<PAGE> 1
SCHEDULE 14A
(RULE 14A-101)
INFORMATION REQUIRED IN PROXY STATEMENT
SCHEDULE 14A INFORMATION
PROXY STATEMENT PURSUANT TO SECTION 14(A) OF THE SECURITIES
EXCHANGE ACT OF 1934 (AMENDMENT NO. )
Filed by the registrant /X/
Filed by a party other than the registrant / /
Check the appropriate box:
/ / Preliminary Proxy Statement / / Confidential, for Use of the
Commission Only (as permitted by
Rule 14a-6(e)(2))
/X/ Definitive Proxy Statement
/ / Definitive Additional Materials
/ / Soliciting Material Pursuant to Rule 14a-11(c) or Rule 14a-12
NORAM ENERGY CORP.
- --------------------------------------------------------------------------------
(Name of Registrant as Specified in Its Charter)
NORAM ENERGY CORP.
- --------------------------------------------------------------------------------
(Name of Person(s) Filing Proxy Statement)
Payment of filing fee (Check the appropriate box):
/ / $125 per Exchange Act Rules 0-11(c)(1)(ii), 14a-6(i)(1), or 14a-6(j)(2)
or Item 22(a)(2) of Schedule 14A.
/ / $500 per each party to the controversy pursuant to Exchange Act Rule
14a-6(i)(3).
/ / Fee computed on table below per Exchange Act Rules 14a-6(i)(4) and
0-11.
(1) Title of each class of securities to which transaction applies:
- --------------------------------------------------------------------------------
(2) Aggregate number of securities to which transactions applies:
- --------------------------------------------------------------------------------
(3) Per unit price or other underlying value of transaction computed
pursuant to Exchange Act Rules 0-11 (Set forth the amount on which the filing
fee is calculated and state how it was determined):(1)
- --------------------------------------------------------------------------------
(4) Proposed maximum aggregate value of transaction:
- --------------------------------------------------------------------------------
(5) Total fee paid:
- --------------------------------------------------------------------------------
/X/ Fee paid previously with preliminary materials.
/ / Check box if any part of the fee is offset as provided by Exchange Act
Rule 0-11(a)(2) and identify the filing for which the offsetting fee was paid
previously. Identify the previous filing by registration statement number, or
the Form or Schedule and the date of its filing.
(1) Amount Previously Paid:
- --------------------------------------------------------------------------------
(2) Form, Schedule or Registration Statement No.:
- --------------------------------------------------------------------------------
(3) Filing Party:
- --------------------------------------------------------------------------------
(4) Date Filed:
- --------------------------------------------------------------------------------
(1) Set forth the amount on which the filing fee is calculated and state how it
was determined.
<PAGE> 2
NORAM ENERGY CORP.
P.O. BOX 2628
HOUSTON, TEXAS 77252
{NORAM LOGO} April 7, 1995
Dear Stockholder:
You are cordially invited to attend the 1995 Annual Meeting of Stockholders
of NorAm Energy Corp. to be held in the Youree Room of the Sheraton Shreveport
Hotel in Shreveport, Louisiana on May 9, 1995, 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
NORAM ENERGY CORP.
P. O. BOX 2628
HOUSTON, TEXAS 77252
NOTICE OF ANNUAL MEETING OF STOCKHOLDERS
TO BE HELD MAY 9, 1995
TO THE STOCKHOLDERS:
Notice is hereby given that the Annual Meeting of Stockholders of NorAm
Energy Corp., (the "Company") a Delaware corporation, will be held in the Youree
Room of the Sheraton Shreveport Hotel, 1419 East 70th Street, Shreveport,
Louisiana, at 2:00 p.m., local time, on Tuesday, May 9, 1995.
This meeting is being held for the following purposes:
Proposals of the Board of Directors
(1) To elect a Board of 13 directors;
(2) PROPOSAL NO. 1 -- To consider and vote upon a proposal to amend
the Restated Certificate of Incorporation of the Company to increase the
number of authorized shares of Company Common Stock, $.625 par value, from
150,000,000 shares to 250,000,000 shares;
Proposals of Stockholders
(3) STOCKHOLDER PROPOSAL NO. 1 -- To consider and act upon a
stockholder proposal concerning prior stockholder approval of future
agreements providing for the payment of Executive Compensation contingent
upon a change in control of the Company; and
(4) STOCKHOLDER PROPOSAL No. 2 -- To consider and act upon a
stockholder proposal concerning prior stockholder approval of any changes
in compensation for non-employee directors of the Company; and
Other
(5) To transact any other business that properly comes before the
meeting.
Only stockholders of record at the close of business on March 15, 1995,
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 7, 1995
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
NORAM ENERGY CORP.
[LOGO] P.O. BOX 2628
HOUSTON, TEXAS 77252
PROXY STATEMENT
ANNUAL MEETING OF STOCKHOLDERS
MAY 9, 1995
This Proxy Statement is furnished to stockholders of NorAm Energy Corp.
(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 9, 1995 (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 7, 1995.
The cost of preparing, assembling and mailing the Notice of Annual Meeting,
this Proxy Statement and the accompanying proxy card 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 $10,000, 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 proxy card, 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, 1995 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 123,451,043 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, 1994, has been
mailed with this Proxy Statement to all stockholders. The Annual Report is not a
part of the proxy solicitation materials.
VOTING
Each holder of record of Common Stock at the close of business on March 15,
1995, 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 proxy holders could likely offset a particular stockholder's instruction
<PAGE> 5
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, and the proposed amendment to
the Company's Restated Certificate of Incorporation, and "AGAINST" the
stockholder proposals set forth in the attached notice.
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 Stockholder Proposal No.
