SCHEDULE 14A INFORMATION
Proxy Statement Pursuant to Section 14(a)
of the Securities Exchange Act of 1934
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 ss. 240.14a-11(c) or ss. 240.14a-12
TEJAS GAS CORPORATION
(Name of Registrant as Specified in its Charter)
_____________________________________________________________________
(Name of Person(s) Filing Proxy Statement if other than the Registrant)
Payment of Filing Fee (Check the appropriate box):
[X] No fee required.
[ ] Fee computed on table below per Exchange Act Rules 14a-6(i)(4) and 0-11.
1. Title of each class of securities to which transaction applies:
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:
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:
4. Date Filed:
<PAGE>
[Tejas Logo]
TEJAS GAS CORPORATION
1301 MCKINNEY
SUITE 700
HOUSTON, TEXAS 77010
NOTICE OF ANNUAL MEETING OF STOCKHOLDERS
TO BE HELD MAY 8, 1997
To the Stockholders:
Notice is hereby given that the Annual Meeting of Stockholders of Tejas
Gas Corporation will be held at the Chevron Tower Building, 1301 McKinney,
Houston, Texas on the Mezzanine Level in the Chevron Auditorium on Thursday, May
8, 1997 at 1:30 p.m., Houston time, for the following purposes:
1. To elect three directors to serve for the ensuing three years
and until their successors are duly elected and qualified.
2. To consider and act upon a proposal to amend the Director
Stock Option Plan.
3. To consider and act upon a proposal to amend the Employee
Stock Option Plan.
4. To consider and act upon a proposal to adopt the Annual
Incentive Plan.
5. To ratify the selection of Deloitte & Touche LLP as auditors
of the Company for the ensuing year.
6. To transact such other business as may properly come before
the meeting or any adjournment thereof.
The close of business on March 17, 1997 has been fixed as the record
date for determination of the stockholders entitled to notice of and to vote at
the meeting or any adjournment thereof. Such stockholders may vote in person or
by proxy. The proxy statement and the accompanying proxy card will be first sent
to stockholders on or about April 7, 1997. Holders of record of Common Stock at
the close of business on March 17, 1997, will be entitled to vote at the meeting
or any adjournment thereof with respect to all matters described above. PLEASE
SIGN, DATE AND FILL IN THE ENCLOSED PROXY AND RETURN IT PROMPTLY IN THE ENCLOSED
ENVELOPE.
By Order of the Board of Directors,
P. Anthony Lannie
Secretary
Houston, Texas
April 7, 1997
<PAGE>
TEJAS GAS CORPORATION
1301 MCKINNEY
SUITE 700
HOUSTON, TEXAS 77010
PROXY STATEMENT
ANNUAL MEETING OF STOCKHOLDERS
TO BE HELD MAY 8, 1997
This proxy statement and the accompanying proxy card are solicited by
the Board of Directors of Tejas Gas Corporation (the "Company") and are to be
used at the Annual Meeting of Stockholders ("Annual Meeting") to be held at 1:30
p.m., Houston time, on Thursday, May 8, 1997 in the Chevron Tower Building, 1301
McKinney, Mezzanine Level, Chevron Auditorium, Houston, Texas, and at any and
all adjournments thereof. In addition to the solicitation of proxies by mail,
management of the Company may use the services of its directors, officers and
employees to solicit proxies, personally or by telegram or telephone.
Arrangements will be made with brokerage houses, custodians, nominees and other
fiduciaries to send proxy materials to their principals, and the Company will
reimburse them for their reasonable expenses. The expenses of the proxy
solicitation will be paid by the Company.
This proxy statement and the proxy card will be sent to stockholders
beginning on or about April 7, 1997. Any stockholder giving a proxy has the
power to revoke it at any time before it is voted. A stockholder may revoke his
proxy before it is voted by executing another proxy at a later date, by
notifying the secretary or assistant secretary of the Company in writing of his
revocation or by attending in person and voting at the Annual Meeting.
RECORD DATE AND VOTING OF SECURITIES
The Board of Directors has fixed the close of business on March 17,
1997 as the record date for determination of stockholders entitled to notice of,
and to vote at, the Annual Meeting. As of the record date, there were 20,557,026
issued and outstanding shares of common stock, par value $.25 per share ("Common
Stock"), which is the only class of stock of the Company entitled to vote at the
Annual Meeting. A majority of the shares of Common Stock which are issued and
outstanding and entitled to vote, present in person or represented by proxy,
shall constitute a quorum for the transaction of business. Each share of Common
Stock entitles the holder to one vote on every matter set forth in the
accompanying Notice of Annual Meeting of Stockholders. Only stockholders of
record at the close of business on March 17, 1997 will be entitled to vote at
the Annual Meeting or any adjournment thereof.
The enclosed proxy card provides for stockholders to vote
affirmatively, vote negatively or abstain from voting on all matters other than
the election of directors. With respect to the election of directors, the
enclosed proxy card provides for stockholders to vote affirmatively or withhold
authority to vote on each director. In accordance with Delaware law, a
stockholder entitled to vote for the election of directors can withhold
authority to vote for all nominees for director or can withhold authority to
vote for certain nominees for director. Abstentions from a proposal are treated
as votes against the particular proposal. Broker non-votes on a proposal are
treated as shares as to which voting power has been withheld by the beneficial
holders of those shares and, therefore, as shares not entitled to vote. While
there may be instances in which a stockholder will wish to abstain, the Board of
Directors encourages all stockholders to vote their shares in their best
judgment and to participate in the voting process to the fullest extent
possible.
1
<PAGE>
If the enclosed proxy is duly executed and received in time for the
meeting, and if no contrary specification is made as provided therein, it is the
intention of the persons named as proxies to vote the shares of Common Stock
represented thereby in favor of the three persons nominated for election as
directors of the Company, in favor of the amendment of the Director Stock Option
Plan, in favor of the amendment of the Employee Stock Option Plan, in favor of
the adoption of the Annual Incentive Plan, in favor of ratification of the
selection of Deloitte & Touche LLP as auditors of the Company for 1997, and in
the discretion of the persons named as proxies in connection with any other
business that may properly come before the meeting or any adjournment thereof.
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
FIVE PERCENT BENEFICIAL OWNERS
The following table sets forth the only persons who, together with
their associates, are known to the Company to own beneficially more than 5% of
the outstanding Common Stock at March 17, 1997. Except as otherwise indicated,
all shares are owned directly, and the indicated owner has sole voting and
investment power with respect to such shares.
<TABLE>
<CAPTION>
AMOUNT AND NATURE
NAME AND ADDRESS OF BENEFICIAL PERCENT
OF BENEFICIAL OWNER OWNERSHIP (1) OF CLASS
------------------- ----------------- --------
<S> <C> <C>
Iridian Asset Management 2,154,647 10.5
LLC Group(2)
276 Post Road West
Westport, CT 06880-4704
Charles C. Gates (3) 1,760,760 8.6
Cody Company
3773 Cherry Creek North Dr. Ste. 680
Denver, CO 80209
Frederic C. Hamilton (4) 1,450,517 7.0
The Hamilton Companies
1560 Broadway, Suite 2200
Denver, CO 80202
Neuberger & Berman LLC (5) 1,205,740 5.9
605 Third Avenue
New York, New York 10158-3698
Foreign & Colonial 1,108,625 5.4
Management Limited (6)
Exchange House
Primrose Street
London EC2A 2NY
United Kingdom
</TABLE>
2
<PAGE>
(1) Under regulations of the Securities and Exchange Commission, shares are
deemed to be "beneficially owned" by a person if such person directly
or indirectly has or shares the power to vote or to dispose of the
shares, regardless of whether such person has any economic interest in
the shares. In addition, a person is deemed to own beneficially any
shares of which such person has the right to acquire beneficial
ownership within 60 days, such as by exercise of an option or by
conversion of another security. Percentages are rounded to the nearest
one-tenth of one percent. Information in the table and footnotes is
based on the most recent respective Statement on Schedule 13D or 13G or
amendment thereto filed by such persons with the Securities and
Exchange Commission, except as otherwise known to the Company.
(2) Based on a Schedule 13G dated February 3, 1997, filed jointly by
Iridian Asset Management LLC ("Iridian"), LC Capital Management, LLC
("Capital"), CL Investors, Inc. ("CL Investors"), David L. Cohen
("Cohen") and Harold J. Levy ("Levy"). Capital owns a 98% interest in
Iridian, and CL Investors owns a 96% interest in Capital. Cohen and
Levy each own 50% of the common shares of CL Investors and a 1%
interest in Iridian. Cohen and Levy also are employees of Arnhold & S.
Bleichroeder Advisers, Inc., which acts as investment adviser to First
Eagle Fund of America, Inc. ("First Eagle"). Each of Iridian, Capital
and CL Investor report that they beneficially own 1,995,419 shares and
that they have sole voting and dispositive power with respect to
1,995,419 shares. The Schedule 13G indicates that neither Iridian,
Capital nor CL Investors has the power or authority, direct or
indirect, to vote or dispose of the shares owned by First Eagle. First
Eagle owns 154,278 shares of Common Stock. Cohen reports that he
beneficially owns 2,151,347 shares and that he has sole voting and
dispositive power with respect to 1,650 shares and shared voting and
dispositive power with respect to 2,149,697 shares. Levy reports that
he beneficially owns 2,154,647 shares and that he has sole voting and
dispositive power with respect to 4,950 shares and shared voting and
dispositive power with respect to 2,149,697 shares. Cohen and Levy
disclaim beneficial ownership of the shares owned by First Eagle.
(3) The 1,760,760 shares of Common Stock held by Mr. Gates consist of 796
shares of Common Stock owned directly; 28,677 shares of Common Stock
owned by a trust of which Mr. Gates is the indirect beneficiary;
1,694,830 shares of Common Stock owned by Cody Company, of which Mr.
Gates is Chief Executive Officer, a director and a substantial
stockholder; 34,155 shares of Common Stock subject to stock options
under the Company's Director Stock Option Plan, which options are
presently exercisable or exercisable within 60 days of March 17, 1997;
and 2,302 shares of Common Stock owned by his wife. Mr. Gates disclaims
beneficial ownership of all of the shares of Common Stock owned by his
wife. Mr. Gates states that he has shared voting and dispositive power
with respect to 1,723,507 shares of Common Stock and sole voting and
dispositive power with respect to 34,951 shares of Common Stock.
(4) Holdings include 34,155 shares of Common Stock subject to stock options
under the Company's Director Stock Option Plan, which options are
presently exercisable or exercisable within 60 days of March 17, 1997.
Mr. Hamilton has sole voting and dispositive power with respect to
1,450,517 shares of Common Stock.
(5) Based on a Schedule 13G dated February 10, 1997, Neuberger & Berman,
LLC ("N&B") and Neuberger & Berman Management Inc. ("NBMI") indicate
that they are deemed to be beneficial owners of these shares for
purposes of Rule 13(d). N&B and NBMI serve as sub-advisor and
investment manager, respectively, of N&B's various mutual funds.
Further, N&B has shared
3
<PAGE>
power to make decisions whether to retain or dispose of the securities
of many unrelated clients although it does not however, have an
economic interest in such securities. N&B and NBMI report that the
securities are held in the ordinary course of their business and not
with the purpose or with the effect of changing or influencing the
control of the issuer. N&B reports that it has sole voting power with
respect to 125,815 shares. N&B and NBMI have, regarding the mutual
funds, shared voting power with respect to 934,550 shares. N&B as
advisor to individual clients and N&B and NBMI regarding the various
mutual funds have shared dispositive power with respect to 1,205,740
shares.
(6) Based on a Schedule 13G dated February 10, 1997, the shares are
beneficially owned by Foreign & Colonial Management Limited ("F&C
Limited") and Hypo Foreign & Colonial Management (Holdings) Limited
("F&C Holdings"). F&C Holdings owns 100% of the outstanding capital
stock of F&C Limited. F&C Limited and F&C Holdings report that they
have shared voting and dispositive power with respect to 1,108,625
shares of Common Stock.
It is the understanding of the Company that Frederic C. Hamilton and
Charles C. Gates intend to vote in favor of each of the proposals described in
this proxy statement.
BENEFICIAL OWNERSHIP OF DIRECTORS AND OFFICERS
The following table sets forth information at March 17, 1997 for the
shares of Common Stock and depositary shares ("9.96% Depositary Shares"), each
such depositary share representing a one-tenth interest in a share of the
Company's 9.96% Cumulative Preferred Stock, par value $1.00 per share,
beneficially owned by each director, each executive officer named in the Summary
Compensation Table that appears under "Executive Compensation" and by all
directors and executive officers of the Company as a group and the percentage of
such stock so owned. Except as otherwise indicated, all shares are owned
directly, and the indicated owner has sole voting and investment power with
respect to such shares.
<TABLE>
<CAPTION>
AMOUNT AND NATURE OF AMOUNT AND NATURE OF
NAME AND ADDRESS BENEFICIAL OWNERSHIP PERCENT BENEFICIAL OWNERSHIP OF PERCENT
OF BENEFICIAL OWNER OF COMMON STOCK (1) OF CLASS 9.96% DEPOSITARY SHARES (2) OF CLASS
- ------------------- ------------------- -------- --------------------------- --------
<S> <C> <C> <C> <C>
Frederic C. Hamilton (3) 1,450,517 7.0 14,000 *
The Hamilton Companies
1560 Broadway, Suite 2200
Denver, CO 80202
Charles C. Gates (4) 1,760,760 8.6 4,000 *
Cody Company
3773 Cherry Creek North Dr.
Suite 680
Denver, CO 80209
Jay A. Precourt (5) 991,906 4.8 46,200 2.3
Tejas Gas Corporation
1301 McKinney, Suite 700
Houston, TX 77010
Robert G. Stone, Jr. (6) 66,774 * -- --
Kirby Corporation
405 Lexington Avenue, 39th Floor
New York, NY 10174
</TABLE>
4
<PAGE>
<TABLE>
<CAPTION>
AMOUNT AND NATURE OF AMOUNT AND NATURE OF
NAME AND ADDRESS BENEFICIAL OWNERSHIP PERCENT BENEFICIAL OWNERSHIP OF PERCENT
OF BENEFICIAL OWNER OF COMMON STOCK (1) OF CLASS 9.96% DEPOSITARY SHARES (2) OF CLASS
- ------------------- ------------------- -------- --------------------------- --------
<S> <C> <C> <C> <C>
A.J. Miller (7) 9,275 * 58,700 2.9
The Hamilton Companies
1560 Broadway, Suite 2200
Denver, CO 80202
Ronald F. Walker (8) 47,326 * -- --
American Financial Corporation
580 Walnut, 11th Floor
Cincinnati, OH 45202
Arthur L. Kelly (9) 15,175 * -- --
KEL Enterprises L.P.
135 S. LaSalle St., Suite 1117
Chicago, Illinois 60603
James W. Whalen (10) 102,050 * 10,000 *
Tejas Gas Corporation
1301 McKinney, Suite 700
Houston, Texas 77010
Rene R. Joyce (11) 85,938 * -- --
Tejas Gas Corporation
1301 McKinney, Suite 700
Houston, TX 77010
P. Anthony Lannie (12) 31,434 * -- --
Tejas Gas Corporation
1301 McKinney, Suite 700
Houston, TX 77010
Frank T. Whittinghill, III (13) 39,247 * -- --
Tejas Gas Corporation
1301 McKinney, Suite 700
Houston, TX 77010
All directors and executive 4,610,899 22.4 132,900 6.7
officers of the Company as a
group (12 persons) (14)
</TABLE>
* Less than 1%
(1) See footnote (1) in the table set forth under "Five Percent Beneficial
Owners." No director or officer is a beneficial owner of 5 1/4%
Depositary Shares representing an interest in shares of 5 1/4%
Preferred Stock.
5
<PAGE>
(2) Generally, the 9.96% Depositary Shares have no voting rights unless
quarterly dividends are in arrears for more than six quarters or except
in the case of certain amendments to the Company's Certificate of
Incorporation.
(3) See footnote (4) in the table set forth under "Five Percent Beneficial
Owners" for a description of the nature of the beneficial ownership of
Common Stock.
(4) See footnote (3) in the table set forth under "Five Percent Beneficial
Owners" for a description of the nature of the beneficial ownership of
Common Stock.
(5) The 991,906 shares of Common Stock held by Mr. Precourt consist of
326,648 shares of Common Stock owned directly; 191,894 shares of Common
Stock subject to stock options under the Company's Employee Stock
Option Plan, which options are presently exercisable or exercisable
within 60 days of March 17, 1997; 40,454 shares of Common Stock in the
Company's Thrift Plan (as of December 31, 1996); 3,772 shares of Common
Stock held in an individual retirement account; 173,439 shares held by
a Subchapter S corporation wholly owned by Mr. Precourt; 227,994 shares
of Common Stock held by a family partnership; and 27,705 shares of
Common Stock held by his wife. Mr. Precourt disclaims beneficial
ownership of the shares of Common Stock held by his wife and the shares
of Common Stock exceeding his pecuniary interest held by the family
partnership. Mr. Precourt states that he has sole voting and
dispositive power with respect to 964,201 shares of Common Stock. Mr.
Precourt states that he has sole voting and dispositive power with
respect to 45,200 9.96% Depositary Shares. Mr. Precourt disclaims
beneficial ownership of 1,000 9.96% Depositary Shares held by his wife.
(6) The 66,774 shares of Common Stock held by Mr. Stone consist of 6,792
shares of Common Stock owned directly; 34,155 shares of Common Stock
subject to stock options under the Company's Director Stock Option
Plan, which are presently exercisable or exercisable within 60 days of
March 17, 1997; 15,000 shares of Common Stock held by trusts of which
Mr. Stone is trustee; and 10,827 shares of Common Stock owned by his
wife. Mr. Stone states that he has sole voting and dispositive power
with respect to 40,947 shares of Common Stock, and shared voting and
dispositive power with respect to 25,827 shares of Common Stock. Mr.
Stone disclaims beneficial ownership of the 15,000 shares of Common
Stock held by the trusts.
(7) The 9,275 shares of Common Stock held by Mr. Miller consist of 1,355
shares of Common Stock owned directly and 7,920 shares of Common Stock
subject to stock options under the Company's Director Stock Option
Plan, which are presently exercisable or exercisable within 60 days of
March 17, 1997. Mr. Miller states that he has sole voting and
dispositive power with respect to 41,700 9.96% Depositary Shares and
9,275 shares of Common Stock. Mr. Miller disclaims beneficial ownership
of 17,000 9.96% Depositary Shares, which are owned by his wife.
(8) The 47,326 shares of Common Stock held by Mr. Walker consist of 13,171
shares of Common Stock owned directly and 34,155 shares of Common Stock
subject to stock options under the Company's Director Stock Option
Plan, which are presently exercisable or exercisable within 60 days of
March 17, 1997. Mr. Walker has sole voting and dispositive power with
respect to all such shares of Common Stock.
(9) The 15,175 shares of Common Stock held by Mr. Kelly consist of 275
shares of Common Stock owned directly; 9,900 shares of Common Stock
subject to stock options under the Company's Director Stock Option
Plan, which are presently exercisable or exercisable within 60 days of
March 17, 1997; 3,750 shares of Common Stock held by Mr. Kelly
indirectly through KEL
6
<PAGE>
Enterprises, L.P.; and 1,250 shares of Common Stock held by Mr. Kelly
indirectly through the Kelly Family Trust. Mr. Kelly has sole voting
and dispositive power with respect to 15,175 shares of Common Stock.
(10) The 102,050 shares of Common Stock held by Mr. Whalen consist of 99,423
shares of Common Stock subject to stock options under the Company's
Employee Stock Option Plan, which are presently exercisable or
exercisable within 60 days of March 17, 1997, and 2,627 shares of
Common Stock in the Company's Thrift Plan (as of December 31, 1996).
Mr. Whalen has sole voting and dispositive power with respect to all
such shares of Common Stock. Mr. Whalen disclaims beneficial ownership
of such number of the 10,000 9.96% Depositary Shares held by
Diversified Diagnostic Products, Inc., a corporation in which Mr.
Whalen is a stockholder, as exceeds his pecuniary interest.
(11) The 85,938 shares of Common Stock held by Mr. Joyce consist of 9,105
shares of Common Stock owned directly; 62,463 shares of Common Stock
subject to stock options under the Company's Employee Stock Option
Plan, which are presently exercisable or exercisable within 60 days of
March 17, 1997; and 14,370 shares of Common Stock in the Company's
Thrift Plan (as of December 31, 1996). Mr. Joyce has sole voting and
dispositive power with respect to all such shares of Common Stock.
(12) The 31,434 shares of Common Stock held by Mr. Lannie consist of 30,300
shares of Common Stock subject to stock options under the Company's
Employee Stock Option Plan, which are presently exercisable or
exercisable within 60 days of March 17, 1997, and 1,134 shares of
Common Stock in the Company's Thrift Plan (as of December 31,1996). Mr.
Lannie has sole voting and dispositive power with respect to all such
shares of Common Stock.
(13) The 39,247 shares of Common Stock held by Mr. Whittinghill consist of
4,708 shares of Common Stock owned directly; 28,582 shares of Common
Stock subject to stock options under the Company's Employee Stock
Option Plan, which are presently exercisable or exercisable within 60
days of March 17, 1997; 3,730 shares of Common Stock in the Company's
Thrift Plan (as of December 31, 1996); and 2,227 shares of Common Stock
in an individual retirement account. Mr. Whittinghill has sole voting
and dispositive power with respect to all such shares of Common Stock.
