<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 [ ]
Filed by a Party other than the Registrant [ ]
Check the appropriate box:
[X] Preliminary Proxy Statement [ ] Confidential, for Use of the
Commission Only (as permitted by
Rule 14a-6(e)(2))
[ ] Definitive Proxy Statement
[ ] Definitive Additional Materials
[ ] Soliciting Material Pursuant to sec. 240.14a-11(c) or sec. 240.14a-12
ENRON OIL & GAS COMPANY
- --------------------------------------------------------------------------------
(Name of Registrant as Specified in its Charter)
- --------------------------------------------------------------------------------
(Name of Person(s) Filing Proxy Statement, if other than the Registrant)
Payment of Filing Fee (Check the appropriate box):
[X] No fee required.
[ ] Fee computed on table below per Exchange Act Rules 14a-6(i)(l) and
0-11.
(1) Title of each class of securities to which transaction applies:
- --------------------------------------------------------------------------------
(2) Aggregate number of securities to which transaction applies:
- --------------------------------------------------------------------------------
(3) Per unit price or other underlying value of transaction computed
pursuant to Exchange Act Rule 0-11 (Set forth the amount on which the filing fee
is calculated and state how it was determined):
- --------------------------------------------------------------------------------
(4) Proposed maximum aggregate value of transaction:
- --------------------------------------------------------------------------------
(5) Total fee paid:
- --------------------------------------------------------------------------------
[ ] 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:
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(4) Date Filed:
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<PAGE> 2
[ENRON LOGO]
ENRON OIL & GAS COMPANY
NOTICE OF ANNUAL MEETING OF SHAREHOLDERS
May 6, 1997
TO THE SHAREHOLDERS:
Notice is hereby given that the annual meeting of shareholders of Enron Oil
& Gas Company (the "Company") will be held in the LaSalle Ballroom of the
Doubletree Hotel at Allen Center, 400 Dallas Street, Houston, Texas, at 3:00
p.m. Houston time on Tuesday, May 6, 1997, for the following purposes:
1. To elect five directors of the Company to hold office until the next
annual meeting of shareholders and until their respective successors are
duly elected and qualified;
2. To ratify the Board of Directors' appointment of Arthur Andersen LLP,
independent public accountants, as auditors for the Company for the year
ending December 31, 1997;
3. To approve an amendment to the Restated Certificate of Incorporation of
the Company to provide for a new class of ten million shares of
preferred stock; and
4. To transact such other business as may properly be brought before the
meeting or any adjournments thereof.
Holders of record of Common Stock of the Company at the close of business
on March 10, 1997, will be entitled to notice of and to vote at the meeting or
any adjournments thereof.
Shareholders who do not expect to attend the meeting are encouraged to sign
and return the enclosed proxy, for which purpose a postage-paid, return envelope
is enclosed. The proxy must be signed and returned in order to be counted.
By Order of the Board of Directors,
ANGUS H. DAVIS
Vice President, Communications and
Corporate Secretary
Houston, Texas
March 24, 1997
<PAGE> 3
[ENRON LOGO]
ENRON OIL & GAS COMPANY
PROXY STATEMENT
The enclosed form of proxy is solicited by the Board of Directors of Enron
Oil & Gas Company (the "Company" or "EOG") to be used at the annual meeting of
shareholders to be held in the LaSalle Ballroom of the Doubletree Hotel at Allen
Center, 400 Dallas Street, Houston, Texas, at 3:00 p.m. Houston time on Tuesday,
May 6, 1997 (the "Annual Meeting"). The mailing address of the principal
executive offices of the Company is 1400 Smith St., Houston, Texas 77002. This
proxy statement and the related proxy are to be first sent or given to the
shareholders of the Company on approximately March 24, 1997. Any shareholder
giving a proxy may revoke it at any time provided written notice of such
revocation is received by the Vice President, Communications and Corporate
Secretary of the Company before such proxy is voted; otherwise, if received in
time, properly completed proxies will be voted at the Annual Meeting in
accordance with the instructions specified thereon. Shareholders attending the
Annual Meeting may revoke their proxies and vote in person.
Holders of record at the close of business on March 10, 1997, of Common
Stock of the Company, par value $.01 per share (the "Common Stock"), will be
entitled to one vote per share on all matters submitted to the meeting. On March
10, 1997, the record date, there were outstanding 158,658,746 shares of Common
Stock. There are no other voting securities outstanding.
The Company's summary annual report for the year ended December 31, 1996,
is being mailed herewith to all shareholders entitled to vote at the Annual
Meeting. The summary annual report and the Annual Report on Form 10-K contained
therein do not constitute a part of the proxy soliciting materials.
All references in this proxy statement to Common Stock reflect the
two-for-one stock split effective June 15, 1994.
ITEM 1.
ELECTION OF DIRECTORS
At the Annual Meeting, five directors are to be elected to hold office
until the next succeeding annual meeting of the shareholders and until their
respective successors have been elected and qualified. All of the nominees are
currently directors of the Company. Proxies cannot be voted for a greater number
of persons than the number of nominees named on the enclosed form of proxy. A
plurality of the votes cast in person or by proxy by the holders of Common Stock
is required to elect a director. Accordingly, under Delaware law, abstentions
and broker non-votes (which occur if a broker or other nominee does not have
discretionary authority and has not received instructions with respect to a
particular item) would not have the same effect as a vote against a particular
director. Shareholders may not cumulate their votes in the election of
directors.
It is the intention of the persons named in the enclosed proxy to vote such
proxy for the election of the nominees named herein. Should any nominee become
unavailable for election, discretionary authority is conferred to vote for a
substitute. The following information regarding the nominees, their principal
<PAGE> 4
occupations, employment history and directorships in certain companies is as
reported by the respective nominees.
<TABLE>
<S> <C>
- -------------------------------------------------------------------------------------
[PHOTO] FRED C. ACKMAN, 66
Director since 1989
For over five years Mr. Ackman has been a consultant to the
oil and gas industry and has interests in ranching and
investments.
- -------------------------------------------------------------------------------------
[PHOTO] FORREST E. HOGLUND, 63
Director since 1987
Mr. Hoglund joined the Company as Chairman of the Board and
Chief Executive Officer in September, 1987. From May, 1990
until December, 1996, he also served as President of the
Company. Mr. Hoglund is also an advisory director of Texas
Commerce Bank National Association.
- -------------------------------------------------------------------------------------
[PHOTO] KENNETH L. LAY, 54
Director since 1985
For over five years, Mr. Lay has been Chairman of the Board
and Chief Executive Officer of Enron Corp. Mr. Lay is also a
director of Eli Lilly and Company, Compaq Computer
Corporation, Trust Company of the West, EOTT Energy Corp.
(the general partner of EOTT Energy Partners, L.P.), and
Enron Corp.
- -------------------------------------------------------------------------------------
</TABLE>
2
<PAGE> 5
<TABLE>
<S> <C>
- -------------------------------------------------------------------------------------
[PHOTO] EDWARD RANDALL, III, 70
Director since 1990
Mr. Randall's principal occupation is investments. Mr.
Randall is also a director of KN Energy, Inc. and
PaineWebber Group Inc.
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[PHOTO] EDMUND P. SEGNER, III, 43
Director since 1997
Mr. Segner has been Executive Vice President and Chief of
Staff of Enron Corp. since October, 1992. He joined Enron
Corp. in 1988 as Vice President, Public and Investor
Relations and, in 1990, was promoted to Senior Vice
President, Investor, Public and Government Relations. Mr.
Segner is also a director of Enron Global Power & Pipelines,
L.L.C.