1 and Stockholder Proposal No. 2 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 Stockholder Proposal No. 1 and Stockholder
Proposal No. 2 require 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 Stockholder Proposal 1 and
Stockholder Proposal No. 2 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.
ELECTION OF DIRECTORS AND BENEFICIAL
OWNERSHIP OF COMMON STOCK FOR OFFICERS AND DIRECTORS
Unless otherwise indicated on the proxy card, the proxy holders 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 proxy holders 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,
except for Messrs. Mickey P. Foret, Joseph M. Grant and W. Jeffrey Hart, were
elected by the stockholders at the 1994 annual meeting.
2
<PAGE> 6
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, 1995, by the nominees,
by the 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.
<TABLE>
<CAPTION>
FIRST SHARES OF
BECAME A COMMON STOCK
NOMINEE AND DIRECTOR OF BENEFICIALLY
BIOGRAPHICAL SUMMARY(1) AGE THE COMPANY OWNED(2)
- --------------------------------------------------------------- --- ----------- ------------
<S> <C> <C> <C>
Michael B. Bracy 53 1992 90,640
Mr. Bracy has been Executive Vice President & Principal
Financial Officer of the Company since October, 1991. He was
Executive Vice President of the Company and Chief Executive
Officer of Arkla Pipeline Group ("APG"), a division of the
Company from December, 1989 until October, 1991. He was
Executive Vice President of the Company and President of APG
from April, 1988 until December, 1989. He is a director of
Itron, Inc. of Spokane, Washington.
Joe E. Chenoweth 59 1990 9,195
Mr. Chenoweth was Senior Corporate Vice President,
International, Honeywell Inc., a multinational advanced
technology Company, Minneapolis, Minnesota, from December,
1990 until his retirement on December 31, 1992. Prior to
that, he served Honeywell Inc. in other executive positions.
O. Holcombe Crosswell 54 1988 8,668(3)
Mr. Crosswell is President of Griggs Corporation, a real
estate and investment Company in Houston, Texas.
Walter A. DeRoeck 52 1986 14,068
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.
Mickey P. Foret 49 1995 2,046
Mr. Foret has been Executive Vice President and Chief
Financial Officer of Norwest Airlines, Inc. since 1993. He
was Senior Vice President, Planning & Finance of Norwest
Airlines, Inc. from December 1992 to September 1993. Prior to
that, he was President and Chief Executive Officer of KLH
Computers, Inc. from June 1992 to September 1992. Since
October of 1990 he has also served as the President of KLC,
Inc., a privately owned real estate development and
construction company. Prior to that, Mr. Foret was President
and Chief Operating Officer of Continental Airlines, Inc.
from October 1989 to October 1990. Continental Airlines, Inc.
filed a petition under the Federal bankruptcy laws in
December of 1990.
</TABLE>
3
<PAGE> 7
<TABLE>
<CAPTION>
FIRST SHARES OF
BECAME A COMMON STOCK
NOMINEE AND DIRECTOR OF BENEFICIALLY
BIOGRAPHICAL SUMMARY(1) AGE THE COMPANY OWNED(2)
----------------------- --- ----------- ------------
<S> <C> <C> <C>
John P. Gover 66 1976 7,623
Mr. Gover is engaged in personal investments. He was formerly
Chairman and Chief Executive Officer of the National Bank of
Commerce, Altus, Oklahoma, until his retirement on October
31, 1983.
Joseph M. Grant 56 1995 5,046
Mr. Grant is the Senior Vice President and Chief Financial
Officer of Electronic Data Systems Corporation ("EDS"), and
has been with EDS since December 1990. He is on the Board of
Directors of EDS, American Eagle Group, Incorporated and
Heritage Media Corporation. Prior to December 1990, Mr. Grant
was Executive Vice President of American General Corporation.
Robert C. Hanna 66 1989 21,998(4)
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. He is also currently serving as Chairman of Memorial
Healthcare System in Houston, Texas.
W. Jeffrey Hart 53 1995 2,046
Mr. Hart has been President of MAPCO Petroleum Inc. since
November of 1986. MAPCO Petroleum is a division of Mapco Inc.
He is also Senior Vice President of MAPCO Inc. Mr. Hart is
also a member of the Board of Directors of the National
Petroleum Refiners Association and PacifiCare of Oklahoma.
T. Milton Honea 62 1992 238,901
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 Boatman's Arkansas, Inc., a subsidiary of Boatman's
Bancshares, Inc.
Myra Jones 59 1981 7,667
Mrs. Jones is a Partner of Human Investment Counselors,
Little Rock, Arkansas, and the owner of The Hunter, a
personalized shopping service in Little Rock, Arkansas.
Sidney Moncrief 37 1985 8,756
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.
</TABLE>
4
<PAGE> 8
<TABLE>
<CAPTION>
FIRST SHARES OF
BECAME A COMMON STOCK
NOMINEE AND DIRECTOR OF BENEFICIALLY
BIOGRAPHICAL SUMMARY(1) AGE THE COMPANY OWNED(2)
- --------------------------------------------------------------- --- ----------- ------------
<S> <C> <C> <C>
Larry C. Wallace 51 1984 4,756
Since the beginning of 1993, he has been 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.
Named Executives who are not nominees
Howard E. Bell 25,200
Hubert Gentry, Jr. 33,584
William A. Kellstrom 28,050
All directors and executive officers as a group (24 persons) 675,553(5)
</TABLE>
- ---------------
(1) All directors and executive officers of the Company may be reached through
the Company at NorAm Energy Corp., 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 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.
(5) Includes 69,094 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 Incentive Equity Plan.
ORGANIZATION OF THE BOARD OF DIRECTORS
During 1994, the Company's Board of Directors held a total of nine
regularly scheduled and special meetings. Mr. Wallace is the only nominee for
reelection who during 1994 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 he served (during the period he served). Mr. Wallace attended seven of the
nine regularly scheduled and special Board meetings and eight of the fourteen
meetings held by committees on which he served.