(14) Includes 577,322 shares of Common Stock subject to stock options under
the Company's Director Stock Option Plan and Employee Stock Option
Plan, which are presently exercisable or exercisable within 60 days of
March 17, 1997.
MEETINGS OF THE BOARD OF DIRECTORS AND COMMITTEES
The Board of Directors held eight meetings during 1996. The Board of
Directors has standing Executive, Audit, Compensation and Stock Option
Committees. During 1996, each of the directors, except Mr. Gates, attended 75%
or more of the aggregate of the total number of meetings of the Board and the
committees on which they served.
EXECUTIVE COMMITTEE
The Executive Committee may exercise all of the powers and authority of
the Board of Directors in the management of the business and affairs of the
Company, subject to certain statutory and other
7
<PAGE>
limitations. Members of the Executive Committee are: Chairman Frederic C.
Hamilton, Charles C. Gates, Jay A. Precourt, Robert G. Stone, Jr. and Ronald F.
Walker. The Executive Committee held no meetings in 1996.
AUDIT COMMITTEE
The Audit Committee reviews and makes recommendations to the Board of
Directors concerning employment of the independent certified public accountants
and other services related to the audit; reviews the scope and results of the
audit with the independent certified public accountants; considers the adequacy
of the internal accounting and auditing procedures of the Company; and reviews
the non-audit services to be performed by the independent certified public
accountants and considers the effect of such performance on their independence.
The Audit Committee also meets periodically with:
a. The Company's independent certified public accountants to
review the Company's accounting policies, internal controls
and other accounting and auditing matters;
b. The Company's chief financial officer to review the Company's
accounting policies, the results of the annual audit and the
Company's periodic financial statements; and
c. The Company's legal counsel to review outstanding and
potential litigation, regulatory proceedings and other
significant legal matters.
Members of the Audit Committee are: Chairman A.J. Miller, Charles C.
Gates and Robert G. Stone, Jr. The Audit Committee met three times in 1996.
COMPENSATION COMMITTEE
The Compensation Committee reviews the compensation received by the
officers, other senior level employees and directors of the Company and
recommends to the Board of Directors and the Stock Option Committee the forms
and amounts of compensation, including bonuses and the granting of options under
the Company's Employee Stock Option Plan. Members of the Compensation Committee
are: Chairman Frederic C. Hamilton, A.J. Miller, Robert G. Stone, Jr. and Ronald
F. Walker. The Compensation Committee met one time in 1996. The Subcommittee of
the Compensation Committee, created in March 1997, administers certain aspects
of the Company's Annual Incentive Plan. Members of the Subcommittee are A.J.
Miller, Robert G. Stone, Jr. and Ronald F. Walker.
STOCK OPTION COMMITTEE
The Stock Option Committee reviews and grants options under the
Company's employee stock option plan, in coordination with the Compensation
Committee. Members of the Stock Option Committee are: Chairman Robert G. Stone,
Jr., Ronald F. Walker, and Arthur L. Kelly. The Stock Option Committee met one
time in 1996.
NOMINATING COMMITTEE
The Board of Directors has no nominating committee.
8
<PAGE>
COMPENSATION OF DIRECTORS
The aggregate amount of directors' fees paid for meetings in 1996 was
$118,000. Each director, other than those who are regularly employed officers of
the Company, receives an annual cash retainer of $10,000, an annual grant of
Common Stock with a value of $10,000 (described below), a fee of $1,000 for each
Board meeting or Executive Committee meeting attended and $500 for each other
committee meeting attended. As described below, two directors elected to receive
shares of Common Stock in lieu of the annual cash retainer fee. In addition, the
Chairman of the Audit Committee and the Chairman of the Compensation Committee
each receive a fee of $750 each quarter for their chairmanships. The Company
also reimburses directors for travel and related expenses incurred in attending
meetings of the Board of Directors or its committees.
Pursuant to the Director Stock Award Plan, each nonemployee director of
the Company is awarded a number of shares of Common Stock on July 19 of each
year equal to (i) $10,000, divided by (ii) the fair market value (determined in
accordance with such plan) per share of Common Stock on such date (with cash in
lieu of fractional shares), and is entitled to elect to receive shares of Common
Stock in lieu of their annual cash retainer (currently $10,000). Pursuant to the
terms of the Director Stock Award Plan, each eligible director was awarded 275
shares of Common Stock on July 19, 1996. In addition, Mr. Gates and Mr. Walker
each elected to receive 466 shares of Common Stock in 1996 in lieu of the
quarterly payments of their annual cash retainer for the last three quarters of
1996.
Nonemployee directors of the Company are eligible to participate in the
Director Stock Option Plan (the "Director Plan"). Pursuant to the terms of the
Director Plan, on March 13, 1992, each of the six eligible directors was granted
an initial option to purchase 24,750 shares of Common Stock (after adjustment to
reflect stock splits and stock dividends). Individuals who subsequently become
nonemployee directors of the Company are automatically granted an initial option
to purchase 24,750 shares of Common Stock on the first business day after the
annual meeting of stockholders in the year in which they are eligible to receive
an option. On the first business day following the Company's annual meeting of
stockholders of each year following the grant of the initial option, each
incumbent nonemployee director is granted an additional option to purchase 2,475
shares of Common Stock. Except for the options granted in 1992 (which had
exercise prices as designated in the Director Plan), each option granted
pursuant to the Director Plan has an exercise price per share equal to the
market value of a share of Common Stock on the date the option is granted. Each
option granted subsequent to 1992 becomes exercisable, on a cumulative basis, in
five equal installments, with the first installment becoming exercisable six
months after the date of grant and the remaining four installments exercisable
annually beginning on the first anniversary of the grant date. None of the
options currently outstanding may be exercised after seven years from the date
of grant. See Proposal 2 for a description of proposed amendments to the
Director Plan.
PROPOSAL 1.
ELECTION OF DIRECTORS
The Company's Board of Directors is divided into three classes. Each
year the directors in one class are elected to serve for terms of three years.
All of the persons named below have served as a director of the Company since
1988, the year of the Company's inception, except for Arthur L. Kelly who began
service as a director in February 1996. The Board of Directors has nominated
Messrs. Frederic C. Hamilton, Jay A. Precourt, and Charles C. Gates for election
as directors at the 1997 annual meeting. Each of the nominees is currently a
director of the Company. Each director elected in 1997 will
9
<PAGE>
serve until the annual meeting in the year 2000 and their respective successors
are duly elected and qualified, or until their earlier resignation or removal.
If no direction to the contrary is given, all proxies received by the
Board of Directors will be voted "FOR" the election as directors of Messrs.
Frederic C. Hamilton, Jay A. Precourt and Charles C. Gates. In the event that
any nominee is unable or declines to serve, the proxy solicited herewith may be
voted for the election of another person in his stead at the discretion of the
proxy holders. The Board of Directors knows of no reason to anticipate that this
will occur.
DIRECTORS WHOSE TERMS EXPIRE AT THE 1997 ANNUAL MEETING
POSITIONS AND OFFICES
NAME AGE WITH THE COMPANY
---- --- ---------------------
Frederic C. Hamilton (1) 69 Chairman of the Board and Director (a)(b)
Jay A. Precourt (2) 59 Vice Chairman of the Board,
Chief Executive Officer,
President and Director (a)
Charles C. Gates (3) 75 Director (a)(c)
DIRECTORS WHOSE TERMS EXPIRE AT THE 1998 ANNUAL MEETING
POSITIONS AND OFFICES
NAME AGE WITH THE COMPANY
---- --- ---------------------
A.J. Miller (4) 56 Director (b)(c)
Arthur L. Kelly (5) 59 Director (d)
DIRECTORS WHOSE TERMS EXPIRE AT THE 1999 ANNUAL MEETING
POSITIONS AND OFFICES
NAME AGE WITH THE COMPANY
---- --- ---------------------
Robert G. Stone, Jr. (6) 74 Director (a)(b)(c)(d)
Ronald F. Walker (7) 58 Director (a)(b)(d)
(a) Member of Executive Committee
(b) Member of Compensation Committee
(c) Member of Audit Committee
(d) Member of Stock Option Committee
(1) Mr. Hamilton has been Chairman of the Board of the Company since its
formation. Mr. Hamilton has also been Chairman of the Board of certain
significant subsidiaries of the Company since inception of those
subsidiaries. Mr. Hamilton serves as Chairman of The Hamilton
Companies. He was formerly Chairman of the Board, President and Chief
Executive Officer of BHP Petroleum, Hamilton Oil Company and various
Hamilton Oil Corporation subsidiaries and affiliates. He is a director
of the
10
<PAGE>
United States Trust Company of New York, the American Petroleum
Institute and is a member of the National Petroleum Council. Mr.
Hamilton is Chairman of the Denver Art Museum, the Denver Art Museum
Foundation, and the Graland Foundation, and a trustee of the Boy's Club
Foundation and the Boy Scouts of America Denver Foundation. He is also
a director of various private companies.
(2) Mr. Precourt has been the Vice Chairman and Chief Executive Officer of
the Company since its formation. He was elected as President of the
Company on October 3, 1996. He is currently a director of Dresser
Industries, Inc., Founders Funds Inc. and The Timken Company. He is
also a director of the American Business Conference in Washington,
D.C., as well as a director of the Alley Theater in Houston and a
member of the Advisory Board of the SW CEO Council.
(3) Mr. Gates has been the Chief Executive Officer and a director of Cody
Company, and a director of its subsidiary, Cody Energy, Inc., companies
engaged in the production and marketing of oil and gas, since 1992. He
has been Chairman of Gates Capital Management, L.L.C., a company
engaged in asset management services, since 1996. He served as Chairman
of the Board of The Gates Corporation, a company primarily engaged in
the manufacture of automotive and industrial belts and hoses, for more
than five years until his retirement in January 1997. Prior to July
1991, Mr. Gates was a director of Hamilton Oil Corporation. Mr. Gates
is currently a Trustee of the California Institute of Technology and of
Colorado Outward Bound. He is a trustee of the Denver Museum of Natural
History and the Denver Art Museum Foundation. He also serves as
President of the Gates Foundation Board of Trustees.
(4) Mr. Miller is associated with The Hamilton Companies, a private company
that specializes in co- ventures which build up long-term value, since
January 1995. Mr. Miller was formerly a director of Hamilton Oil
Company, Inc. since July 1991. Prior to July 1991, he was Executive
Vice President, Chief Financial Officer and Treasurer of Hamilton Oil
Corporation.
(5) Mr. Kelly is the Managing Partner of KEL Enterprises L.P., a holding
and investment partnership in Chicago, a position he has held since
1982. Mr. Kelly was formerly the senior partner responsible for
international operations of the management consulting firm A. T.
Kearney, Inc. where he was employed from 1959 to 1975, and was later
President of LaSalle Steel Company where he was employed from 1975 to
1981. He is a director of Bayerische Motoren Werke (BMW) A.G., Deere &
Co., Nalco Chemical Company, Northern Trust Corporation, Snap-On
Incorporated and Thyssen Industrie AG. He also serves as a member of
the Board of Trustees of The University of Chicago, as Chairman of the
Board of Directors of ARCH Development Corporation, as a member of the
Board of Directors of the Chicago Council on Foreign Relations, and as
a member of the Advisory Council of the Ditchley Foundation.
(6) Mr. Stone has been Chairman of the Board and a director of Kirby
Corporation, a company primarily engaged in marine transportation and
diesel repair, for more than the past five years. He is also a director
of The Japan Fund, Inc., various funds managed by Scudder, Stevens &
Clark, Inc., Tandem Computers Incorporated, Core Industries, Inc.,
Russell Reynolds Associates, Inc., NovaCare, The Chubb Corporation,
Corning, Inc. and The Pittston Company. Prior to July 1991, he was a
director of Hamilton Oil Corporation. Mr. Stone is Chairman of the
Board and a Trustee of the Mystic Seaport Museum. He is also a Trustee
of The International House (Life Trustee) and the National Rowing
Foundation and a Fellow of Harvard College.
(7) Mr. Walker is Vice Chairman and a director of Great American Insurance
Company, a wholly owned subsidiary of American Financial Group. Mr.
Walker was President, Chief Operating Officer and a director of
American Financial Corporation, a holding company, for more than five
11
<PAGE>
years ending April 1995. Mr. Walker was President and Chief Operating
Officer of The Penn Central Corporation for approximately five years,
ending February 1992. He was President, Chief Executive Officer and a
director of General Cable Corporation, a company primarily engaged in
the manufacture of wires and cables, for approximately two years ending
in June 1994. Mr. Walker is also a director of American Financial
Enterprises, Inc., American Annuity Group, Inc., and Chiquita Brands
International, Inc.
THE BOARD OF DIRECTORS RECOMMENDS A VOTE "FOR" THE ELECTION OF MESSRS.
HAMILTON, PRECOURT AND GATES TO THE BOARD OF DIRECTORS. THE THREE DIRECTORS WILL
BE ELECTED BY A PLURALITY OF THE VOTES CAST BY HOLDERS OF SHARES OF COMMON STOCK
PRESENT OR REPRESENTED AND ENTITLED TO VOTE AT THE MEETING.
EXECUTIVE OFFICERS
The following table lists the persons currently serving as the
executive officers of the Company who have been nominated for re-election to
such positions at the first directors' meeting to be held following the annual
meeting of stockholders. If elected, the persons named below are expected to
serve in the position stated until the first directors' meeting following the
1998 annual meeting of stockholders and until their successors are duly elected
and qualified or until their earlier resignation or removal. Messrs. Hamilton
and Precourt have served as officers since 1988. Mr. Whalen was employed as an
officer of the Company in August 1992, Mr. Joyce was employed as an officer of
Acadian Gas Corporation, a subsidiary of the Company, in December 1990, Mr.
Lannie was employed as an officer of the Company in February 1994, Mr. Street
was employed as an officer of the Company in December 1995, and Mr. Whittinghill
was employed as an officer of Acadian Gas Pipeline System, a subsidiary of the
Company, in January 1991.
<TABLE>
<CAPTION>
NAME AGE CAPACITIES IN WHICH SERVED
<S> <C> <C>
Frederic C. Hamilton 69 Chairman of the Board
Jay A. Precourt 59 Vice Chairman of the Board,
Chief Executive Officer and President
James W. Whalen 55 Senior Executive Vice President, Chief Financial
Officer and Treasurer
Rene R. Joyce 49 Senior Executive Vice President;
President of Transok, Inc.
P. Anthony Lannie 43 Senior Vice President, General Counsel and
Secretary
James E. Street 40 Senior Vice President - Human Resources
Frank T. Whittinghill, III 48 Senior Vice President-Commercial Services &
Pipeline Operations of Tejas-Acadian Holding
Company
</TABLE>
See "Election of Directors" for additional information with respect to
Messrs. Hamilton and Precourt.
James W. Whalen was elected as Senior Executive Vice President of the
Company on October 3, 1996 and has served as Chief Financial Officer of the
Company since August 17, 1992 and as Treasurer of the Company since March 17,
1993. From August 1, 1993 to October 3, 1996, he served as Executive Vice
President of the Company. Mr. Whalen was a Vice President of The Coastal
12
<PAGE>
Corporation from July 1986 to August 1992. As a Vice President for The Coastal
Corporation, an integrated energy company, he was responsible for corporate
finance.
Rene R. Joyce has served as Senior Executive Vice President of the
Company since October 3, 1996. He has served as President of Transok, Inc., a
subsidiary of the Company, since June 1996. Mr. Joyce also served as President
of Acadian Gas Corporation, a subsidiary of the Company, from December 1990
until November 1996.
P. Anthony Lannie has served as Senior Vice President, General Counsel
and Secretary of the Company since February 7, 1994. From October 1991 through
January 1994, Mr. Lannie was Vice President, General Counsel and Secretary of
Baroid Corporation, an oil field services company. Prior to joining Baroid, Mr.
Lannie was Executive Vice President and a director of Greyhound Lines, Inc., a
nationwide bus transportation company, and certain affiliated companies from
1987 to 1991. As Executive Vice President of Greyhound Lines, Inc., Mr. Lannie
was responsible for corporate staff functions, including the legal department.
James E. Street has served as Senior Vice President - Human Resources
of the Company since December 9, 1995. From October 1993 to October 1995, Mr.
Street was President of BRI, a benefits and compensation consulting firm, and
was also employed at Enron Corp., an integrated energy company, and Dean Witter
Reynolds Inc., a financial services company, as a result of prior agreements and
joint business relationships with BRI. Prior to forming BRI, Mr. Street was Vice
President, Human Resources and a corporate officer of Enron Corp., where he was
responsible for the human resources function of the corporation from 1989 to
1993. He was employed by Enron Corp. from 1979 to 1993.
Frank T. Whittinghill, III has served as Senior Vice
President-Commercial Services & Pipeline Operations of Tejas-Acadian Holding
Company, a subsidiary of the Company, since its formation in December 1994. Mr.
Whittinghill has also served as Executive Vice President of Acadian Gas
Corporation, a subsidiary of the Company, since September 1, 1993, and as
Executive Vice President of Acadian Gas Pipeline System, a subsidiary of the
Company, for more than five years.
EMPLOYMENT CONTRACTS AND TERMINATION OF EMPLOYMENT AND CHANGE IN CONTROL
ARRANGEMENTS
The Board of Directors has authorized the Company to enter into
severance agreements with certain employees of the Company, including the
executive officers listed in the Summary Compensation Table set forth below,
which will provide severance benefits in the event of the involuntary
termination of the individual's employment or a reduction in authority,
compensation or responsibility following or in connection with a change in
control of the Company. Severance benefits are expected to include payment of a
lump sum to the covered employee based upon a multiple of annual compensation.
Terms of the severance agreements have not been finalized as of the date of this
Proxy Statement and the actual terms of the arrangements may vary from this
description.
The Tejas Gas Corporation Employee Stock Option Plan (as amended as
described in Proposal 3) provides that all outstanding stock options shall
become immediately exercisable, whether or not then exercisable, upon the
occurrence of the following events: the acquisition of more than 50% of the
Company's Common Stock by any person other than Charles C. Gates, Frederic C.
Hamilton, Jay A. Precourt, or affiliates thereof, or if all or substantially all
of the assets of the Company are acquired by any person, or if the Company
adopts a plan of liquidation. See Proposal 3 for a description of an amendment
to the Employee Stock Option Plan which modifies this provision to conform to
the foregoing description.
13
<PAGE>
EXECUTIVE COMPENSATION
GENERAL
The Summary Compensation Table sets forth individual compensation
information for the Chief Executive Officer and the four other most highly paid
executive officers of the Company for services rendered in all capacities to the
Company and its subsidiaries during the fiscal years ended December 31, 1996,
1995, and 1994. The table discloses the annual salary, bonuses and other
compensation awards and payouts to the named executive officers.
SUMMARY COMPENSATION TABLE*
<TABLE>
<CAPTION>
ANNUAL COMPENSATION
-------------------
(A) (B) (C) (D) (E) (F)
LONG TERM
COMPENSATION
AWARDS
SECURITIES ALL OTHER
NAME AND PRINCIPAL POSITION YEAR SALARY BONUS UNDERLYING COMPENSATION
($) ($) OPTIONS ($)
(1) (#) (2)
--------------------------- ---- ------ ----- ------------ ------------
<S> <C> <C> <C> <C> <C>
Jay A. Precourt 1996 $499,992 $480,000 150,001 $140,618
Vice Chairman of the Board, Chief 1995 $400,000 $ 0 48,291 $127,772
Executive Officer and President 1994 $354,591 $305,726 36,134 $ 4,500
James W. Whalen 1996 $246,664 $247,000 40,000 $ 7,650
Senior Executive Vice President, 1995 $224,167 $ 0 17,708 $ 6,725
Chief Financial Officer 1994 $214,167 $190,000 13,860 $ 6,425
and Treasurer
Rene R. Joyce (3) 1996 $282,043 $282,000 15,000 $ 83,461
Senior Executive Vice President 1995 $254,010 $111,790 57,300 $ 7,620
1994 $243,873 $ 27,655 10,575 $ 7,316
P. Anthony Lannie (4) 1996 $208,458 $167,000 10,500 $ 5,493
Senior Vice President, General 1995 $186,875 $ 0 8,250 $ 5,606
Counsel and Secretary 1994 $161,654 $115,000 23,925 $ 4,850
Frank T. Whittinghill, III (3)
Senior Vice President-Commercial 1996 $208,708 $166,000 10,125 $ 6,261
Services & Pipeline Operations of 1995 $189,000 $ 0 17,588 $ 5,670
Tejas-Acadian Holding Company 1994 $181,167 $ 100,000 7,068 $ 5,435
==================================== ============ =============== =============== ================== ==================
</TABLE>
_________________
* The number of options has been adjusted for a three-for-two split of
Common Stock implemented in April 1996 and a stock dividend of
one-tenth of a share of Common Stock paid in July 1995.
(1) The "bonus" amounts in 1996 are the cash awards that were earned in
1996 but will be paid in 1997 and 1998 to the named executive officers
pursuant to an annual incentive compensation plan (the "Annual
Incentive Plan"), under which a participant may receive incentive
compensation in addition to base salary, subject to the attainment of
stated performance goals, based on the
14
<PAGE>
participant's level of authority and responsibility and a determination
of individual performance during the year. Plan participants and
performance goals are established annually by the Compensation
Committee of the Board of Directors upon review of recommendations made
by management. Under the Annual Incentive Plan, participants are
eligible to receive payments if the Company meets minimum performance
goals with payments increasing as these goals are exceeded by
predetermined margins. Prior to 1997, there has been no formal plan
document relating to the Annual Incentive Plan. See Proposal 4 for a
description of the modified Annual Incentive Plan. In 1996, the
performance goals were based on a combination of factors including the
Company's earnings per share and the Company's earnings before
deduction of certain expenses. With respect to the "bonus" amounts in
1996, the named executive officers were paid 50% in February 1997, and
will be paid 50% in January 1998. With respect to the "bonus" amounts
in 1995, Mr. Joyce was paid 50% in March 1996, and 50% in January 1997.