- -------------------------------------------------------------------------------------
</TABLE>
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS ON FEBRUARY 15, 1997
The Company knows of no one who beneficially owns in excess of five percent
of the Common Stock of the Company except as set forth in the table below:
<TABLE>
<CAPTION>
AMOUNT AND NATURE OF
BENEFICIAL OWNERSHIP
---------------------------------
NAME AND ADDRESS SOLE VOTING AND INVESTMENT PERCENT
TITLE OF CLASS OF BENEFICIAL OWNER INVESTMENT POWER POWER ONLY OF CLASS
- -------------- ------------------- ---------------- ---------- --------
<S> <C> <C> <C> <C>
Common Enron Corp. 84,940,000 53.28%
1400 Smith Street
Houston, Texas 77002
Common FMR Corp. 6,200 12,580,700 7.9%
92 Devonshire Street
Boston, Massachusetts 02109
</TABLE>
3
<PAGE> 6
SECURITY OWNERSHIP OF THE BOARD OF DIRECTORS AND MANAGEMENT ON FEBRUARY 15, 1997
<TABLE>
<CAPTION>
AMOUNT AND NATURE OF BENEFICIAL OWNERSHIP
-------------------------------------------
SOLE VOTING
SOLE VOTING SHARED VOTING AND LIMITED
AND AND OR NO
INVESTMENT INVESTMENT INVESTMENT PERCENT
TITLE OF CLASS NAME POWER(1)(2) POWER POWER(3) OF CLASS
- -------------- ---- ----------- ------------- ----------- --------
<S> <C> <C> <C> <C> <C>
Enron Oil & Fred C. Ackman................ 17,000 *
Gas Company Forrest E. Hoglund............ 2,312,899 240,000(6) 1.59
Common Stock Barry Hunsaker Jr. ........... 20,300 *
Kenneth L. Lay................ 20,000(4) 30,400(5) *
Mark G. Papa.................. 273,731 15,000 28,457 *
Edward Randall, III........... 19,000 *
Edmund P. Segner, III......... 2,000 *
Dennis M. Ulak................ 69,841 20,000 *
Walter C. Wilson.............. 202,800 15,000 *
All directors and executive
officers as a group (10 in
number)..................... 2,998,122(4) 285,400 73,500 2.08
Enron Corp. Forrest E. Hoglund............ 458,466 100,000(6) 23,174 *
Common Stock Barry Hunsaker Jr. ........... 7 *
Kenneth L. Lay................ 3,034,487 763,242(5)(9) 57,073 1.49
Mark G. Papa.................. 15,057 8,998 26,122 *
Edward Randall, III........... 50,091(7) 28,301(8) *
Edmund P. Segner, III......... 255,839 15,237 *
Dennis M. Ulak................ 4,872 *
Walter C. Wilson.............. 11,982 *
All directors and executive
officers as a group (10 in
number)..................... 3,813,940 900,541 138,621 1.87
</TABLE>
- ---------------
* Less than 1 percent.
(1) The number of shares of Common Stock of the Company subject to stock
options exercisable within 60 days after February 15, 1997, is as follows:
Mr. Ackman 15,000 shares; Mr. Hoglund 930,524 shares; Mr. Hunsaker 20,000
shares; Mr. Papa 273,731 shares; Mr. Randall 15,000 shares; Mr. Ulak 69,841
shares; Mr. Wilson 200,600 shares; and all directors and executive officers
as a group, 1,585,247 shares.
(2) The number of shares of Enron Corp. Common Stock subject to stock options
exercisable within 60 days after February 15, 1997, is as follows: Mr.
Hoglund 44,650 shares; Mr. Lay 2,755,938 shares; Mr. Papa 11,650 shares;
Mr. Segner 192,844 shares; and all directors and executive officers as a
group, 3,005,082 shares.
(3) Includes shares held under the Enron Corp. Savings Plan and/or Employee
Stock Ownership Plan ("ESOP"). Participants in the Savings Plan have sole
voting power and limited investment power with respect to Enron Corp.
shares in the Savings Plan. Participants in the ESOP have sole voting power
and no investment power prior to distribution of shares from the ESOP. Also
includes restricted shares of Common Stock of the Company and Enron Corp.
held under the Company's 1992 Stock Plan and Enron Corp.'s 1991 Stock Plan
for which participants have sole voting power and no investment power
(Notes continued on following page)
4
<PAGE> 7
until such shares vest in accordance with Plan provisions. After vesting, the
participant has sole investment and voting powers.
(4) Does not include 84,940,000 shares owned by Enron Corp. in which Mr. Lay,
in his capacity as Chairman of the Board of Enron Corp., has sole voting
and investment power pursuant to the provisions of Enron Corp.'s bylaws.
(5) Includes 400 shares with respect to Company Common Stock and 1,821 shares
with respect to Enron Corp. Common Stock held by Mr. Lay's daughter.
(6) Includes 240,000 shares with respect to Company Common Stock and 100,000
shares with respect to Enron Corp. Common Stock held in a charitable
foundation in which Mr. Hoglund has no pecuniary interest.
(7) Includes 43,291 shares of Enron Corp. Common Stock held by trusts of which
Mr. Randall is trustee and in which Mr. Randall disclaims beneficial
ownership.
(8) Shares of Enron Corp. Common Stock held by trusts of which Mr. Randall is
trustee and in which Mr. Randall disclaims beneficial ownership.
(9) Includes 130,000 shares held in a charitable foundation in which Mr. Lay
has no pecuniary interest.
BOARD OF DIRECTORS AND COMMITTEES
The Board of Directors held four regularly scheduled meetings and one
special meeting during the year ended December 31, 1996.
The Board of Directors uses working committees with functional
responsibility in the more complex recurring areas where disinterested oversight
is required. The Audit Committee is the communication link between the Board and
independent auditors of the Company. The Audit Committee recommends to the Board
of Directors the appointment of independent public accountants as auditors for
the Company and reviews as deemed appropriate the scope of the audit, the
accounting policies and reporting practices, the system of internal controls,
compliance with policies regarding business conduct and other matters. The Audit
Committee met three times during the year ended December 31, 1996, and is
currently composed of Messrs. Ackman (Chairman) and Randall.
The Compensation Committee is responsible for administration of the Company
stock plans and approval of compensation arrangements of senior management. The
Compensation Committee, which met four times during the year, is composed of
Messrs. Randall (Chairman) and Ackman.
The Company does not have a standing nominating committee.
During the year ended December 31, 1996, each director attended at least
75% of the total number of meetings of the Board and the committees on which the
director served.
COMPENSATION OF DIRECTORS AND EXECUTIVE OFFICERS
DIRECTOR COMPENSATION
During 1996, each director who was not an employee of the Company, Enron
Corp. or its affiliates, received annual fees of $35,000 for serving as a
director and $5,000 for each committee of which such director was Chairman.
Total directors fees earned in 1996 were $80,000.
5
<PAGE> 8
Prior to the tax deconsolidation described under "Certain Transactions,"
Company directors fees could be deferred to a later specified date under the
Enron Corp. 1985 Deferral Plan and 1994 Deferral Plan. Under the 1985 Deferral
Plan, interest is credited on amounts deferred based on 150% of Moody's seasoned
corporate bond yield index with a minimum rate of 12%, which for 1996 was the
minimum rate of 12%. Interest was credited at 9% under the 1994 Deferral Plan.
In connection with the deconsolidation of the Company from the consolidated U.S.
income tax reporting group of Enron Corp. in December 1995, the Company created
the Enron Oil & Gas Company 1996 Deferral Plan (the "1996 Deferral Plan") and
agreed to assume all deferral liabilities of Enron Corp. relating to Company
directors and employees under the Enron Corp. 1994 Deferral Plan described
above. In addition, all deferrals after the tax deconsolidation were made under
the 1996 Deferral Plan. The terms of the 1996 Deferral Plan are substantially
identical to those of the Enron Corp. 1994 Deferral Plan. Payments are made
exclusively from the general assets of the Company and the Company has elected
to purchase life insurance on the lives of some covered participants with the
Company as the owner and beneficiary. Currently one nonemployee director
participates in the 1996 Deferral Plan.
Nonemployee directors also participate in the Enron Oil & Gas Company 1993
Nonemployee Director Stock Option Plan, which was approved by Company
shareholders at the 1993 annual meeting. Under the terms of the Plan, each
nonemployee director receives on the date of each annual meeting during the term
of the Plan an option to purchase 6,000 shares of Common Stock at an exercise
price equal to the fair market value of the Common Stock on the date of grant.
In addition, each nonemployee director who is elected or appointed to the Board
of Directors for the first time after an annual meeting is granted on the date
of such election or appointment an option to purchase 6,000 shares of Common
Stock at an exercise price equal to the fair market value of the Common Stock on
the date of grant. Options granted under the Plan vest 50% after one year and
100% after two years of service as a director following the date of grant. All
options expire ten years from the date of grant. During 1996, each nonemployee
director was granted a total of 6,000 options at an exercise price of $24.875.
Grants will increase to 7,000 options beginning in 1997.
REPORT FROM THE COMPENSATION COMMITTEE REGARDING EXECUTIVE COMPENSATION
Compensation for Company executives is administered by the Compensation
Committee of the Board of Directors (the "Committee"), which is composed
exclusively of outside directors. It is the responsibility of the Committee to
develop compensation philosophy and authorize salary increases for officers,
incentive programs and awards consistent with this philosophy.
The Committee believes that appropriately balanced compensation elements
contribute to the success of the Company. Hay Management Consultants provides an
annual analysis of executive base salaries, annual bonuses and long-term
incentives paid by the Company as compared to those paid by a number of industry
peer companies included in the "Comparative Stock Performance" section. The
Committee believes that the best compensation philosophy is to put a substantial
portion of the total compensation package at risk and tied to both the financial
results achieved and the performance of the Common Stock of the Company, which
means that the Company does not intend to lead the competition in base salary
levels. Further, the Committee believes that total compensation for the
executives should exceed average compensation levels of a peer group of
companies only if the Company performs at a level such that financial results
achieved by the Company and shareholder return on investments in the Company
exceed the average achieved by that peer group of companies over a reasonable
period of time. To achieve this goal, the Committee has authorized incentive
plans as set out below, which provide for incentive compensation in the form of
cash and stock options, to link executive compensation with the performance and
financial results of the Company.
