<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 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 5, 1998
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 5, 1998, for the following purposes:
1. To elect eight 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, 1998; and
3. 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 9, 1998, 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 25, 1998
<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 5, 1998 (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 25, 1998. 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 9, 1998, 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
9, 1998, the record date, there were outstanding 154,765,228 shares of Common
Stock. There are no other voting securities outstanding.
The Company's summary annual report for the year ended December 31, 1997,
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.
ITEM 1.
ELECTION OF DIRECTORS
At the Annual Meeting, eight 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 withheld with respect
to 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
occupations, employment history and directorships in certain companies is as
reported by the respective nominees.
<PAGE> 4
<TABLE>
<S> <C>
- -------------------------------------------------------------------------------------
[PHOTO] FRED C. ACKMAN, 67
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] JAMES V. DERRICK, JR., 53
Director since 1997
Mr. Derrick has served as Senior Vice President and General
Counsel of Enron Corp. since June 1991. Prior to joining
Enron Corp. in 1991, Mr. Derrick was a partner at the law
firm of Vinson & Elkins L.L.P. for more than 13 years.
- -------------------------------------------------------------------------------------
[PHOTO] KEN L. HARRISON, 55
Director since 1997
Mr. Harrison has served as Vice Chairman of the Board of
Enron Corp. since July 1, 1997 and, since 1987, has served
as Chairman of the Board and Chief Executive Officer of
Portland General Electric Company ("PGE"), an electric
utility company and a subsidiary of Enron Corp. He served as
Chairman of the Board, Chief Executive Officer and President
of Portland General Corporation, an electric utility holding
company, for more than five years before it was acquired by
Enron Corp. on July 1, 1997.
- -------------------------------------------------------------------------------------
[PHOTO] FORREST E. HOGLUND, 64
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 Chase
Bank of Texas, National Association.
- -------------------------------------------------------------------------------------
</TABLE>
2
<PAGE> 5
<TABLE>
<S> <C>
=====================================================================================
[PHOTO] KENNETH L. LAY, 55
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.
- -------------------------------------------------------------------------------------
[PHOTO] EDWARD RANDALL, III, 71
Director since 1990
Mr. Randall's principal occupation is investments. Mr.
Randall is also a director of KN Energy, Inc. and
PaineWebber Group Inc.
- -------------------------------------------------------------------------------------
[PHOTO] JEFFREY K. SKILLING, 44
Director since 1997
Since January 1, 1997, Mr. Skilling has served as President
and Chief Operating Officer of Enron Corp. From June 1995
until December 1996, he served as Chief Executive Officer
and Managing Director of Enron Capital & Trade Resources
Corp. ("ECT"). From August 1990 until June 1995, Mr.
Skilling served ECT in a variety of senior managerial
positions.
- -------------------------------------------------------------------------------------
[PHOTO] FRANK G. WISNER, 59
Director since 1997
Since 1997, Mr. Wisner has served as Vice Chairman of
American International Group Inc., following his retirement
as U.S. Ambassador to India. American International Group
Inc. is an insurance company which provides risk insurance
to companies investing in foreign operations. Mr. Wisner's
more than 35-year career with the U.S. State Department,
primarily in Africa, Asia and Washington, D.C., included
serving as U.S. Ambassador to the Philippines, Egypt and
Zambia.
- -------------------------------------------------------------------------------------
</TABLE>
3
<PAGE> 6
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS ON FEBRUARY 15, 1998
The Company knows of no one who beneficially owns in excess of 5% 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. 85,080,000 54.97%
1400 Smith Street
Houston, Texas 77002
Common FMR Corp. 28,100 10,428,200 6.76%
92 Devonshire Street
Boston, Massachusetts 02109
</TABLE>
SECURITY OWNERSHIP OF THE BOARD OF DIRECTORS AND MANAGEMENT ON FEBRUARY 15, 1998
<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................ 23,000 *
Gas Company James V. Derrick, Jr.......... 500 *
Common Stock Forrest E. Hoglund............ 2,139,511 405,000(4) 7 1.63
Barry Hunsaker Jr. ........... 27,545 7,007 *
Kenneth L. Lay................ 20,000(5) 30,000 *
Mark G. Papa.................. 319,294 20,000 28,847 *
Edward Randall, III........... 25,000 *
Jeffrey K. Skilling........... 100,000(5) *
Dennis M. Ulak................ 100,834 20,003 *
Walter C. Wilson.............. 243,770 15,007 *
All directors and executive
officers as a group (14 in
number)..................... 3,088,418(5) 455,000 91,011 2.32
Enron Corp. James V. Derrick, Jr. ........ 583,705 13,647 *
Common Stock Ken L. Harrison............... 143,378 1,539 31,321 *
Forrest E. Hoglund............ 439,920 90,000(4) 21,947 *
Barry Hunsaker Jr. ........... 7 *
Kenneth L. Lay................ 2,911,452 959,798(6) 48,768 1.25
Mark G. Papa.................. 16,766 11,233 23,909 *
Edward Randall, III........... 50,091(7) 25,969(8) *
Jeffrey K. Skilling........... 537,385 264,444 *
Dennis M. Ulak................ 2,973 *
Walter C. Wilson.............. 11,981 *
All directors and executive
officers as a group (14 in
number)..................... 4,752,208 1,088,539 437,361 1.99
</TABLE>
- ---------------
* Less than 1%.