With respect to the "bonus" amounts in 1994, Messrs. Precourt, Whalen,
Lannie and Whittinghill were paid 50% in March 1995 and were paid 50%
in January 1996, and Mr. Joyce was paid 72% in March 1995 and 28% in
January 1996.
(2) The amounts in this column are amounts contributed or accrued by the
Company under the Company's Thrift Plan, as supplemented by the Thrift
Benefits Restoration Plan, on behalf of the named executive officers.
The Company has established a life insurance plan providing for split-
dollar life insurance to be maintained for certain executive officers
and key employees who elected not to participate in the Company's
benefit restoration plans. Mr. Precourt was the only officer to elect
to receive the split-dollar life insurance coverage during 1996 in lieu
of benefits restoration. The premiums paid by the Company on behalf of
Mr. Precourt were $136,118 in 1996. Mr. Joyce received $75,000 in 1996
as a relocation incentive in connection with his move to Tulsa,
Oklahoma.
(3) Messrs. Joyce and Whittinghill previously acquired phantom equity
rights ("Equity Rights") in Acadian Gas Corporation, a subsidiary of
the Company, and options to purchase Equity Rights ("Equity Rights
Options") pursuant to the terms of Executive Incentive Agreements
executed in March 1991, as amended (the "Acadian Rights Agreements").
During 1995, the Acadian Rights Agreements were terminated, the Equity
Rights Options were cancelled and Messrs. Joyce and Whittinghill were
granted 44,403 options and 8,580 options (each as adjusted for a stock
split and stock dividend), respectively, to acquire Common Stock (the
underlying securities of which are included in column (e)) pursuant to
Termination and Grant Agreements executed in October 1995. In addition,
during 1995 Messrs. Joyce and Whittinghill transferred their Equity
Rights to the Company in exchange for 6,540 shares and 4,708 shares
(each as adjusted for a stock split and stock dividend), respectively,
of Common Stock pursuant to Exchange Agreements executed in July 1995.
The value of such shares of Common Stock at the time of the award of
$197,730 and $142,365, respectively, was intended to approximate the
value of the Equity Rights exchanged for such shares (based on the book
value of such Equity Rights as of December 31, 1994).
(4) Mr. Lannie became an executive officer of the Company on February 7,
1994.
OPTIONS GRANTED
The following table discloses, for each of the persons listed in the
Summary Compensation Table, information concerning options granted during 1996.
Options were granted to executive officers under the Tejas Gas Corporation
Employee Stock Option Plan. In addition to the number of options granted, the
table discloses the percent the grant represents of total options granted to
employees during the year, the
15
<PAGE>
exercise price, the market price of the Common Stock on the date of grant, the
expiration date and the present value on the grant date.
OPTIONS GRANTED IN 1996*
<TABLE>
<CAPTION>
INDIVIDUAL GRANTS
(A) (B) (C) (D) (E) (F)
NUMBER OF PERCENT OF TOTAL EXERCISE PRICE EXPIRATION GRANT DATE
NAME SECURITIES OPTIONS GRANTED ($/SH) DATE PRESENT VALUE
UNDERLYING TO EMPLOYEES IN ($)
OPTIONS GRANTED 1996 (2) (3)
(#)(1)
---- --------------- ---------------- -------------- ---------- -------------
<S> <C> <C> <C> <C> <C>
Jay A. Precourt 50,001 11.3% $32.4167 02-08-2003 $622,516
50,000 11.3% $35.6587 02-08-2003 $554,688
50,000 11.3% $39.2240 02-08-2003 $488,042
James W. Whalen 15,000 3.3% $32.4167 02-08-2003 $186,751
15,000 3.3% $35.6587 02-08-2003 $166,406
10,000 2.2% $35.0000 09-12-2003 $147,071
Rene R. Joyce 15,000 3.3% $32.4167 02-08-2003 $186,751
P. Anthony Lannie 10,500 2.3% $32.4167 02-08-2003 $130,726
Frank T. Whittinghill, III 10,125 2.2% $32.4167 02-08-2003 $126,057
============================ =================== =================== ================= ================ =================
</TABLE>
* The number of shares and related information have been adjusted for the
three-for-two stock split of Common Stock implemented in April 1996.
(1) The options included in the table were granted to Messrs. Precourt,
Joyce, Lannie and Whittinghill on February 8, 1996, and to Mr. Whalen
on February 8, 1996 (options for 30,000 shares) and September 12, 1996
(options for 10,000 shares). The options have exercise prices equal to
the closing price of the Common Stock on the New York Stock Exchange
Composite Tape on the applicable grant date, except that two-thirds of
the options granted to Mr. Precourt on February 8, 1996 and one-half of
the options granted to Mr. Whalen on February 8, 1996 have exercise
prices greater than such closing price. The options become exercisable
in 20% increments commencing on the date of grant, subject to the terms
of the plan. Thus, one-fifth of the options becomes exercisable on the
applicable grant date and on the anniversary date of the applicable
grant date in each of 1997, 1998, 1999 and 2000.
(2) In the event that the fair market value of the Company's Common Stock
is ever less than the exercise price of an option, the Stock Option
Committee of the Board of Directors has the authority under the Tejas
Gas Corporation Employee Stock Option Plan to cancel such option and
grant a new option to the optionee for the same number of shares and at
a new exercise price. If this should occur, the Company would receive
less for the stock and the employee more upon sale. This has never been
done in the past at the Company, and the Stock Option Committee has no
present intention of doing so in the future.
16
<PAGE>
(3) The value has been calculated using a variation of the Black-Scholes
stock option valuation methodology. The applied model uses the grant
dates specified in footnote (1) and the exercise prices specified in
the table for each grant. It assumes a standard deviation of
approximately 21.82% for the February 8 grants and approximately 22.24%
for the September 12 grant, a risk- free rate of return of 5.45% for
the February 8 grants and 6.61% for the September 12 grant, and no
dividend yields. Options have an exercise period of seven years. The
model assumes that all options are held until the expiration date, then
exercised. No reduction has been made in the valuations on account of
restricted transferability of the options or vesting or forfeiture
provisions. The actual value, if any, an executive may realize will
depend on the excess of the stock price over the exercise price on the
date the option is exercised. There is no assurance that the value
realized will be at or near the value estimated by the Black-Scholes
model.
AGGREGATE OPTIONS EXERCISED
The following table sets forth, for each of the persons listed in the
Summary Compensation Table, certain information concerning unexercised stock
options held at December 31, 1996. None of the persons listed in such table
exercised stock options during 1996.
AGGREGATED OPTION EXERCISES IN 1996 AND 1996 YEAR-END OPTION VALUES*
<TABLE>
<CAPTION>
(A) (b) (c) (d) (e)
Shares Value Number of Securities Value of Unexercised
NAME Acquired Realized Underlying In-the-Money
on ($) Unexercised Options Options at 12/31/96
Exercise at 12/31/96 ($)
(#) (#) (1)
---- -------- -------- --------------------- ---------------------
Exercisable Unexercisable Exercisable Unexercisable
<S> <C> <C> <C> <C> <C> <C>
Jay A. Precourt 0 0 150,478 175,184 $3,965,539 $2,584,378
James W. Whalen 0 0 89,563 50,480 $2,795,568 $ 816,067
Rene R. Joyce 0 0 51,592 53,064 $1,161,543 $ 869,084
P. Anthony Lannie 0 0 19,755 22,920 $ 307,901 $ 374,360
Frank T. Whittinghill, III 0 0 21,798 22,829 $ 510,181 $ 404,534
============================ ============ ============ ============= ================ =============== ================
</TABLE>
* The number of shares and related information have been adjusted for the
three-for-two split of Common Stock implemented in April 1996.
(1) Based on the closing price of the Company's Common Stock on the New
York Stock Exchange Composite Tape at year-end (column (e)) minus the
exercise price.
PENSION PLAN
Company employees are covered by a defined benefit pension plan, the
Tejas Gas Corporation Pension Plan (the "Pension Plan"), that provides benefits
under a formula based on final average compensation, which is the average of the
highest 60 consecutive months in the last 120 months of
17
<PAGE>
employment prior to termination. In addition, the Company has adopted a
supplemental retirement plan (the "Pension Benefits Restoration Plan") designed
to assure payments to certain employees of that retirement income which would
have been provided under the Pension Plan except for the dollar limitation on
accrued benefits imposed by the Internal Revenue Code of 1986, as amended (the
"Code"). The following table sets forth estimated annual benefits payable upon
retirement at age 65 under the Pension Plan and Pension Benefits Restoration
Plan for specified earnings and years of service classification.
PENSION PLAN TABLE
<TABLE>
<CAPTION>
YEARS OF PENSIONABLE SERVICE (1)
REMUNERATION 15 20 25 30 35
<S> <C> <C> <C> <C> <C>
$150,000.................. $ 31,552 $ 42,070 $ 52,587 $ 59,354 $ 66,122
$200,000.................. $ 42,802 $ 57,070 $ 71,337 $ 80,604 $ 89,872
$300,000.................. $ 65,302 $ 87,070 $108,837 $123,104 $137,372
$400,000.................. $ 87,802 $117,070 $146,337 $165,604 $184,872
$500,000.................. $110,302 $147,070 $183,837 $208,104 $232,372
$600,000.................. $132,802 $177,070 $221,337 $250,604 $279,872
$700,000.................. $155,302 $207,070 $258,837 $293,104 $327,372
$800,000.................. $177,802 $237,070 $296,337 $335,604 $374,872
$900,000.................. $200,302 $267,070 $333,837 $378,104 $422,372
================================= ================ =============== ================= ================= ============
</TABLE>
________________
(1) The qualified pension plan limits compensation in accordance with
Section 401(a)(17) of the Code and also limits benefits in accordance
with Section 415 of the Code. Pension benefits based on compensation
above the qualified plan limit or in excess of the limit on annual
benefits are provided through the Pension Benefits Restoration Plan.
The formula for calculating pension benefits is 1% of final average
earnings times years of pensionable service up to 25 years, plus .5% of final
average earnings for years of pensionable service in excess of 25 years, plus
.5% of final average earnings in excess of Covered Compensation (as defined by
the Social Security Act) times years of pensionable service up to 35 years. The
Pension Plan provides for 100% vesting after five years of vesting service but
no vesting prior thereto. Benefits payable are not subject to any deductions for
Social Security or other offset amounts.
The amounts eligible for benefits under the Pension Plan and the
Pension Benefits Restoration Plan in 1996 for Messrs. Precourt, Whalen, Joyce,
Lannie, and Whittinghill were $658,855, $347,664, $426,593, $271,958 and
$264,708, respectively. The amounts shown are based on cash compensation
actually paid in 1996 (which includes incentive award amounts earned in prior
years but not paid until 1996) versus compensation earned in 1996, as set forth
in the Summary Compensation Table (some of which will not be paid until 1997 and
1998). For purposes of the Pension Plan, Messrs. Precourt, Whalen, Lannie and
Whittinghill have 8, 4, 2 and 6 years of accrued pensionable service,
respectively, and 27, 4, 3 and 19 years of vesting service, respectively, as of
December 31, 1996. Mr. Joyce was covered under the Acadian Gas Pipeline System
Pension Plan ("Acadian Pension Plan") which was merged into the Tejas
18
<PAGE>
Gas Corporation Pension Plan on September 1, 1991. As a result, as of December
31, 1996, Mr. Joyce has 11 years of accrued pensionable service for purposes of
computing the portion of his pension benefits accrued under the Acadian Pension
Plan benefit formula and 5 years of accrued pensionable service under the Tejas
Pension Plan benefit formula and 16 years of vesting service.
PERFORMANCE GRAPH
The following performance graph compares the performance of the
Company's Common Stock to the S&P 500 index and to the Dow Jones Pipelines
Industry Group Weighted Index for the period commencing December 31, 1991 and
ending December 31, 1996. The graph assumes that the value of the investment in
the Company's Common Stock and each index was $100 at December 31, 1991 and that
all dividends were reinvested. Other than dividends payable in Common Stock, the
Company has paid no dividends on its Common Stock.
[LINEAR GRAPH PLOTTED FROM DATA IN TABLE BELOW]
1991 1992 1993 1994 1995 1996
---- ---- ---- ---- ---- ----
Tejas Gas $100 $154 $357 $340 $415 $561
Pipelines $100 $121 $154 $151 $208 $284
S&P 500 $100 $108 $119 $120 $165 $203
Assumes $100 Invested on 12/31/91 in Company Common Stock,
S&P 500 Index, and Dow Jones Pipeline Industry Group Weighted Index
BASED ON 12/31 YEAR END VALUES
19
<PAGE>
BOARD COMPENSATION COMMITTEE REPORT ON EXECUTIVE COMPENSATION
The Company's executive compensation program is administered by the
Compensation Committee of the Board of Directors. The Committee is composed
entirely of directors who are not eligible to participate in any of the employee
plans the Committee administers.
Since its inception, the Company has maintained the philosophy that
compensation of its executive officers and its other employees should be
directly and materially linked to operating performance. It is a historical
fact, therefore, that in years when the Company has had extraordinary success,
its officers have been well compensated and in less profitable years, the
officers' pay has been negatively impacted to a substantial degree.
The Board of Directors structured the Company's executive compensation
policies with the following objectives:
o To ensure that there is an appropriate linkage between
executive compensation and the creation of stockholder value;
o To ensure that the total program is designed to attract,
motivate and retain executives of outstanding abilities;
o To ensure the competitiveness of current cash and equity
incentive opportunities;
o To ensure an appropriate mix of salary versus bonus
opportunity; and
o To ensure pay for performance through an appropriate annual
bonus plan, including financial performance measures.
The Company attempts to provide its executives with a total
compensation package that, at expected levels of performance, is competitive
with those provided to executives who hold comparable positions or have similar
qualifications in other organizations of its size in general industry, the
energy industry and the pipeline industry. The Company uses data for such
industry groups rather than the companies included in the indexes shown on the
Performance Graph for purposes of setting competitive compensation levels
because the Company believes it is competitive in a broader market than that
represented by such companies. The Company estimates an executive's competitive
level of compensation based on information drawn from a variety of sources,
including proxy statements, special surveys, and compensation consultants. This
information is used in creating the basic structure of the program. However, the
Company has established a philosophy of generally providing conservative base
salaries and placing more emphasis on incentive compensation opportunities in
order to strongly emphasize pay-for- performance. As a result, the value of an
executive's compensation package will vary significantly based on performance.
So while the expected value of an executive's compensation package may be
competitive, its actual value will, of course, exceed or fall below competitive
levels depending on performance.
The Company's incentive plans are largely designed to ensure that
incentive compensation varies in a manner consistent with the financial
performance of the Company. It should be noted, however, that the Company's
various incentive plans each serve somewhat different purposes and, as such,
employ different measures of financial performance and cover different periods
of time. Accordingly, an executive's total compensation will not typically vary
based on any single measure of Company performance over a particular period of
time. The Company also believes that effectively rewarding
20
<PAGE>
individual performance will ultimately serve to enhance the financial
performance of the Company. So while the Company's incentive plans provide
compensation that varies with financial performance, they also provide for
individual awards that are based on both quantitative and qualitative
assessments of Company and individual performance in a given year.
DESCRIPTION OF THE EXECUTIVE COMPENSATION PROGRAM
This section describes each of the principal elements of the Company's
executive compensation program with specific references to the objectives
discussed above.
The objective of the Company's base salary program for key management
positions is to provide base salaries that are consistent with the 50th
percentile market rate for companies similar in size to the Company. The
Compensation Committee believes it is crucial to provide salaries within a
competitive market range in order to attract and retain managers who are highly
talented. The specific competitive markets considered depend on the nature and
level of the positions in question and the labor markets from which qualified
individuals would be recruited. Base salary levels are also dependent on the
performance of each individual employee over time. Thus, employees with higher
levels of performance sustained over time will be paid correspondingly higher
salaries. Annual salary adjustments are based on general levels of market salary
increases, individual performance, and the Company's overall financial results.
All base salary increases are based on a philosophy of pay-for-performance.
The objectives of the Annual Incentive Plan are to motivate and reward
the accomplishment of Company annual objectives. As a pay-for-performance plan,
cash incentive awards are paid upon the achievement of performance objectives
established for the calendar year and an assessment of management's
contributions to the Company for the year. The performance objectives are
determined each year based on goals established by the Compensation Committee
and using information supplied by management. Targeted annual incentive awards
are determined for plan eligible positions each year using comparative data to
establish the 50th percentile market rate. Actual annual incentive awards to
eligible Company managers are based on various Company and individual
performance measures. The Company performance measures considered in 1996
include Company earnings per share growth (weighted 50%) and Company growth in
earnings before interest, taxes, depreciation, and amortization ("EBITDA",
weighted 50%). For the purposes of determining the target annual incentive
awards for 1996, the Compensation Committee established growth goals of 20% in
net earnings and 10% in EBITDA. Annual incentive awards to eligible Company
managers are capped at a maximum level regardless of how much the Company may
exceed the established targets. In addition, no annual incentive awards are paid
under the Annual Incentive Plan unless certain minimum growth standards are
equaled or exceeded except as determined by the Compensation Committee.
Individual performance is also assessed in both a quantitative and qualitative
fashion for purposes of determining annual incentive awards. The key factor
considered in this assessment is the extent to which the individual contributed
to the Company's business success in his or her area of responsibility. However,
individual performance is not assessed using a specific formula. The
Compensation Committee expects performance goals to change over time, subject to
the terms of the Annual Incentive Plan. Prior to 1997, there has been no formal
plan document relating to the Annual Incentive Plan. Beginning in calendar year
1997, the Company has modified the Annual Incentive Plan and has prepared a
formal plan document to be presented for approval by the Company's stockholders.
See Proposal 4 for a description of the Annual Incentive Plan.
The Company's current long-term incentive plan, the Employee Stock
Option Plan, is a non-qualified stock option plan. Stock options are the only
long-term incentive device used by the Company because they most clearly align
the interests of employees and stockholders by providing value to the employee
when the stock price increases. All options granted prior to 1997 have terms of
seven (7) years
21
<PAGE>
and are fully exercisable within a vesting schedule determined by the Stock
Option Committee. The exercise price is payable in cash, shares of Company
stock, broker-financed cash-less exercise, or some combination of these
approaches. No option holder has any rights as a stockholder for any shares
subject to an option until the exercise price has been paid and the shares are
issued to the optionee. The Company's overall stock option grant levels are
established by considering competitive market data on grant levels, at the
market 50th percentile, and an appropriate overall level of shares reserved for
such plans. Individual option grants are based on the position of each
participant in the Company and individual performance. The Employee Stock Option
Plan is to be amended for calendar year 1997, subject to approval of the
Company's stockholders. See Proposal 3 for a description of the proposed
amendment and restatement of the Employee Stock Option Plan.
The executive compensation program is reviewed periodically to ensure
an appropriate mix of base salary, annual bonus, and long-term rewards within
the philosophy of providing competitive total direct compensation opportunities.
1996 COMPENSATION FOR THE CHIEF EXECUTIVE OFFICER
As described above, the Company manages its compensation for all
executives, including the Chief Executive Officer (the "CEO"), considering both
a pay-for-performance philosophy and market rates of compensation for the job.
Specific actions taken by the Compensation Committee regarding the CEO's
compensation are summarized below.
BASE SALARY - The CEO's salary was $499,992 in 1996. In 1996, the CEO's salary
was increased to bring it closer to the 50th percentile market rate for his
position at companies of comparable size and to recognize continued strong
Company performance. The performance criteria used in establishing the size of
the CEO's salary increase in 1996 included growth in earnings per share, growth
in EBITDA, and progress made toward successfully implementing the Company's
business strategy.
ANNUAL INCENTIVE - The Annual Incentive Plan award earned by Mr. Precourt for
1996 performance was $480,000. The target incentive award for the CEO in 1996
was 60% of base pay with a maximum of 120% of base pay. For the purposes of
determining the target annual incentive awards, the Compensation Committee
established growth goals of 20% in net earnings per share and 10% in EBITDA. In
1996, the Company's growth exceeded the maximum threshold levels set for the
plan. The Compensation Committee elected to award Mr. Precourt $480,000 as a
result of such outstanding growth.
STOCK OPTIONS - A total of 150,001 non-qualified stock options (after adjustment
to reflect a three-for-two stock split) were granted to Mr. Precourt in 1996.
One third of the options were granted with exercise prices equal to the fair
market value of the shares of Common Stock on the date of grant and two-thirds
of the options were granted with exercise prices in excess of the fair market
value of the shares of Common Stock on the date of grant. The size and terms of
the award were determined based on the Compensation Committee's development of a
retention policy based upon a comparison of retention arrangements at other
companies. Due to the magnitude of the 1996 option grant, no option grants are
currently planned to be made to the CEO during 1997 or 1998, unless the
Company's circumstances change or market developments dictate otherwise. The
performance sensitivity of the grant is built into the option concept, since the
options produce no income for the recipient unless the Company's share price
rises.
