's employment or
other service at any time.

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APPENDIX C

ARKLA, INC.

1994 EMPLOYEE STOCK PURCHASE PLAN

1. Purposes.

The Arkla, Inc. 1994 Employee Stock Purchase Plan is intended to provide an
incentive for employees of Arkla, Inc. (the "Company") and its subsidiaries to
acquire a proprietary interest (or increase an existing proprietary interest) in
the Company through the purchase of shares of Common Stock of the Company. The
Plan is intended to qualify as an "Employee Stock Purchase Plan" under Sections
421 and 423 of the Internal Revenue Code of 1986 (the "Code"). The provisions of
the Plan will be construed in a manner consistent with the requirements of such
sections of the Code.

2. Definitions.

(a) "Base Pay" means regular straight-time earnings excluding payments for
overtime, incentive compensation, bonuses, and other special payments.

(b) "Board" means the Board of Directors of the Company.

(c) "Calendar Quarter" means the three-month periods beginning on July 1,
October 1, January 1 and April 1 during the period beginning on July 1, 1994,
and ending on December 31, 1996.

(d) "Committee" means the Compensation and Benefits Committee of the Board.

(e) "Common Stock" means the common stock, $.625 par value per share, of
the Company.

(f) "Company" means Arkla, Inc., a Delaware corporation, and each
Subsidiary (whether or not it is now a Subsidiary) unless the context otherwise
requires.

(g) "Employee" means any person who is customarily employed by the Company
for more than 20 hours per week and for more than five months in a calendar
year.

(h) "Subsidiary" means any corporation in which the Company owns, directly
or indirectly, 50% or more of the combined voting power of all classes of stock
and which has been designated by the Board or the Committee as a corporation
whose employees may participate in the Plan. The Subsidiaries currently
participating in the Plan are Arkla Energy Resources Company, AER -- Arkansas
Gas Transit Company and its subsidiaries, Arkla Chemical Corporation, Arkla
Energy Marketing Company, and Mississippi River Transmission Corporation and its
subsidiaries.

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3. Eligibility.

(a) Participation in the Plan is voluntary. Each Employee who is employed
by the Company for one month and one day will be eligible to participate in the
Plan on the first day of the next Calendar Quarter.

(b) Any provision of the Plan to the contrary notwithstanding, no Employee
will be granted an option under the Plan:

(i) if, immediately after the grant, the Employee would own stock,
and/or hold outstanding options to purchase stock, possessing 5% or more of
the total combined voting power or value of all classes of stock of the
Company or of any Subsidiary (for purposes of this paragraph 3(b)(i) the
rules of Section 424(d) of the Code will apply in determining stock
ownership of any Employee); or

(ii) which permits his rights to purchase stock under all employee
stock purchase plans (within the meaning of Section 423 of the Code) of the
Company and its Subsidiaries to accrue at a rate which exceeds $25,000 of
the fair market value of the stock (determined at the time such option is
granted) for each calendar year in which such option is outstanding at any
time. For purposes of this paragraph 3(b)(iii) the provisions of Section
423(b)(8)(A), (B) and (C) of the Code will be applicable.

4. Shares Subject to the Plan.

The total number of shares of Common Stock that may be issued upon the
exercise of options granted under the Plan will not exceed 2,000,000 shares
(subject to adjustment as provided in paragraph 16), and such shares may be
unissued shares, reacquired shares, shares bought on the market, or any
combination of the foregoing. If any option which has been granted expires or
terminates for any reason without having been exercised in full, the unpurchased
shares will again become available for purposes of the Plan.

5. Participation.

(a) An eligible Employee may become a participant by completing a payroll
deduction authorization form provided by the Company and filing it with the
Company at such time and in such manner as the Committee prescribes, and such
authorization will become effective on the first day of the next Calendar
Quarter.

(b) Payroll deductions for a participant will commence with the first
payroll period of the Calendar Quarter in which his authorization for a payroll
deduction becomes effective and will end with the payroll period that ends
immediately prior to December 31, 1996, unless sooner terminated by the
participant as provided in paragraph 10.