(1) The number of shares of Common Stock of the Company subject to stock
options exercisable within 60 days after February 15, 1998, is as follows:
Mr. Ackman 21,000 shares; Mr. Hoglund 935,786 shares;
(Notes continued on following page)
4
<PAGE> 7
Mr. Hunsaker 27,245 shares; Mr. Papa 319,294 shares; Mr. Randall 21,000
shares; Mr. Ulak 100,834 shares; Mr. Wilson 241,570 shares; and all
directors and executive officers as a group, 1,743,693 shares.
(2) The number of shares of Enron Corp. Common Stock subject to stock options
exercisable within 60 days after February 15, 1998, is as follows: Mr.
Derrick 573,426 shares; Mr. Harrison 142,887 shares; Mr. Hoglund 36,650
shares; Mr. Lay 2,828,186 shares; Mr. Papa 11,650 shares; Mr. Skilling
407,728 shares; and all directors and executive officers as a group,
4,070,038 shares.
(3) Includes shares held under the Enron Corp. Savings Plan (the "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 until such shares vest in accordance with plan
provisions. After vesting, the participant has sole investment and voting
powers.
(4) Includes 405,000 shares with respect to Company Common Stock and 90,000
shares with respect to Enron Corp. Common Stock held in a charitable
foundation in which Mr. Hoglund has no pecuniary interest.
(5) Does not include 85,080,000 shares owned by Enron Corp. in which each of
Messrs. Lay, Harrison and Skilling, in their capacities as Chairman of the
Board, Vice Chairman of the Board and President, respectively, of Enron
Corp., has sole voting and investment power pursuant to the provisions of
Enron Corp.'s bylaws.
(6) Includes 165,000 shares held in a charitable foundation in which Mr. Lay
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.
BOARD OF DIRECTORS AND COMMITTEES
The Board of Directors held four regularly scheduled meetings and two
special meetings during the year ended December 31, 1997.
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 of
Directors 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, 1997, and is currently composed of Messrs. Ackman (Chairman),
Randall and Wisner.
5
<PAGE> 8
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), Ackman and Wisner.
In December 1997, the International Strategy Committee was formed to
provide a forum for the consideration of international business opportunities
and for the discussion of international business and political developments that
could affect project operations and development. The International Strategy
Committee, which met for the first time on February 11, 1998, is composed of
Messrs. Wisner (Chairman), Ackman and Randall.
The Company does not have a standing nominating committee.
During the year ended December 31, 1997, each director attended at least
75% of the total number of meetings of the Board of Directors and the committees
on which the director served except Mr. Wisner, who became a director on October
24, 1997.
COMPENSATION OF DIRECTORS AND EXECUTIVE OFFICERS
DIRECTOR COMPENSATION
During 1997, 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 1997 were $90,000.
Prior to the tax deconsolidation described under "Certain Transactions,"
Company directors fees could be deferred to a later specified date under the
Enron Corp. 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 under the Enron Corp. 1994 Deferral
Plan. All deferrals after the tax deconsolidation were made under the 1996
Deferral Plan. The 1996 Deferral Plan is substantially identical to the Enron
Corp. 1994 Deferral Plan. Beginning in 1996, participants in the 1996 Deferral
Plan may elect to invest their deferrals among six different investment choices.
For calendar year 1995, interest was credited at 9% under the Enron Corp. 1994
Deferral Plan. Currently one nonemployee director participates in the 1996
Deferral Plan. Prior to 1994, directors were able to defer their fees under the
Enron Corp. 1985 Deferral Plan, which continues to credit interest on account
balances based on 150% of Moody's seasoned corporate bond yield index with a
minimum rate of 12%, which for 1995 was 12.39% and which for 1996 and 1997 was
the minimum rate of 12%.
Nonemployee directors also participate in the Enron Oil & Gas Company 1993
Nonemployee Director Stock Option Plan (the "Director Stock Option Plan"), which
was approved by Company shareholders at the 1993 annual meeting. Under the terms
of the Director Stock Option Plan, each nonemployee director receives on the
date of each annual meeting an option to purchase 7,000 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
7,000 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 Director
Stock Option 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 1997, Messrs. Ackman
6
<PAGE> 9
and Randall were granted a total of 14,000 options at an exercise price of
$19.3750 and Mr. Wisner was granted a total of 7,000 options at an exercise
price of $22.8750.
REPORT FROM THE COMPENSATION COMMITTEE REGARDING EXECUTIVE COMPENSATION
Compensation for Company officers 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, to authorize salary increases, annual bonuses
and long-term incentive grants for executive officers, and to approve other
incentive programs, including stock-based programs, consistent with the stated
philosophy.