During 1994, directors who were not officers or employees of the Company or
a subsidiary received 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 also received an annual retainer of $2,000. One-half of
the annual retainer that each nonemployee director received and one-half of the
retainer Committee Chairman received was paid in restricted Common Stock of the
Company. Directors were reimbursed for out of 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.
To encourage greater stock ownership by directors the Company maintains
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 of the inception of the guidelines, or for new
directors within five years of the time such directors joined the board.
5
<PAGE> 9
The Company has 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 attained age 70 by the 1994 Annual Meeting of
stockholders are 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. DeRoeck, Mr. Donald H. Flanders (who is not
standing for election as a director in 1995), Mr. Grant and Mr. Moncrief. The
functions of the Audit Committee 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 1994 the Audit Committee held
three 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. Hart, Mr. Wallace, and Mr. D. W. Weir, (who is not
standing for election as a director in 1995). 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 1994 the Compensation and Benefits Committee held seven
meetings.
Corporate Governance Committee. The Company has a standing Corporate
Governance Committee which currently consists of all the nonemployee directors.
This 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.
This committee also has responsibility for, among other things, CEO evaluation,
assessment of director performance and committee assignments. During 1994 the
Corporate Governance Committee held three meetings.
The Company has two other standing committees, each having the
responsibility for particular functions of the Company. The other committees are
the Environmental Committee, which recommends environmental policy for the
Company and, the Investment Committee, which recommends policies and actions
regarding investment of funds in the Company's qualified retirement and savings
plans.
6
<PAGE> 10
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION
Mr. Weir, a member of the Compensation and Benefits Committee, 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 1994 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. Mr. Weir will retire as a director of the
Company, effective at the Annual Meeting. The other members of the Compensation
and Benefits committee during the last fiscal year were Mr. Chenoweth, Mr.
DeRoeck, Mr. Hanna and Mr. Wallace.
1994 COMPENSATION AND BENEFITS COMMITTEE REPORT
ON EXECUTIVE COMPENSATION
The Compensation and Benefits Committee (the "Committee") of the Board of
Directors of NorAm Energy Corp. has prepared the following report regarding 1994
executive compensation. The Committee, which is composed entirely of
non-employee 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 1994 compensation determinations were made
by the Committee with respect to the Company's executive officers, including the
Named Executives. The 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 NorAm'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.
EXECUTIVE COMPENSATION POLICY AND PHILOSOPHY
NorAm's executive compensation programs are based on the following guiding
principles:
- Pay-for-Performance -- To this end, NorAm has placed considerable
emphasis on incentive compensation programs which reward executives for
the achievement of specific operating and financial objectives and for
total shareholder returns. These incentive programs focus on both annual
and long-term performance.
- Pay Competitiveness -- NorAm believes it must offer competitive total
compensation opportunities in order to attract, motivate, and retain
executive talent. The Company's philosophy is to target the market median
(50th percentile) for all elements of executive compensation. This
includes base salary, annual incentives, and long-term incentives. Actual
compensation levels, however, will vary in competitiveness from year to
year based on corporate, business unit, and individual performance. The
Company determines competitive levels of compensation using published
compensation surveys, information obtained from compensation consultants,
and an analysis of compensation data contained in the proxy statements
for the 18 industry peer companies included in NorAm's Performance Graph.
The information obtained from published surveys and compensation
consultants is distinct from the proxy peer group data and the companies
included in these analyses are not explicitly included in the Performance
Graph. The published survey data and consultant data reflect general
industry companies with revenues comparable to the Company and gas
companies of all sizes.
- Executive Stock Ownership -- The Company believes that a significant
portion of each executive's compensation and wealth accumulation
opportunities should be tied to the Company's stock price and dividend
performance. As a result, NorAm has established stock ownership
guidelines for its officers. Under these guidelines, executives are given
5 years to meet certain stock ownership levels. The Company also provides
a significant portion of its executive compensation in the form of
stock-based compensation.
7
<PAGE> 11
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
NorAm's base salary levels are determined based on market compensation
rate, each 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 increase, and NorAm's overall financial results
(as described in detail in the "Annual Incentive Plan" section of this report).
All salary increases are granted within a pay-for-performance framework, but
performance criteria vary significantly by person. Also, some performance
factors are qualitative and there is no standard weighting attached to
performance factors applicable to each executive or the Company for base salary
determinations. Further, salary adjustment are not affected by any contractual
requirements. NorAm's actual base salaries for executives are generally
consistent with the Company's philosophy of targeting the market median.
ANNUAL INCENTIVE PLAN
NorAm'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, the plan provides annual incentive
awards based on the achievement of performance objectives for the most recently
completed fiscal year. For 1994, 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 operations.
These measures are weighted equally for the corporate component of the
annual incentive. Business unit performance measures varied by unit but include
(in addition to the measures cited above) expense management, operating income,
net cash flow (before dividends), customer satisfaction and pre-tax return on
rate base. These measures are weighted equally for the business unit component
of the annual incentive. Further, for senior corporate executives (including
Named Executives) the executive's contribution to overall corporate success is
assessed as part of the plan. This assessment is handled using a subjective
review of performance (considering such factors as teamwork and cooperation)
rather than focusing on specific measures.
For corporate positions below the senior executive level, the size of the
annual incentive funding pool is determined based 50% on corporate financial
performance (using the measure cited above) and by using the average of business
unit performance ratings and corporate controllable expense measures with each
weighted 25%. For business unit positions below the senior executive level, 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 without any standardized goal
weightings. For senior executives, corporate performance is weighted 40%,
business unit performance is weighted 40%, and overall corporate contributions
made by the individual are weighted 20%.