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(c) Nothing in the Plan will confer on a participant the right to continue
in the employ of the Company or will limit or restrict the right of the Company
to terminate the employment of a participant at any time with or without cause.
A participant will have no interest in any Common Stock to be purchased under
the Plan or any rights as a stockholder with respect to such Common Stock until
the Common Stock has been purchased and credited to his account.

6. Payroll Deductions.

(a) At the time a participant files his payroll deduction authorization
form, he will elect to have deductions made from his Base Pay on each payday
during the Calendar Quarter in whole percentages at the rate of not less than 2%
nor more than 10% of his Base Pay.

(b) All payroll deductions made for a participant will be credited to his
account under the Plan. A participant may not make any separate cash payment
into such account.

(c) A participant may suspend or discontinue his participation in the Plan
as provided in paragraph 10, but no other change can be made during the Calendar
Quarter and, specifically, a participant may not alter the amount of his payroll
deductions for the Calendar Quarter. A participant may, however, change the
deductions made from his Base Pay for any subsequent Calendar Quarter by filing
a new payroll deduction authorization form with the Company at least ten days
before the first day of such Calendar Quarter. A participant who suspends or
discontinues participation during any Calendar Quarter may not resume
participation in the Plan until the next Calendar Quarter.

7. Granting of Option.

(a) For each Calendar Quarter, a participant will be deemed to have been
granted an option to purchase, on the first day of the Calendar Quarter, as many
full shares as may be purchased with the payroll deductions (and any cash
dividends as provided in paragraph 8) credited to his account during the
Calendar Quarter.

(b) The option price of the Common Stock purchased with payroll deductions
made during each Calendar Quarter for a participant will be the lower of:

(i) 85% of the closing price of the Common Stock on the New York Stock
Exchange, Inc. as reported by The Wall Street Journal in the New York Stock
Exchange Composite Transactions on the first day of the Calendar Quarter
(or on the next regular business date on which shares of the Common Stock
of the Company are traded in the event that no shares of the Common Stock
have been traded on the first day of the Calendar Quarter); or

(ii) 85% of the closing price of the Common Stock on the New York
Stock Exchange, Inc. as reported by The Wall Street Journal in the New York
Stock Exchange Composite Transactions on the last day of the Calendar
Quarter (or on the next regular business date on which shares of the

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Common Stock of the Company are traded in the event that no shares of the
Common Stock have been traded on the last day of the Calendar Quarter).

8. Exercise of Option.

(a) Unless a participant gives written notice to the Company's Benefits
Department as provided in paragraph 10, his option for the purchase of Common
Stock with payroll deductions made during a Calendar Quarter will be deemed to
have been exercised automatically on the last day of the Calendar Quarter for
the purchase of the number of full shares of Common Stock which the accumulated
payroll deductions (and cash dividends on the Common Stock as hereinafter
provided) in his account at that time will purchase at the applicable option
price. Fractional shares will not be issued under the Plan. Any excess cash
amounts credited to a participant's account will be applied to the purchase of
Common Stock for the participant during the next Calendar Quarter unless the
participant terminates his participation in the Plan or unless the Plan
terminates, in which events the excess cash will be returned to him.

(b) Cash dividends paid on shares of Common Stock held in a participant's
account will be combined with the participant's payroll deductions and applied
to the purchase of Common Stock at the end of the Calendar Quarter in which the
dividends are received, subject to the participant's withdrawal rights set forth
in paragraph 10. Dividends paid in the form of shares of Common Stock with
respect to shares that have been purchased under the plan but which have not
been delivered to the participant pursuant to paragraph 9 will be delivered to
the participant at the same time as the underlying shares are delivered.

9. Delivery of Shares.

Shares of Common Stock purchased under the Plan may be registered in the
name of a nominee or held in such other manner as the Committee determines to be
appropriate. Each participant will be the beneficial owner of the shares of
Common Stock purchased under the Plan on exercise of the participant's option
and will have all rights of beneficial ownership in such shares, except that the
participant may not transfer or otherwise dispose of the shares for a period of
12 months following the date on which the shares are purchased and any dividends
paid with respect to such shares will be credited to the participant's account
and applied as provided in paragraph 8 until the shares are delivered to the
participant. The Company or a brokerage firm or other entity selected by the
Company will retain custody of the certificates representing the shares for a
period of time ending no earlier than the expiration of such 12-month period,
after which the certificates will be delivered to the participant as promptly as
practicable following the participant's request for such delivery.