The Committee believes that appropriately balanced compensation components
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 the
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, tied to both the
financial results achieved by and the performance of the Common Stock of the
Company. One of the biggest challenges facing companies in the oil and gas
industry today is the ability to attract and retain high quality employees
because of the current short supply of technical personnel. Accordingly, the
Committee recognizes that it must remain flexible in the design and level of the
total compensation package. As a result, base salaries are targeted slightly
above the average of the competitive market and bonuses and long-term incentives
are targeted to deliver above average compensation if financial results and
shareholder return exceed the average achieved by peer 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, stock options, restricted stock and phantom stock units, to
link executive compensation with the performance and financial results of the
Company.
Annual Incentive Plan. All Company employees are eligible to receive annual
bonuses under the Annual Incentive Plan. During 1997, funding of this plan was
revised to address highly competitive market conditions. Each year a Target
Bonus Pool will be established using an approach whereby each Company position
will be assigned a market-competitive target bonus, expressed as a percentage of
salary. The individual bonus targets will then be added together to create the
Target Bonus Pool. At the end of the year, the Committee will approve the actual
level of funding relative to the target based on management's report of the
actual performance of the Company relative to pre-established goals. The goals
established for the Company cover factors such as cash flow, net income,
production and reserve volume growth, finding costs 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.
No specific formula is used for weighting these individual performance factors.
Employees can choose to receive their bonuses in a combination of cash, stock
options and/or phantom stock units.
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. Under this plan, the Committee is authorized to
grant awards of stock options, restricted stock and phantom stock units. Stock
options are normally granted to executive officers and other selected employees
on an annual basis.
7
<PAGE> 10
Such options vest over four years, are exercisable for ten years and are granted
at an option price equal to the fair market value of Common Stock on the date of
grant. The awards are made at a level that is not anticipated to generate
significant benefits relative to the industry peer group unless the 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 component
becomes a larger part of the total compensation package. Occasionally, the
Committee grants restricted stock or phantom stock units for specific reasons
such as retention or external market pressures.
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. 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 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, as amended (the "Code"), generally disallows a tax
deduction to public companies for compensation over $1 million paid to the Chief
Executive Officer and the 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 the key component of its
long-term incentives in the form of stock option grants which comply with the
statute. As discussed previously, restricted stock and phantom stock units are
granted occasionally, which would not qualify as performance-based compensation
under the statute.
Compensation Committee
Edward Randall, III -- Chairman
Fred C. Ackman
Frank G. Wisner
8
<PAGE> 11
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, 1992 in Common Stock of EOG, the
Standard & Poors 500 (the "S&P 500"), and an original and new peer group
of independent exploration and production companies (the "Original
Peers" and "New Peers").
2. The investments in the Original Peers and New Peers are weighted based
on the market capitalization of each individual company within the
Original Peers and New Peers at the beginning of each year.
3. Dividends are reinvested on the ex-dividend dates.
The companies that comprised the Original Peers were 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.
As a result of the delisting of Louisiana Land and Exploration Company and
its merger with Burlington Resources Inc. in 1997, Louisiana Land and
Exploration Company was replaced in the Original Peers by Pioneer Natural
Resources Company.
The companies that comprise the New Peers are as follows: Anadarko Petroleum
Corp., Apache Corp., Burlington Resources Inc., Maxus Energy Company, Noble
Affiliates, Inc., Oryx Energy Company, Pioneer Natural Resources 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, 1997)
<TABLE>
<CAPTION>
Measurement Period Original