6
<PAGE> 9
During 1996 the Compensation Committee undertook a comprehensive study of
the total compensation actually received by key officers over the last seven
years. The study compared total compensation levels for key officers of the
Company to selected peer companies and considered salary, bonus, and the
realized and unrealized gains from stock options granted from 1989 through 1995.
The study also evaluated current compensation levels including restricted stock
awards made in 1996.
The study revealed that the executive compensation program of the Company
has been heavily weighted toward longer term, stock based compensation.
Historical (1989-95) cash compensation (salary and bonus) for the Company has
been consistently near the average of the peer companies, while total
compensation, which includes realized and unrealized stock gains, has been above
the peer group.
These results are consistent with the stated compensation philosophy of the
Company which seeks to provide compensation levels above peer company averages
only when shareholder value increases.
Key Contributor Incentive Plan. All Company employees are eligible for cash
bonuses of up to 100% of base salary under this plan. The plan authorizes the
funding of a bonus pool to be approved by the Committee. The bonus pool is not
generally anticipated to exceed the lesser of (i) 5% of net income or (ii) 5% of
the net present value, discounted at 10%, of the net cash flows anticipated to
result from the investment program of the Company. Each year the Committee
approves performance goals for the Company against which actual results are
measured to determine the level of funding for this plan. The goals established
for the Company cover factors such as net income, production and reserve volume
growth, finding costs per equivalent unit of reserves added and developed and
rate of return on exploration and development expenditures. These goals are
designed to address both current financial performance and the long-term
development of the Company. The Committee does not use a specific formula for
weighting these individual performance factors.
Enron Oil & Gas Company 1992 Stock Plan. This plan is the long-term
incentive plan of the Company for executive officers and other selected
employees. The purposes of this plan are to encourage employees who receive
grants to develop a proprietary interest in the performance of the Company, to
generate an increased incentive to contribute to the future success of the
Company, thus enhancing the value of the Company for the benefit of
shareholders, and to enhance the ability of the Company and its subsidiaries to
attract and retain individuals with qualifications essential to the progress,
growth and profitability of the Company.
This plan authorizes the Committee to award stock options to executive
officers and other selected employees. Stock options are normally granted on an
annual basis at an option price equal to the fair market value of Company Common
Stock on the date of grant, have ten-year terms and vest over four years except
in cases where they are issued in lieu of a portion of a cash bonus. In such
cases, option grants may have a shorter term and typically vest in a shorter
time period, which for grants during 1996 included a term of five years with
100% vesting upon grant, except for certain optionees subject to the short-swing
profit provisions of Section 16(b) of the Securities Exchange Act of 1934 (the
"Exchange Act"), in which case (prior to recent changes in those provisions) the
options vested 100% six months after the date of grant. Committee approval is
obtained for the number of options to be granted. The awards are made at a level
that is not anticipated to generate significant benefits relative to the
industry peer group unless the Company Common Stock performs correspondingly
well during the life of the grant. With the success of the Company (and the
resulting benefits to its shareholders), this feature becomes a larger part of
the total compensation package.
Additionally, the Compensation Committee in conjunction with Mr. Hoglund
determined that a number of executives and other key employees should be given
financial incentives to remain with the Company. The incentives took the form of
grants of restricted stock with a vesting schedule that provides for early
vesting in
7
<PAGE> 10
increments of one-third if certain aggressive net income goals are achieved. If
the goals are not achieved, vesting will occur in 50% increments in January 2002
and January 2003.
Based upon a thorough review and discussion of the 1996 results of the
Company, several of which are highlighted in the following paragraph, the
Committee approved funding the bonus pool at 5% of 1996 net income. The
Committee also reviewed and approved individual officer bonuses, salary
increases, and stock option grants recommended by the Chief Executive Officer of
the Company based upon his evaluation of each individual officer's performance
and contribution to the overall success of the Company during 1996. Bonuses for
executive officers of the Company (with the exception of Mr. Hoglund who
received no annual bonus in accordance with the terms of his employment
agreement) ranged from 21% to 61% of base salary and option grants were awarded
at levels expected to bring total compensation opportunities in line with
similar positions at peer companies.
During 1996, the Company continued to perform extremely well in continuing
to achieve very strong, broad-based, fundamental improvements. Key
accomplishments of the Company, highlighting its performance during 1996, are as
follows:
- Replaced 201 percent of annual production on an all-sources basis,
the second year in a row for this ratio to exceed 200 percent. This
result was primarily associated with the drilling of internally-
generated prospects, which activity alone replaced 164 percent of
annual production for the year, making the ninth consecutive year in
which drilling additions exceeded production. Reserve additions were
achieved at an all-in finding cost of $.77 per thousand cubic feet
equivalent.
- Increased total reserve base, excluding deep Paleozoic methane
reserves in the Big Piney area of Wyoming, by 14.7 percent to 2.826
trillion cubic feet of natural gas equivalent.
- Continued building for future growth progressing very successfully
the initiation of operations offshore India, signing
production-sharing contracts for new concessions offshore the east
coasts of both Trinidad, and Venezuela, adding significant acreage
holdings in the Gulf of Mexico, including seven blocks in water
depths between 600 feet and 2,700 feet, and acquiring significant
additional volumes of 3-D seismic data, both domestically and
internationally and onshore as well as offshore.
- Achieved net income for the year of $140.0 million compared to
$142.1 million for 1995. Substantial increases in wellhead revenues
reflecting both higher volumes and prices were primarily offset by
other marketing commodity price hedging and trading-related
activities and lower gains on sales of reserves and related assets.
- Achieved discretionary cash flow of $543 million, fueling a growing
exploration and development expenditure program allowing continued
pursuit of opportunities to build long-term growth.
- Maintained a debt to total capital ratio of 27 percent, retaining
one of the most conservative financial structures of any member of
its peer group of companies.
Additional information regarding the results of the Company for 1996 is
available in Management's Discussion and Analysis of Financial Condition and
Results of Operations included in the Annual Report on Form 10-K. Further
information with regard to the achievements by the Company over the period from
1989 to 1996 are highlighted in the Summary Annual Report. Both documents are
being mailed with this proxy statement but do not constitute a part of the proxy
soliciting materials.
8
<PAGE> 11
Chief Executive Officer Compensation. Effective September 1, 1987, Mr.
Hoglund entered into an employment agreement with the Company under which he
serves as Chairman of the Board and Chief Executive Officer of the Company.
Under the provisions of subsequent amendments to Mr. Hoglund's employment
agreement, the term has been extended to September 1, 1998, and Mr. Hoglund has
agreed to receive an annual salary of $570,000 and no annual bonus.
Substantially all of Mr. Hoglund's future compensation in excess of his
base salary is at risk and tied to the performance of Company Common Stock. The
Committee believes this is the most effective way to link executive rewards to
shareholder value.
COMPLIANCE WITH INTERNAL REVENUE CODE SECTION 162(M)
Section 162(m) of the Internal Revenue Code, enacted in 1993, generally
disallows a tax deduction to public companies for compensation over $1 million
paid to the Chief Executive Officer and four other most highly compensated
executive officers of a company, as reported in that company's proxy statement.
Qualifying performance-based compensation is not subject to the deduction limit
if certain requirements are met. The Company has structured its long-term
incentives in the form of stock option grants in a manner that complies with the
statute.
Compensation Committee
Edward Randall, III -- Chairman
Fred C. Ackman
9
<PAGE> 12
COMPARATIVE STOCK PERFORMANCE
The performance graph shown below was prepared by Value Line, Inc., for use
in this proxy statement. As required by applicable rules of the Securities and
Exchange Commission (the "SEC"), the graph was prepared based upon the following
assumptions:
1. $100 was invested on December 31, 1991 in Common Stock of EOG, the
Standard & Poors 500 (the "S&P 500"), and a peer group of independent
exploration and production companies (the "Peers").
2. The investments in the Peers are weighted based on the market
capitalization of each individual company within the Peers at the
beginning of each year.
3. Dividends are reinvested on the ex-dividend dates.
The companies that comprise the Peers are as follows: Anadarko Petroleum
Corp., Apache Corp., Burlington Resources Inc., Louisiana Land and Exploration
Company, Maxus Energy Company, Noble Affiliates, Inc., Oryx Energy Company,
Santa Fe Energy Resources Inc., Seagull Energy Corporation, Union Pacific
Resources Company, Union Texas Petroleum Holdings, Inc. and Vastar Resources
Inc.