In early 1994, the Committee instituted the requirement that for awards
earned in 1994 (and paid in 1995) 50% of such awards will be paid in the form of
Company Common Stock. This program is intended to encourage greater executive
officer stock ownership and to assist executive officers in achieving the stock
ownership guidelines discussed below.
8
<PAGE> 12
Annual incentive opportunities are targeted at the market median. For 1994,
annual incentive awards actually earned were generally at targeted levels for
corporate positions since the Company generally performed at targeted levels on
the measures described above. For business unit positions, actual awards were
at, below or above target (depending on the business unit), since these business
units varied in their performance against the goals cited above.
LONG-TERM INCENTIVES
NorAm believes that its executives 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.
Until 1994, the Company generally relied on performance based restricted
stock as its primary long-term incentive device. Beginning in 1994, the
Committee began making long-term incentive awards in the form of both stock
options and performance based restricted stock. Award opportunities under these
two programs, combined, are targeted at the market median. In 1994, no payouts
were made under these programs and actual payouts have been below target in
recent years prior to 1994 because of performance on plan measures falling below
target.
Stock options provide a strong tie between pay and performance, since
executives only realize value from stock options if the Company's share price
rises after the date of grant. All stock options in 1994 were granted at 100% of
fair market value and vest at a rate of one-third per year over 3 years.
The performance based restricted stock grants made in 1994 (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 (at least at a threshold
level) which are set by the Committee and unless the officer remains in the
employ of the Company for the specified period of time. For the 1994 grants,
these objectives included return on capital employed in relation to the peer
group of 18 gas pipeline and local distribution companies (weighted 50%) and
total stockholder returns compared to an internal target (weighted 50%). Both of
these 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 the maximum number of shares
equal to 150% of the original grant. The 18 gas pipeline and local distribution
companies referred to above have also been used in the Performance Graph
disclosing the relative total stockholder return for NorAm. See "Performance
Graph". These companies were selected by the Committee as being the best
representation of the two industry segments in which NorAm operates. The
Committee did not feel that any published index for the industry provided a
reasonable data base.
During the first quarter of 1995, the Committee revised the performance
based restricted stock plan for the January 1995 to December 1997 period so that
awards for this cycle will vest based on the Company's earnings per share
performance relative to a 3-year strategic plan. This change was made in order
to increase executive focus on the need to improve the level of earnings in
order to build shareholder value. In accordance with the terms of the plan, the
Committee also reinstated dividend payments on performance-based restricted
stock prospectively. However, these dividends will only be paid on those
restricted shares that ultimately vest based on performance. Reinstatement of
dividends on earned performance based restricted stock is intended to reward
executives for maximizing total shareholder returns, and to bring this feature
of the plan in conformance with general market competitive practice.
STOCK OWNERSHIP PLANS
In order to encourage greater executive stock ownership, in early 1994, the
Company established stock ownership guidelines for its officers. These
guidelines are intended to strengthen the link
9
<PAGE> 13
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. These guidelines have been established as a fixed
number of shares based on a November 1993 share price and it is suggested that
officers meet these ownership guidelines within five years.
1994 CEO COMPENSATION
The Committee has attempted to target the CEO's total compensation package
at about the median of the marketplace for the 18 peer companies shown in the
performance graph. However, the Committee, considering the strongly expressed
views of the CEO, has continued to focus as much of the CEO's compensation on
stock-based compensation as possible in order to place as much emphasis on
returns to shareholders as possible.
To this end, the CEO's compensation program is structured as follows:
- Base Salary -- The CEO's 1994 base salary was provided in two forms: (1)
a time vested restricted stock grant 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 1994 are reflective of just
the cash payment portion of base salary. The value, at the date of grant,
of the restricted stock granted to Mr. Honea in 1994 in lieu of a portion
of his base salary, is disclosed under the Restricted Stock Award column
of the Summary Compensation Table (and is described in greater detail
below). The CEO's base salary, was determined solely with reference to
median market data on CEO's salaries within the industry and a review of
Mr. Honea's performance (which was conducted subjectively based on
progress in developing a new strategic plan and various operating
initiatives). These performance criteria were not weighted by the
Committee. Mr. Honea's actual base salary (including the cash payment and
the time vested restricted stock grant) is consistent with the market
median for this peer group but is below the market median for general
industry and pipeline industry companies with similar revenues.
- Other Stock Based Compensation -- In lieu of a portion of his base salary
(as mentioned above), the CEO received a grant of restricted stock
covering the January through December 1994 period. The structure of the
CEO's compensation program in 1994 provided 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 lapsing 6 months following
the grant date. During this restriction period, the value of the CEO's
restricted stock varied based on NorAm's stock price performance. As was
the case for all restricted stock as NorAm's stock declined subsequent to
the date the number of shares of restricted stock was determined, the
CEO's actual base salary (cash plus time vested restricted stock) was
below targeted market median levels.
The Committee, considering the strong preferences of the CEO, elected to
continue the current method of paying the CEO's base salary using both
cash (equal to tax and benefit obligations) and time vested restricted
stock.
- Annual Incentive -- The CEO's actual annual incentive for the 1994
performance year was $300,000. All of this annual incentive was paid in
shares of Company common stock, net of the estimated tax and benefit
liability for the CEO on this annual incentive payment. The value of this
award was above target because the Company's performance, based on the
corporate performance objectives discussed under the annual incentive
plan above, was above target. Since the CEO's annual incentive award
opportunities are targeted at the market median for peer companies, his
actual incentive award was consistent with industry target levels as
well.