(Fiscal Year Covered) EOG S&P 500 Peers New Peers
<S> <C> <C> <C> <C>
1992 100.00 100.00 100.00 100.00
1993 133.59 110.09 114.82 114.82
1994 129.16 111.85 99.32 99.32
1995 166.30 153.80 118.47 118.47
1996 175.81 189.56 150.01 150.01
1997 148.37 252.82 144.88 144.12
</TABLE>
9
<PAGE> 12
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 ($) ($) ($)(1) ($) SARS (#) ($)
------------------------- ---- ------ ----- ------------ ---------- ---------- ---
<S> <C> <C> <C> <C> <C> <C> <C>
Forrest E. Hoglund 1997 $570,000 $ 0 $ 18,297 $ 0 0 $ 0
Chairman of the Board 1996 $570,000 $ 0 $121,088 $ 0 0 $ 0
and Chief Executive Officer 1995 $570,000 $ 0 $ 69,721 $ 0 0 $ 0
Mark G. Papa 1997 $364,592 $ 55,000 $ 8,660 $ 0 45,130 $ 0
President and Chief -- 1996 $295,254 $101,250 $ 16,334 $ 587,500(3) 47,275 $ 0
Operating Officer 1995 $257,520 $135,000 $ 8,515 $ 0 53,750 $ 0
Dennis M. Ulak 1997 $260,000 $160,000 $ 7,656 $ 0 33,265 $ 0
President, International 1996 $230,000 $101,250 $ 4,900 $ 470,000(3) 28,865 $ 0
Operations 1995 $176,670 $ 97,500 $ 6,202 $ 0 31,055 $ 0
Walter C. Wilson 1997 $232,500 $120,000 $ 6,450 $ 0 37,470 $ 0
Senior Vice President and 1996 $218,340 $ 60,375 $ 17,303 $ 352,500(3) 34,545 $ 0
Chief Financial Officer 1995 $183,540 $105,000 $ 13,834 $ 0 38,265 $ 0
Barry Hunsaker, Jr.(4) 1997 $237,500 $100,000 $ 6,525 $ 0 13,065 $ 0
Senior Vice President and 1996 $147,443 $ 90,000 $ 3,894 $ 0 26,720 $ 0
General Counsel
<CAPTION>
ALL OTHER
COMPENSATION
------------
NAME & PRINCIPAL POSITION ($)(2)
------------------------- ------------
<S> <C>
Forrest E. Hoglund $239,041
Chairman of the Board $240,144
and Chief Executive Officer $239,834
Mark G. Papa $ 0
President and Chief -- $ 1,103
Operating Officer $ 793
Dennis M. Ulak $ 0
President, International $ 1,103
Operations $ 793
Walter C. Wilson $ 0
Senior Vice President and $ 1,103
Chief Financial Officer $ 793
Barry Hunsaker, Jr.(4) $ 0
Senior Vice President and $ 0
General Counsel
</TABLE>
- ---------------
(1) 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.
Also, Enron Corp. and/or the Company maintains three deferral plans for key
employees under which payment of base salary, annual bonus, and long-term
incentive awards may be deferred to a later specified date. Under the Enron
Corp. 1985 Deferral Plan ("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 1995 was 12.39%, for 1996 was
the minimum rate of 12%, and for 1997 was the minimum rate of 12%. No
interest has been reported as Other Annual Compensation under the 1985
Deferral Plan for participating Named Officers because the crediting rates
during 1995, 1996, and 1997 did not exceed 120% of the long-term Applicable
Federal Rate ("AFR") of 14.38% in effect at the time the 1985 Deferred Plan
was implemented. No interest has been reported as Other Annual Compensation
under the Enron Corp. 1992 Deferral Plan, as none of the Named Officers are
participants in the plan. Interest has been reported as Other Annual
Compensation under the Enron Corp. 1994 Deferral Plan ("1994 Deferral Plan")
during 1995 for the participating Named Officers because the crediting rate
during 1995 was 9%, which exceeds 120% of the long-term AFR of 7.29% in
effect at the time the 1994 Deferral Plan was implemented. 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.")
(Notes continued on following page)
10
<PAGE> 13
Beginning January 1, 1996, the 1996 Deferral Plan credits interest based on
fund elections chosen by participants. 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 1996 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.
(2) The amounts shown include the value, as of year-end 1995 and 1996, of Enron
Corp. Common Stock allocated during those years to employee's special
subaccounts under the Enron's Employee Stock Ownership Plan. Also included
for Mr. Hoglund in each of 1995, 1996, and 1997 is $239,041 that is
attributable to life insurance coverage pursuant to a split-dollar life
insurance arrangement.
(3) The following is the aggregate number of shares in unreleased restricted
stock holdings of Company Common Stock and their value as of December 31,
1997, for each of the Named Officers: Mr. Papa, 25,000 shares valued at
$529,688; Mr. Ulak, 20,000 shares valued at $423,750; Mr. Wilson, 15,000
shares valued at $317,813. Dividend equivalents accrue from the date of
grant and become payable effective with the vesting date of the shares. EOG
restricted stock awarded on January 26, 1996, will vest 50% on January 26,
2002, and 100% on January 26, 2003, subject to early vesting if certain net
income goals are achieved in 1998 and 1999.
(4) Mr. Hunsaker became an employee and executive officer of the Company in May
1996.
11
<PAGE> 14
STOCK OPTION GRANTS DURING 1997
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 10 and all employee optionees as a group. No stock appreciation rights
("SAR") units were granted during 1997, and none are outstanding.