TAX CODE LIMITATION ON DEDUCTION OF EXECUTIVE COMPENSATION
In 1993, Congress enacted Section 162(m) of the Internal Revenue Code
to limit the corporate deduction to one million dollars ($1,000,000) for
compensation paid to a person who on the last day of
22
<PAGE>
fiscal years beginning on or after January 1, 1994, is either the Chief
Executive Officer or among the four most highly compensated officers other than
the Chief Executive Officer ("Covered Employees"), subject to certain transition
rules and exceptions for non-discretionary, performance-based compensation paid
under a plan approved by the stockholders. Stock option exercises under the
Company's Employee Stock Option Plan qualify as performance-based compensation.
In the absence of stockholder approval and certain other requirements of Section
162(m), bonuses paid under the Annual Incentive Plan are ineligible for the
performance-based compensation exception of Section 162(m). Although the
Committee does not anticipate that other compensation in 1997 will exceed the
limit, the Company has modified the Annual Incentive Plan in a manner that is
responsive to Section 162(m) and the Annual Incentive Plan is being presented to
the stockholders of the Company for approval. See Proposal 4 for a description
of the Annual Incentive Plan. The Committee will also retain the discretion to
pay non-deductible compensation if that would be in the best interests of the
Company and stockholders under the circumstances.
By: Compensation Committee of the Board of Directors
Frederic C. Hamilton, Chairman
A.J. Miller
Robert G. Stone, Jr.
Ronald F. Walker
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION
The members of the Compensation Committee are Frederic C. Hamilton,
A.J. Miller, Robert G. Stone, Jr. and Ronald F. Walker. Mr. Hamilton is Chairman
of the Board of Directors of the Company, but is not an employee of the Company.
Messrs. Hamilton and Miller hold director and officer positions with F.C.H.
Operating Company ("F.C.H."), an entity that has a relationship with the
Company, as described immediately below. No executive officer of the Company has
(i) served as a member of the Compensation Committee of another entity, one of
whose executive officers served on the Compensation Committee of the Company,
(ii) served as a director of another entity, one of whose executive officers
served on the Compensation Committee of the Company (other than the relationship
with F.C.H. described below), or (iii) served as a member of the Compensation
Committee of another entity, one of whose executive officers served as a
director of the Company.
F.C.H. CONSULTANCY AGREEMENT
In January 1995, the Company entered into a Consultancy Agreement with
F.C.H. which provides that F.C.H., on a best efforts basis, will provide the
Company with services relating to risk management and related matters, and
secretarial services. Subject to the terms of the Consultancy Agreement, F.C.H.
will provide services as requested by the Company on terms and conditions agreed
to by the parties. F.C.H. is compensated at a rate of $4,350 per month for these
services. The Company will pay for risk management services that exceed 500
hours per year on the basis of actual time expended at a rate sufficient to
cover salary, benefits and overhead. The Consultancy Agreement may be terminated
by either party upon 60 days prior notice. The Company paid $47,850 to F.C.H. in
1996 pursuant to the Consultancy Agreement.
Mr. Hamilton, who is a director of the Company and the Chairman of the
Company's Board of Directors, is a director and the President of F.C.H. and Mr.
Miller, who is a director of the Company, is a director and the Vice President
and Treasurer of F.C.H. Mr. Hamilton owns all of the stock of F.C.H.
23
<PAGE>
As of March 17, 1997, Mr. Hamilton beneficially owned 7 percent of the Company's
outstanding Common Stock.
CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
GAS PURCHASE AGREEMENT
Cody Energy Inc. ("Cody") is a producer and marketer of oil and gas,
and sells gas to Tejas Gas Marketing Company ("Tejas Gas Marketing"), a wholly
owned indirect subsidiary of the Company, under a Gas Purchase Agreement
originally entered into between Arco Natural Gas Marketing, Inc. ("Arco") as
seller and Exxon Gas System, Inc. ("Exxon") as buyer. Cody subsequently acquired
the interests of Arco, and the Company subsequently acquired the interests of
Exxon. The gas sold by Cody and bought by Tejas Gas Marketing is from the
Pledger Field in Brazoria County, Texas. Sales during 1996 under the Gas
Purchase Agreement totaled $217,632. Further sales are expected in 1997 and
beyond.
Mr. Gates, who is a director of the Company, is a director of and holds
a substantial interest in, Cody Company, the parent of Cody. Mr. Gates is the
Chief Executive Officer and a director of Cody Company and a director of Cody.
As of March 17, 1997, Mr. Gates beneficially owned 8.6 percent of the Company's
outstanding Common Stock.
See "COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION" for
information regarding certain other relationships involving the Company.
OTHER MATTERS
During a strike by its drivers, Greyhound Lines, Inc. and its
affiliated companies, including BusLease, Inc., corporations for which P.
Anthony Lannie, Senior Vice President, General Counsel and Secretary of the
Company, was serving as Executive Vice President and a director, filed petitions
for reorganization under Chapter 11 of the U.S. Bankruptcy Code in 1990 and
emerged from bankruptcy under plans of reorganization approved in 1991.
PROPOSAL 2.
PROPOSAL TO APPROVE THE TEJAS GAS CORPORATION
AMENDED AND RESTATED DIRECTOR STOCK OPTION PLAN
GENERAL
In May 1992, the stockholders of the Company adopted the Tejas Gas
Corporation Director Stock Option Plan (as subsequently amended by the First
Amendment effective March 13, 1992 and by Amendment dated December 9, 1995, the
"Prior Director Plan"). Subject to the approval of the stockholders of the
Company, the Board of Directors amended and restated the Prior Director Plan
effective as of January 1, 1997 (as so amended and restated, the "Restated
Director Plan"). Where the descriptions contained in this section of the Proxy
Statement are applicable to the Prior Director Plan and have not been modified
by the Restated Director Plan, the Tejas Gas Corporation Director Stock Option
Plan is sometimes referred to as the "Director Plan." The description of the
Restated Director Plan set forth below addresses the principal modifications to
the Prior Director Plan that would result if the stockholders approve the
Restated Director Plan. Such description is a summary and does not purport to be
complete and is subject
24
<PAGE>
in all respects to, and qualified by reference to, the provisions of the
Restated Director Plan, a copy of which is annexed hereto as Annex A.
DESCRIPTION OF THE RESTATED DIRECTOR PLAN
PURPOSE AND ELIGIBILITY
The purpose of the Restated Director Plan will continue to be to
encourage ownership in the Company by nonemployee directors, including the
Chairman of the Board of Directors (the "Chairman"), and to strengthen the
Company's ability to attract and retain nonemployee directors with appropriate
experience and ability. The Chairman and directors of the Company who are not
employees of the Company or any affiliate of the Company are eligible to
participate in the Director Plan ("Eligible Directors").
STOCK OPTION AWARDS
Each Eligible Director serving on the Board of Directors at January 1,
1997 has been awarded an initial grant of options to purchase 24,750 shares of
Common Stock (as adjusted for stock splits and a stock dividend) under the
Director Plan. Each Eligible Director will be granted annually, on the first
business day following the Company's Annual Meeting of Stockholders ("Annual
Grant Date"), an option (a "Director Option") to purchase 2,475 shares of Common
Stock; provided that any Eligible Director who has not previously received an
initial Director Option under the Director Plan will receive instead an initial
grant on the first such Annual Grant Date of a Director Option to purchase
24,750 shares of Common Stock. Director Options granted prior to January 1, 1997
are exercisable at the price established at the time of grant as adjusted for
stock splits and stock dividends prior to January 1, 1997. All other Director
Options granted under the Director Plan permit the recipient to purchase shares
of Common Stock at an exercise price per share equal to the fair market value of
a share of Common Stock on the date the Director Option is granted.
NUMBER OF SHARES SUBJECT TO RESTATED DIRECTOR PLAN
Giving effect to previous stock splits and a stock dividend, the
Director Plan will continue to provide that the total number of shares of Common
Stock that may be optioned thereunder must not exceed 317,790 (subject to
certain adjustments as described below). Such number consists of 184,140 shares
of Common Stock subject to outstanding options granted under the Director Plan
as of December 31, 1996, and 133,650 shares of Common Stock reserved under the
Director Plan as of December 31, 1996 and available for grant. The next grant of
Director Options will be made on May 9, 1997. The closing price for the Common
Stock on March 17, 1997 was $44 7/8.
CERTAIN ADJUSTMENTS
The Restated Director Plan provides that (i) the number of shares of
Common Stock reserved for issuance under the Director Plan, (ii) the number of
shares of Common Stock issuable pursuant to options granted under the Director
Plan (whether granted before or after the event triggering the adjustment) and
(iii) the per share exercise price of options awarded under the Director Plan
prior to the event triggering the adjustment are subject to proportionate
adjustment to reflect the occurrence of certain events, including a subdivision
or consolidation of outstanding shares of Common Stock, a dividend payable in
shares of Common Stock or a transaction effecting a change in the number of
shares of Common Stock outstanding. Equitable adjustments will also be made to
give proper effect to a merger or consolidation of the Company and certain other
corporate events.
25
<PAGE>
EXERCISE AND TERM OF OPTIONS
The Restated Director Plan continues to provide that each Director
Option granted under the Director Plan becomes exercisable, on a cumulative
basis, in five equal installments, with the first installment becoming
exercisable six months after the date of grant and the remaining four
installments exercisable annually beginning on the first anniversary of the
grant date. Under the Restated Director Plan, the exercise price of the Director
Options is payable (i) in cash, (ii) in shares of Common Stock previously held
by the director for at least six months valued at fair market value, (iii) by
surrendering all or any part of that or any other option to purchase Common
Stock valued at fair market value or (iv) by any combination thereof. The Prior
Director Plan does not provide for payment of the exercise price of Director
Options by means of surrendering options.
The Restated Director Plan continues to provide that on (i) the
execution of and stockholder approval of an agreement relating to (a) a merger
or consolidation of the Company where the Company is not the surviving
corporation or becomes a subsidiary of another corporation party to the
agreement of merger or consolidation or (b) the sale or disposition of all or
substantially all of the assets of the Company (except with respect to a sale or
distribution to certain specified persons) or (ii) a change in control of the
Company (except with respect to increased ownership of voting securities by
certain specified persons), all outstanding Director Options will immediately
become fully vested and exercisable. The Restated Director Plan modifies the
Prior Director Plan by naming an additional individual to, and removing two
entities that no longer hold a significant interest in the Company from, the
list of specified persons who, regardless of increases in their level of
ownership in the Company's securities or assets, will not be considered to
trigger the immediate vesting of options described in this paragraph.
The Prior Director Plan provides that in the event of termination of
service as a director, except by reason of retirement, disability or death, the
outstanding Director Options held by such individual will expire three months
after termination, or on their stated maturity, whichever occurs first, and may
be exercised only to the extent that they were exercisable on the date of
termination. The Prior Director Plan provides that in the event of termination
of service by reason of retirement or disability, each of the outstanding
Director Options held by such individual will terminate five years after
retirement or disability and will continue to vest and be exercisable in
accordance with their terms prior to such date. In the event of the death of a
director, each of the outstanding Director Options granted under the Prior
Director Plan held by such individual will vest in full and become exercisable
by the individual's legal representative during the five-year period following
death, subject to certain limitations. The Restated Director Plan modifies the
foregoing provisions to provide that in the event of termination of service by
reason of retirement or disability, each of the outstanding Director Options
held by such individual will expire within the following periods after
termination, or on their stated maturity, whichever occurs first, and may be
exercised only to the extent that they were exercisable on the date of
termination: (i) with respect to retirement or termination by the Company for
any reason other than for cause, thirty days after termination, and (ii) with
respect to disability, three months after termination. Under the Restated
Director Plan, if a director's service is terminated because of his death, then
any Director Option held by such director will be exercisable, to the extent it
was exercisable as of the date of such director's death for 12 months from the
date of such director's death or, if sooner, until its stated expiration date.
Director Options that were not exercisable as of the date of the director's
death will be forfeited and may not be exercised. If a director's service
terminates for any reason other than death, disability, retirement or
involuntary termination (except for involuntary termination for cause), the
Restated Director Plan provides that any Director Options that were unexercised
as of the date of termination will be forfeited and no longer subject to
exercise. These modifications apply only to options granted on or after January
1, 1997.
26
<PAGE>
The Restated Director Plan provides that Director Options will expire
ten years from the date of grant (subject to earlier expiration as provided in
the Director Plan), modifying the Prior Director Plan's seven year limitation
for the exercise of the Director Options. This modification applies only to
options granted after January 1, 1997.
TRANSFER OF OPTIONS
Under the Prior Director Plan, Director Options may not be transferred
other than by will or by the laws of descent and distribution. The Restated
Director Plan expands the transferability of Director Options by providing that
any Director Option may be transferred by the optionee to (i) specified family
members of the optionee (children and grandchildren), (ii) a trust or trusts for
the exclusive benefit of such family members, or (iii) a partnership or
partnerships in which such family members have at least 99% of the equity,
profit and loss interests, provided that (x) the stock option agreement pursuant
to which the options were granted (or an amendment thereto) must expressly
provide for transferability of the options, (y) subsequent transfers of
transferred options are prohibited except by will or the laws of descent and
distribution (unless such transfers are made to the original optionee or a
person to whom the original optionee could have made a transfer in accordance
with the Restated Director Plan) and (z) certain other conditions are met.
Following such a transfer, the transferred options will continue to be subject
to the same terms and conditions as were applicable immediately prior to
transfer. The Restated Director Plan further provides that (i) the term
"optionee" is also deemed to refer to the transferee of the options and (ii) the
events of termination of service on the Board of Directors described above under
"--EXERCISE AND TERM OF OPTIONS" will continue to be applied with respect to
each original optionee, following which the options will be exercisable by the
transferee only to the extent and for the periods specified therein.
ADMINISTRATION AND AMENDMENT
Under the Restated Director Plan, the Board of Directors will continue
to have complete authority to administer the Restated Director Plan, subject to
compliance with its terms, and is permitted at any time to terminate, amend or
modify it, except that no amendment, modification or termination of the Director
Plan may adversely affect any Director Option granted prior to such amendment,
modification or termination without the consent of the optionee. The Restated
Director Plan modifies the Prior Director Plan by (i) removing the requirements
of the Prior Director Plan that no revision or amendment be made without
stockholder approval that would change the number of shares subject to the Prior
Director Plan (except to reflect certain corporate events as provided in Section
8 of the Prior Director Plan), change the designation of the class of directors
eligible to receive options, or materially increase benefits accruing to
participants under the Prior Director Plan and (ii) removing the requirements of
the Prior Director Plan that the provisions relating to the class of persons
eligible to participate in the Prior Director Plan and the amount, price, and
timing of awards not be amended more than once every six months except to the
extent necessary to comply with changes in the Internal Revenue Code of 1986, as
amended (the "Code"), the Employee Retirement Income Security Act, as amended,
or the rules promulgated thereunder. Generally, these changes remove
restrictions that were required in order to comply with old Rule 16b-3
promulgated under Section 16 of the Securities Exchange Act of 1934, as amended
(the "Exchange Act"). New Rule 16b-3 no longer imposes these requirements.
TERMINATION
The Restated Director Plan will terminate when all Common Stock subject
to the plan is subject to an option to purchase, unless earlier discontinued by
the Board of Directors.
27
<PAGE>
FEDERAL INCOME TAX TREATMENT
Director Options are intended to be non-qualified options for federal
income tax purposes. Upon the exercise of a non-qualified option, the Eligible
Director will recognize ordinary income in an amount equal to the difference
between the fair market value of the shares on the date of exercise and the
exercise price. The Company will be entitled to an income tax deduction in an
amount equal to the amount of ordinary income recognized by the director. This
tax information is only a summary, does not purport to be complete and does not
cover, among other things, state and local tax treatment of participation in the
Director Plan.
INTEREST OF CERTAIN PERSONS IN THE RESTATED DIRECTOR PLAN
Nonemployee directors of the Company will be the recipients of benefits
under the Restated Director Plan. Six persons, Messrs. Frederic C. Hamilton,
Charles C. Gates, Arthur L. Kelly, A.J. Miller, Robert G. Stone, Jr., and Ronald
F. Walker, will continue to be Eligible Directors on the effective date of the
Restated Director Plan. See "--PURPOSE AND ELIGIBILITY." Each of these Eligible
Directors will receive Director Options covering 2,475 shares of Common Stock on
the Annual Grant Date for 1997.
SUMMARY OF PRINCIPAL MODIFICATIONS FROM PRIOR DIRECTOR PLAN
The Restated Director Plan modifies the Prior Director Plan in the
following principal respects: (i) it allows for payment of the exercise price of
the Director Options to be made by the surrender of in-the-money options to
purchase Common Stock (see "--EXERCISE AND TERM OF OPTIONS"); (ii) for Director
Options granted on or after January 1, 1997, it increases from seven years to
ten years the period within which Director Options may be exercised (see
"--EXERCISE AND TERM OF OPTIONS"); (iii) it permits lifetime transfers of
Director Options to certain specified transferees (see "--TRANSFER OF OPTIONS");
(iv) it permits the Board of Directors to revise or amend the Director Plan
without stockholder approval with respect to certain items that under the Prior
Director Plan required stockholder approval (see "--ADMINISTRATION AND
AMENDMENT"); and (v) for Director Options granted on or after January 1, 1997,
it decreases the periods after termination of service during which options will
be exercisable and provides that such options cease to vest as of the date of
termination of service (see "--EXERCISE AND TERM OF OPTIONS"). Each of the
modifications to the Director Plan listed in this paragraph is more fully
described above under the captions identified.
STOCKHOLDER APPROVAL
If the Restated Director Plan is not approved by the stockholders, the
Prior Director Plan will remain in full force and effect, and all Director
Options granted under the Restated Director Plan will be subject to the terms
and conditions of the Prior Director Plan. If approved, the modifications made
by the Restated Director Plan will apply both to outstanding options and options
granted on or after January 1, 1997, except options granted before January 1,
1997 (i) will continue to expire seven years from the date of grant and (ii)
will continue to be subject to the post-termination exercise periods and vesting
terms in effect prior to the modifications to those items described under
"--EXERCISE AND TERM OF OPTIONS". The modifications regarding the events
triggering accelerated exercisability of Director Options under Section 5.E of
the Restated Director Plan will apply only to Director Options granted on or
after January 1, 1997 unless the optionees holding options outstanding prior to
that date expressly consent to the amendment of their outstanding options to
reflect such modifications.
28
<PAGE>
THE BOARD OF DIRECTORS RECOMMENDS A VOTE "FOR" THE ADOPTION OF THE
RESTATED DIRECTOR PLAN. THE AFFIRMATIVE VOTE OF THE HOLDERS OF A MAJORITY OF THE
OUTSTANDING SHARES PRESENT, OR REPRESENTED AND ENTITLED TO VOTE, AT THE MEETING
IS REQUIRED TO APPROVE THE ADOPTION OF THE RESTATED DIRECTOR PLAN.
PROPOSAL 3.
PROPOSAL TO APPROVE THE TEJAS GAS CORPORATION
AMENDED AND RESTATED EMPLOYEE STOCK OPTION PLAN
GENERAL
In 1988, the stockholders of the Company adopted a stock option plan
that is now called the Tejas Gas Corporation Employee Stock Option Plan (as
subsequently amended and restated effective July 21, 1992 and as amended by
Amendments dated December 9, 1995, the "Prior Employee Plan"). Subject to the
approval of the stockholders of the Company, the Board of Directors amended and
restated the Prior Employee Plan effective as of January 1, 1997 (as so amended
and restated, the "Restated Employee Plan"). Where the descriptions contained in
this section of the Proxy Statement are applicable to the Prior Employee Plan
and have not been modified by the Restated Employee Plan, the Tejas Gas
Corporation Employee Stock Option Plan is sometimes referred to as the "Employee
Plan." The description of the Restated Employee Plan set forth below addresses
the principal modifications to the Employee Plan that would result if the
stockholders approve the Restated Employee Plan. Such description is a summary
and does not purport to be complete and is subject in all respects to, and
qualified by reference to, the provisions of the Restated Employee Plan, a copy
of which is annexed hereto as Annex B.
DESCRIPTION OF THE RESTATED EMPLOYEE PLAN
PURPOSE
The purpose of the Restated Employee Plan will continue to be to
attract, retain and motivate executive officers and other employees of the
Company and its subsidiaries and to encourage stock ownership by such employees
by providing them with a means to acquire a proprietary interest or to increase
their proprietary interest in the Company.
ADMINISTRATION
The Stock Option Committee of the Board of Directors (the "Stock Option
Committee") is responsible for the administration of the Employee Plan. The
Restated Employee Plan modifies the Prior Employee Plan by removing the
requirements that (i) the Stock Option Committee be composed of at least three
members of the Board of Directors who meet the requirements of the definition of
"disinterested person" in old Rule 16b-3 promulgated under the Exchange Act,
(ii) no member of the Stock Option Committee be eligible to receive an option to
purchase Common Stock under the Employee Plan (an "Employee Option") and (iii)
no person become a member of the Stock Option Committee if, within one year
prior to becoming a member, that person has been eligible for selection as a
person to whom Employee Options could have been granted pursuant to the Employee
Plan. Currently, the Stock Option Committee is comprised of Chairman Robert G.
Stone, Jr., Ronald F. Walker and Arthur L. Kelly.
29
<PAGE>
The Restated Employee Plan continues to provide that the Company will
indemnify members of the Stock Option Committee against certain claims or losses
that may be incurred by such members in connection with their administration of
the Employee Plan.