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10. Suspension and Withdrawal of Deductions.

(a) By written notice to the Company's Benefits Department at least 15 days
prior to the last day of a Calendar Quarter, a participant may elect to suspend
or discontinue his payroll deductions and/or to withdraw all the accumulated
payroll deductions (and any cash dividends paid on Common Stock previously
purchased under the Plan but not delivered to the participant) credited to his
account at such time. Such notice will be on a form provided by the Committee
for that purpose. All such amounts will be paid to the participant promptly
after receipt of his notice of withdrawal, and no further payroll deductions
will be made from his pay during the Calendar Quarter for which the withdrawal
is effective. The Committee reserves the right to impose on the participant a
reasonable administrative fee to cover the cost of processing the withdrawal,
and such fee may be deducted from the participant's account.

(b) Upon termination of a participant's employment for any reason other
than death, disability or retirement that entitles the participant to an early
or normal retirement benefit under any defined benefit pension plan of the
Company, participation in the Plan will immediately terminate and the payroll
deductions and any accumulated cash dividends and shares of Common Stock
credited to his account will be delivered to the participant, or, in the case of
his death subsequent to the termination of his employment, to the person or
persons entitled thereto under paragraph 13 as promptly as practicable.
Notwithstanding the foregoing, any shares purchased for the participant under
the Plan that have not been held for at least 12 months will not be delivered to
the participant prior to the expiration of such 12-month period.

(c) Upon termination of the participant's employment because of death,
disability or retirement that entitles the participant to an early or normal
retirement benefit under any defined benefit pension plan of the Company, the
participant or, in the event of death, his beneficiary (as defined in paragraph
13) will have the right to elect, by written notice given to the Company's
Benefits Department, on a form provided by the Committee for such purpose, prior
to the last day of the Calendar Quarter in which the termination of employment
occurs either:

(i) to withdraw all of the payroll deductions and accumulated cash
dividends and shares of Common Stock credited to the participant's account
under the Plan (whether or not the shares have been held for at least 12
months following their purchase); or

(ii) to exercise the participant's option for the purchase of stock on
the last day of the Calendar Quarter in which termination of employment
occurs for the purchase of the number of full shares of Common Stock which
the accumulated payroll deductions and any cash dividends credited to the
participant's account at the date of the participant's termination of
employment will purchase at the applicable option price, with any excess in
such account to be returned to the participant or his beneficiary.

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In the event that no such written notice of election is duly received by the
Company's Benefits Department, the participant or beneficiary will automatically
be deemed to have elected to withdraw the payroll deductions credited to the
participant's account at the date of the participant's death and the same,
together with any accumulated cash dividends and shares of Common Stock, will be
paid promptly following the last day of the Calendar Quarter in which
termination of employment occurs.

11. Interest.

No interest will be paid or allowed on any money paid into the Plan or
credited to the account of any participant.

12. Administration.

(a) The Plan will be administered by the Committee, which will have the
plenary power, subject to and within the limits of the express provisions of the
Plan to construe and interpret the Plan and options granted under it, and to
establish, amend and revoke rules and regulations for its administration. The
Committee, in the exercise of this power, will generally determine all questions
of policy and expediency that may arise, may correct any defect, or supply any
omission or reconcile any inconsistency in the Plan or in any instrument
associated with the Plan in a manner and to the extent it will deem necessary or
expedient to make the Plan fully effective.

(b) The Committee may, in its discretion, require as conditions to the
exercise of any option that the shares of Common Stock reserved for issuance
upon the exercise of the option have been duly listed, upon official notice of
issuance, upon an exchange, that a Registration Statement under the Securities
Act of 1933, as amended, with respect to said shares will be effective and that
all material information respecting the business and financial conditions of the
Company has been disclosed to the public.