<TABLE>
<CAPTION>
1997 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>
Forrest E. Hoglund... 0 .0 N/A N/A $0 $ 0 $ 0
Mark G. Papa......... 12,630(4) .4 22.0000 04-Feb-02 $0 $ 76,768 $ 169,636
32,500(5) 1.1 21.1250 13-Feb-07 $0 $ 431,775 $ 1,094,204
Dennis M. Ulak....... 8,265(4) .3 22.0000 04-Feb-02 $0 $ 50,236 $ 111,009
25,000(5) .8 21.1250 13-Feb-07 $0 $ 332,135 $ 841,695
Walter C. Wilson..... 14,970(4) .5 22.0000 04-Feb-02 $0 $ 90,991 $ 201,065
22,500(5) .8 21.1250 13-Feb-07 $0 $ 298,921 $ 757,526
Barry Hunsaker,
Jr................. 3,065(4) .1 22.0000 04-Feb-02 $0 $ 18,630 $ 41,167
10,000(5) .3 21.1250 13-Feb-07 $0 $ 132,854 $ 336,678
All Optionees........ 3,079,330(6) 100.0% 20.1849(7) 2002-2007 $0 $ 39,089,554(8) $ 99,060,606(8)
All Shareholders..... N/A N/A N/A N/A $0 $1,968,412,825(8) $4,988,344,574(8)
Optionees' gain as %
of all
shareholders'
gain............... N/A N/A N/A N/A N/A 1.99% 1.99%
</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 February 4, 1997 became 100% vested on February 4,
1997.
(5) Stock options awarded on February 13, 1997 vest at the cumulative rate of
25% per year, commencing on the first anniversary of the date of grant.
(6) Includes options awarded on December 31, 1997 under the All Employee Stock
Option Program to employees hired during 1997.
(7) Weighted average grant price for all stock options for the purchase of
Company Common Stock granted to employees in 1997.
(Notes continued on following page)
12
<PAGE> 15
(8) 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 ($20.1849) and the number of shares of Company Common Stock issued
and outstanding on December 31, 1997.
AGGREGATED STOCK OPTION/SAR EXERCISES DURING 1997 AND STOCK OPTION/SAR VALUES AS
OF DECEMBER 31, 1997
The following table sets forth information with respect to the Named
Officers concerning the exercise of options during the last fiscal year and
unexercised options and SAR units held as of the end of the fiscal year:
<TABLE>
<CAPTION>
NUMBER OF VALUE OF UNEXERCISED
SECURITIES UNDERLYING IN-THE-MONEY OPTIONS/
UNEXERCISED OPTIONS/SARS SARS AT DECEMBER 31,
SHARES AT DECEMBER 31, 1997(1) 1997
ACQUIRED ON VALUE --------------------------- ---------------------------
NAME EXERCISE (#) REALIZED ($) EXERCISABLE UNEXERCISABLE EXERCISABLE UNEXERCISABLE
---- ------------ ------------ ----------- ------------- ----------- -------------
<S> <C> <C> <C> <C> <C> <C> <C>
Forrest E. Hoglund... EOG 0 $ 0 935,786 10,524 $1,360,978 $25,652
Enron Corp. 0 $ 0 36,650 0 $ 526,844 $ 0
Mark G. Papa......... EOG 5,000 $41,875 283,669 90,866 $1,314,309 $71,252
Enron Corp. 0 $ 0 5,650 0 $ 81,219 $ 0
Dennis M. Ulak....... EOG 0 $ 0 79,584 57,956 $ 81,183 $41,893
Walter C. Wilson..... EOG 0 $ 0 217,195 63,250 $1,072,854 $50,734
Barry Hunsaker,
Jr................. EOG 0 $ 0 24,745 15,040 $ 0 $ 625
</TABLE>
- ---------------
(1) There are no SAR units applicable to the Named Officers.
RETIREMENT AND SUPPLEMENTAL BENEFIT PLANS
Enron Corp. maintains the Enron Corp. Cash Balance Plan (the "Cash Balance
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 Cash Balance 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 Cash Balance Plan changing the plan's name from the Enron
Corp. Retirement Plan to the Enron Corp. 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 ten-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. December
31, 1993 was the final date on which ESOP allocations were made to employees'
retirement accounts.
13
<PAGE> 16
Directors who are not employees of the Company or Enron Corp. are not
eligible to participate in the Cash Balance Plan.
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 Code, 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>
Forrest E. Hoglund................... 10.3 10.8 $570,000 $115,068
Mark G. Papa......................... 16.6 30.3 $400,020 $132,082
Dennis M. Ulak....................... 19.6 40.6 $300,000 $148,154
Walter C. Wilson..................... 10.1 19.8 $240,000 $ 50,246
Barry Hunsaker, Jr................... 1.7 19.0 $255,000 $ 55,908
</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 (the "Survivor Benefit Plan"). In the event
of death after retirement, the Survivor Benefit Plan provides an annual benefit
to the participant's beneficiary equal to 50% of the participant's annual base
salary at retirement, paid for ten years. The Survivor Benefit 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 5% of annual incentive award
14
<PAGE> 17
opportunity under any approved plan. The maximum an employee can receive is 2.99
times the employee's average W-2 earnings over the past five years. The Company
reimburses Enron Corp. for severance plan costs attributable to Company
employees. In connection with Mr. Hunsaker's offer of employment to join the
Company in 1996, the Company agreed that if Mr. Hunsaker was terminated by the
Company other than for "cause" or if Mr. Hunsaker left the Company because of an
"involuntary termination event," then Mr. Hunsaker would receive a severance
payment equal to the greater of (i) the amount provided by the Enron Corp.