- Long-Term Incentives -- In 1994, the CEO received a grant of
performance-based restricted stock under the Incentive Equity Plan. The
performance sensitivity of any payout under this program is contingent
upon corporate performance on the relative return on capital employed
10
<PAGE> 14
and total shareholder return objectives described in the long-term
incentive section above. He also received a grant of 54,100 stock
options. The value of the options are contingent upon stock price
appreciation. The stock options only produce income for the recipient if
the Company's share price rises above the price of the stock on the date
of grant. These stock options were granted at 100% of fair market value
on the grant date and vest at a rate of one-third per year over 3 years.
The combined stock option and performance-based restricted stock awards
are targeted at the market median for industry peers shown in the
Performance Graph.
$1 MILLION PAY DEDUCTIBILITY CAP
In 1993, the U. S. Treasury Department issued regulations under Section
162(m) of the Internal Revenue Code (the "Code") that prevent publicly traded
companies from receiving a tax deduction on non-performance based compensation
to executive officers in excess of $1 million. Under NorAm's Omnibus Equity
Incentive Plan approved in 1994, all stock option awards have been structured to
qualify as performance-based compensation which will not be subject to the $1
million limit.
NorAm's cash compensation levels for the Named Executives do not exceed the
$1 million pay level and will most likely not be affected by the regulations in
the near future. As such, no further actions have been taken with regard to
Section 162(m) at this time.
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.
11
<PAGE> 15
EXECUTIVE COMPENSATION
The following table sets forth information with respect to the Chief
Executive Officer and the four other most highly compensated executive officers
of the Company at the end of 1994 as to whom the total annual salary and bonus
for 1994 exceeded $100,000.
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
LONG-TERM COMPENSATION
ANNUAL COMPENSATION --------------------------------------------------
--------------------------- AWARDS PAYOUTS
OTHER ----------------------- ------------------------
ANNUAL RESTRICTED LONG-TERM
COMPEN- STOCK OPTIONS/ INCENTIVE ALL OTHER
NAME AND SALARY BONUS SATION AWARD(S) SARS PAYOUTS COMPENSATION
PRINCIPAL POSITION YEAR ($) ($)(1) ($) ($)(2) ($) ($) ($)(3)
- ------------------------------ ---- ------- ------- ------- ---------- -------- --------- ------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
T. Milton Honea, Jr........... 1994 198,909 300,000 4,361 (4) 222,577(5) 54,100 0 48,000
Chairman & CEO, 1993 346,593 131,557 5,976 249,795 0 0 26,000
NorAm Energy Corp. 1992 320,652 0 25,140 0 0 30,395 19,239
Michael B. Bracy.............. 1994 300,000 107,000 2,534 (4) 0 25,600 0 25,140
EVP & CFO, 1993 300,000 119,000 3,668 0 0 0 18,000
NorAm Energy Corp. 1992 300,000 0 31,579 0 0 47,003 18,000
Howard E. Bell................ 1994 300,000 97,000 1,498 (4) 0 13,200 0 24,120
President & COO, 1993 293,004 102,000 2,156 0 0 0 17,554
Entex Division 1992 276,588 0 18,370 0 0 30,395 16,597
William A. Kellstrom.......... 1994 275,004 96,000 1,029 (4) 0 13,200 0 22,590
President, NorAm 1993 275,004 184,000 679 0 0 0 22,647
Energy Services 1992 82,293 50,000 0 0 75,000(6) 0 0
Hubert Gentry, Jr............. 1994 262,500 125,000 1,260 (4) 0 11,200 0 21,150
SVP, General Counsel and 1993 252,090 90,000 1,820 0 0 0 15,101
Secretary NorAm Energy Corp. 1992 243,692 0 12,928 0 0 19,573 14,604
</TABLE>
- ---------------
(1) Mr. Honea received 100% of his annual incentive in shares of Company common
stock net of the estimated tax and benefit liability, and the other named
executives received 50% of their annual incentive in shares of Company
common stock.
(2) As of the end of Fiscal 1994, the aggregate restricted stock holdings of
each named executive were as follows (using 12/31/94 close of $5.375, 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........................................ 83,953 $451,247
Bracy........................................ 31,200 $167,700
Bell......................................... 17,550 $ 94,331
Kellstrom.................................... 17,050 $ 91,644
Gentry....................................... 14,850 $ 79,819
</TABLE>
The shares and value for Mr. Honea include 16,444 restricted shares
received in lieu of a portion of his base salary. Of these shares, 8,336
vested on January 1, 1995 and 8,108 vested on April 1, 1995.
(3) Amount represents ESIP and ESIP Restoration Plan Company contributions.
(4) The total value of executive perquisites and benefits did not exceed the
lesser of $50,000 or 10% of the total of annual salary and bonus reported
for any Named Executive. The amounts shown for 1994 represent dividends paid
on restricted stock awarded for Cycle IV and Cycle V.
(5) Represents value of shares received by Mr. Honea in lieu of a portion of his
base salary.
(6) Represents common stock appreciation rights awarded to Mr. Kellstrom
pursuant to his employment agreement, such agreement being more fully
described in "Employment Agreements."
12
<PAGE> 16
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 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
1994 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 and 1994
without an employment agreement and continues today in such capacity without an
agreement.
Mr. Bell had an employment agreement with the Company which terminated on
December 31, 1994, the date of his retirement from employment with the Company.
At the expiration of the agreement, the Company paid, pursuant to the agreement,
an amount equal to 150% of his annual salary at such time. In consideration for
the above payment, Mr. Bell has agreed to make himself available to the Company
for 18 months. Mr. Bell is also eligible to receive pursuant to the agreement,
an incentive payment for 1994 in an amount to be determined by the Board
consistent with similarly situated officers of the Company. Mr. Bell was covered
by an employment agreement when Entex was acquired by the Company.