COMPARATIVE TOTAL RETURNS
COMPARISON OF FIVE-YEAR CUMULATIVE TOTAL RETURN
EOG, S&P 500 AND PEERS
(Performance Results Through December 31)
<TABLE>
<CAPTION>
Measurement Period EOG S&P 500 Peers
(Fiscal Year Covered)
<S> <C> <C> <C>
1991 100.00 100.00 100.00
1992 151.96 107.79 112.67
1993 203.01 118.66 129.37
1994 196.28 120.56 111.90
1995 252.72 165.78 133.47
1996 267.16 204.32 169.00
</TABLE>
10
<PAGE> 13
EXECUTIVE COMPENSATION
The following table summarizes certain information regarding compensation
paid or accrued during each of the last three fiscal years to the Chief
Executive Officer and each of the four other most highly compensated executive
officers of the Company (the "Named Officers"):
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
ANNUAL COMPENSATION LONG-TERM COMPENSATION
---------------------------------- --------------------------------------------
OTHER RESTRICTED SECURITIES
ANNUAL STOCK UNDERLYING LTIP
SALARY BONUS COMPENSATION AWARDS OPTIONS/ PAYOUTS
NAME & PRINCIPAL POSITION YEAR ($) ($) ($)(2) ($) SARS (#) ($)
------------------------- ---- ------ ----- ------------ ---------- ---------- ---
<S> <C> <C> <C> <C> <C> <C> <C>
Forrest E. Hoglund 1996 $570,000 $ 0 $121,088 $ 0 0 $ 0
Chairman of the Board 1995 $570,000 $ 0 $ 69,721 $ 0 0 $ 0
and Chief Executive Officer 1994 $570,000 $ 0 $140,004 $ 23,450(3) 1,846,310 $ 0
Mark G. Papa 1996 $295,254 $101,250 $ 16,334 $ 587,500(4) 47,275 $ 0
President 1995 $257,520 $135,000 $ 8,515 $ 0 53,750 $ 0
1994 $247,850 $123,500 $ 15,648 $ 5,695(3) 74,380 $ 0
Dennis M. Ulak 1996 $230,000 $101,250 $ 4,900 $ 470,000(4) 28,865 $ 0
President, International 1995 $176,670 $ 97,500 $ 6,202 $ 0 31,055 $ 0
Operations 1994 $157,020 $ 81,250 $ 4,500 $ 0 39,410 $ 0
Walter C. Wilson 1996 $218,340 $ 60,375 $ 17,303 $ 352,500(4) 34,545 $ 0
Sr. Vice President and 1995 $183,540 $105,000 $ 13,834 $ 0 38,265 $ 0
Chief Financial Officer 1994 $176,040 $ 97,500 $ 10,572 $ 0 51,165 $ 0
Barry Hunsaker, Jr.(1) 1996 $147,443 $ 90,000 $ 3,894 $ 0 26,720 $ 0
Senior Vice President and
General Counsel
<CAPTION>
ALL OTHER
COMPENSATION
------------
NAME & PRINCIPAL POSITION ($)(5)
------------------------- ------------
<S> <C>
Forrest E. Hoglund $ 1,103
Chairman of the Board $ 793
and Chief Executive Officer $31,130
Mark G. Papa $ 1,103
President $ 793
$31,130
Dennis M. Ulak $ 1,103
President, International $ 793
Operations $30,318
Walter C. Wilson $ 1,103
Sr. Vice President and $ 793
Chief Financial Officer $31,130
Barry Hunsaker, Jr.(1) $ 0
Senior Vice President and
General Counsel
</TABLE>
- ---------------
(1) Mr. Hunsaker became an employee and executive officer of the Company in May,
1996.
(2) No Named Officer had "perquisites and other personal benefits" with a value
greater than the lesser of $50,000 or 10% of reported salary and bonus.
Enron Corp. has maintained three deferral plans (a 1985 plan, a 1992 plan
and a 1994 plan) for key employees of Enron Corp. and its subsidiaries,
including the Company, under which payment of base salary, annual bonus and
long term incentive awards may be deferred to a later specified date. Under
the 1985 Deferral Plan, interest is credited on amounts deferred based on
150% of Moody's seasoned corporate bond yield index with a minimum rate of
12%, which for 1994 was the minimum of 12%, for 1995 was 12.39% and for 1996
was the minimum rate of 12%. Interest in excess of 120% of the December,
1995 long-term Applicable Federal Rate ("AFR") (7.65%) and has been reported
as Other Annual Compensation for 1996, interest in excess of 120% of the
December 1994 long-term AFR (9.91%) has been reported as Other Annual
Compensation for 1995, and interest in excess of 120% of the December, 1993
long-term AFR (7.29%) has been reported as Other Annual Compensation for
1994. No interest has been reported as Other Annual Compensation under the
1992 Deferral Plan, which credits interest at the Company's mid-term
borrowing rate, since crediting rates for 1994, 1995 and 1996 of 6.0%, 8.5%
and 6.5%, respectively, did not exceed 120% of the AFR. Interest has been
reported as Other Annual Compensation under the 1994 Deferral Plan during
1994 for the participating Named Officers because the crediting rate during
1994 was 9% which exceeds 120% of the AFR. In 1995, the 1994 Deferral Plan
credited 9% which did not exceed 120% of the AFR. Beginning January 1, 1996,
the 1994 Deferral Plan credits interest based on fund elections chosen by
participants.
(Notes continued on following page)
11
<PAGE> 14
Since earnings on deferred compensation invested in third-party investment
vehicles, comparable to mutual funds, need not be reported, no interest has
been reported as Other Annual Compensation under the 1994 Deferral Plan
during 1996. Other Annual Compensation also includes miscellaneous cash
payments for items such as cash perquisite allowances and lost benefits due
to statutory earnings limits. In connection with the deconsolidation of the
Company from the consolidated U.S. income tax reporting group of Enron Corp.
in December 1995, the Company created the 1996 Deferral Plan and agreed to
assume all deferral liabilities of Enron Corp. relating to Company employees
under the Enron Corp. 1992 and 1994 Deferral Plans described above. (For a
description of the tax deconsolidation, see "Certain Transactions.")
(3) Enron Corp. restricted stock awarded on February 7, 1994, became 50% vested
on August 7, 1994, and 100% vested on February 7, 1995. The following is the
aggregate number of shares in unreleased restricted stock holdings of Enron
Corp. Common Stock and their value as of December 31, 1996, for each of the
Named Officers: Mr. Hoglund, 3,120 shares valued at $134,550; and Mr. Papa,
1,960 shares valued at $84,525. Dividend equivalents accrue from the date of
grant and are payable on the vesting date of the shares.
(4) EOG restricted stock awarded on January 26, 1996, became vested 50% on
January 26, 2002, and 100% vested on January 26, 2003, subject to early
vesting in one-third increments if certain aggressive net income goals are
achieved. The following is the aggregate number of shares in unreleased
restricted stock holdings of Company Common Stock and their value as of
December 31, 1996, for each of the Named Officers: Mr. Papa, 25,000 shares
valued at $631,250; Mr. Ulak, 20,000 shares valued at $505,000; Mr. Wilson,
15,000 shares valued at $378,750. Dividend equivalents accrue from the date
of grant and are payable on the vesting date of the shares.
(5) Includes the value as of year end 1994, 1995 and 1996 of Enron Corp. Common
Stock allocated during those years to employees' savings and special
subaccounts under the ESOP. Included in 1994 and 1995 are special
allocations made in February, 1994 to employees' savings subaccounts under
the ESOP and a special allocation made in December, 1994 and December, 1995
to a special allocation subaccount.
12
<PAGE> 15
STOCK OPTION GRANTS DURING 1996
The following table sets forth information with respect to grants of stock
options to the Named Officers reflected in the Summary Compensation Table on
page 11 and all employee optionees as a group. No SAR units were granted during
1996, and none are outstanding.