Severance Pay Plan or (ii) $112,500, which represents 50% of Mr. Hunsaker's
initial annual salary. For a description of Messrs. Hoglund's and Papa's
severance arrangements under their employment agreements, see "Employment
Contracts" below.
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. The employment agreement also provides for a
split-dollar life insurance arrangement, whereby the Company will pay annual
premiums of $239,041 per year on a $5 million life insurance policy owned by Mr.
Hoglund, with recovery of the cost of such premiums upon Mr. Hoglund's death.
In the event of Mr. Hoglund's involuntary termination, he will receive
amounts prescribed in the agreement, offset against amounts payable under any
severance plan maintained for the Company, through the term of the agreement.
The employment agreement contains noncompete provisions in the event of Mr.
Hoglund's termination of employment.
Mr. Papa entered into an employment agreement with the Company in November
1997 under which he has agreed to serve as President and Chief Operating Officer
of the Company at a minimum salary of $400,000. In the event of his involuntary
termination, Mr. Papa will receive his salary as if his employment had continued
throughout the term of the agreement, which expires on October 31, 2001. If
during the term of the agreement Enron Corp. elects to sell its interest in the
Company such that the Company ceases to be an affiliate of Enron Corp., Mr. Papa
will be entitled to benefits identical to those contained in the Enron Corp.
Change of Control Severance Plan. The employment agreement contains noncompete
provisions in the event of Mr. Papa's termination of employment. However, at
certain points during the term of the agreement, if mutually satisfactory terms
relating to his role in the Company have not been agreed upon by Mr. Papa and
the Company, he may resign and (i) receive one year's salary, (ii) become vested
in any unvested stock options and restricted stock awards, (iii) receive
treatment under involuntary termination provisions under the Company's stock
plans and deferral plans, and (iv) be released from noncompete provisions,
except an agreement not to induce any employee to terminate his/her employment.
15
<PAGE> 18
CERTAIN TRANSACTIONS
Messrs. Derrick, Harrison, Lay and Skilling 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, 1997, 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 $5.3 million in 1997. 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 ten years through December 2006 and
will continue thereafter until terminated by either party.
Effective December 14, 1995, the Company ceased to be included in the
consolidated federal income tax return filed by Enron Corp., and the tax
allocation agreement (the "Base Agreement") previously in effect between the
Company and Enron Corp. was terminated. In addition, effective December 14,
1995, the Company and Enron Corp. entered into a new tax agreement (the "1995
Agreement") pursuant to which, among other things, Enron Corp. agreed (in
exchange for the payment of $13 million by the Company) to be liable for, and
indemnify the Company against, all U.S. federal 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%. In 1997, the
Company and Enron Corp. agreed to terminate the 1995 Agreement and enter into a
new tax allocation agreement. As part of the agreement of the parties, Enron
Corp. agreed to refund the $13 million payment made by the Company pursuant to
the 1995 Agreement, the Company agreed to release Enron Corp. from the
liabilities assumed related to the $13 million payment and the parties agreed to
indemnify each other in a manner consistent with the Base Agreement. Enron Corp.
also advanced the Company approximately $50 million to fund certain federal
income taxes related to the 1995 taxable year. This advance is to be repaid in
annual installments through January 1, 2001.
In December 1997, Enron Corp. and the Company entered into an Equity
Participation and Business Opportunity Agreement (the "Business Opportunity
Agreement"), which defines certain obligations that Enron Corp. owes to the
Company and relieves Enron Corp. from certain obligations to the Company that it
might otherwise have, including the obligation to offer certain business
opportunities to the Company. Enron Corp. has advised the Company that, although
it believes that it has conducted its business in a manner that is consistent
with its duties as a majority shareholder of the Company, it was motivated to
enter into the Business Opportunity Agreement because of the difficulty of
determining the applicability of the law relating to duties that Enron Corp. may
owe to the Company in connection with Enron Corp.'s finance and trading business
and because of Enron Corp.'s desire to have more flexibility in pursuing
business opportunities identified by or developed solely by Enron Corp.
personnel. The Business Opportunity Agreement was approved by the Board of
Directors of the Company after it was approved unanimously by a special
committee of the Board of Directors consisting of the Company's independent
directors. The special committee retained its own legal and financial advisers
in connection with its evaluation of Enron Corp.'s proposal, and the Business
Opportunity
16
<PAGE> 19
Agreement as executed reflects significant concessions on Enron Corp.'s part
resulting from its negotiations with members of the special committee.