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. "Change of
Control" means when the Company is merged, consolidated or reorganized into
another Corporation and as a result of such a transaction less than a majority
of the voting stock is held by stockholders who were stockholders of the Company
immediately prior to such transactions; or where the Company sells all or
substantially all of its assets; or where a report is filed on Schedule 13D or
14D-1 disclosing that any person has become the beneficial owner of securities
of the Company representing 10% or more of the combined voting power; or where
the Company files a report with the SEC that a change in control of the Company
has or may have occurred; or certain changes in the composition of the board and
certain transfers of assets to affiliates.
INCENTIVE EQUITY PLAN
The Company currently maintains an Incentive Equity Plan (the "IEP") 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 IEP superceded and replaced the Company's Long Term Incentive Compensation
Plan with respect to performance cycles beginning after Decem-
13
<PAGE> 17
ber 31, 1993. The IEP provides for options to purchase shares of common stock,
stock appreciation rights, restricted stock, opportunity shares, performance
units and annual incentive awards.
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.
LONG-TERM INCENTIVE PLAN AWARDS TABLE
LONG-TERM INCENTIVE PLANS -- AWARDS IN LAST FISCAL YEAR
<TABLE>
<CAPTION>
ESTIMATED FUTURE PAYOUTS UNDER
NUMBER OF NON-STOCK PRICE BASED
SHARES, PERFORMANCE OR PLANS
UNITS OTHER PERIOD --------------------------------
OR OTHER UNTIL MATURATION THRESHOLD TARGET MAXIMUM
NAME RIGHTS (1) OR PAYOUT ($ OR #) ($ OR #) ($ OR #)
- ------------------------------------ ------------- ---------------- --------- -------- -------
<S> <C> <C> <C> <C> <C>
T. Milton Honea, Jr. ............... 26,200 01/01/94- 13,100 26,200 39,300
12/31/96
Michael B. Bracy.................... 12,100 01/01/94- 6,050 12,100 18,150
12/31/96
Howard E. Bell...................... 6,300 01/01/94- 3,150 6,300 9,450
12/31/96
William A. Kellstrom................ 6,300 01/01/94- 3,150 6,300 9,450
12/31/96
Hubert Gentry, Jr. ................. 5,300 01/01/94- 2,650 5,300 7,950
12/31/96
</TABLE>
- ---------------
(1) Under the Incentive Equity Plan, shares vest on the achievement of return on
capital employed 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. No minimum payout is guaranteed. At
threshold performance levels, 50% of the target shares are earned. At
maximum performance levels, 150% of the target shares are earned.
STOCK OPTIONS/STOCK APPRECIATION RIGHTS
As indicated above, the Incentive Equity Plan provides for grants of stock
options, and/or stock appreciation rights. The following table summarizes option
grants during 1994 for the Named Executives.
OPTION/SAR GRANTS IN LAST FISCAL YEAR
<TABLE>
<CAPTION>
INDIVIDUAL GRANTS POTENTIAL REALIZABLE
---------------------------------------------------- VALUE AT ASSUMED
NUMBER OF % OF TOTAL ANNUAL RATES OF
SECURITIES OPTIONS EXERCISE STOCK PRICE APPRECIATION
UNDERLYING GRANTED PRICE FOR OPTION TERM (1)
OPTIONS TO EMPLOYEES (PER SHARE) EXPIRATION -------------------------
NAME GRANTED IN 1994 ($) DATE 5% 10%
- -------------------------- ---------- ------------ ----------- ---------- ----------- -----------
<S> <C> <C> <C> <C> <C> <C>
T. Milton Honea, Jr. ..... 54,100 17.3% $6.50 05/09/04 $221,539.50 $559,123.50
Michael B. Bracy.......... 25,600 8.2% $6.50 05/09/04 $104,832.00 $264,576.00
Howard E. Bell............ 13,200 4.2% $6.50 05/09/04 $ 54,054.00 $136,422.00
William A. Kellstrom...... 13,200 4.2% $6.50 05/09/04 $ 54,054.00 $136,422.00
Hubert Gentry, Jr. ....... 11,200 3.6% $6.50 05/09/04 $ 45,864.00 $115,752.00
</TABLE>
- ---------------
(1) Calculation based on the stock option exercise price over a ten-year period
assuming annual compounding. The columns present an estimate of potential
values based on certain mathematical assumptions. The actual value, if any,
an executive may realize is dependent upon the market.
14
<PAGE> 18
The following table shows aggregate option and/or stock appreciation rights
exercised in the last fiscal year and fiscal year-end option and/or stock
appreciation rights "in the money" values for the Named Executives.
OPTION/SAR EXERCISES AND YEAR-END VALUE TABLE
AGGREGATED OPTION/SAR EXERCISES IN LAST FISCAL YEAR
AND FY-END OPTION/SAR VALUE
<TABLE>
<CAPTION>
VALUE OF
NUMBER OF UNEXERCISED
UNEXERCISED IN-THE-MONEY
OPTION/SARS OPTION/SARS
SHARES AT FY-END(#) AT FY-END(#)
ACQUIRED VALUE EXERCISABLE/ EXERCISABLE/
NAME ON EXERCISE REALIZED($) UNEXERCISABLE UNEXERCISABLE
- ---------------------------------------- ----------- ----------- ------------- -------------
<S> <C> <C> <C> <C>
T. Milton Honea, Jr. ................... 0 0 54,100/0 0/0
Michael B. Bracy........................ 0 0 25,600/0 0/0
Howard E. Bell.......................... 0 0 13,200/0 0/0
William A. Kellstrom.................... 0 0 88,200/0 0/0
Hubert Gentry, Jr. ..................... 0 0 11,200/0 0/0
</TABLE>
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 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 a 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 15 20 25 30 35
- ------------------------- -------- --------- -------- --------- -------- ---------
<S> <C> <C> <C> <C> <C> <C>
$100,000............. $ 22,000 $ 33,000 $ 44,000 $ 44,000 $ 52,868 $ 61,679
200,000............. 47,000 70,500 94,000 94,000 109,868 128,179
300,000............. 72,000 108,000 144,000 144,000 166,868 194,679
400,000............. 97,000 145,500 194,000 194,000 223,868 261,179
500,000............. 122,000 183,000 244,000 244,000 280,868 327,679
600,000............. 147,000 220,500 294,000 294,000 337,868 394,179
700,000............. 172,000 258,000 344,000 344,000 394,000 460,679
800,000............. 197,000 295,500 394,000 394,000 451,868 527,179
</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 10, Mr. Bell,
18, Mr. Bracy, 10, Mr. Gentry, 16, and Mr. Kellstrom, 2. 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.