ELIGIBILITY
Each officer and employee of the Company or a subsidiary of the Company
who, in the opinion of the Stock Option Committee, has an opportunity to
influence the long-term success of the Company or its subsidiaries is eligible
to participate in the Restated Employee Plan ("Eligible Employees"). The Stock
Option Committee determines, in compliance with the provisions of the Employee
Plan, the Eligible Employees to whom, and the time or times at which, Employee
Options will be granted. The Restated Employee Plan modifies the Prior Employee
Plan by changing the definition of "subsidiary" for certain purposes, including
for purposes of eligibility under the Restated Employee Plan, to specifically
include wholly or partially owned partnerships, joint ventures, limited
liability companies, corporations and other forms of investment by the Company.
The Prior Employee Plan defines subsidiary to correspond with the meaning of
such term in Section 425 of the Code.
OPTION GRANTS
Subject to the total share limits described below under "--NUMBER OF
SHARES SUBJECT TO RESTATED EMPLOYEE PLAN AND NUMBER OF PARTICIPANTS", Employee
Options may be granted to Eligible Employees at any time and from time to time
as the Stock Option Committee determines and the number of Employee Options
granted to each optionee, the number of shares of Common Stock subject to such
Employee Options and the exercise price to be paid by the optionee with respect
to such shares will be within the complete discretion of the Stock Option
Committee. The Restated Employee Plan modifies the Prior Employee Plan by
providing that, notwithstanding the provisions described in the immediately
preceding sentence, (i) no optionee may be granted Employee Options under the
Restated Employee Plan for more than 200,000 shares of Common Stock in any
calendar year (subject to adjustment as provided in "--CERTAIN ADJUSTMENTS"
described below) and (ii) no Employee Option may have an exercise price that is
less than the fair market value of the Common Stock on the date of grant. These
two changes were made in response to Section 162(m) of the Code.
NUMBER OF SHARES SUBJECT TO RESTATED EMPLOYEE PLAN AND NUMBER OF PARTICIPANTS
After giving effect to previous stock splits and a stock dividend, the
Restated Employee Plan provides that the total number of shares of Common Stock
that may be optioned thereunder must not exceed 2,235,592 (subject to certain
adjustments as described below). Such number consists of 985,650 shares of
Common Stock subject to outstanding options granted under the Employee Plan as
of December 31, 1996, 299,942 shares of Common Stock reserved under the Employee
Plan as of December 31, 1996 and available for grant, and an additional 950,000
shares of Common Stock reserved under the Restated Employee Plan and available
for grant that represents an increase in the total number of shares that may be
optioned under the Prior Employee Plan. Of the number of shares available for
grant under the Prior Employee Plan as of December 31, 1996, Employee Options
for 114,950 shares of Common Stock were granted in February and March 1997. The
Restated Employee Plan provides that shares of Common Stock withheld or
surrendered upon exercise to satisfy tax withholding requirements will be
available for re-grant. The approximate number of persons who are likely to be
selected to participate in the Restated Employee Plan in 1997 is 60. For
information concerning the grant of Employee Options in 1996 under the Prior
Employee Plan, see the "Plan Benefits Table" set forth below.
30
<PAGE>
CERTAIN ADJUSTMENTS
The Restated Employee Plan continues to provide that (i) the number of
shares of Common Stock that is reserved for issuance under the Employee Plan,
(ii) the number of shares of Common Stock issuable pursuant to Employee Options
granted under the Employee Plan before the event triggering the adjustment and
(iii) the per share exercise price of Employee Options previously awarded under
the Employee Plan are subject to proportionate adjustment to reflect the
occurrence of certain events, including a subdivision or consolidation of
outstanding shares of Common Stock, a dividend payable in shares of Common Stock
or a transaction effecting a change in the number of shares of Common Stock
outstanding. Equitable adjustments will also be made to give proper effect to a
merger or consolidation of the Company and certain other corporate events.
MERGER OR CONSOLIDATION
If the Company is the surviving corporation in any merger,
consolidation or reorganization in which holders of shares of Common Stock
receive other securities in exchange for their Common Stock, Employee Options
granted under the Employee Plan will pertain and apply to securities to which a
holder of the number of shares of Common Stock subject to the Employee Option
would have been entitled. If the Company is not the surviving corporation, the
Board of Directors or any corporation assuming the obligations of the Company
under the Employee Plan will either (i) substitute the securities of the
surviving corporation for such stock underlying unexercised Employee Options
under the Employee Plan as may be necessary to preserve the optionees'
proportionate interests and preserve, without exceeding, the value of the
Employee Options under the Employee Plan or (ii) provide that the Employee
Options will be fully exercisable immediately before such merger, consolidation
or reorganization.
EXERCISE AND TERM OF OPTIONS
Each Employee Option is exercisable at the times specified by the Stock
Option Committee at the time the Employee Option is granted; provided however,
that an optionee may exercise an Employee Option in full, whether or not it is
then exercisable, upon the occurrence of such circumstance or event which, in
the sole discretion of the Stock Option Committee, merits special consideration,
or upon a "change in control" of the Company. A "change in control" of the
Company would occur if any persons (other than certain excluded individuals)
become the beneficial owners of more than 50% of the voting securities entitled
to vote generally in the election of directors, (ii) if all or substantially all
of the assets of the Company are acquired by any person (other than certain
excluded individuals), or (iii) if the Company adopts a plan of liquidation. The
Restated Employee Plan modifies the Prior Employee Plan by naming an additional
individual to, and removing two entities that no longer hold a significant
interest in the Company from, the list of specified persons who, regardless of
increases in their level of ownership in the Company's securities or assets,
will not be considered to have effected a change in control of the Company.
The exercise price of an Employee Option will be determined by the
Stock Option Committee at the time the Employee Option is granted, although the
exercise price may not be less than the fair market value of the Common Stock on
the date of grant. The Restated Employee Plan provides that the exercise price
for Employee Options may be paid (i) in cash, (ii) by tendering Common Stock
previously owned having a fair market value equal to the aggregate exercise
price, (iii) upon approval by the Stock Option Committee, by surrendering all or
part of that or any other Employee Option valued at fair market value on the
date of exercise or (iv) by any combination thereof. The Prior Employee Plan
does not provide for payment of the exercise price of Employee Options by means
of surrendering Employee Options.
31
<PAGE>
Under the Restated Employee Plan, if an optionee's service is
terminated because of his death, then an Employee Option held by such optionee
will be exercisable, to the extent it was exercisable as of the date of such
optionee's death (unless the Stock Option Committee, either before or after such
death, provides that the Employee Option will become immediately exercisable),
for 12 months from the date of such optionee's death or, if sooner, until its
stated expiration date. The Stock Option Committee may extend the exercise
period of the Employee Option beyond 12 months so long as the exercise period
does not exceed the expiration date of the Employee Option. Employee Options
that were not exercisable as of the date of the optionee's death will be
forfeited and may not be exercised, unless the Stock Option Committee provides
otherwise. The Prior Employee Plan, unlike the Restated Employee Plan, does not
permit the Stock Option Committee to (i) determine that an Employee Option will
become immediately exercisable upon the death of the optionee, (ii) extend the
12-month period within which an Employee Option may be exercised after the death
of the optionee or (iii) provide that Employee Options not exercisable on the
date of the optionee's death will not be forfeited.
The Restated Employee Plan continues to provide that, if an optionee
terminates his service because of his disability, then his Employee Option will
be exercisable to the extent it was exercisable as of the date of the optionee's
termination for three months from the date of such optionee's termination or, if
sooner, until its stated expiration date. Employee Options that were not
exercisable as of the date of such termination will be forfeited and no longer
subject to exercise.
The Restated Employee Plan continues to provide that, if an optionee
terminates his service because of his normal or early retirement, then his
Employee Option will be exercisable to the extent it was exercisable as of the
date of the optionee's termination for 30 days from the date of such optionee's
termination or, if sooner, until its stated expiration date. The Restated
Employee Plan modifies the Prior Employee Plan by providing that Employee
Options of an optionee whose service to the Company is terminated involuntarily
(other than for cause by the Company) will be exercisable in the same manner
described above for termination of service for normal or early retirement.
Except as otherwise provided in the Employee Plan, Employee Options that were
not exercisable as of the date of such termination will be forfeited and no
longer subject to exercise.
If an optionee's service terminates for any reason other than death,
disability, retirement or involuntary termination (except for involuntary
termination for cause), any Employee Options that were unexercised as of the
date of termination will be forfeited and no longer subject to exercise, except
as expressly provided otherwise in the Restated Employee Plan.
The Restated Employee Plan provides that the Stock Option Committee may
grant Employee Options that expire ten years from the date of grant, modifying
the Prior Employee Plan's seven year limitation for the exercise of Employee
Options. This modification applies only to options granted after January 1,
1997.
CANCELLATION OF PREVIOUSLY GRANTED OPTIONS
In the event that the fair market value of the Company's Common Stock
is ever less than the exercise price of an Employee Option, the Stock Option
Committee has the authority to cancel such option and grant a new Employee
Option to the optionee for the same number of shares and at a new exercise
price.
32
<PAGE>
TRANSFER OF OPTIONS
Under the Prior Employee Plan, Employee Options may not be transferred
other than by will or by the laws of descent and distribution. The Restated
Employee Plan expands the transferability of Employee Options by providing that,
subject to approval by the Stock Option Committee, all or any portion of an
Employee Option may be transferred by the optionee to (i) specified family
members of the optionee (children and grandchildren), (ii) a trust or trusts for
the exclusive benefit of such family members, or (iii) a partnership or
partnerships in which such family members have at least 99% of the equity,
profit and loss interests, provided that (x) the stock option agreement pursuant
to which the options were granted (or an amendment thereto) must expressly
provide for transferability of the options, (y) subsequent transfers of
transferred options are prohibited except by will or the laws of descent and
distribution (unless such transfers are made to the original optionee or a
person to whom the original optionee could have made a transfer under the
Restated Employee Plan) and (z) certain other conditions are met. Following such
a transfer, the transferred options will continue to be subject to the same
terms and conditions as were applicable immediately prior to transfer. The
Restated Employee Plan further provides that (i) the term "optionee" is also
deemed to refer to the transferee of the options and (ii) the events of
termination of service described above under "--EXERCISE AND TERM OF OPTIONS"
will continue to be applied with respect to each original optionee, following
which the options will be exercisable by the transferee only to the extent and
for the periods specified therein.
AMENDMENT, MODIFICATION AND TERMINATION
The Restated Employee Plan permits the Board of Directors to terminate,
amend or modify the Employee Plan; provided that no amendment, modification, or
termination of the Restated Employee Plan may adversely affect any Employee
Option granted prior to such amendment, modification or termination without the
consent of the optionee. The provisions of the Restated Employee Plan with
respect to amendment and termination modify the corresponding provisions of the
Prior Employee Plan by removing the requirements of the Prior Employee Plan that
no termination, amendment or modification be made without stockholder approval
that would (i) increase the total number of shares reserved for the purposes of
the Prior Employee Plan, except as specified therein with regard to a capital
change of the Company; (ii) change the class of individuals eligible to receive
Employee Options; (iii) permit any person, while a member of the Stock Option
Committee, to be eligible to receive an option under the Prior Employee Plan;
(iv) materially increase the cost of the Prior Employee Plan; (v) extend the
period during which Employee Options may be granted; or (vi) extend the maximum
period after the date during which Employee Options may be exercised. Generally,
these changes remove restrictions that were required in order to comply with old
Rule 16b-3 promulgated under Section 16 of the Exchange Act. New Rule 16b-3 no
longer imposes these requirements.
The Restated Employee Plan continues to provide that it will terminate
when all Common Stock subject to the Plan is subject to an option to purchase,
unless earlier discontinued by the Board of Directors. The Restated Employee
Plan removes the additional requirement of the Prior Employee Plan that no
Employee Option be granted after August 31, 1998.
FEDERAL INCOME TAX TREATMENT
Employee Options are intended to be non-qualified options for federal
income tax purposes. Upon the exercise of a non-qualified option, the Eligible
Employee recognizes ordinary income in an amount equal to the difference between
the fair market value of the shares on the date of exercise and the exercise
price. The Company will be entitled to a tax deduction in an amount equal to the
amount of ordinary income recognized by the Eligible Employees. This tax
information is only a summary, does not purport
33
<PAGE>
to be complete and does not cover, among other things, state and local tax
treatment of participation in the Employee Plan.
SUMMARY OF PRINCIPAL MODIFICATIONS FROM PRIOR EMPLOYEE PLAN
The Restated Employee Plan modifies the Prior Employee Plan in the
following principal respects: (i) it alters the provisions regarding the
composition of the Stock Option Committee, the eligibility of persons to serve
on the Stock Option Committee and the eligibility of members of the Stock Option
Committee to receive Employee Options under the Employee Plan (see
"--ADMINISTRATION"); (ii) it changes the definition of "subsidiary" for certain
purposes, including for purposes of eligibility under the Restated Employee
Plan, to specifically include wholly or partially owned partnerships, joint
ventures, limited liability companies, corporations and other forms of
investment by the Company (see "--ELIGIBILITY"); (iii) it adds the requirement
that no optionee be granted more than 200,000 shares of Common Stock under the
Restated Employee Plan in any calendar year (subject to certain adjustments)
(see "--OPTION GRANTS"); (iv) it increases the total number of shares of Common
Stock that may be optioned under the Restated Employee Plan by 950,000 and
provides that shares of Common Stock withheld or surrendered upon exercise to
satisfy tax withholding requirements will be available for re-grant (see
"--NUMBER OF SHARES SUBJECT TO RESTATED EMPLOYEE PLAN AND NUMBER OF
PARTICIPANTS"); (v) it allows for payment of the exercise price of the Employee
Options to be made by the surrender of in-the-money Employee Options (see
"--EXERCISE AND TERM OF OPTIONS"); (vi) it expands the discretion of the Stock
Option Committee to take certain actions with respect to Employee Options held
by an optionee whose service to the Company terminates due to his death (see
"--EXERCISE AND TERM OF OPTIONS"); (vii) it provides different treatment of
Employee Options in the event the optionee's service to the Company is
terminated involuntarily (other than for cause) (see "--EXERCISE AND TERM OF
OPTIONS"); (viii) for Employee Options granted after January 1, 1997 it
increases from seven years to ten years the period within which Employee Options
may be exercised (see "--EXERCISE AND TERM OF OPTIONS"); (ix) it permits
lifetime transfers of Employee Options to certain specified transferees (see
"--TRANSFER OF OPTIONS"); (x) it permits the Board of Directors to revise or
amend the Restated Employee Plan without stockholder approval with respect to
certain items that under the Prior Employee Plan require stockholder approval
(see "--ADMINISTRATION AND AMENDMENT"); and (xi) it eliminates the requirement
that no Employee Option be granted after August 31, 1998 (see "--TERMINATION").
Each of the modifications to the Employee Plan listed in this paragraph is more
fully described above under the captions identified.
STOCKHOLDER APPROVAL
If the Restated Employee Plan is not approved by the stockholders, the
Prior Employee Plan will remain in full force and effect, and all Employee
Options granted under the Restated Employee Plan will be subject to the terms
and conditions of the Prior Employee Plan. If approved, the modifications made
by the Restated Employee Plan will apply both to outstanding options and to
options granted on or after January 1, 1997, except that options granted before
January 1, 1997, will continue to expire seven years from the date of grant. The
modifications to the change in control provisions of Section 13.3 of the
Restated Employee Plan will apply only to options granted on or after January 1,
1997, unless the optionees holding options outstanding prior to that date
expressly consent to the amendment of their outstanding options to reflect such
modifications.
THE BOARD OF DIRECTORS RECOMMENDS A VOTE "FOR" THE ADOPTION OF THE
RESTATED EMPLOYEE PLAN. THE AFFIRMATIVE VOTE OF THE HOLDERS OF A MAJORITY OF THE
OUTSTANDING SHARES PRESENT, OR REPRESENTED AND ENTITLED TO VOTE, AT THE MEETING
IS REQUIRED TO APPROVE THE ADOPTION OF THE RESTATED EMPLOYEE PLAN.
34
<PAGE>
PROPOSAL 4.
PROPOSAL TO APPROVE THE TEJAS GAS CORPORATION
ANNUAL INCENTIVE PLAN
GENERAL
The Company has maintained an annual incentive compensation plan (as
last amended in 1996, the "Annual Incentive Plan") under which a participant may
receive incentive compensation in addition to base salary, subject to the
attainment of stated performance goals, based on the participant's level of
authority and responsibility and a discretionary assessment of individual
performance during the year. Prior to January 1, 1997, the Annual Incentive Plan
had no formal plan document. The Board of Directors of the Company has
reconstituted the Annual Incentive Plan in a written document called the Tejas
Gas Corporation Annual Incentive Plan, incorporating the terms of the Annual
Incentive Plan in effect prior to January 1, 1997 and making certain
modifications thereto responsive to Section 162(m) of the Code. The Board has
recommended the written Annual Incentive Plan for adoption by the stockholders,
as required by Section 162(m). The description of the Annual Incentive Plan set
forth below is a summary and does not purport to be complete and is subject in
all respects to, and qualified by reference to, the provisions of the Annual
Incentive Plan, a copy of which is annexed hereto as Annex C.
ANNUAL INCENTIVE PLAN DESCRIPTION
PURPOSE, ELIGIBILITY AND ADMINISTRATION
The Annual Incentive Plan is designed to recognize, motivate and reward
exceptional accomplishment toward annual corporate objectives; to attract and
retain quality employees; and to be market competitive. Employees of the Company
and its subsidiaries (including the CEO, six other executive officers, and
approximately 840 other employees) are eligible to receive awards under the
Annual Incentive Plan. It is not possible to state which employees will receive
awards under the Annual Incentive Plan in the future or the amounts of such
awards, since these matters will be determined in the future by the Compensation
Committee of the Board of Directors (the "Compensation Committee") or, with
respect to certain designated employees as more fully described below, a
subcommittee of the Compensation Committee comprised of only outside directors
(the "Subcommittee"). However, the Company expects that awards under the Annual
Incentive Plan will be made to all regular full-time and regular part-time
employees. See the Plan Benefits Table set forth below to see the awards granted
in 1996 to certain executive officers, employees and other groups under the
Annual Incentive Plan.
Prior to March 31 of each year, the Subcommittee will endeavor to
designate as a "Designated Covered Employee" any employee it reasonably foresees
may receive awards under the Annual Incentive Plan in amounts that, when
combined with that participant's other non-performance based compensation, would
exceed the limits Section 162(m) of the Code prescribes for corporate income tax
deduction by the Company for compensation and who would be "Covered Employees"
under Section 162(m) of the Code. Covered Employees are those employees whose
compensation is disclosed in the Company's Proxy Statement. The Subcommittee
will administer the Annual Incentive Plan as to Designated Covered Employees,
and the Compensation Committee will administer the Annual Incentive Plan as to
all other employees. All decisions and determinations of the Subcommittee on all
matters relating to Designated Covered Employees under the Annual Incentive Plan
will be conclusive upon ratification by the Compensation Committee. With respect
to administration of the Annual Incentive Plan, the "Applicable
35
<PAGE>
Committee" will hereinafter refer to the Subcommittee as to Designated Covered
Employees and the Compensation Committee as to all other employees.
INDIVIDUAL PERFORMANCE AWARD LEVELS
Prior to March 31 of each year, individual award levels will be
established by the Applicable Committee. The award levels will be expressed as
specified levels of (i) earnings per share before deduction of awards made under
the Annual Incentive Plan and related income taxes ("EPS") and (ii) earnings
before deduction of awards made under the Annual Incentive Plan, interest,
income taxes, depreciation and amortization and, if and to the extent determined
by the Applicable Committee, other financing related expenses ("EBITDA"). Each
performance measure is weighted as determined by the Applicable Committee and
generally reflects an increase in the Company's actual performance from the
previous calendar year. The Applicable Committee establishes three performance
award levels ("threshold," "target" and "stretch" goals). Employees will be
eligible to receive payments based upon a percentage of base salary if the
Company meets the "threshold" performance levels with payments increasing (as a
percentage of base salary) if the "target" or "stretch" performance levels are
met or exceeded. For each calendar year, the Applicable Committee will determine
which employees will receive payments under the Annual Incentive Plan and will
establish the performance award levels and percentages of salary on or before
March 31 of that year. No employee may receive more than $1.5 million under the
Annual Incentive Plan with respect to performance levels attained in any one
calendar year.
PAYMENT OF AWARDS
The Subcommittee may make downward (but not upward) adjustments of the
actual award level from the performance award level for Designated Covered
Employees. For all other employees, the Compensation Committee may make upward
or downward adjustments of the actual award level from the performance award
level based on the employee's performance.
Awards payable under the Annual Incentive Plan will be paid from the
general assets of the Company and may be made in cash or in Common Stock (with
an equivalent fair market value on the date of payment) as determined by the
Applicable Committee. No fund or trust is established or maintained under the
Annual Incentive Plan for the payment of such awards, and no employee will have
an interest in the assets of the Company. Cash payments made under the Annual
Incentive Plan may be deferred according to the terms of the Tejas Gas
Corporation Benefit Restoration Plan and the Tejas Gas Corporation Thrift Plan.
The Applicable Committee will determine the timing of payments under the Annual
Incentive Plan and may elect to make payments over more than one calendar year.
There will be no increase in the amount of payment as a result of any award
being paid in installments, except that the Applicable Committee may increase
such payments by an amount based on a rate of interest that the Applicable
Committee determines to be reasonable or the actual rate of return of a specific
investment.
AMENDMENT
The Applicable Committee may modify or terminate the Annual Incentive
Plan at any time without prior notice to or consent of employees; provided that,
without approval of the stockholders of the Company, no such amendment will be
made that would change the class of employees eligible to receive awards under
the Annual Incentive Plan, base the award on a performance measure other than
EPS and EBITDA, or increase the maximum individual award payment under the
Annual Incentive Plan.