<TABLE>
<CAPTION>
1996 GRANTS
-----------------------------------------------------
PERCENT OF POTENTIAL REALIZABLE VALUE AT
TOTAL ASSUMED ANNUAL RATES OF
OPTIONS/ OPTIONS STOCK PRICE APPRECIATION
SARS GRANTED TO AVERAGE FOR OPTION TERM(1)
GRANTED EMPLOYEES IN OPTION PRICE EXPIRATION ----------------------------------------
NAME/GROUP (#)(2) FISCAL YEAR PER SHARE DATE 0%(3) 5% 10%
---------- -------- ------------ ------------ ----------- ----- -------------- --------------
NAMED OFFICERS
--------------
<S> <C> <C> <C> <C> <C> <C> <C>
F. Hoglund........... 0 0.0% N/A N/A $0 $ 0 $ 0
M. Papa.............. 12,275(4) 0.4% $23.50 26-Jan-2001 $0 $ 79,697 $ 176,109
35,000(5) 1.2% $23.50 26-Jan-2006 $0 $ 517,266 $ 1,310,853
D. Ulak.............. 8,865(4) 0.3 $23.50 26-Jan-2001 $0 $ 57,557 $ 127,186
20,000(5) 0.7% $23.50 26-Jan-2006 $0 $ 295,580 $ 749,059
W. Wilson............ 9,545(4) 0.3% $23.50 26-Jan-2001 $0 $ 61,972 $ 136,942
25,000(5) 0.8% $23.50 26-Jan-2006 $0 $ 369,476 $ 936,324
B. Hunsaker, Jr...... 20,000(6) 0.7% $26.25 06-May-2006 $0 $ 330,170 $ 836,715
6,720(7) 0.2% $25.25 31-Dec-2006 $0 $ 106,711 $ 270,426
All Optionees........ 2,941,560(8) 100% $24.53(9) 2001-2006 $0 $ 45,383,564(10) $ 115,010,878(10)
All Shareholders..... N/A N/A N/A N/A $0 $2,464,709,542 $6,246,057,896
Optionees' gain as %
of all
shareholders'
gain............... N/A N/A N/A N/A N/A 1.84% 1.84%
</TABLE>
- ---------------
(1) The dollar amounts under these columns represent the potential realizable
value of each grant of options assuming that the market price of the
underlying security appreciates in value from the date of grant at the 5%
and 10% annual rates prescribed by the SEC. These calculations are not
intended to forecast possible future appreciation, if any, of the price of
Company Common Stock.
(2) If a "change of control" (as defined in the Company 1992 Stock Plan) were to
occur before the options become exercisable and are exercised, such vesting
described below will be accelerated and all such outstanding options will be
surrendered and the optionee will receive a cash payment from the company in
an amount equal to the value of the surrendered options (as defined in the
Company 1992 Stock Plan).
(3) An appreciation in stock price, which will benefit all shareholders, is
required for optionees to receive any gain. A stock price appreciation of
zero percent would render the option without value to the optionees.
(4) Stock options awarded on January 26, 1996 became 100% vested on July 26,
1996.
(5) Stock options awarded on January 26, 1996 vest at the cumulative rate of 25%
per year, commencing on the first anniversary of the date of grant.
(6) Stock options awarded on May 6, 1996 vested on November 6, 1996.
(7) Options awarded on December 31, 1996 become 25% vested on each June 30
through the year 2000.
(8) Includes shares issued on December 31, 1996 under the All Employee Stock
Option Program to employees hired during 1996.
(Notes continued on following page)
13
<PAGE> 16
(9) Weighted average grant price for all stock options for the purchase of
Company Common Stock granted to employees in 1996.
(10) Appreciation for All Optionees is calculated using the maximum allowable
option term of ten years, even though in some cases the actual option term
is less than ten years. Appreciation for All Shareholders is calculated
using an assumed ten year term, the weighted average exercise price for All
Optionees ($24.53) and the number of shares of Company Common Stock issued
and outstanding on December 31, 1996.
AGGREGATED STOCK OPTION/SAR EXERCISES DURING 1996 AND STOCK OPTION/SAR VALUES AS
OF DECEMBER 31, 1996
The following table sets forth information with respect to the Named
Officers concerning the exercise of options during the last fiscal year and
unexercised options and SAR units held as of the end of the fiscal year:
<TABLE>
<CAPTION>
NUMBER OF
SECURITIES UNDERLYING
UNEXERCISED
OPTIONS/SARS
SHARES AT DECEMBER 31, 1996(1)
ACQUIRED ON VALUE -----------------------------
NAME EXERCISE (#) REALIZED ($) EXERCISABLE UNEXERCISABLE
---- ------------ ------------ ----------- -------------
<S> <C> <C> <C> <C> <C>
Mr. Hoglund........... EOG 950,000 $6,712,500 930,524 15,186
Enron Corp. 30,000 519,375 31,320 13,330
Mr. Papa.............. EOG 10,000 $ 163,750 236,231 98,174
Enron Corp. 20,000 324,525 3,320 8,330
Mr. Ulak.............. EOG 4,500 $ 70,500 49,841 54,434
Mr. Wilson............ EOG 5,000 $ 94,375 174,350 68,625
Mr. Hunsaker.......... EOG 0 0 20,000 6,720
<CAPTION>
VALUE OF UNEXERCISED
IN-THE-MONEY OPTIONS/
SARS AT DECEMBER 31, 1996
-----------------------------
NAME EXERCISABLE UNEXERCISABLE
---- ----------- -------------
<S> <C> <C>
Mr. Hoglund........... $5,128,406 $ 102,609
592,665 212,447
Mr. Papa.............. $2,157,628 $ 411,100
52,913 132,759
Mr. Ulak.............. $ 192,274 $ 230,071
Mr. Wilson............ $1,662,688 $ 291,375
Mr. Hunsaker.......... $ 0 $ 0
</TABLE>
- ---------------
(1) There are no SAR units applicable to the Named Officers.
RETIREMENT AND SUPPLEMENTAL BENEFIT PLANS
Enron Corp. maintains the Enron Corp. Retirement Plan (the "Retirement
Plan") which is a noncontributory defined benefit plan to provide retirement
income for employees of Enron Corp. and its subsidiaries, including the Company.
Through December 31, 1994, participants in the Retirement Plan with five years
or more of service were entitled to retirement benefits in the form of an
annuity based on a formula that uses a percentage of final average pay and years
of service. In 1995, Enron Corp.'s Board of Directors adopted an amendment to
and restatement of the Retirement Plan changing the Plan's name to the Enron
Corp. Cash Balance Plan (the "Cash Balance Plan"). In connection with a change
to the retirement benefit formula all employees became fully vested in
retirement benefits earned through December 31, 1994. The formula in place prior
to January 1, 1995 was suspended and replaced with a benefit accrual in the form
of a cash balance of 5% of annual base pay beginning January 1, 1996. Under the
Cash Balance Plan, each employee's accrued benefit will be credited with
interest based on 10-year Treasury Bond yields.
Enron Corp. also maintains a noncontributory employee stock ownership plan
("ESOP") which covers all eligible employees, including employees of the
Company. Allocations to individual employees' retirement accounts within the
ESOP offset a portion of benefits earned under the Cash Balance Plan.
Directors who are not employees of the Company or Enron Corp. are not
eligible to participate in the Cash Balance Plan.
14
<PAGE> 17
In addition, Enron Corp. has a Supplemental Retirement Plan that is
designed to assure payments to certain employees of that retirement income that
would be provided under the Cash Balance Plan except for the dollar limitation
on accrued benefits imposed by the Internal Revenue Code of 1986, as amended,
and a Pension Program for Deferral Plan Participants that provides supplemental
retirement benefits equal to any reduction in benefits due to deferral of salary
into the Enron Corp. Deferral Plans or Company Deferral Plans.
The following table sets forth the estimated annual benefits payable under
normal retirement at age 65, assuming current remuneration levels without any
projected salary increase and participation until normal retirement at age 65,
with respect to the Named Officers under the provisions of the foregoing
retirement plan:
<TABLE>
<CAPTION>
ESTIMATED
CURRENT CREDITED CURRENT ESTIMATED
CREDITED YEARS OF COMPENSATION ANNUAL BENEFIT
YEARS OF SERVICE COVERED PAYABLE UPON
SERVICE AT AGE 65 BY PLANS RETIREMENT
-------- --------- ------------ --------------
<S> <C> <C> <C> <C>
Mr. Hoglund........................... 9.3 10.8 $570,000 $115,079
Mr. Papa.............................. 15.6 30.3 $350,000 $123,206
Mr. Ulak.............................. 18.6 40.6 $240,000 $128,633
Mr. Wilson............................ 9.1 19.8 $225,000 $ 48,117
Mr. Hunsaker.......................... 0.7 19.0 $225,000 $ 49,330
</TABLE>
NOTE: The estimated annual benefits payable are based on the straight life
annuity form without adjustment for any offset applicable to a
participant's retirement subaccount in the ESOP.
Messrs. Hoglund, Papa and Wilson participate in the Enron Corp. Executive
Supplemental Survivor Benefits Plan. In the event of death after retirement, the
Plan provides an annual benefit to the participant's beneficiary equal to 50% of
the participant's annual base salary at retirement, paid for 10 years. The Plan
also provides that in the event of death before retirement, the participant's
beneficiary receives an annual benefit equal to 30% of the participant's annual
base salary at death, paid for the life of the participant's spouse (but for no
more than 20 years in some cases).