13. Designation of Beneficiary.

A participant may file a written designation of a beneficiary who is to
receive any Common Stock and/or cash credited to the participant's account under
the Plan at his death. Such designation of beneficiary may be changed by the
participant at any time by written notice on a form supplied by the Committee.
Upon the death of a participant and upon receipt by the Company's Benefits
Department of proof of the identity and existence at the participant's death of
a beneficiary validly designated by him under the Plan, the Committee will cause
such Common Stock and/or cash to be delivered to such beneficiary. In the event
of the death of a participant and in the absence of a beneficiary validly
designated under the Plan who is living at the time of such participant's death,
the Committee will cause such Common Stock and/or cash to be delivered to the
executor or administrator of the estate of the participant, or if no such
executor or administrator has been appointed (to the knowledge of the
Committee), the Committee, in its discretion, may cause such Common Stock and/or
cash to be

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delivered to the spouse or to any one or more dependents of the participant as
the Committee may designate. No beneficiary will, prior to the death of the
participant by whom he has been designated, acquire any interest in the Common
Stock or cash credited to the participant under the Plan.

14. Transferability.

No amounts, whether cash or Common Stock, credited to a participant's
account nor any rights with regard to the exercise of an option or to receive
Common Stock under the Plan may be assigned, transferred, pledged, or otherwise
disposed of in any way by the participant otherwise than by will or the laws of
descent and distribution. Any such attempted assignment, transfer, pledge, or
other disposition will be without effect, except that the Committee may treat
such act as an election to withdraw funds in accordance with paragraph 10.

15. Use of Funds.

All payroll deductions received or held by the Company under this Plan may
be used by the Company for any corporate purpose and the Company will not be
obligated to segregate such payroll deductions.

16. Effect of Changes of Common Stock.

The Board may make or provide for such adjustments in the maximum number of
shares specified in paragraph 4 and the price at which shares of Common Stock
are to be purchased under the Plan as the Board in its sole discretion,
exercised in good faith, may determine is equitably required to prevent dilution
or enlargement of the rights of participants that otherwise would result from
any stock dividend, stock split, combination of shares, recapitalization or
other change in the capital structure of the Company, merger, consolidation,
spin-off, reorganization, partial or complete liquidation, issuance of rights or
warrants to purchase securities or any other corporate transaction or event
having an effect similar to any of the foregoing.

17. Amendment or Termination.

The Board may at any time terminate or amend the Plan, and if no earlier
action is taken, the Plan will terminate as of December 31, 1996. Except as
hereinafter provided, no termination or amendment will affect or change options
previously granted to any participant, nor may any amendment be made without
prior approval of the stockholders of the Company if such amendment would (a)
materially increase the benefits accruing to participants under the Plan, (b)
materially increase the number of shares which may be issued under the Plan, or
(c) materially modify the requirements as to eligibility for participation under
the Plan.

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18. Notices.

All notices or other communications by a participant to the Committee or
the Company's Benefits Department under or in connection with the Plan will be
in writing on a form provided by the Committee and be deemed to have been duly
given when received by the Senior Vice President, Human Resources, of the
Company or his designee.

19. Merger or Consolidation.

If the Company merges with another corporation and the Company is the
surviving entity, the holder of each option then outstanding will thereafter be
entitled to receive, upon the exercise of such option for each share as to which
such option is exercised, the securities or property which a holder of one share
of the Common Stock was entitled to upon and at the time of such merger, and the
Board will take such steps in connection with such merger as the Board will deem
necessary to assure that the provisions of paragraph 16 will thereafter be
applicable, as nearly as reasonably may be, in relation to the said securities
or property as to which such holder of such option might thereafter be entitled
to receive thereunder. In the event of a merger in which the Company is not the
surviving entity or in the event of a consolidation, the Plan will terminate,
and all payroll deductions credited to participants' accounts will be returned
to the Participant. A sale of all or substantially all the assets of the Company
will be deemed a merger or consolidation for the foregoing purposes.

20. Approval of Stockholders.

The Plan has been adopted by the Board, but is subject to the approval of
the stockholders of the Company at the 1994 annual meeting.

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APPENDIX D

ARKLA, INC.

RESTRICTED STOCK PLAN FOR NONEMPLOYEE DIRECTORS

Arkla, Inc., a Delaware corporation (the "Company"), hereby establishes
this Arkla, Inc. Restricted Stock Plan for Nonemployee Directors (this "Plan"),
effective as of January 1, 1994, subject to shareholder approval.