36
<PAGE>
FEDERAL INCOME TAX TREATMENT
The payment of an award under the Annual Incentive Plan will be taxable
to the recipient as ordinary income. Section 162(m) of the Code limits the
corporate income tax deduction for publicly held companies to $1 million in any
tax year for compensation paid to each of the Chief Executive Officer and the
four highest paid executive officers apart from the Chief Executive Officer.
This rule applies to all deductible compensation including the deduction arising
from the payment of annual bonuses such as awards under the Annual Incentive
Plan. Various forms of compensation are exempted from this deduction limitation,
including payments that are (i) subject to the attainment of pre-established
objective performance goals, (ii) established and administered by outside
directors, and (iii) paid under a plan approved by the stockholders. The Board
of Directors expects that payments made under the Annual Incentive Plan to
Designated Covered Employees for 1997 and later years will qualify for exemption
from the operation of Section 162(m) of the Code and, therefore, will qualify as
deductible compensation expense by the Company.
STOCKHOLDER APPROVAL
Awards to Covered Employees are conditioned upon stockholder approval
of the Annual Incentive Plan. If the Annual Incentive Plan is not approved by
the stockholders, the Annual Incentive Plan will be effective only as to
employees who are not Covered Employees.
THE BOARD OF DIRECTORS RECOMMENDS A VOTE "FOR" THE ADOPTION OF THE
ANNUAL INCENTIVE PLAN. THE AFFIRMATIVE VOTE OF THE HOLDERS OF A MAJORITY OF THE
SHARES OF COMMON STOCK CAST AND VOTED AT THE MEETING IS REQUIRED TO APPROVE THE
ADOPTION OF THE ANNUAL INCENTIVE PLAN.
37
<PAGE>
PLAN BENEFITS
The benefits or amounts that will be received or allocated in
the future under the Restated Employee Plan and the Annual Incentive Plan are
not determinable at this time. With respect to the Employee Plan and the Annual
Incentive Plan, the table below shows options granted and awards earned under
such plans in fiscal 1996. With respect to the Restated Director Plan, the table
sets forth certain information regarding awards anticipated to be granted under
such plan for fiscal 1997.
PLAN BENEFITS TABLE (1)
<TABLE>
<CAPTION>
TEJAS GAS CORPORATION TEJAS GAS CORPORATION TEJAS GAS CORPORATION
DIRECTOR STOCK EMPLOYEE STOCK ANNUAL INCENTIVE
OPTION PLAN (2)(3) OPTION PLAN PLAN (4)
--------------------- --------------------- ---------------------
GRANT DATE GRANT DATE
NAME AND POSITION OR GROUP PRESENT VALUE NUMBER OF PRESENT VALUE NUMBER OF
(5) OPTIONS (6) OPTIONS DOLLAR VALUE
- --------------------------- ------------- --------- ------------- --------- ------------
<S> <C> <C> <C>
Jay A. Precourt N/A N/A $1,665,245 150,001 $ 480,000
Chief Executive Officer,
President and
Vice Chairman of the Board
James W. Whalen N/A N/A $ 500,229 40,000 $ 247,000
Senior Executive
Vice President, Chief
Financial Officer and
Treasurer
Rene R. Joyce N/A N/A $ 186,751 15,000 $ 282,000
Senior Executive Vice
President
P. Anthony Lannie N/A N/A $ 130,726 10,500 $ 167,000
Senior Vice President,
General Counsel and
Secretary
Frank T. Whittinghill, III N/A N/A $ 126,057 10,125 $ 166,000
Senior Vice President -
Commercial Services &
Pipeline Operations of Tejas-
Acadian Holding Company
Executive Group (7) N/A N/A $2,609,008 225,626 $1,488,000
Non-Executive Director $353,675 14,850 N/A N/A N/A
Group (8)
Non-Executive Officer
Group (9) N/A N/A $1,604,902 125,925 $4,318,885
</TABLE>
(1) The number of options and related information have been adjusted for
the three-for-two split of Common Stock implemented in April 1996.
(2) Only awards expected to be granted under the Director Plan in fiscal
year 1997 are included in the table. The Restated Director Plan calls
for like awards to be granted to participants each year
38
<PAGE>
(except that the Restated Director Plan calls for greater awards for
initial grants to any new directors as more fully described under
"Proposal to Approve the Tejas Gas Corporation Amended and Restated
Director Stock Option Plan -- Description of the Restated Director Plan
-- Stock Option Awards.").
(3) Assumes that the members of the Board of Directors and their employment
status with respect to the Company and its affiliates remain unchanged.
(4) Prior to 1997, the Annual Incentive Plan provided for only cash awards.
Awards under the modified Annual Incentive Plan may consist of cash or
stock, as the Applicable Committee determines.
(5) The value has been calculated using a variation of the Black-Scholes
stock option valuation methodology. For purposes of this presentation,
the applied model uses a grant date of March 10, 1997 (for illustrative
purposes only) and an option exercise price of $45.50. The grant of
options in 1997 will not occur until May 9, 1997. It assumes a standard
deviation of approximately 22.90%, a risk-free rate of return of 6.56%,
and no dividend yields. Options will have an exercise period of ten
years. The model assumes that all options are held until their
expiration date, then exercised. No reduction has been made in the
valuations on account of restrictions on transfer of the options or
vesting or forfeiture provisions. The actual value, if any, a director
may realize will depend on the excess of the stock price over the
exercise price on the date the option is exercised. There is no
assurance that the value realized will be at or near the value
estimated by the Black-Scholes model.
(6) The value has been calculated using a variation of the Black-Scholes
stock option valuation methodology. The applied model uses the grant
date of February 8, 1996, an option exercise price of $32.4167, assumes
a standard deviation of approximately 21.82%, a risk-free rate of
return of 5.45%, and no dividend yields (except for options for 22,800
shares granted in March and June 1996 which have option prices equal to
the closing price on the applicable grant date and utilize model
assumptions that vary slightly from the foregoing). Options have an
exercise period of seven years. The model assumes that all options are
held until their expiration date, then exercised. No reduction has been
made in the valuations on account of restrictions on transfer of the
options or vesting or forfeiture provisions. The actual value, if any,
an optionee may realize will depend on the excess of the stock price
over the exercise price on the date the option is exercised. There is
no assurance that the value realized will be at or near the value
estimated by the Black-Scholes model.
(7) Includes all current executive officers of the Company as a group.
Excludes options for 90,000 shares of Common Stock granted to an
individual who was an executive officer at the time of grant but whose
service with the Company terminated in September 1996.
(8) Includes all current directors of the Company who are not executive
officers as a group.
(9) Includes all employees of the Company, including all current officers
who are not executive officers, as a group.
39
<PAGE>
PROPOSAL 5.
AUDITORS
The Board of Directors, upon the recommendation of the Audit Committee,
has selected Deloitte & Touche LLP as the Company's independent auditors for
1997. Deloitte & Touche LLP has served as the Company's independent auditors
since December 1988. Stockholders are requested to ratify the appointment for
1997. A representative of Deloitte & Touche LLP is expected to be present at the
meeting with the opportunity to make a statement if such representative so
desires and will be available to respond to appropriate questions.
THE BOARD OF DIRECTORS RECOMMENDS A VOTE "FOR" RATIFICATION OF THE
APPOINTMENT OF DELOITTE & TOUCHE LLP AS THE COMPANY'S INDEPENDENT AUDITORS FOR
1997.
STOCKHOLDER PROPOSALS
Proposals by holders of Common Stock for which consideration is desired
at the 1998 annual meeting of stockholders must be received by the Company by
December 8, 1997, in order to be considered for inclusion in proxy materials for
the 1998 annual meeting.
COMPLIANCE WITH SECTION 16(A) OF THE EXCHANGE ACT
Section 16(a) of the Exchange Act requires the Company's directors and
executive officers and persons who own more than ten percent of a class of the
Company's equity securities to file with the Securities and Exchange Commission
and the New York Stock Exchange initial reports of ownership and reports of
changes in ownership of the Company's equity securities. Based solely on a
review of Forms 3, 4 and 5 submitted to the Company during and with respect to
1996 and written representations from certain reporting persons that no Forms 5
were required from such persons, the following information is provided
concerning officers and directors who did not timely file all reports required
by Section 16(a) of the Exchange Act during 1996. Mr. Gates filed a Form 5 for
the year ended December 31, 1996 on March 17, 1997, that reported his
acquisition of 275 shares of Common Stock awarded as part of his annual director
fee for 1996 and 191 shares of Common Stock received in lieu of quarterly
payments of his annual cash retainer fee that should have been reported on a
Form 5 on or before February 14, 1997. Mr. Walker filed a Form 5 for the year
ended December 31, 1996 on March 21, 1997, that reported his acquisition of 275
shares of Common Stock awarded as part of his annual director fee for 1996 that
should have been reported on a Form 5 on or before February 14, 1997.
40
<PAGE>
OTHER MATTERS
THE COMPANY WILL PROVIDE WITHOUT CHARGE TO EACH PERSON WHOSE PROXY IS
SOLICITED HEREBY, ON THE WRITTEN REQUEST OF ANY SUCH PERSON, A COPY OF THE
COMPANY'S ANNUAL REPORT ON FORM 10-K (INCLUDING THE FINANCIAL STATEMENTS AND
FINANCIAL SCHEDULES THERETO, BUT EXCLUDING EXHIBITS) REQUIRED TO BE FILED WITH
THE SECURITIES AND EXCHANGE COMMISSION FOR THE YEAR ENDED DECEMBER 31, 1996.
SUCH REQUESTS SHOULD BE DIRECTED TO MR. JAMES W. WHALEN, TREASURER OF THE
COMPANY, AT THE COMPANY'S ADDRESS SET FORTH ABOVE.
At this time, the Company knows of no other matters that may be
presented for stockholder action at the meeting. However, if any matters, other
than those referred to above, should properly come before the meeting, it is the
intention of the persons named in the enclosed proxy to vote such proxy in
accordance with their best judgment.
By Order of the Board of Directors,
P. Anthony Lannie
Secretary
Houston, Texas
April 7, 1997
YOU ARE URGED TO SEND IN YOUR EXECUTED PROXY PROMPTLY.
41
<PAGE>
ANNEX A
TEJAS GAS CORPORATION
DIRECTOR STOCK OPTION PLAN
(As Amended and Restated Effective January 1, 1997)
1. ESTABLISHMENT AND PURPOSE
Tejas Gas Corporation, a Delaware corporation (the "Company"),
previously established the Tejas Gas Corporation Director Stock Option Plan, a
nonqualified stock option plan for nonemployee directors of the Company,
effective March 13, 1992, as amended by the First Amendment thereto effective
March 13, 1992 and as subsequently amended by Amendment dated December 9, 1995
(the "Prior Plan"). Effective January 1, 1997, the Prior Plan was amended and
restated in the form of the Plan as set forth herein (the "Plan"). The revisions
made by this amendment and restatement of the Plan shall apply both to
outstanding options and options granted on or after January 1, 1997, except that
the amendments to the events triggering accelerated exercisability of the
options under Section 5.E below shall apply only to options granted on or after
January 1, 1997 unless the optionees holding options outstanding prior to that
date expressly consent to the amendment of their outstanding options to reflect
such amendments. The purpose of the Plan is to encourage ownership in the
Company by outside directors of the Company whose services are considered
essential to the Company's continued progress and thus to provide them with a
further incentive to continue to serve as directors of the Company. The Plan is
also intended to assist the Company through utilization of the incentives
provided by the Plan to attract and retain experienced and qualified candidates
to fill vacancies in the Board which may occur in the future.
2. ADMINISTRATION
The Plan will be administered by the Board of Directors (the "Board")
of the Company.
Subject to the express provisions of the Plan, the Board will have
complete authority to interpret the Plan; to prescribe, amend, and rescind rules
and regulations relating to it; to determine the terms and provisions of the
respective option agreements in accordance with the provisions of the Plan; and
to make all other determinations necessary or advisable for the administration
of the Plan. The Board's determination on the matters referred to in this
Section 2 will be conclusive.
3. PARTICIPATION IN THE PLAN
The Chairman of the Board and Directors of the Company who are not
employees of the Company or any affiliate of the Company ("Eligible Directors")
shall be eligible to participate in the Plan; provided that the recipient of an
option must be serving as an Eligible Director on the date the option is
granted.
4. STOCK SUBJECT TO THE PLAN
The stock subject to the Plan shall consist of shares subject to
outstanding options under the Prior Plan at December 31, 1996, and shares
reserved under the Prior Plan at December 31, 1996 and not subject to
outstanding options ("Common Stock"). Such shares may, as the Board shall from
time to time determine, be either authorized and unissued shares of Common Stock
or issued shares of Common Stock which have been reacquired by the Company. If
any option granted under the Plan expires or terminates for any reason without
having been exercised in full, the shares subject to, but not delivered under,
such option may again become available for the grant of other options under the
Plan.
A-1
<PAGE>
5. STOCK OPTIONS
Each option granted under this Plan shall be evidenced by a written
agreement in such form as the Company shall from time to time prescribe, which
agreements shall comply with and be subject to the following terms and
conditions:
A. OPTION GRANT DATES. The first grant of options under this Plan
occurred as of March 13, 1992 (the "1992 Options"). An initial grant of
options under this Plan shall be made to each Eligible Director upon
his initial appointment or election as an Eligible Director (the
"Initial Options"). Options shall thereafter be granted annually to
each Eligible Director automatically on the first business day
following the Company's Annual Meeting of Stockholders ("Annual Grant
Date"), beginning in 1992.
B. NUMBER OF SHARES. Each Eligible Director serving on the Board at
January 1, 1997 has been awarded an Initial Option to purchase 24,750
shares of Common Stock. Any Eligible Director who first becomes a
Director after January 1, 1997 shall receive an initial grant of
Initial Options covering 24,750 shares on the first Annual Grant Date
after first becoming a Director. Annual awards of options to purchase
2,475 shares of Common Stock have been granted to each Eligible
Director on the Annual Grant Date. Hereafter, annual awards of options
to purchase 2,475 shares of Common Stock shall be granted to each
Eligible Director on the Annual Grant Date in each year after the year
in which the Eligible Director is awarded Initial Options. The number
of shares of Common Stock subject to the Initial Option and the annual
awards has been adjusted to reflect stock splits and stock dividends
prior to January 1, 1997.
C. OPTION PRICE PER SHARE. The options granted prior to January 1, 1997
are exercisable at the price established at the time of grant, adjusted
to reflect stock splits and stock dividends prior to January 1, 1997.
All other options granted hereunder shall be exercisable at a price per
share equal to the "Fair Market Value" of the Common Stock on the date
of the grant of the option. For all purposes of this Plan OTHER THAN
the determination of the exercise price of an option, the 'Fair Market
Value' of a share on a particular date shall be deemed to be, (i) if
the Common Stock is listed on a national securities exchange, the
closing selling price per share of the Common Stock on such national
securities exchange on the date immediately preceding the date of
exercise, as reported in THE WALL STREET JOURNAL or, if there shall
have been no such sale so reported on that date, on the last preceding
date on which such a sale was so reported, or (ii) if the Common Stock
is not so listed, the closing selling price (or, if not so reported,
the mean between the closing bid and asked price) on the date
immediately preceding the date of exercise, or, if there are no
quotations available for such date, on the last preceding date on which
such quotations shall be available, as reported by the Nasdaq Stock
Market, or, if not reported by the Nasdaq Stock Market, by the National
Quotation Bureau, Inc. For the purpose of determining the exercise
price of an option granted hereunder, however, the Fair Market Value
shall be deemed to be such closing selling price per share of the
Common Stock as described above, but determined as of the date of grant
of the Option.
D. TRANSFERABILITY OF OPTIONS. Except as otherwise provided herein, no
option granted under this Plan shall be assignable or otherwise
transferable by the optionee (or his or her authorized legal
representative) during the optionee's lifetime and, after the death of
the optionee, other than by will or the laws of descent and
distribution; and any attempted assignment or transfer in violation of
this Section 5.D shall be null and void. Upon the optionee's death, the
personal representative or other person entitled to succeed to the
rights of the optionee (the "Successor Optionee") may exercise such
rights. A Successor Optionee must furnish proof satisfactory to the
A-2
<PAGE>
Company of his or her right to exercise the option under the optionee's
will or under the applicable laws of descent and distribution. Any
option granted under the Plan by its terms may be transferable by the
optionee to (i) the children or grandchildren of the optionee
("Immediate Family Members"), (ii) a trust or trusts for the exclusive
benefit of such Immediate Family Members ("Immediate Family Member
Trusts"), or (iii) a partnership or partnerships in which such
Immediate Family Members have at least 99% of the equity, profit and
loss interests ("Immediate Family Member Partnerships"); provided that
the stock option agreement pursuant to which such options are granted
(or an amendment thereto) must expressly provide for transferability in
a manner consistent with this paragraph D. Subsequent transfers of
transferred options shall be prohibited except by will or the laws of
descent and distribution, unless such transfers are made to the
original optionee or a person to whom the original optionee could have
made a transfer in the manner described herein. No transfer shall be
effective unless and until written notice of such transfer is provided
to the Company at its corporate office. Following transfer, any such
options shall continue to be subject to the same terms and conditions
as were applicable immediately prior to transfer, and, except as
otherwise provided herein, the term "optionee" shall be deemed to refer
to the transferee. The events of termination of service on the Board in
paragraphs F and G hereof shall continue to be applied with respect to
the original optionee, following which the options shall be exercisable
by the transferee only to the extent and for the periods specified in
paragraphs F and G.
E. EXERCISABILITY AND TERM OF OPTIONS. Except for the 1992 Options
(which are fully vested), each option granted under this Plan shall
become exercisable, on a cumulative basis, in five equal installments,
with the first installment becoming exercisable six months after the
date of grant, and the remaining four installments becoming exercisable
annually commencing on the first anniversary of the date of grant. Each
option granted under the Plan on or after January 1, 1997 shall expire
ten years from the date of the grant and shall be subject to earlier
expiration as herein provided. Each option granted prior to January 1,
1997 shall expire seven years from the date of the grant and shall be
subject to earlier expiration as herein provided. Notwithstanding the
foregoing, if (a) the Company shall execute a definitive agreement to
merge or consolidate with or into another corporation and the Company
shall not be the surviving corporation in the merger (or shall become a
subsidiary of any other corporation party to such agreement) and the
stockholders of the Company shall have approved the terms of such
agreement; (b) the Company shall enter into a definitive agreement to
sell or otherwise dispose of all or substantially all of its assets to
any person, firm or corporation, and the stockholders of the Company
shall have approved the terms of such agreement; or (c) any person or
group, other than Frederic C. Hamilton, Charles C. Gates or Jay A.
Precourt (or any affiliate (either directly or through one or more
intermediaries) of any of them) shall become the record or beneficial
owner of securities of the Company entitling the owner thereof to vote
more than 50% of all of the votes which may be cast with respect to
matters submitted to a vote of the holders of the Common Stock, then,
in any of such events described in clauses (a), (b) or (c) preceding,
all outstanding options shall become immediately vested and
exercisable, whether or not vested and exercisable prior thereto.
F. TERMINATION OF SERVICE.
1. OPTIONS GRANTED PRIOR TO JANUARY 1, 1997. In the event of
the termination of service on the Board by the holder of any
option, other than by reason of retirement, total and
permanent disability or death as set forth in paragraph G.
hereof, the then outstanding options of such holder granted
prior to January 1, 1997 may be exercised only to the extent
that they were exercisable on the date of such termination and
shall expire on the date three months after such termination,
or on their stated expiration date, whichever
A-3
<PAGE>
occurs first. For purposes of this Plan, the term "by reason
of retirement" shall mean mandatory retirement pursuant to
Board policy.
2. OPTIONS GRANTED ON OR AFTER JANUARY 1, 1997. In the event
of the termination of service on the Board by the holder of
any option, other than (i) by reason of retirement (as defined
above), (ii) by the Company for any reason other than for
cause ("Involuntary Termination Not For Cause") or (iii) by
reason of total and permanent disability or death as set forth
in paragraph G. hereof, any options of such holder granted on
or after January 1, 1997 and unexercised as of the date of
such termination shall be forfeited and no longer subject to
any right to exercise.
G. RETIREMENT, INVOLUNTARY TERMINATION, DISABILITY OR DEATH.
1. OPTIONS GRANTED PRIOR TO JANUARY 1, 1997. In the event of
termination of service by reason of retirement (as defined
above) or the total and permanent disability of the holder of
any option, each of the then outstanding options of such
holder granted prior to January 1, 1997 will continue to vest
and become exercisable during such five year period according
to the original vesting schedule set forth in the option
agreement and the holder may exercise the vested installments
at any time within five years after such retirement or
disability but in no event after the stated expiration date of
the term of the option. In the event of the death of the
holder of any option, each of the then outstanding options of
such holder granted prior to January 1, 1997 will immediately
vest in full and become exercisable by the holder's legal
representative at any time within a period of five years after
death, but in no event shall the option be exercised (i) after
the stated expiration date of the term of the option or (ii)
less than six months after the option was granted. However, if
the holder dies within five years following termination of
service on the Board by reason of retirement or total and
permanent disability, any option granted prior to January 1,
1997 shall only be exercisable for two years after the
holder's death or five years after retirement or termination
for total and permanent disability; whichever is longer, or
until the stated expiration date of the term of the option, if
earlier.