The Business Opportunity Agreement provides generally that, so long as such
activities are conducted in compliance with the Business Opportunity Agreement
in all material respects, Enron Corp. may pursue business opportunities
independently of the Company. The Business Opportunity Agreement contains an
acknowledgment by the Company that Enron Corp.'s finance and trading business
may result in the acquisition by Enron Corp. of oil and gas properties or
companies and that in certain cases Enron Corp. or entities in which Enron Corp.
has an interest may acquire such assets pursuant to bidding or auction processes
in which the Company is also a bidder. In the Business Opportunity Agreement,
the Company acknowledges and agrees that such activities may have an impact on
the Company or the price it pays for properties or securities it purchases from
others, that Enron Corp. or entities in which it has an interest may acquire
direct or indirect interests in oil and gas properties or companies as a result
of such activities, may own, operate and control any such assets in connection
therewith, and may acquire additional oil and gas properties or companies or
pursue opportunities related thereto in connection therewith, in each case
without any duty to offer all or any portion of such assets or opportunities to
the Company. The Business Opportunity Agreement contains an acknowledgment and
agreement by the Company that, to the extent that a court might hold that the
conduct of such activity is a breach of a duty to the Company (and without
admitting that the conduct of such activity is such a breach of duty), the
Company waives any and all claims and causes of action that it may have to claim
that the conduct of such activity is a breach of a duty to the Company.
The Business Opportunity Agreement contains certain restrictions on the
conduct of Enron Corp.'s business. It also provides that, except with respect to
business opportunities pursued jointly by Enron Corp. and the Company and except
as otherwise agreed to between Enron Corp. and the Company, Enron Corp.'s
business will be conducted through the use of its own personnel and assets and
not with the use of any personnel or assets of the Company.
Thus, without the consent of the Company, the finance and trading business
conducted by ECT, Enron International Capital & Trade Corp. ("EICT") or other
Enron Corp. entities may only involve business opportunities identified by or
presented to ECT personnel, EICT personnel or other Enron Corp. personnel and
developed and pursued solely through the use of the personnel and assets of ECT,
EICT or other Enron Corp. entities. Enron Corp. has agreed that, so long as it
controls the Company, it will not pursue any business opportunity a majority of
the value of which involves oil and gas properties if the opportunity is first
presented to an officer or director of Enron Corp. who is also an officer or
director of the Company at the time such opportunity is presented, unless Enron
Corp. first offers such opportunity to the Company. The Business Opportunity
Agreement states that its provisions relate exclusively to the duties that Enron
Corp. owes the Company and that nothing in the Business Opportunity Agreement
affects the fiduciary or other duties owed to the Company by any individual
director or officer of the Company in his or her capacity as such. In this
connection, Enron Corp. has agreed that its representatives on the Board of
Directors of the Company will not, for the purpose of enabling Enron Corp. to
pursue an opportunity in the oil and gas business, vote in such a manner as to
effectively prevent, prohibit or restrict the Company from pursuing such
opportunity.
In consideration for the Company's agreements in the Business Opportunity
Agreement, Enron Corp. provided valuable consideration to the Company, including
options to purchase common stock of Enron Corp. that will give the Company the
opportunity to participate in future appreciation in value of Enron Corp.,
including any appreciation in value resulting from activities that the Company
has agreed to permit Enron Corp. and its subsidiaries to pursue. Enron Corp.
granted the Company ten-year options to purchase 3,200,000 shares of Enron Corp.
common stock at $39.1875 per share, the closing price per share on the date that
the
17
<PAGE> 20
Company's Board of Directors approved the Business Opportunity Agreement. The
options vest in accordance with a schedule that provides that 25% vested
immediately, 15% vest on the anniversary of the Business Opportunity Agreement
in 1998 and 10% vest each anniversary thereafter until all of the options are
vested. Vesting will be accelerated in the event of a change of control of the
Company. For such purposes a "change of control" means that (a) Enron Corp. no
longer owns capital stock of the Company representing at least 35% of the voting
power for the election of directors and (b) a majority of the members of the
Board of Directors of the Company consists of persons who are not officers or
directors of Enron Corp. or any affiliate of Enron Corp. other than the Company.
The Business Opportunity Agreement also included: (i) an agreement to replace
the existing services agreement, under which Enron Corp. provides certain
services to the Company, with a new services agreement under which the Company's
payments to Enron Corp. will be reduced by $2.8 million per year for certain of
the services provided; (ii) an agreement by Enron Corp. relieving the Company of
the obligation to bear the costs of any registration of sales by Enron Corp. of
shares of common stock of the Company; (iii) an agreement by Enron Corp. to pay
the costs of registration of the Company's sales of Enron Corp. common stock
acquired upon exercise of the options granted in the Business Opportunity
Agreement; (iv) an agreement that if Enron Corp. takes any action that results
in the loss by the Company of its status as an "independent producer" under the
Code, Enron Corp. will pay the Company each year through 2006 the lesser of (a)
$1 million and (b) an amount which, after payment of applicable taxes, will
compensate the Company for the additional income tax liability resulting from
the loss of independent producer status; (v) an agreement that if Enron Corp.