15
<PAGE> 19
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.
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
$110,203 and $117,550 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.
16
<PAGE> 20
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 are identified below.
COMPARISON OF FIVE YEAR CUMULATIVE TOTAL RETURN*
AMONG NORAM ENERGY CORPORATION, S&P 500 INDEX AND A COMPOSITE PEER GROUP**
<TABLE>
<CAPTION>
MEASUREMENT PERIOD NORAM ENERGY S&P 500
(FISCAL YEAR COVERED) CORPORATION INDEX PEER GROUP
<S> <C> <C> <C>
1989 100 100 100
1990 77 97 87
1991 51 126 82
1992 37 136 93
1993 35 150 115
1994 25 152 113
</TABLE>
- ---------------
* Assumes $100 invested on December 31, 1989 in the common stock of the
Company, S&P 500 Index and the Composite Peer Group. Investment is weighted
on the basis of market capitalization. Total Return data assumes the
reinvestment of dividends and was prepared by Standard & Poor's Compustat
Services.
** The peer group includes the following companies: Atlanta Gas Light Co.,
Brooklyn Union Gas Co., Coastal Corp., Columbia Gas System, Energen Corp.,
Enron Corp., Enserch Corp., KN Energy Inc., MCN Corp., Nicor Inc., Oneok
Inc., Pacific Enterprises, Panhandle Eastern Corp., Peoples Energy Corp.,
Sonat Inc., Transco Energy Co., Washington Gas Light Co., and Williams Cos.
Inc.
17
<PAGE> 21
PROPOSAL NO. 1
APPROVAL OF THE AMENDMENT TO THE RESTATED
CERTIFICATE OF INCORPORATION
Stockholders will be asked to consider and vote on a proposal to amend the
Company's Restated Certificate of Incorporation to increase the number of
authorized shares of Company Common Stock, $0.625 par value (the "Common Stock")
from 150,000,000 shares to 250,000,000 shares. If such proposal is not adopted,
approximately 11,387,682 of the currently authorized 150,000,000 shares of
Common Stock will be available for future issuances and approximately
138,612,318 will be issued and outstanding or reserved for issuance in
connection with existing employee benefit plans, the Direct Stock Purchase and
Dividend Reinvestment Plan and the Company's $3.00 Convertible Exchangeable
Preferred Stock. If the amendment to the Restated Certificate of Incorporation
is not approved, it is expected such a proposal will be made again at a later
date.
The Board of Directors of the Company considers it prudent and in the best
interests of the Company and its stockholders to have a substantial number of
shares of Common Stock authorized by the Restated Certificate of Incorporation
which are available for issuance, in order to provide the Company with financing
and business flexibility. Common Stock may be issued by the Company in
connection with future acquisitions or equity financings, upon conversion or
exchange of outstanding securities, in connection with employee benefit plans or
under other circumstances. There are currently no agreements or understandings
regarding the issuance of any of the additional shares of Common Stock that
would be available if the Company's Restated Certificate of Incorporation is
amended.
The additional shares of Common Stock for which authorization is sought
would be part of the existing class of Common Stock, and, to the extent issued,
would have the same rights and privileges as the shares of Common Stock
presently outstanding. No holder of the Common Stock is entitled to any
preemptive right to subscribe for or purchase any stock or other securities of
the Company. The issuance of a substantial amount of Common Stock or the
granting of an option to purchase a substantial amount of Common Stock could
have a potential anti-takeover effect with respect to the Company, although the
Board of Directors is not presenting the proposal for that reason and does not
presently anticipate using the increased authorized shares for such a purpose.
The Board of Directors is required to make any determination to issue such stock
based on its judgment as to the best interest of the stockholders of the
Company, however, the Board of Directors could use the additional authorized but
unissued Common Stock to make it more difficult to effect a change in control of
the Company by decreasing the percentage of share ownership of those persons
seeking to obtain control. The Board of Directors does not currently intend to
seek authorization by its security holders prior to any future issuance of
Common Stock, unless such action is required by applicable law or the rules of
any stock exchange on which the Company's Common Stock may be listed.
RECOMMENDATION
THE BOARD OF DIRECTORS UNANIMOUSLY RECOMMENDS THAT THE STOCKHOLDERS VOTE
FOR THE APPROVAL AND ADOPTION OF THE AMENDMENT TO THE RESTATED CERTIFICATE OF
INCORPORATION.
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PROPOSALS OF STOCKHOLDERS
STOCKHOLDER PROPOSAL NO. 1
STOCKHOLDER PROPOSAL CONCERNING PRIOR STOCKHOLDER APPROVAL OF
FUTURE 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 9,900 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 NO. 1
RESOLVED: That the shareholders of NorAm Energy Corp. ("Company" or
"NorAm") 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
The Company has employment agreements with several executive officers which
provide special severance compensation contingent upon a change in control of
the Company.
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.
NorAm's parachute agreements were adopted without the approval of the
Company's shareholders.
We believe that if NorAm 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.