1. Purpose. The purpose of this Plan is to provide ownership of the
Company's Common Stock to nonemployee members of the Board of Directors in order
to improve the Company's ability to attract and retain highly qualified
individuals to serve as directors of the Company, to provide competitive
remuneration for Board service, and to strengthen the commonality of interest
between directors and shareholders.

2. Definitions. As used in this Plan,

(a) "Award" means a Restricted Stock award granted under this Plan.

(b) "Board" means the Board of Directors of the Company.

(d) "Committee" means the Compensation and Benefits Committee of the
Board and, to the extent the administration of this Plan has been assumed
by the Board pursuant to Paragraph 9, the Board.

(e) "Common Stock" means the Common Stock, $.625 par value, of the
Company or any security into which such Common Stock may be changed by
reason of any transaction or event of the type described in Paragraph 6.

(f) "Date of Grant" means the date on which Restricted Stock is issued
in the name of a Participant (subject to the substantial risk of forfeiture
and restrictions on transfer hereinafter referred to).

(g) "Fair Market Value" means, at any date, the closing sale price of
the Common Stock on that date (or, if there are no sales on that date, the
last preceding date on which there was a sale) in the principal market in
which the Common Stock is traded.

(h) "Participant" means each director of the Company who at the Date
of Grant is not also an employee of the Company or any Subsidiary.

(i) "Restricted Period" means the period of time from the Date of
Grant of an Award until the risk of forfeiture expires, as specified in
Paragraph 5.

D-1
<PAGE> 68

(j) "Restricted Stock" means shares of Common Stock granted pursuant
to Paragraph 4 as to which the Restricted Period has not expired.

(k) "Rule 16b-3" means Rule 16b-3 of the Securities and Exchange
Commission (or any successor rule to the same effect) as in effect from
time to time.

(l) "Subsidiary" means any corporation in which at the time the
Company owns or controls, directly or indirectly, not less than 50% of the
total combined voting power represented by all classes of stock issued by
such corporation.

3. Shares Available Under Plan. Subject to adjustment as provided in
Paragraph 5, the shares of Common Stock which may be granted or transferred as
Restricted Stock under this Plan will not exceed in the aggregate 125,000
shares. Such shares may be shares of original issuance or treasury shares or a
combination of the foregoing. Any shares of Common Stock which are awarded or
sold as Restricted Stock that are terminated, unexercised, forfeited or
surrendered or which expire for any reason will again be available for issuance
under this Plan.

4. Automatic Grants of Restricted Stock. As payment of a portion of the
annual retainer for nonemployee members of the Board, an Award of Restricted
Stock will be granted automatically to each Participant as follows:

(a) As soon as practicable after the beginning of each calendar year,
each Participant will be granted shares of Restricted Stock with an
aggregate value equal to one-half of the amount of the Participant's annual
retainer for service as a member of the Board plus one-half of the amount
of the Participant's retainer for service as chairman of a committee of the
Board. The remainder of the Participant's annual retainer and chairman's
retainer will be paid in cash. In the case of an individual who first
becomes a Participant during a year upon election to the Board, the
automatic grant will be made in accordance with this Paragraph as soon as
practicable following the Participant's election. The value of each grant
of Restricted Stock will be determined on the basis of Fair Market Value as
of December 31 immediately preceding the Date of Grant.

(b) Each such grant will constitute an immediate transfer of the
ownership of shares of Common Stock to the Participant in consideration of
the performance of services, entitling such Participant to voting and other
ownership rights, but subject to the substantial risk of forfeiture and
restrictions on transfer hereinafter referred to. Each grant or sale may
limit the Participant's dividend rights during the period in which the
shares of Restricted Stock are subject to substantial risk of forfeiture
and restrictions on transfer.

(d) Each such grant will provide that the shares of Restricted Stock
covered by such grant will be subject to forfeiture if the Participant
ceases to be a member of the Board during the Restricted Period specified
in Paragraph 5.

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<PAGE> 69

(e) Each such grant will provide that during the period for which such
substantial risk of forfeiture is to continue, the transferability of the
Restricted Stock will be prohibited or restricted in a manner and to the
extent prescribed by the Committee at the Date of Grant (which restrictions
may include, without limiting the generality of the foregoing, rights of
repurchase or first refusal in the Company or provisions subjecting the
Restricted Stock to a continuing substantial risk of forfeiture in the
hands of any transferee).