requests that the Company relocate its offices, and if the Company agrees to do
so, Enron Corp. will pay the Company's moving expenses, including expenses of
building out or refurbishing the space in its new offices and expenses of
removing and reinstalling the Company's telecommunications and information
systems facilities; and (vi) an agreement by Enron Corp. to reimburse the
Company for the costs and expenses of legal and financial consultants retained
to assist the special committee in connection with the Business Opportunity
Agreement. In addition, pursuant to the Business Opportunity Agreement, Enron
Corp. agreed to cause its subsidiary, Houston Pipe Line Company, to enter into
various agreements with the Company rearranging certain existing contractual
arrangements between them and Enron Corp., and the Company entered into a
licensing agreement covering the Enron Corp. name and mark and recognizing that
the EOG and EOGI (Enron Oil & Gas International, Inc.) names and marks belong to
the Company. In the Business Opportunity Agreement, Enron Corp. and the Company
also entered into agreements in principle regarding the manner in which they
will share the burdens and benefits of the integrated projects under joint
development by Enron Corp. and the Company in Qatar, Mozambique and Uzbekistan.
The agreements in principle provide that the Company's interests in these
projects will be 20%, 20% and 80%, respectively, of the combined ownership
interest of the Company and Enron Corp.
The Business Opportunity Agreement also contains provisions that give Enron
Corp. the right to maintain its equity interest in the Company at certain
levels. It provides that if the Company issues additional shares of its capital
stock, Enron Corp. will have the right to purchase additional shares of capital
stock of the Company as follows: (i) if Enron Corp. owns a majority interest,
Enron Corp. will have the right to purchase sufficient shares to permit it to
retain its majority interest; (ii) if Enron Corp. does not own a majority
interest but accounts for the assets and operations of the Company on a
consolidated basis for financial reporting purposes, Enron Corp. will have the
right to purchase sufficient shares to permit it to continue to account for the
Company on a consolidated basis; and (iii) if Enron Corp. accounts for the
assets and operations of the Company using the equity method for financial
reporting purposes, Enron Corp. will have the right to purchase sufficient
shares to permit it to continue to account for the Company using the equity
method. Any such purchase by Enron Corp. will be for cash at 97% of the average
closing price per share over a specified 20-day period (reflecting a 3% private
placement discount).
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<PAGE> 21
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 1997, Enron Corp. and its affiliates paid the Company
approximately $78 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, 1998.
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.
19
<PAGE> 22
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 1999 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 1999 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,
1998, to be included in the Company's proxy statement and form of proxy relating
to that meeting.
In addition to the SEC rules described in the preceding paragraph, the
Company's 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 4, 1999. 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's 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 Securities Exchange Act of 1934, as amended (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's bylaws to the contrary, no business shall be conducted at the
annual meeting except in accordance with the procedures outlined above.
PROPOSALS FOR 1998 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 1998
Annual Meeting of Shareholders of the Company was February 5, 1998. The Company
has not received any notices from its shareholders regarding business to be
brought before the 1998 Annual Meeting of Shareholders.
NOMINATIONS FOR 1999 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
20
<PAGE> 23
meeting of shareholders (a) by or at the direction of the Board of Directors or
(b) by any 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 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 4, 1999, 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 tenth 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 Exchange Act and the rules and regulations thereunder with respect to the
matters set forth in the foregoing bylaw provisions.
NOMINATIONS FOR 1998 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 1998 Annual Meeting of Shareholders of the Company was February 5, 1998. The
Company has not received any notices from its shareholders regarding nominations
for directors to be elected at the 1998 Annual Meeting of Shareholders.
21
<PAGE> 24
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 25, 1998
22
<PAGE> 25
[ENRON LOGO]
ENRON OIL & GAS COMPANY
<PAGE> 26
ENRON OIL & GAS COMPANY
P PROXY SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS OF
ENRON OIL & GAS COMPANY FOR ANNUAL MEETING ON MAY 5, 1998
R
The Undersigned hereby appoints Forrest E. Hoglund, Barry Hunsaker,
O 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
X Shareholders of Enron Oil & Gas Company (the "Company") to be held at 3:00
p.m. Houston time on Tuesday, May 5, 1998, in the LaSalle Ballroom of the
Y 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, James V. Derrick, Jr.,
Ken L. Harrison, Forrest E. Hoglund, ----------------------------------------
Kenneth L. Lay, Edward Randall, III,
Jeffrey K. Skilling, Frank G. Wisner ----------------------------------------
----------------------------------------
----------------------------------------
(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
REVERSE SIDE, 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> 27
7437
[X] PLEASE MARK YOUR
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 AND 2.
- --------------------------------------------------------------------------------
1. Election of Directors. FOR WITHHELD
(see reverse) [ ] [ ]
For, except vote withheld from the following nominee(s):
- --------------------------------------------------------
2. Ratification of appointment of independent FOR AGAINST ABSTAIN
accountants. [ ] [ ] [ ]
3. 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 -
THIS IS YOUR PROXY.
YOUR VOTE IS IMPORTANT.
IF YOU NEED ASSISTANCE IN ANY OF THE FOLLOWING AREAS:
o DIVIDEND CHECKS - ADDRESS CHANGES - LEGAL TRANSFERS
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.