SEVERANCE PLANS
The Enron Corp. Severance Pay Plan, as amended, provides for the payment of
benefits to employees of Enron Corp. and its subsidiaries, including the
Company, who are terminated for failing to meet performance objectives or
standards, or who are terminated due to reorganization or economic factors. The
amount of benefits payable for performance related terminations is based on
length of service and may not exceed six weeks pay. For those terminated as the
result of reorganization or economic circumstances, the benefit is based on
length of service and amount of pay, up to a maximum payment of 26 weeks of base
pay. If the employee signs a Waiver and Release of Claims Agreement, the
severance pay benefits are doubled. Under no circumstances will the total
severance pay benefit paid under the Enron Corp. Severance Pay Plan exceed 52
weeks of pay. Under the Enron Corp. Change of Control Severance Plan, in the
event of an unapproved change of control of Enron Corp., any employee who is
involuntarily terminated within two years following the change of control will
be eligible for severance benefits equal to two weeks of base pay multiplied by
the number of full or partial years of service, plus one month of base pay for
each $10,000 (or portion of $10,000) included in the employee's annual base pay,
plus one month of base pay for each five percent of annual incentive award
opportunity under any approved plan. The maximum an employee can receive is 2.99
times the employee's average annual base pay over the past five years. The
Company reimburses Enron Corp. for severance plan costs attributable to Company
employees.
15
<PAGE> 18
EMPLOYMENT CONTRACTS
Effective September 1, 1987, Mr. Hoglund entered into an employment
agreement with the Company under which he serves as Chairman of the Board and
Chief Executive Officer of the Company. On December 14, 1994, the employment
agreement was amended to extend the term to September 1, 1998. Thereafter, the
term may be extended as may be agreed by Mr. Hoglund and the Company. Pursuant
to the terms of the employment agreement, as amended, Mr. Hoglund's annual base
salary during the remaining term will not be less than $570,000.
Mr. Hoglund's employment agreement provides that if any corporation or
other entity acquires or succeeds to all or substantially all of the business or
assets of the Company, by purchase, consolidation or otherwise, Mr. Hoglund's
stock options and restricted shares of Enron Corp. Common Stock shall vest and
shall automatically be advanced to maturity as if the initial term under his
employment agreement had expired.
CERTAIN TRANSACTIONS
Messrs. Lay and Segner are executive officers of Enron Corp. The Company
has significant business relationships with Enron Corp.
The Company entered into a Services Agreement (the "Services Agreement")
with Enron Corp. effective January 1, 1994, pursuant to which Enron Corp.
provides various services, such as maintenance of certain employee benefit
plans, provision of telecommunications and computer services, lease of office
space and the provision of certain purchasing and operating services and certain
other corporate staff and support services. Such services historically have been
supplied to the Company by Enron Corp., and the Services Agreement provides for
the further delivery of such services substantially identical in nature and
quality to those services previously provided. The Company agreed to a fixed
rate for the rental of office space and to reimburse Enron Corp. for all other
direct costs incurred in rendering services to the Company under the contract
and to pay Enron Corp. for allocated indirect costs incurred in rendering such
services, up to a maximum of approximately $7.5 million in 1996. The limit on
cost for the allocated indirect services provided by Enron Corp. to the Company
will increase in subsequent years for inflation and certain changes in the
Company's allocation bases, but such increase will not exceed 7.5% per year. The
Services Agreement is for an initial term of five years through December, 1998
and will continue thereafter until terminated by either party.
The sale by Enron Corp. on December 13, 1995 of approximately 31 million
shares of the Common Stock reduced Enron Corp.'s ownership interest in the
Company from 80% to 61%, with the result that (i) the Company ceased, effective
December 14, 1995, to be included in the consolidated U.S. income tax return
filed by Enron Corp. and (ii) the Tax Allocation Agreement previously in effect
between the Company and Enron Corp. was terminated. In addition, effective
December 14, 1995, the Company and its subsidiaries and Enron Corp. entered into
a new Tax Allocation Agreement pursuant to which, among other things, Enron
Corp. has agreed (in exchange for the payment of $13 million by the Company) to
be liable for, and indemnify the Company against, all U.S. and state income
taxes and certain foreign taxes imposed on the Company for periods prior to the
date Enron Corp. reduced its ownership in the Company to less than 80%. The
Company does not believe that the cessation of consolidated tax reporting with
Enron Corp., the termination of the prior Tax Allocation Agreement and the
signing of the new Tax Allocation Agreement with Enron Corp. will have a
material adverse effect on its financial condition or results of operations.
Prior to December 14, 1995, the Company was included in the consolidated
U.S. income tax return filed by Enron Corp. as the common parent for itself and
its subsidiaries and affiliated companies, excluding any
16
<PAGE> 19
foreign subsidiaries, and the resulting taxes, including taxes for any state or
other taxing jurisdiction that required or permitted a consolidated, combined,
or unitary tax return to be filed and in which the Company and/or any of its
subsidiaries was included, were apportioned as between the Company and/or any of
its subsidiaries and Enron Corp. based on the terms of the Tax Allocation
Agreement in effect prior to December 14, 1995.
Pursuant to the terms of a Stock Restriction and Registration Agreement
with Enron Corp., the Company has agreed that upon the request of Enron Corp.,
the Company will register under the Securities Act of 1933, as amended, and
applicable state securities laws the sale of the Common Stock owned by Enron
Corp. which Enron Corp. has requested to be registered. The obligation of the
Company is subject to certain limitations relating to a minimum amount of Common
Stock required for registration, the timing of registration and other similar
matters. The Company is obligated to pay all expenses incident to such
registration, excluding underwriters discounts and commissions and certain legal
fees and expenses.
In addition, the Company and Enron Corp. have in the past entered into
significant intercompany transactions and agreements incidental to their
respective businesses, and the Company and Enron Corp. may be expected to enter
into material transactions and agreements from time to time in the future. Such
transactions and agreements have related to, among other things, the purchase
and sale of natural gas and crude oil, the financing of exploration and
development efforts by the Company and the provision of certain corporate
services. During 1996, Enron Corp. and its affiliates paid the Company
approximately $175 million as a net result of the foregoing described
transactions and agreements. The Company intends that the terms of any future
transactions and agreements between the Company and Enron Corp. will be at least
as favorable to the Company as could be obtained from third parties.
ITEM 2.
APPOINTMENT OF AUDITORS
Pursuant to the recommendation of the Audit Committee, the Board of
Directors appointed Arthur Andersen LLP, independent public accountants, to
audit the consolidated financial statements of the Company for the year ending
December 31, 1997.
Ratification of this appointment shall be effective upon receiving the
affirmative vote of the holders of a majority of the Common Stock present or
represented by proxy and entitled to vote at the Annual Meeting. Accordingly,
under Delaware law and the Restated Certificate of Incorporation and bylaws of
the Company, abstentions would have the same legal effect as a vote against this
proposal, but a broker non-vote would not be counted for purposes of determining
whether a majority had been achieved.
In the event the appointment is not ratified, the Board of Directors will
consider the appointment of other independent auditors. A representative of
Arthur Andersen LLP is expected to be present at the Annual Meeting and will be
available to make a statement if such representative desires to do so and to
respond to appropriate questions.
The Board of Directors recommends ratification by the shareholders of this
appointment.
17
<PAGE> 20
ITEM 3.
PROPOSED AMENDMENT TO THE RESTATED CERTIFICATE OF INCORPORATION
TO AUTHORIZE A NEW CLASS OF PREFERRED STOCK
The Board of Directors of the Company has adopted a resolution approving
and recommending to the shareholders for their approval an amendment (the
"Charter Amendment") to Article Fourth of the Restated Certificate of
Incorporation of the Company to provide for a new class of preferred stock (the
"Preferred Stock"). If the Charter Amendment is approved by the shareholders,
10,000,000 shares of Preferred Stock would be issuable from time to time in such
series and having such designations, preferences, limitations and relative
rights as the Board of Directors may determine.
Pursuant to the Charter Amendment, Article Fourth of the Restated
Certificate of Incorporation will be amended to read in its entirety as follows:
FOURTH: A. The total number of shares of all classes of stock
that the Corporation shall have authority to issue is Three Hundred
Thirty Million (330,000,000) shares, consisting of Three Hundred
Twenty Million (320,000,000) shares of common stock, par value $.01
per share (hereinafter referred to as "Common Stock") and Ten Million
(10,000,000) shares of preferred stock, $.01 par value (hereinafter
referred to as "Preferred Stock").
B. The board of directors of the Corporation is authorized,
subject to any limitations prescribed by law, to provide for the
issuance of the shares of Preferred Stock in series, by filing a
certificate pursuant to the applicable laws of the State of Delaware
(hereinafter referred to as a "Preferred Stock Designation") to
establish from time to time the number of shares to be included in
each such series, and to fix the powers, designations, preferences,
and relative, participating, optional or other rights, if any, of the
shares of each such series and any qualifications, limitations or
restrictions thereof.
C. Each holder of shares of Common Stock shall be entitled to one
vote for each share of Common Stock held of record on all matters on
which the holders of shares of Common Stock are entitled to vote."