(f) Shares of Common Stock transferred pursuant to a grant of
Restricted Stock will be held in escrow pursuant to an agreement
satisfactory to the Committee until such time as the Restricted Period has
expired.

(g) Each grant of Restricted Stock will be evidenced by an agreement
executed on behalf of the Company by any officer and delivered to and
accepted by the Participant and will contain such terms and provisions,
consistent with this Plan, as the Committee may approve.

5. Restricted Period. (a) The Restricted Period will begin on the Date of
Grant and will expire with respect to one-third of the shares subject to the
Award on January 1 of each of the first three years beginning after the Date of
Grant if the Participant has remained a member of the Board for the entire
period from the Date of Grant to the relevant January 1 date, or on the date
specified in Paragraph 5(b), whichever is earlier. Except as provided in
Paragraph 5(b) below, if the Participant ceases to be a member of the Board
during the Restricted Period with respect to any portion of an Award, all of the
shares of Restricted Stock with respect to which the Restricted Period has not
expired will be forfeited and all right, title and interest of the Participant
to such shares will terminate without further obligation on the part of the
Company.

(b) The Restricted Period will expire with respect to all shares held by a
Participant (and not previously forfeited) on the earliest of (i) the date of
the Participant's death or disability, (ii) the date the Participant retires
with entitlement to a benefit under the Arkla, Inc. Directors' Retirement Plan,
(iii) the date the Participant, after being nominated by the Board and standing
for election, is not elected to the Board by the Company's shareholders, or (iv)
the date on which the Board determines that the holder will not be nominated for
election to the Board.

6. Adjustments. The Board may make or provide for such adjustments in the
maximum number of shares specified in Paragraph 3 and in the numbers of shares
of Common Stock covered by outstanding Awards as the Board in its sole
discretion, exercised in good faith, may determine is equitably required to
prevent dilution or enlargement of the rights of Participants that otherwise
would result from any stock dividend, stock split, combination of shares,
recapitalization or other change in the capital structure of the Company,
merger, consolidation, spin-off, reorganization, partial or complete
liquidation, issuance of rights or warrants to purchase securities or any other
corporate transaction or event having an effect similar to any of the foregoing.

D-3
<PAGE> 70

7. Fractional Shares. The Company will not be required to issue any
fractional share of Common Stock pursuant to this Plan. The Committee may
provide for the elimination of fractions or for the settlement of fractions in
cash.

8. Withholding Taxes. To the extent that the Company is required to
withhold federal, state, local or foreign taxes in connection with any payment
made or benefit realized by a Participant or other person under this Plan, and
the amounts available to the Company for such withholding are insufficient, it
will be a condition to the receipt of such payment or the realization of such
benefit that the Participant or such other person make arrangements satisfactory
to the Company for payment of the balance of such taxes required to be withheld,
which arrangements in the discretion of the Committee may include relinquishment
of a portion of such benefit.

9. Administration of the Plan. (a) Unless the administration of this Plan
has been expressly assumed by the Board pursuant to a resolution of the Board,
this Plan will be administered by the Committee, which at all times will consist
of not less than three nonemployee directors appointed by the Board, each of
whom will be a "disinterested person" within the meaning of Rule 16b-3. A
majority of the Committee will constitute a quorum, and the action of the
members of the Committee present at any meeting at which a quorum is present, or
acts unanimously approved in writing, will be the acts of the Committee. No
Participant will take part in any decision of the Committee with respect to the
Participant's individual claim under the Plan.

(b) The interpretation and construction by the Committee of any provision
of this Plan or of any agreement, notification or document evidencing the grant
of Restricted Stock and any determination by the Committee pursuant to any
provision of this Plan or of any such agreement, notification or document will
be final and conclusive. No member of the Committee will be liable for any such
action or determination made in good faith.

10. Amendments, Etc. (a) This Plan may be amended from time to time by the
Board but may not be amended by the Board without further approval by the
shareholders of the Company if such amendment would result in this Plan no
longer satisfying the requirements of Rule 16b-3. In addition, no amendment or
modification will be made more than once every six months, other than to comport
with changes in the Internal Revenue Code, the Employee Retirement Income
Security Act of 1974, or the rules promulgated thereunder.