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.
At NorAm's 1994 Annual Meeting of Shareholders, 44% of the voting shares
approved a similar shareholder proposal. We therefore resubmit this proposal
because we believe that a substantial and growing number of shareholders
continue to believe that golden parachute agreements do not serve the best
interests of shareholders and that shareholders support a policy whereby the
Company must win their approval of the terms of a golden parachute agreement
prior to the Company's entering into such agreement with any executive.
WE URGE YOU TO VOTE FOR THIS PROPOSAL (In this context, "We" is the
stockholder proponent)
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STATEMENT OF THE COMPANY IN OPPOSITION TO
STOCKHOLDER PROPOSAL NO. 1
As stated 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
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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 two 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,
1995 and September 30, 1995, and although the 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 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. 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 believes 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.
STOCKHOLDER PROPOSAL NO. 2
STOCKHOLDER PROPOSAL CONCERNING PRIOR STOCKHOLDER APPROVAL OF
ANY CHANGES IN COMPENSATION FOR NONEMPLOYEE
DIRECTORS OF THE COMPANY
The Company has been advised that H. Harold Hobbs and Dorothy Hobbs, joint
holders of 2,500 shares of Common Stock, request 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 NO. 2
It is recommended that the Company seek prior approval via majority vote of
all common shareholders for all changes in all compensation including but not
limited to annual retainer fees or fees for specific meeting attendance paid to
nonemployee Board of Director members.
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SUPPORTING STATEMENT
At the annual 1994 meeting of stockholders, the company submitted a
proposal to require that a portion of the compensation paid to nonemployee Board
of Directors would be paid in the form of common shares of stock. This action
was soundly based on the premise that those having supervision over the
administration of the company should have a vested interest in its financial
well-being. This provision stipulating the common stock compensation payment was
submitted and approved by stockholders.
In a separate action not requiring stockholder approval, however, the total
compensation level for nonemployee Board of Director members was increased
approximately 60%. The shareholder proposal submitted is based on the premise
that those receiving compensation should not have sole authority to initiate and
approve the level of that compensation to be received. At a time when common
stock values and dividend pay-outs are reduced approximately 70% from previous
levels, the substantial raise in compensation paid to non-employee directors
appears to have been financially imprudent.
SHAREHOLDERS ARE URGED TO VOTE IN FAVOR OF THE PROPOSAL
---------------------
STATEMENT OF THE COMPANY IN OPPOSITION TO
STOCKHOLDER PROPOSAL NO. 2
This proposal recommends that any changes in any nonemployee director
compensation be subject to prior stockholder approval. In support of this
proposal, the proponents articulate the premise that those receiving
compensation should not have sole authority to initiate and approve the level of
that compensation. The board believes that the proposal is both inconsistent
with the framework set forth under Delaware law and an unnecessary impediment to
the managerial flexibility of the board and the Company, and that the underlying
premise ignores the fiduciary duties imposed upon directors of a corporation
organized under Delaware law.
As directors of a corporation organized under the laws of the State of
Delaware, the directors of NorAm are vested with the authority to manage or
direct the business and affairs of the Company. Delaware law expressly states
that the board of directors shall have the authority to fix the compensation of
directors. Stockholder Proposal No. 2 recommends that stockholders be allowed to
approve all nonemployee director compensation decisions of the Company. Thus,
this proposal would have even minor changes, whether increases or decreases in
compensation, subjected to stockholder approval. Such a result would have an
immeasurably negative impact on the Company's ability to move quickly to attract
and retain qualified directors.
In exercising the authority to fix director compensation, the directors of
the Company are charged with a fiduciary duty to the Company and its
stockholders, including duties of care and loyalty. Directors have a fiduciary
responsibility to stockholders, that is, a duty of heightened trust in regard to
the welfare of the Company and its shareholders. The directors decision to
increase nonemployee director compensation was made in full compliance and
recognition of these fiduciary duties as are all the actions by the directors of
this Company. The Board of Directors believe that the proponents premise, that
directors are not the appropriate parties to set director compensation, ignores
the duties imposed on the Board and is suggestive of a failure by this Board to
acknowledge and adhere to the fiduciary duties it is charged to uphold. The
Board of Directors rejects this premise.
The proponents of Stockholder Proposal No. 2 further assert that the
increase in total director compensation in 1994 was financially imprudent. In
1994, the value of the annual board retainer increased from $15,000 to $24,000.
However, beginning with 1994, one-half of the annual retainer was paid in
restricted Common Stock, so the actual cash outlay in 1994 for the Company in
annual director retainer fees was less than the amount expended in 1993 for
director retainer fees. Furthermore,
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payment of one-half the annual retainer in Common Stock strengthened the
commonality of interest between directors and shareholders.
The change in total director compensation was the first such compensation
increase for NorAm directors since 1989. Prior to the increase, the Board
engaged independent compensation consultants, who determined that the Company's
retainer was from 10% to 67% below the average paid to directors of similar gas
pipeline and distribution companies, and meeting fees were from 45% to 82% below
those of other companies. In light of the recently adopted mandatory retirement
age for directors, the Board foresaw the need to conduct a search for at least
three new directors. The Board believed that increasing director compensation to
competitive levels would assist materially in attracting and retaining qualified
directors.
In summary, the Board believes that the loss of managerial flexibility
resulting from implementation of Stockholder Proposal No. 2 is inconsistent with
effective and decisive 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 L.L.P., independent public accountants, were the
principal accountants for the Company for 1994. Representatives of Coopers &
Lybrand L.L.P. 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. As in prior years, the Company will select the principal
accountant for the current fiscal year in September of 1995 based upon the
recommendation of the Audit Committee.
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, 1995, for inclusion
in the proxy materials relating to the 1996 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 7, 1995
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