2. OPTIONS GRANTED ON OR AFTER JANUARY 1, 1997. In the event
of termination of service by reason of retirement (as defined
above) or Involuntary Termination Not For Cause, each of the
then outstanding options of such holder granted on or after
January 1, 1997 will be exercisable only to the extent
exercisable as of the date of such retirement or termination
and shall expire on the date thirty (30) calendar days after
the date of such retirement or termination, or on its stated
expiration date, whichever shall first occur. In the event of
termination of service by reason of the total and permanent
disability of the holder, each of the then outstanding options
of such holder granted on or after January 1, 1997 will be
exercisable only to the extent exercisable as of the date of
such termination of service and shall expire on the date three
months after the date of such termination, or on its stated
expiration date, whichever shall first occur. In the event of
the death of the holder of any option, each of the then
outstanding options of such holder granted on or after January
1, 1997 shall be exercisable only to the extent exercisable as
of the date of such holder's death and shall expire twelve
months after the date of such holder's death, or on its stated
expiration date, whichever period is shorter.
H. EXERCISE OF OPTIONS. Options may be exercised only by written notice
to the Company at its corporate office accompanied by payment of the
full consideration for the shares as to which they are exercised,
including any federal, state and/or local income tax withholding amount
due
A-4
<PAGE>
in connection with the exercise. The purchase price, together with any
income tax withholding amount due, is to be paid in full to the Company
upon the exercise of the option (i) by cash including a personal check
payable to the order of the Company, (ii) by delivering Common Stock
previously held by the optionee for at least six months, valued at Fair
Market Value as of the date of delivery, (iii) by surrendering all or
part of that or any other option, valued at Fair Market Value as of the
date of delivery, or (iv) by any combination thereof. Shares which
otherwise would be delivered to the holder of an option upon exercise
may, at the election of the optionee, be retained by the Company in
payment of any federal, state, and/or local income tax withholding due
in connection with the exercise, and shall be valued at Fair Market
Value as of the date of payment of the option exercise price by the
optionee; provided, however, that the payment of any amount of
withholding tax by an optionee with shares of Common Stock (whether
already owned by the optionee or retained by the Company from the
number of shares otherwise deliverable to the optionee upon exercise)
shall be subject to the restrictions set forth in the individual option
agreements.
I. NONSTATUTORY OPTIONS. All options granted hereunder shall
be non-statutory options not intended to qualify under Section 422 of
the Internal Revenue Code of 1986, as amended (the "Code").
6. ASSIGNMENT
Except as provided in Section 5.D above, the rights and benefits of a
participant under this Plan may not be assigned and any attempted assignment of
such rights and benefits shall be null and void.
7. LIMITATION OF RIGHTS
A. NO RIGHT TO CONTINUE AS A DIRECTOR. Neither the Plan, nor the
granting of an option nor any other action taken pursuant to the Plan,
shall constitute or be evidence of any agreement or understanding,
express or implied, that the Company will retain a Director for any
period of time, or at any particular rate of compensation.
B. NO STOCKHOLDER'S RIGHTS FOR OPTIONEES. An optionee or the optionee's
representative shall have no rights as a stockholder with respect to
the shares covered by the options until the date of the issuance to the
optionee or the optionee's representative of a stock certificate
therefore, and no adjustment will be made for dividends or other rights
for which the record date is prior to the date such certificate is
issued.
8. CHANGES IN PRESENT STOCK
A. CORPORATE ACTS. The existence of outstanding options shall not
affect in any manner the right or power of the Company or its
stockholders to make or authorize any or all adjustments,
recapitalizations, reorganizations or other changes in the capital
stock of the Company or its busi ness or any merger or consolidation of
the Company, or any issue of bonds, debentures, preferred or prior
preference stock (whether or not such issue is prior to, on a parity
with or junior to the Common Stock) or the dissolution or liquidation
of the Company, or any sale or transfer of all or any part of its
assets or business, or any other corporate act or proceeding of any
kind, whether or not of a character similar to that of the acts or
proceedings enumerated above.
B. ADJUSTMENTS. In the event of any subdivision or consolidation of
outstanding shares of Common Stock or declaration of a dividend payable
in shares of Common Stock or capital
A-5
<PAGE>
reorganization or reclassification or other transaction involving an
increase or reduction in the number of outstanding shares of Common
Stock, then (i) the number of shares of Common Stock reserved under
this Plan, (ii) the number of shares of Common Stock issuable pursuant
to each option under this Plan granted before such transaction, (iii)
the number of shares of Common Stock issuable pursuant to each option
under this Plan granted after such transaction, and (iv) the per share
exercise price of previously awarded options under this Plan shall be
proportionately adjusted to reflect such transaction. Such adjustment
to the number of shares of Common Stock shall reflect the proportional
adjustment to the number of shares of Common Stock (or such other
capital stock as may be issued in a reclassification) that a
stockholder who owned an equivalent number of shares immediately before
the happening of any of the events described in the preceding sentence
would have owned or been entitled to receive after the happening of any
of such events, and the adjustment to the exercise price of a
previously awarded option shall be determined by dividing the number of
shares of Common Stock (or other capital stock) subject to the option
after the adjustment by the aggregate exercise price for all shares
that were subject to the option immediately prior to the transaction.
In the event of any consolidation or merger of the Company with another
corporation or entity or the adoption by the Company of a plan of
exchange affecting the Common Stock or any distribution to holders of
Common Stock of securities or property (other than cash dividends or
dividends payable in Common Stock), the Board shall make such
adjustments as it may deem equitable, including adjustments to avoid
fractional shares, to give proper effect to such event; provided that
such adjustments shall only be such as are necessary to maintain the
proportionate interest of the optionees and preserve, without
exceeding, the value of the options under this Plan. In the event of a
corporate merger, consolidation, acquisition of property or stock,
separation, reorganization or liquidation, the Board shall be
authorized to issue or assume stock options, regardless of whether in a
transaction to which Section 424(a) of the Code applies, by means of
substitution of new options for previously issued options or an
assumption of previously issued options.
9. EFFECTIVE DATE AND DURATION OF THE PLAN
The Prior Plan, as originally adopted effective March 13, 1992, was
approved at the 1992 annual meeting of the stockholders. The Plan, as amended
and restated effective January 1, 1997, shall be effective upon stockholder
approval of the amended and restated Plan at the 1997 annual meeting of the
stockholders. If the amended and restated Plan is not approved at the 1997
annual meeting of the stockholders, then any options granted hereunder shall be
subject to the terms and conditions of the Prior Plan. The Plan shall terminate
when all Common Stock subject to the Plan is subject to an option to purchase
(unless earlier discontinued by the Board) but such termination shall not affect
the rights of the holder of any option outstanding on such date of termination.
If, on a date on which options would normally be granted, there is not a
sufficient number of shares available to grant each person otherwise eligible to
receive an option on that date an option to purchase the full number of shares
to which he or she would normally be entitled, options shall be prorated among
optionees according to the number of shares available on such date of grant.
Such optionees shall be deemed to have received the full amount due to them on
such date of grant.
10. AMENDMENT, MODIFICATION, AND TERMINATION OF THE PLAN
The Board may at any time terminate, and from time to time may amend or
modify the Plan; PROVIDED, HOWEVER, that no amendment, modification or
termination of the Plan shall in any manner adversely affect any option granted
under the Plan prior to such amendment, modification or termination without the
consent of the optionee.
A-6
<PAGE>
11. REQUIREMENTS OF LAW
The granting of options and the issuance of shares of Common Stock upon
the exercise of an option shall be subject to all applicable laws, rules and
regulations and to such approvals by any governmental agencies or national
securities exchanges as may be required.
12. NOTICE
Any written notice to the Company required by any of the provisions of
this Plan shall be addressed to the Secretary of the Company and shall become
effective when it is received.
13. GOVERNING LAW
This Plan and all determinations made and actions taken pursuant hereto
shall be governed by the law of the State of Delaware and construed accordingly.
TEJAS GAS CORPORATION
As approved by the
Board of Directors
of the Company on
March 18, 1997
P. Anthony Lannie
Secretary
A-7
<PAGE>
ANNEX B
TEJAS GAS CORPORATION
EMPLOYEE STOCK OPTION PLAN
(As Amended and Restated Effective January 1, 1997)
SECTION 1. ESTABLISHMENT AND PURPOSE
1.1 ESTABLISHMENT. Tejas Gas Corporation, a Delaware corporation (the
"Company"), previously established a nonqualified stock option plan for
executive officers of the Company and its subsidiaries, known as the Tejas Gas
Corporation Executive Officers Stock Option Plan, which was amended and restated
effective July 21, 1992 and renamed as the "Tejas Gas Corporation Employee Stock
Option Plan," and was subsequently amended by Amendment dated December 9, 1995
(as so amended, the "Prior Plan") and by further amendment adopted on December
13-14, 1996. Effective January 1, 1997, the Prior Plan was amended and restated
in the form of the Plan as set forth herein (the "Plan"). The revisions made by
this amendment and restatement of the Plan shall apply both to outstanding
Options and to Options granted on or after January 1, 1997, except that the
amendments to Section 13.3 below shall apply only to Options granted on or after
January 1, 1997 unless the Optionees holding Options outstanding prior to that
date expressly consent to the amendment of their outstanding Options to reflect
such amendments.
1.2 PURPOSE. The principal purpose of this Plan is to attract, retain
and motivate executive officers and other employees of the Company and its
subsidiaries and to encourage stock ownership by such employees by providing
them with a means to acquire a proprietary interest or to increase their
proprietary interest in the Company.
SECTION 2. DEFINITIONS
2.1 DEFINITIONS. Whenever used herein, the following terms shall
have the respective meanings forth below:
(a) "BOARD" means the Board of Directors of the Company.
(b) "CODE" means the Internal Revenue Code of 1986, as
amended.
(c) "COMMITTEE" means the Stock Option Committee
appointed by the Board.
(d) "COMPANY" means Tejas Gas Corporation, a Delaware
corporation.
(e) "DATE OF EXERCISE" means the date the Company receives
notice, by an Optionee, of the exercise of an Option pursuant to
Section 7 of this Plan.
(f) "ELIGIBLE EMPLOYEE" means an officer or employee of the
Company or a Subsidiary who, in the opinion of the Committee, has an
opportunity to influence the long-term success of the Company or its
Subsidiaries.
(g) "EXCHANGE ACT" means the Securities Exchange Act of
1934, as amended from time to time.
B-1
<PAGE>
(h) "FAIR MARKET VALUE" on a specified date shall mean, for
all purposes OTHER THAN determining the exercise price of an Option,
(i) if the Stock is listed on a national securities exchange, the
closing selling price per share of the Stock on such national
securities exchange on the date immediately preceding the date of
exercise, as reported in THE WALL STREET JOURNAL or, if there shall
have been no such sale so reported on that date, on the last preceding
date on which such a sale was so reported, or (ii) if the Stock is not
so listed, the closing selling price (or, if not so reported, the mean
between the closing bid and asked price) on the date immediately
preceding the date of exercise, or, if there are no quotations
available for such date, on the last preceding date on which such
quotations shall be available, as reported by the Nasdaq Stock Market,
or, if not reported by the Nasdaq Stock Market, by the National
Quotation Bureau, Inc. For the purpose of determining the exercise
price of an Option, "Fair Market Value" shall mean such closing selling
price per share of the Stock as described above, but determined as of
the date of grant of the Option.
(i) "OPTION" means the right to purchase Stock pursuant to
this Plan at the Option Price for a specified period of time.
(j) "OPTIONEE" means an Eligible Employee who has been
granted an Option under this Plan.
(k) "OPTION PRICE" means the price at which an Optionee
may acquire shares of Stock pursuant to the terms of
his Option.
(l) "STOCK" means the common stock of the Company, par
value $.25 per share.
(m) "SUBSIDIARY" includes any subsidiary of the Company, and
any wholly or partially owned partnerships, joint ventures, limited
liability companies, corporations and other forms of investment by the
Company.
2.2 GENDER AND NUMBER. Except when otherwise indicated by the context,
any masculine terminology when used in this Plan also shall include the feminine
gender, and the definition of any term herein in the singular also shall include
the plural.
SECTION 3. ELIGIBILITY AND PARTICIPATION
3.1 ELIGIBILITY AND PARTICIPATION. The Committee shall determine,
within the limits of the express provisions of the Plan, the Eligible Employees
to whom, and the time or times at which, Options shall be granted under the
Plan. In the event that the Committee designates an Eligible Employee of a
Subsidiary of which less than 50% of the voting power of the capital stock
entitled to vote generally in the election of directors is owned by the Company
to receive an Option grant, management will advise the Committee of the tax
consequences to the Company of any such grant.
SECTION 4. STOCK SUBJECT TO THE PLAN
4.1 NUMBER. Subject to Sections 4.2 and 4.3, the total number of
shares of Stock that may optioned under the Plan consists of shares subject to
outstanding options under the Prior Plan at
B-2
<PAGE>
December 31, 1996, shares reserved under the Prior Plan at December 31, 1996 and
not subject to outstanding options, and, subject to stockholder approval at the
1997 Annual Meeting, an additional 950,000 shares. These shares may consist, in
whole or in part, of authorized but unissued Stock or treasury Stock, not
reserved for any other purpose.
4.2 RESTORATION OF UNPURCHASED STOCK AND STOCK WITHHELD FOR TAX
WITHHOLDING. If an Option expires, is cancelled or terminates for any reason
during the term of this Plan and prior to the exercise thereof in full, the
shares of Stock subject to such Option shall again be available for the grant of
Options thereafter. Any shares of Stock withheld to satisfy tax withholding
requirements under Section 14.1 shall again be available for the grant of
Options thereafter.
4.3 ADJUSTMENT IN SHARES. Subject to the provisions of Section 13
hereof, in the event of any subdivision or consolidation of outstanding shares
of Stock or declaration of a dividend payable in shares of Stock or capital
reorganization or reclassification or other transaction involving an increase or
reduction in the number of outstanding shares of Stock, then (i) the number of
shares of Stock reserved under this Plan, (ii) the number of shares of Stock
issuable pursuant to each Option under this Plan granted before such
transaction, and (iii) the per share Option Price of previously awarded Options
under this Plan shall be proportionately adjusted to reflect such transaction.
Such adjustment to the number of shares of Stock shall reflect the proportional
adjustment to the number of shares of Stock (or such other capital stock as may
be issued in a reclassification) that a stockholder who owned an equivalent
number of shares immediately before the happening of any of the events described
in the preceding sentence would have owned or been entitled to receive after the
happening of any of such events, and the adjustment to the Option Price of a
previously awarded Option shall be determined by dividing the number of shares
of Stock (or other capital stock) subject to the Option after the adjustment by
the aggregate Option Price for all shares that were subject to the Option
immediately prior to the transaction. Except as otherwise provided in Section
13.1 or 13.2, in the event of any consolidation or merger of the Company with
another corporation or entity or the adoption by the Company of a plan of
exchange affecting the Stock or any distribution to holders of Stock of
securities or property (other than cash dividends or dividends payable in
Stock), the Committee shall make such adjustments as it may deem equitable,
including adjustments to avoid fractional shares, to give proper effect to such
event; provided that such adjustments shall only be such as are necessary to
maintain the proportionate interest of the Optionees and preserve, without
exceeding, the value of the Options under this Plan. In the event of a corporate
merger, consolidation, acquisition of property or stock, separation,
reorganization or liquidation, the Committee shall be authorized to issue or
assume Options, regardless of whether in a transaction to which Section 424(a)
of the Code applies, by means of substitution of new Options for previously
issued Options or an assumption of previously issued Options.
SECTION 5. DURATION OF PLAN
5.1 DURATION OF THE PLAN. The Plan shall remain in effect until all
Stock subject to it shall have been purchased pursuant to the exercise of
Options.
SECTION 6. OPTIONS
6.1 GRANT OF OPTIONS. Subject to the provisions of Section 4.1, Options
may be granted to Eligible Employees at any time and from time to time as shall
be determined by the Committee. The Committee shall have complete discretion in
determining the number of Options granted to each Optionee, the number of shares
of Stock subject to such Options, and the Option Price to be paid by the
Optionee
B-3
<PAGE>
with respect to such shares; PROVIDED, HOWEVER, that (a) no Optionee may be
granted, during any calendar year, Options for more than 200,000 shares of
Stock, subject to adjustment in like manner as adjustments to the number of
shares of Stock provided in Section 4.3 hereof, and (b) no Option shall have an
Option Price that is less than the Fair Market Value of the Stock on the date of
grant. In making such determinations, the Committee may take into account the
nature of services rendered by such individuals, their present and potential
contributions to the Company and such other factors as the Committee in its sole
discretion shall deem relevant.
6.2 OPTION AGREEMENT. As determined by the Committee on the date of
grant, each Option shall be evidenced by a Stock Option agreement ("Option
Agreement") that shall, among other things, specify the Option Price, the
duration of the Option, and the number of shares of Stock to which the Option
pertains. Each Option granted under the Plan on or after January 1, 1997 shall
expire as of the date prescribed in the Option Agreement (which date shall be no
later than ten years after the date of the Option grant), subject to earlier
expiration under the provisions of Section 8. Each Option granted under the Plan
prior to January 1, 1997 shall expire as of the date prescribed in the Option
Agreement (which date shall be no later than seven years after the date of the
Option grant), subject to earlier expiration under the provisions of Section 8.
6.3 EXERCISE. Except as otherwise provided herein, an Option, after the
grant thereof, shall be exercisable by the Optionee at such rate and times as
may be fixed by the Committee at the time the Option is granted; PROVIDED,
HOWEVER, that an Optionee may exercise any Option in full, whether or not it is
then exercisable, upon the occurrence of such circumstance or event which, in
the sole discretion of the Committee, merits special consideration.
6.4 PAYMENT. The Option Price upon exercise of any Option shall be
payable to the Company in full either (i) in cash or its equivalent, (ii) by
tendering shares of previously acquired Stock having a Fair Market Value on the
date of exercise equal to the total Option Price, (iii) upon approval by the
Committee, by surrendering all or part of that or any other Option, valued at
Fair Market Value on the date of exercise, or (iv) by any combination thereof.
The proceeds from such payment shall be added to the general funds of the
Company and shall be used for its corporate purposes.
6.5 CANCELLATION OF PREVIOUSLY GRANTED OPTIONS. In the event the Fair
Market Value of the Stock is ever less than the Option Price of any outstanding
Option, the Committee has the authority to cancel such Option and issue in its
place a new substitute Option for the same number of shares at a new Option
Price and subject to the terms of the Plan. The granting of a substitute Option
shall be deemed a new Option.
SECTION 7. WRITTEN NOTICE, ISSUANCE OF STOCK CERTIFICATES, STOCKHOLDER
PRIVILEGES PARTIAL EXERCISE, AND REGISTRATION.
7.1 WRITTEN NOTICE. An Optionee wishing to exercise an Option shall
give written notice to the Company, in the form and manner prescribed by the
Committee, indicating the number of shares with respect to which such Option is
to be exercised. Full payment for the shares exercised pursuant to an Option
must accompany the written notice.
7.2 ISSUANCE OF STOCK CERTIFICATES. As soon as practicable after the
receipt of written notice and payment, the Company shall, without Stock issue or
transfer taxes to the Optionee or to any other person entitled to exercise an
Option pursuant to the Plan, deliver to the Optionee or such other person a
certificate or certificates for the requisite number of shares of Stock.
B-4
<PAGE>
7.3 PRIVILEGES OF A STOCKHOLDER. An Optionee or any other person
entitled to exercise an Option under this Plan shall have no rights as a
stockholder with respect to any Stock covered by the Option until the date of
issuance of a certificate for such Stock.
7.4 PARTIAL EXERCISE. An Option may be exercised as to any lesser
number of shares than the full amount for which it could be exercised. Such a
partial exercise of an Option shall not affect the right to exercise the Option
from time to time in accordance with this Plan as to the remaining shares
subject to the Option.
7.5 REGISTRATION. The Company shall endeavor, but shall not be
obligated, to register the Stock to be issued upon exercise of all Options under
the Securities Act of 1933, as amended, as well as any applicable state
statutes. In the event that Stock to be issued upon exercise of an Option is not
so registered, the Company may, as a condition precedent to the exercise of such
Option, require from the Optionee or any transferee under Section 9.2 (or, in
the event of the death of the Optionee or such transferee, his legal heirs,
legatees or distributees) such written representations and agreements as, in the
opinion of counsel for the Company, may be necessary to ensure that such
exercise and subsequent disposition will not involve a violation of the
Securities Act of 1933, as amended, or any other applicable federal or state
statute as then in effect.
SECTION 8. TERMINATION OF SERVICE
8.1 DEATH. If an Optionee's service to the Company and its Subsidiaries
terminates by reason of death, the Option shall be exercisable only to the
extent exercisable as of the date of such Optionee's death, unless the Committee
(either prior to or after such Optionee's death) provides that such Option will
become immediately exercisable in full. Such Option shall expire twelve (12)
months after the date of such Optionee's death, or on its stated expiration
date, whichever period is shorter. The Committee may extend the exercise period
beyond twelve (12) months as it deems appropriate (either prior to or after such
Optionee's death), but in no event shall the exercise period exceed the
expiration date of the Option. Options which were not exercisable as of the date
of such termination of service shall be forfeited and no longer subject to any
right to exercise, unless otherwise provided by the Committee.
8.2 DISABILITY. If an Optionee's service to the Company and its
Subsidiaries terminates by reason of disability (as defined under the federal
Social Security Act of 1935, as amended), the Option shall be exercisable only
to the extent exercisable as of the date of such termination of service and
shall expire three (3) months after the date of such termination, or on its
stated expiration date, whichever period is shorter. Options which were not
exercisable as of the date of such termination of service shall be forfeited and
no longer subject to any right to exercise.