(b) This Plan will not confer upon any Participant any right with respect
to continuance of service with the Company or any Subsidiary, nor will it
interfere in any way with any right the Company or any Subsidiary would
otherwise have to terminate such Participant's service at any time.

D-4
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ARKLA, INC.
THIS PROXY IS SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS
P
The undersigned hereby appoints T. Milton Honea, Michael B.
Bracy and Hubert Gentry, Jr., and each of them, Proxies with power
of substitution, and hereby authorizes them to represent and to
vote, as designated below, all of the shares of stock of Arkla,
Inc. held of record by the undersigned on March 15, 1994, at the
Annual Meeting of Stockholders to be held in Shreveport,
Louisiana, on Tuesday, May 10, 1994, and at all adjournments
thereof, with all powers the undersigned would possess if
personally present. In their discretion,
R
the proxies are authorized to vote upon such other business that
may properly come before the meeting.

PROPOSALS OF THE BOARD OF DIRECTORS
<TABLE>
<S> <C> <C>
O
a. ELECTION OF DIRECTORS FOR all nominees listed below and including the / /
use of cumulative voting (except as marked to
the contrary below)

<CAPTION>
a. ELECTION OF DIRECTORS WITHHOLD AUTHORITY / /
to vote for all nominees listed
below
</TABLE>

(INSTRUCTION: TO WITHHOLD AUTHORITY TO VOTE FOR ANY INDIVIDUAL
NOMINEE STRIKE A LINE THROUGH THE NOMINEE'S NAME IN
THE LIST BELOW.)

[M. Bracy, J. Chenoweth, O. Crosswell, W. DeRoeck,
D. Flanders, J. Fogleman, J. Gover, R. Hanna, T.
Honea,
X
M. Jones, S. Moncrief, L. Wallace, D. Weir]

<TABLE>
<S> <C> <C> <C>
b. PROPOSAL NO. 1 -- Amendment of the Certificate of Incorporation
to change the name of the Company to NorAm Energy Corp. ............ FOR / / AGAINST / / ABSTAIN / /
</TABLE>

Y
<TABLE>
<S> <C> <C> <C>
c. PROPOSAL NO. 2 -- Approval of the Incentive Equity Plan............ FOR / / AGAINST / / ABSTAIN / /
d. PROPOSAL NO. 3 -- Approval of the Employee Stock Purchase Plan..... FOR / / AGAINST / / ABSTAIN / /
e. PROPOSAL NO. 4 -- Approval of the Restricted Stock Plan for
Nonemployee Directors............................................... FOR / / AGAINST / / ABSTAIN / /
</TABLE>

(CONTINUED ON REVERSE SIDE)

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<PAGE> 72

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<TABLE>
<S> <C> <C> <C>
PROPOSAL OF STOCKHOLDER
f. PROPOSAL NO. 5 -- Concerning prior stockholder approval of
agreements
providing for the payment of Executive Compensation
contingent upon a change in control of the Company.................. FOR / / AGAINST / / ABSTAIN / /
</TABLE>

THIS PROXY WHEN PROPERLY EXECUTED WILL BE VOTED IN THE MANNER
DIRECTED HEREIN BY THE UNDERSIGNED STOCKHOLDER. IF NO DIRECTION IS
MADE THIS PROXY WILL BE VOTED FOR ALL NOMINEES LISTED (INCLUDING,
IF NECESSARY, CUMULATIVE VOTING), FOR ITEMS B, C,
P
D, AND E AND AGAINST ITEM F.

Please sign exactly as name appears below. When shares are held by
Joint Tenants, both should sign, and when signing as attorney, as
executor, as administrator, trustee or guardian, please give full
title as such. If held by a corporation, please sign in
R
the full corporate name by
the President or other authorized officer. If held by a
partnership, please sign in the partnership name by an
authorized person.
O

<TABLE>
<S> <C>
X
Y

Signature
Signature if held jointly
PLEASE MARK, SIGN, DATE AND RETURN THIS PROXY Dated: ,
CARD PROMPTLY USING THE ENCLOSED ENVELOPE. 1994
</TABLE>

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