DESCRIPTION OF THE CHARTER AMENDMENT
The Preferred Stock would be stock for which the designations, preferences,
conversion rights, cumulative, relative, participating, optional or other
rights, including voting rights, qualifications, limitations, or restrictions
thereof, are determined by the Board of Directors. If the Charter Amendment is
adopted by the shareholders, the Board of Directors will be authorized, without
the necessity of further action or authorization by the shareholders (unless
required in a specific case by applicable law, regulation or stock exchange
rule), to cause the Company to issue up to 10,000,000 shares of Preferred Stock
from time to time in one or more series, and to fix by resolution the relative
rights and preferences of each series.
The Charter Amendment would authorize the Board of Directors to determine
among other things, with respect to each series of Preferred Stock that may be
issued: (i) the distinctive designation of such series and the number of shares
constituting such series, (ii) whether or not shares have voting rights and the
extent of such voting rights, if any, (iii) the election, term of office,
filling of vacancies, and other terms of the directorship of directors, if any,
to be elected by the holders of any one or more series of such Preferred Stock,
(iv) the dividend rights, if any, including the dividend rates, preferences with
respect to other series of classes
18
<PAGE> 21
of stock, the times of payment and whether dividends will be cumulative, (v) the
redemption price, terms of redemption, the amount of and provisions regarding
any sinking fund for the purchase or redemption thereof, (vi) the liquidation
preferences and the amounts payable on dissolution or liquidation, and (vii) the
terms and conditions, if any, under which shares of the series may be converted
into, or exchangeable for, any other series of class of stock or debt of the
Company. Holders of Common Stock have no preemptive rights to purchase or
otherwise acquire any Preferred Stock that may be issued in the future.
REASONS FOR ADOPTION OF THE CHARTER AMENDMENT
The ability of the Board of Directors to issue one or more series of
Preferred Stock will provide the Company with additional financial flexibility.
Preferred Stock will be available for issuance from time to time as determined
by the Board of Directors for any proper corporate purpose. Such purposes could
include, without limitation, issuance in public or private sales for cash as a
means of obtaining capital for use in the business and operations of the
Company, issuance as part or all of the consideration required to be paid by the
Company for acquisitions of other businesses or properties, and issuance under
employee benefit plans.
The authorized shares of the Preferred Stock, as well as shares of Common
Stock, will be available for issuance without further action by the shareholders
of the Company, unless such action is required by applicable law or the rules of
any stock exchange or automated quotation system on which the securities of the
Company may be listed or traded. The New York Stock Exchange currently requires
shareholder approval as a prerequisite to listing shares in several instances,
including under certain circumstances where the present or potential issuance of
shares could result in a 20% increase in the number of shares of Common Stock
outstanding or in the amount of voting securities outstanding. If the approval
of the shareholders of the Company is not required for the issuance of shares of
Preferred Stock or Common Stock, the Company Board of Directors may determine
not to seek shareholder approval.
Until the Board of Directors determines the respective rights of the
holders of one or more series of Preferred Stock, it is not possible to state
the actual effect of the authorization of the Preferred Stock upon the rights of
holders of Common Stock. Typical effects of such issuance could include,
however: (a) reduction of the amount otherwise available for payment of
dividends on Common Stock if dividends are payable on Preferred Stock, (b)
restrictions on dividends on Common Stock if dividends on the Preferred Stock
are in arrears, (c) dilution of the voting power of Common Stock if the
Preferred Stock has voting rights and (d) restriction of the rights of holders
of Common Stock to share in the assets of the Company upon liquidation until
satisfaction of any liquidation preference granted to the holders of Preferred
Stock. The dividend and liquidation rights of such shareholders will generally
be subordinate to the rights of preferred shareholders.
The Company does not presently have any plans, intentions, agreements,
understandings or arrangements that will or could result in the issuance of any
Preferred Stock.
CERTAIN POTENTIAL ANTI-TAKEOVER EFFECTS
In recommending the Charter Amendment, the Board of Directors does not
perceive it to be nor intend it to function as an anti-takeover provision.
However, the Preferred Stock could, depending on the terms of any series
thereof, make more difficult or discourage an attempt to obtain control of the
Company by means of a merger, tender offer, proxy contest, or other means. For
example, such shares could be used to create voting or other impediments or to
discourage persons seeking to gain control of the Company. Such shares could be
privately placed with purchasers favorable to the Board of Directors in opposing
such action. In addition, the
19
<PAGE> 22
Board of Directors could authorize holders of a series of Preferred Stock to
vote either separately as a class or with the holders of the Common Stock, on
any merger, sale, or exchange of assets by the Company or any other
extraordinary corporate transaction. The existence of the additional authorized
shares could have the effect of discouraging unsolicited takeover attempts. The
issuance of new shares also could be used to dilute the stock of ownership of a
person or entity seeking to obtain control of the Company should the Board of
Directors consider an action of such entity or person not to be in the best
interests of the shareholders and the Company.
Nevertheless, the Board of Directors has no present intention of issuing
any shares of Common Stock for any anti-takeover purpose. Neither the management
of the Company nor the Board of Directors is aware of any existing or planned
effort on the part of any party to accumulate material amounts of any class of
its capital stock, or to acquire control of the Company by means of a merger,
tender offer, solicitation of proxies in opposition to management or otherwise,
or to change the management of the Company, nor is the Company aware of any
person other than Enron Corp. having made any offer to acquire any material
amount of capital stock or assets of the Company.
REQUIRED VOTE AND BOARD OF DIRECTORS RECOMMENDATION
The approval and adoption of the Charter Amendment requires the affirmative
vote of the holders of record at the close of business on March 10, 1997 of at
least a majority of the outstanding shares of Common Stock. Accordingly, under
Delaware law and the Restated Certificate of Incorporation and by-laws of the
Company, abstentions and broker non-votes would have the same legal effect as a
vote against this proposal, even though this may not be the intent of the person
voting or giving the proxy.
The shares represented by the proxies solicited by the Board of Directors
will be voted as directed on the form of proxy or, if no direction is indicated,
will be voted "FOR" the approval of this proposal.
The Board of Directors recommends voting "FOR" this proposal.
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SHAREHOLDER PROPOSALS AND DIRECTOR NOMINATIONS
Shareholders may propose matters to be presented at shareholder meetings
and may also nominate persons to be Directors. Formal procedures have been
established for those proposals and nominations.
PROPOSALS FOR 1998 ANNUAL MEETING
Pursuant to various rules promulgated by the SEC, any proposals of holders
of Common Stock of the Company intended to be presented at the Annual Meeting of
Shareholders of the Company to be held in 1998 must be received by the Company,
addressed to Angus H. Davis, Vice President, Communications and Corporate
Secretary, 1400 Smith Street, Houston, Texas 77002, no later than November 24,
1997, to be included in the Company proxy statement and form of proxy relating
to that meeting.
In addition to the SEC rules described in the preceding paragraph, the
Company bylaws provide that for business to be properly brought before the
Annual Meeting of Shareholders, it must be either (a) specified in the notice of
meeting (or any supplement thereto) given by or at the direction of the Board of
Directors, (b) otherwise brought before the meeting by or at the direction of
the Board of Directors, or (c) otherwise properly brought before the meeting by
a shareholder of the Company who is a shareholder of record at the time of
giving of notice hereinafter provided for, who shall be entitled to vote at such
meeting and who complies with the following notice procedures. In addition to
any other applicable requirements for business to be brought before an annual
meeting by a shareholder of the Company, the shareholder must have given timely
notice in writing of the business to be brought before an Annual Meeting of
Shareholders of the Company to the Secretary of the Company. To be timely,
notice given by a shareholder must be delivered to or mailed and received at the
principal executive offices of the Company, 1400 Smith Street, Houston, Texas
77002, no later than February 5, 1998. The notice shall set forth as to each
matter the shareholder proposes to bring before the annual meeting (i) a brief
description of the business desired to be brought before the annual meeting and
the reasons for conducting such business at the annual meeting, (ii) the name
and address, as they appear on the Company books, of the shareholder proposing
such business, (iii) the acquisition date, the class and the number of shares of
voting stock of the Company which are owned beneficially by the shareholder,
(iv) any material interest of the shareholder in such business, and (v) a
representation that the shareholder intends to appear in person or by proxy at
the meeting to bring the proposed business before the meeting. Notwithstanding
the foregoing bylaw provisions, a shareholder must also comply with all
applicable requirements of the Exchange Act and the rules and regulations
thereunder with respect to the matters set forth in the foregoing bylaw
provisions. Notwithstanding anything in the Company bylaws to the contrary, no
business shall be conducted at the annual meeting except in accordance with the
procedures outlined above.
PROPOSALS FOR 1997 ANNUAL MEETING
The date of delivery to, or receipt by, the Company of any notice from
shareholders of the Company regarding business to be brought before the 1997
Annual Meeting of Shareholders of the Company was February 6, 1997. The Company
has not received any notices from its shareholders regarding business to be
brought before the 1997 Annual Meeting of Shareholders.
NOMINATIONS FOR 1998 ANNUAL MEETING AND FOR ANY SPECIAL MEETINGS
Only persons who are nominated in accordance with the following procedures
shall be eligible for election as directors. Nominations of persons for election
to the Company's Board of Directors may be made at a meeting of shareholders (a)
by or at the direction of the Board of Directors or (b) by any shareholder of
the
21
<PAGE> 24
Company who is a shareholder of record at the time of giving of notice
hereinafter provided for, who shall be entitled to vote for the election of
directors at the meeting and who complies with the following notice procedures.
Such nominations, other than those made by or at the direction of the Board of
Directors, shall be made pursuant to timely notice in writing to the Secretary
of the Company. To be timely, notice given by a shareholder shall be delivered
to or mailed and received at the principal executive offices of the Company,
1400 Smith Street, Houston, Texas 77002, (i) with respect to an election to be
held at the Annual Meeting of Shareholders of the Company, on or before February
5, 1998, and (ii) with respect to an election to be held at a special meeting of
shareholders of the Company for the election of directors, not later than the
close of business on the 10th day following the day on which such notice of the
date of the meeting was mailed or public disclosure of the date of meeting was
made, whichever first occurs. Such notice shall set forth (a) as to each person
whom the shareholder proposes to nominate for election or re-election as a
director, all information relating to the person that is required to be
disclosed in solicitations for proxies for election of directors, or is
otherwise required, pursuant to Regulation 14A under the Exchange Act (including
the written consent of such person to be named in the proxy statement as a
nominee and to serve as a director if elected); and (b) as to the shareholder
giving the notice (i) the name and address, as they appear of record on the
Company's books, of such shareholders, and (ii) the class and number of shares
of capital stock of the Company which are beneficially owned by the shareholder.
In the event a person is validly designated as nominee to the Board of Directors
and shall thereafter become unable or unwilling to stand for election to the
Board of Directors, the Board of Directors or the shareholder who proposed such
nominee, as the case may be, may designate a substitute nominee. Notwithstanding
the foregoing bylaw provisions, a shareholder shall also comply with all
applicable requirements of the Securities Exchange Act of 1934, as amended, and
the rules and regulations thereunder with respect to the matters set forth in
the foregoing bylaw provisions.
NOMINATIONS FOR 1997 ANNUAL MEETING
The date for delivery to, or receipt by, the Company of any notice from a
shareholder of the Company regarding nominations for directors to be elected at
the 1997 Annual Meeting of Shareholders of the Company was February 6, 1997. The
Company has not received any notices from its shareholders regarding nominations
for directors to be elected at the 1997 Annual Meeting of Shareholders.
22
<PAGE> 25
GENERAL
As of the date of this proxy statement, the management of the Company has
no knowledge of any business to be presented for consideration at the meeting
other than that described above. If any other business should properly come
before the meeting, it is intended that the shares represented by proxies will
be voted with respect thereto in accordance with the judgment of the persons
named in such proxies.
The cost of any solicitation of proxies will be borne by the Company. In
addition to solicitation by use of the mails, certain officers and regular
employees of the Company may solicit the return of proxies by telephone,
telegraph or personal interview. Arrangements may also be made with brokerage
firms and other custodians, nominees and fiduciaries for the forwarding of
material to and solicitation of proxies from the beneficial owners of Common
Stock held of record by such persons, and the Company will reimburse such
brokerage firms, custodians, nominees and fiduciaries for reasonable out of
pocket expenses incurred by them in connection therewith.
By Order of the Board of Directors,
ANGUS H. DAVIS
Vice President, Communications and
Corporate Secretary
Houston, Texas
March 24, 1997
23
<PAGE> 26
[ENRON LOGO]
ENRON OIL & GAS COMPANY
<PAGE> 27
P R O X Y
[ENRON LOGO] ENRON OIL & GAS COMPANY
PROXY SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS OF
ENRON OIL & GAS COMPANY FOR ANNUAL MEETING ON MAY 6, 1997
THE UNDERSIGNED hereby appoints Forrest E. Hoglund, Barry Hunsaker, Jr., and
Angus H. Davis, or any of them, and any substitute or substitutes, to be the
attorneys and proxies of the undersigned at the Annual Meeting of Shareholders
of Enron Oil & Gas Company (the "Company") to be held at 3:00 p.m. Houston time
on Tuesday, May 6, 1997, in the LaSalle Ballroom of the Doubletree Hotel at
Allen Center, 400 Dallas St., Houston, Texas, or at any adjournment thereof,
and to vote at such meeting the shares of stock of the Company the undersigned
held of record on the books of the Company on the record date for the meeting.
ELECTION OF DIRECTORS, NOMINEES: (change of address/comments)
Fred C. Ackman, Forrest E. Hoglund,
Kenneth L. Lay, Edward Randall, III, ----------------------------------------
Edmund P. Segner, III
----------------------------------------
----------------------------------------
----------------------------------------
----------------------------------------
----------------------------------------
(If you have written in the above space,
please mark the corresponding box on the
reverse side of this card)
YOU ARE ENCOURAGED TO SPECIFY YOUR CHOICES BY MARKING THE APPROPRIATE BOXES,
SEE REVERSESIDE, BUT YOU NEED NOT MARK ANY BOXES IF YOU WISH TO VOTE IN
ACCORDANCE WITH THE BOARD OF DIRECTORS' RECOMMENDATIONS. THE PROXIES CANNOT
VOTE YOUR SHARES UNLESS YOU SIGN AND RETURN THIS CARD.
-----------
SEE REVERSE
SIDE
-----------
<PAGE> 28
[X] PLEASE MARK YOUR 7405
VOTES AS IN THIS
EXAMPLE.
THIS PROXY WHEN PROPERLY EXECUTED WILL BE VOTED IN THE MANNER DIRECTED
HEREIN. IF NO DIRECTION IS MADE, THIS PROXY WILL BE VOTED FOR PROPOSALS 1
AND 2.
- --------------------------------------------------------------------------------
THE BOARD OF DIRECTORS RECOMMENDS A VOTE FOR PROPOSALS 1, 2 and 3.
- --------------------------------------------------------------------------------
FOR WITHHELD
1. Election of Directors. [ ] [ ]
(see reverse)
For, except vote withheld from the following nominee(s):
- ---------------------------------------------------------
FOR AGAINST ABSTAIN
2. Ratification of appointment of independent [ ] [ ] [ ]
accountants.
3. Approval of amendment to the Restated [ ] [ ] [ ]
Certificate of Incorporation to
authorize preferred stock.
4. In the discretion of the proxies named
herein, the proxies are authorized to vote
upon other matters as are properly brought
before the meeting.
Change of Address/ [ ]
Comments on
Reverse Side
All as more particularly described in the Proxy Statement relating to such
meeting, receipt of which is hereby acknowledged.
Please sign exactly as name appears hereon. Joint owners should each sign. When
signing as attorney, executor, administrator, trustee or guardian, please give
full title as such.
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
SIGNATURE(S) DATE
- --------------------------------------------------------------------------------
- FOLD AND DETACH HERE -
[ENRON LOGO] THIS IS YOUR PROXY.
YOUR VOTE IS IMPORTANT.
ENRON OIL & GAS COMPANY
IF YOU NEED ASSISTANCE IN ANY OF THE FOLLOWING AREAS:
o DIVIDEND CHECKS - ADDRESS CHANGES - LEGAL TRANSFERS
o DIRECT DEPOSIT - HAVE YOUR ENRON OIL & GAS COMPANY QUARTERLY DIVIDENDS
ELECTRONICALLY DEPOSITED INTO YOUR CHECKING OR SAVINGS ACCOUNT ON DIVIDEND
PAYMENT DATE. (No more worries about late or lost dividend checks.) Call
(800) 870-2340 to enroll.
o CONSOLIDATION OF ACCOUNTS - ELIMINATE MULTIPLE ACCOUNTS FOR ONE HOLDER AND
CERTAIN DUPLICATE SHAREHOLDER MAILINGS GOING TO ONE ADDRESS. (Dividend
checks, annual reports and proxy materials would continue to be mailed to
each shareholder.)
JUST CALL OUR TRANSFER AGENT'S TELEPHONE RESPONSE CENTER:
(800) 519-3111 OR (201) 324-1225
OR WRITE TO:
FIRST CHICAGO TRUST COMPANY OF NEW YORK
P. O. BOX 2500
JERSEY CITY, NJ 07303-2500
FOR EARNINGS INFORMATION, CALL (800) 808-0363.