8.3 RETIREMENT OR INVOLUNTARY TERMINATION. In the event the service of
an Optionee is terminated by reason of normal or early retirement (as defined
under the Company's tax-qualified retirement plan or, where pertinent, any
Subsidiary's retirement plan) or the Employer (whether the Company or a
Subsidiary) shall terminate the Optionee's employment for any reason other than
for "Cause," as defined below ("Involuntary Termination Not For Cause"), the
Option shall be exercisable only to the extent exercisable as of the date of
such retirement or termination and shall expire on the date thirty (30) calendar
days after the date of such retirement or termination, or on its stated
expiration date, whichever shall first occur. Except as otherwise provided
herein, Options which were not exercisable as of the date of such termination of
service shall be forfeited and no longer subject to any right to exercise.
"Cause" shall mean any of the following: (a) conviction of the Optionee by a
court of competent jurisdiction of any felony; (b) the Optionee's knowing
failure or refusal to follow reasonable instructions
B-5
<PAGE>
of the Board or reasonable policies, standards and regulations of the Company or
its Subsidiaries, unless the Optionee reasonably believed in good faith that
such failure or refusal was in the best interests of the Company; (c) the
Optionee's continued failure or refusal to faithfully and diligently perform the
usual, customary duties of his employment with the Company or Subsidiary; (d)
the Optionee's continually conducting himself in an unprofessional, unethical,
immoral or fraudulent manner; or (e) the Optionee's conduct discredits the
Company or Subsidiary or is detrimental to the reputation, character and
standing of the Company or Subsidiary; provided that, if "cause" is defined in
any employment agreement between the Optionee and the Company or Subsidiary in
effect at the time of the Optionee's termination of employment, "cause" shall
have the meaning given such term in such employment agreement and the foregoing
clauses (a) through (e) shall not apply. "Cause" shall not be deemed to occur by
reason of conduct described in clause (b), (c), (d) or (e) of the preceding
sentence unless such conduct continues for 30 days after the Company has
provided written notice to the Optionee of the conduct that constitutes "Cause."
8.4 OTHER TERMINATION. If an Optionee's service shall terminate for any
reason other than death, disability, retirement or Involuntary Termination Not
For Cause, any Options which are unexercised as of the date of such termination
shall be forfeited and no longer subject to any right to exercise.
SECTION 9. RIGHTS OF OPTIONEES
9.1 EMPLOYMENT. Nothing in this Plan shall interfere with or limit in
any way the right of the Company or any Subsidiary to terminate any Optionee's
service at any time, nor confer upon any Eligible Employee any right to continue
in the employ of the Company or any Subsidiary.
9.2 TRANSFERABILITY. Except as otherwise provided herein, no Option
granted under this Plan shall be assignable or otherwise transferable by the
Optionee (or his or her authorized legal representative) during the Optionee's
lifetime and, after the death of the Optionee, other than by will or the laws of
descent and distribution; and any attempted assignment or transfer in violation
of this Section 9.2 shall be null and void. Upon the Optionee's death, the
personal representative or other person entitled to succeed to the rights of the
Optionee (the "Successor Optionee") may exercise such rights. A Successor
Optionee must furnish proof satisfactory to the Company of his or her right to
exercise the Option under the Optionee's will or under the applicable laws of
descent and distribution.
Subject to approval by the Committee in its sole discretion,
all or a portion of the Options granted to an Optionee under the Plan may be
transferable by the Optionee to, to the extent and only to the extent specified
in such approval, (i) the children or grandchildren of the Optionee ("Immediate
Family Members"), (ii) a trust or trusts for the exclusive benefit of such
Immediate Family Members ("Immediate Family Member Trusts"), or (iii) a
partnership or partnerships in which such Immediate Family Members have at least
99% of the equity, profit and loss interests ("Immediate Family Member
Partnerships"); provided that the Option Agreement pursuant to which such
Options are granted (or an amendment thereto) must expressly provide for
transferability in a manner consistent with this Section. Subsequent transfers
of transferred Options shall be prohibited except by will or the laws of descent
and distribution, unless such transfers are made to the original Optionee or a
person to whom the original Optionee could have made a transfer in the manner
described herein. No transfer shall be effective unless and until written notice
of such transfer is provided to the Company, in the form and manner prescribed
by the Company. Following transfer, any such Options shall continue to be
subject to the same terms and conditions as were applicable immediately prior to
transfer, and, except as otherwise provided herein, the term "Optionee" shall be
deemed to refer to the transferee. The events of termination of service in
Section 8 shall continue to be
B-6
<PAGE>
applied with respect to the original Optionee, following which the Options shall
be exercisable by the transferee only to the extent and for the periods
specified in Section 8.
SECTION 10. LEAVE OF ABSENCE
10.1 LEAVE OF ABSENCE. For Plan purposes a leave of absence, duly
authorized by the Company or any Subsidiary, shall not be deemed a termination
of employment. However, under no circumstances may an Optionee exercise an
Option during any leave of absence, unless authorized by the Committee.
SECTION 11. ADMINISTRATION
11.1 ADMINISTRATION. The Committee shall be responsible for the
administration of the Plan. The Committee, by majority action thereof, is
authorized to interpret the Plan, to prescribe, amend, and rescind rules and
regulations relating to the Plan, provide for conditions and assurances deemed
necessary or advisable to protect the interests of the Company and to make all
other determinations necessary or advisable for the administration of the Plan,
but only to the extent not contrary to the express provisions of the Plan. The
determinations of the Committee, interpretations, or other actions made or taken
pursuant to the provisions of the Plan shall be final and shall be binding and
conclusive for all purposes and upon all persons.
SECTION 12. AMENDMENT, MODIFICATION, AND TERMINATION OF THE PLAN
12.1 AMENDMENT, MODIFICATION, AND TERMINATION OF THE PLAN. The Board
may at any time terminate, and from time to time may amend or modify the Plan;
PROVIDED, HOWEVER, that no amendment, modification, or termination of the Plan
shall in any manner adversely affect any Option granted under the Plan prior to
such amendment, modification or termination without the consent of the Optionee.
SECTION 13. MERGER, CONSOLIDATION OR CHANGE IN CONTROL
13.1 COMPANY SURVIVING CORPORATION. Subject to any required action by
the stockholders of the Company, if the Company shall be the surviving
corporation in any merger, consolidation or reorganization in which holders of
shares of Stock receive other securities in exchange for their Stock, any Option
granted hereunder shall pertain to and apply to the securities to which a holder
of the number of shares of Stock subject to the Option would have been entitled.
13.2 COMPANY NOT SURVIVING CORPORATION. If the Company is merged,
consolidated with, or otherwise reorganized with or into another corporation and
the Company is not the surviving corporation, then (i) the Board of Directors of
the Company or the Board of Directors of any corporation assuming the
obligations of the Company under the Plan shall, as to the unexercised portion
of any Option, make appropriate provision for the protection of such Option by
the substitution on an equitable basis of appropriate securities of the Company,
or of the merged, consolidated or otherwise reorganized corporation, which will
be issuable in respect of the unexercised portion of the Option, or (ii)
immediately prior to such merger, consolidation or other reorganization the
unexercised portion of the Option, whether or not exercisable, shall immediately
be exercisable.
B-7
<PAGE>
13.3 CHANGE IN CONTROL. If any person, firm or corporation (other than
Frederic C. Hamilton, Charles C. Gates or Jay A. Precourt or any affiliate
(either directly or through one or more intermediaries) of any of them) shall
become the record or beneficial owner of securities of the Company entitling the
owner thereof to vote more than 50% of all of the votes which may be cast with
respect to matters submitted to a vote of the holders of the Stock, or if all or
substantially all of the assets of the Company are acquired by any person, or if
the Company adopts a plan of liquidation, then all outstanding Options shall
become immediately vested and exercisable, whether or not vested and exercisable
prior thereto.
SECTION 14. TAX WITHHOLDING
14.1 TAX WITHHOLDING. If the Company or a Subsidiary shall be required
to withhold any amounts by reason of any federal, state or local tax rules or
regulations in respect of the payment of cash or the issuance of Stock pursuant
to the exercise of an Option, the Company or such Subsidiary shall be entitled
to deduct and withhold such amounts from any cash payments to be made to the
Optionee or from any shares which would otherwise be delivered to the Optionee
upon exercise (which shares shall be valued at Fair Market Value as of the date
of payment of the Option Price by the Optionee). In any event, the Optionee
shall make available to the Company or such Subsidiary, promptly when requested
by the Company or such Subsidiary, sufficient funds to meet the requirements of
such withholding, and the Company or such Subsidiary shall be entitled to take
and authorize such steps as it may deem advisable in order to have such funds
made available to the Company or such Subsidiary out of any funds or property
due or to become due to the Optionee.
SECTION 15. INDEMNIFICATION
15.1 INDEMNIFICATION. Each person who is or shall have been a member of
the Committee or of the Board shall be indemnified and held harmless by the
Company against and from any loss, cost, liability, or expense that may be
imposed upon or reasonably incurred by him in connection with or resulting from
any claim, action, suit, or proceeding to which he may be a party or in which he
may be involved by reason of any action taken or failure to act under the Plan
and against and from any and all amounts paid by him in settlement thereof, with
the Company's approval, or paid by him in satisfaction of a judgment in any such
action, suit, or proceeding against him, provided he shall give the Company an
opportunity, at its own expense, to handle and defend the same before he
undertakes to handle and defend it on his own behalf. The foregoing right of
indemnification shall not be exclusive of, and is in addition to, any other
rights of indemnification to which any person may be entitled under the
Company's certificate of incorporation or bylaws, as a matter of law, or
otherwise, or any power that the Company may have to indemnify them or hold them
harmless.
SECTION 16. REQUIREMENTS OF LAW
16.1 REQUIREMENTS OF LAW. The granting of Options and the issuance of
shares of Stock upon the exercise of an Option shall be subject to all
applicable laws, rules, and regulations, and to such approvals by any
governmental agencies or national securities exchanges as may be required.
16.2 GOVERNING LAW. The Plan, and all agreements hereunder, shall be
construed in accordance with and governed by the laws of the State of Delaware.
B-8
<PAGE>
SECTION 17. EFFECTIVE DATE
17.1 EFFECTIVE DATE. The Plan was originally adopted effective
September 1, 1988 and was approved by a subsidiary of Hamilton Oil Corporation
as the sole stockholder of the Company. The Prior Plan was approved at the 1993
annual meeting of the stockholders and was amended by the Board in 1995. The
Plan, as amended and restated effective January 1, 1997, shall be effective upon
stockholder approval of the amended and restated Plan at the 1997 annual meeting
of the stockholders. If the amended and restated Plan is not approved at the
1997 annual meeting of the stockholders, then any Options granted hereunder
shall be subject to the terms and conditions of the Prior Plan.
TEJAS GAS CORPORATION
As approved by the
Board of Directors
of the Company on
March 18, 1997
P. Anthony Lannie
Secretary
B-9
<PAGE>
ANNEX C
TEJAS GAS CORPORATION
ANNUAL INCENTIVE PLAN
1. PURPOSE
The Annual Incentive Plan (the "Plan") is designed to recognize,
motivate and reward exceptional accomplishment toward annual corporate
objectives; to attract and retain quality employees; and to be market
competitive.
2. ELIGIBILITY
All regular full-time and regular part-time employees ("Employees") of
Tejas Gas Corporation (the "Company") and its subsidiaries are eligible to
receive awards under the Plan.
3. ADMINISTRATION
As to Employees other than Designated Covered Employees (as defined in
Section 5 below), the Plan shall be administered by the Compensation Committee
of the Board of Directors of the Company (the "Committee"), which shall have the
sole discretion to interpret the Plan, approve preestablished objective
performance measures annually, determine the level to which the performance
measures were attained prior to any payment under the Plan, approve the amount
of awards made under the Plan, and determine who shall receive any payment under
the Plan. As to Designated Covered Employees, the Plan shall be administered by
the Subcommittee (as defined in Section 5 below), which shall have the sole
discretion to interpret the Plan, approve preestablished objective performance
measures annually, certify the level to which the performance measures were
attained prior to any payment under the Plan, approve the amount of awards made
under the Plan, and determine who shall receive any payment under the Plan. The
Committee may delegate authority to officers of the Company to approve the
amount of awards made under the Plan to Employees who are not Designated Covered
Employees. Except for the matters reserved for determination by the Subcommittee
(which are subject to Committee ratification), all decisions and determinations
of the Committee on all matters relating to the Plan shall be conclusive. All
decisions and determinations of the Subcommittee on all matters relating to
Designated Covered Employees under the Plan shall be conclusive upon
ratification by the Committee. Members of the Committee and the Subcommittee
shall not be liable for any action taken or decision made in good faith relating
to the Plan or any award thereunder. Except as provided in this section, only
the Committee shall determine which Employees (other than Designated Covered
Employees) shall receive an award under the Plan and make decisions concerning
the timing, value and amount of any award granted to Employees (other than
Designated Covered Employees) under the Plan. Except as provided in this
section, only the Subcommittee shall determine which Designated Covered
Employees shall receive an award under the Plan and make decisions concerning
the timing, value and amount of any award granted to Designated Covered
Employees under the Plan.
4. INDIVIDUAL PERFORMANCE AWARD LEVELS
Not later than 90 days (the "Establishment Date") after the
commencement of the Plan year (calendar year), individual award levels shall be
established, expressed as specified levels of (i) earnings per share before
deduction of awards made under the Plan and related income taxes ("EPS") and
(ii) earnings before deduction of awards made under the Plan, interest, income
taxes, depreciation, amortization and, if and to the extent determined by the
Committee (as to Employees other than Designated
C-1
<PAGE>
Covered Employees) or the Subcommittee (as to Designated Covered Employees),
other financing related expenses ("EBITDA"). Each performance measure will be
weighted as determined by the Committee (as to Employees other than Designated
Covered Employees) or the Subcommittee (as to Designated Covered Employees).
Generally, each performance measure reflects an increase in the Company's actual
performance from the previous Plan year. Three performance award levels will be
established based upon Company performance ("threshold," "target" and "stretch"
goals). Employees will be eligible to receive cash payments based upon a
percentage of base salary if the Company meets the "threshold" performance
levels, with payments increasing (as a percentage of base salary) if the
"threshold" performance level is exceeded or the "target" or "stretch"
performance levels are met or exceeded. For each Plan year, the Subcommittee
will determine which Designated Covered Employees will receive payments under
the Plan and will establish the performance award levels and the percentages of
salary for such individuals not later than the Establishment Date of such Plan
year. For each Plan year, the Committee will determine which Employees (other
than Designated Covered Employees) will receive payments under the Plan and will
establish the performance award levels and the percentages of salary for such
individuals not later than the Establishment Date of such Plan year. No Employee
may receive more than a maximum of $1.5 million under the Plan with respect to
attainment of performance levels during any Plan year.
The establishment of an individual performance criteria for any
Employee shall not give any Employee the right to receive any payment under this
Plan.
5. PAYMENT OF AWARDS
Prior to authorizing any payments to Designated Covered Employees under
the Plan, approved written minutes shall be recorded of the Subcommittee meeting
in which certification by the Subcommittee is made that the performance goals
and any other material terms of the Plan were satisfied. The "Subcommittee"
shall be a committee of the Board of Directors comprised of members of the
Committee, who qualify as "outside" Directors within the meaning of Section
162(m) of the Internal Revenue Code, as amended, and the regulations thereunder
("Section 162(m)").
"Designated Covered Employees" shall be those one or more Employees who
are designated as such by the Subcommittee not later than the Establishment Date
of the Plan year. Generally, the Subcommittee will endeavor to designate as
"Designated Covered Employees" for a Plan year those Employees whose (i) awards
under the Plan (when combined with base salary and other non-performance based
compensation) may reasonably be foreseen to exceed the threshold for
nondeductibility by the Company under Section 162(m) and (ii) who would be
"covered employees" under Section 162(m). For Designated Covered Employees,
downward adjustment of the actual award level from the performance award level
may be made at the sole discretion of the Subcommittee. Discretionary upward
adjustment of the actual award level above the performance award level shall not
be allowed for Designated Covered Employees.
For Employees other than Designated Covered Employees, actual
individual award levels may be adjusted upward or downward at the sole
discretion of the Committee based on an Employee's individual performance.
Payments made under this Plan may be made in cash or common stock of
the Company (with an equivalent fair market value on the date of payment) as
determined by the Committee (as to Employees other than Designated Covered
Employees) and the Subcommittee (as to Designated Covered Employees). Cash
payments made under this Plan may be deferred by Employees according to the
terms of the Tejas Gas Corporation Thrift Benefit Restoration Plan and the Tejas
Gas Corporation Thrift Plan. The Committee (as to Employees other than
Designated Covered Employees) and the Subcommittee (as to
C-2
<PAGE>
Designated Covered Employees) will determine the timing of payments under the
Plan and may elect to make payments over more than one calendar year. There will
be no increase in the amount of payment to Employees (other than Designated
Covered Employees) as a result of any award being paid in installments, except
that the Committee (as to Employees other than Designated Covered Employees)
may, in its sole discretion, increase such payments by an amount based on a rate
of interest that the Committee shall determine is reasonable or the actual rate
of return of a specific investment selected by the Committee. There will be no
increase in the amount of payment to Designated Covered Employees as a result of
any award being paid in installments, except that the Subcommittee may, in its
sole discretion, increase such payments by an amount based on a rate of interest
that the Subcommittee shall determine is reasonable or the actual rate of return
of a specific investment selected by the Subcommittee.
6. UNFUNDED NATURE OF PLAN
This Plan shall constitute an unfunded mechanism for the Company to pay
incentive compensation to Employees from its general assets. No fund or trust is
created with respect to the Plan, and no Employee shall have any security or
other interest in the assets of the Company.
7. PROHIBITION AGAINST ASSIGNMENT OR ENCUMBRANCE
No right, title, interest or benefit hereunder shall ever be liable for
or charged with any of the torts or obligations of an Employee, or be subject to
seizure by any creditor or an Employee or any person claiming under an Employee.
No Employee nor any person claiming under an Employee shall have the power to
sell, transfer, pledge, anticipate or dispose of any right, title, interest or
benefit hereunder in any manner until the same shall have been actually
distributed free and clear of the terms of the Plan.
8. PLAN NOT AN EMPLOYMENT CONTRACT
The Plan does not give any Employee the right to be continued in
employment, and all Employees remain subject to change of salary, transfer,
change of job, discipline, layoff, discharge or any other change of employment
status.
9. SEVERABILITY
In the event any provision of the Plan shall be held invalid or illegal
for any reason, any illegality or invalidity shall not affect the remaining
parts of the Plan, but the Plan shall be construed and enforced as if the
illegal or invalid provision had never been inserted, and the Company shall have
the privilege and opportunity to correct and remedy such questions of illegality
or invalidity by amendment as provided in the Plan.
10. WITHHOLDING OF TAXES
The Company shall have the right to deduct from any payment made under
the Plan any federal, state or local taxes required by law to be withheld with
respect to such awards.
11. APPLICABLE LAW
The Plan shall be governed and construed in accordance with the laws of
the State of Texas, except to the extent such laws are preempted by an
applicable federal law.
C-3
<PAGE>
12. EFFECTIVE DATE OF PLAN
The Plan shall be considered effective as of January 1, 1997. If the
Plan is not approved by the stockholders, the Plan will be effective only as to
employees who are not "covered employees" under Section 162(m).
13. AMENDMENT AND TERMINATION OF THE PLAN
The Committee (as to Employees other than Designated Covered Employees)
and the Subcommittee (as to Designated Covered Employees) may modify or
terminate the Plan at any time without prior notice to or consent of Employees;
provided that, without the approval of the stockholders of the Company, no such
amendment shall be made that would change the class of Employees eligible to
receive awards under the Plan, base the award on a performance measure other
than EPS and EBITDA, or increase the maximum individual award payment under the
Plan.
TEJAS GAS CORPORATION
As approved by the
Board of Directors
of the Company on
March 18, 1997
P. Anthony Lannie
Secretary
C-4
<PAGE>
PROXY PROXY
TEJAS GAS CORPORATION
PROXY SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS OF TEJAS GAS CORPORATION
FOR THE ANNUAL MEETING OF STOCKHOLDERS TO BE HELD ON MAY 8, 1997
The undersigned hereby constitutes and appoints Jay A. Precourt and P.
Anthony Lannie, or either of them, attorneys, agents and proxies, each with
power of substitution, to appear and vote all of the shares of Common Stock,
which the undersigned is entitled to vote at the Annual Meeting of Stockholders
of Tejas Gas Corporation (the "Company") to be held at the Chevron Tower
Auditorium, 1301 McKinney, Houston, Texas 77010, at 1:30 p.m., Houston time, on
Thursday, May 8, 1997, and at any postponements or adjournments thereof, and in
their discretion upon any other business that may properly come before the
meeting. Said proxies are directed to vote as designated herein upon matters
described in the Notice of Annual Meeting and the Proxy Statement dated April 7,
1997.
THIS PROXY WILL BE VOTED AS SPECIFIED OR, IF NO CHOICE IS SPECIFIED,
WILL BE VOTED FOR THE ELECTION OF THE NOMINEES NAMED AND FOR THE OTHER PROPOSALS
SPECIFIED HEREIN. THE BOARD OF DIRECTORS RECOMMENDS A VOTE FOR THE ELECTION OF
DIRECTORS AND FOR THE OTHER PROPOSALS SPECIFIED HEREIN.
PLEASE MARK, SIGN AND DATE THIS PROXY ON THE REVERSE
SIDE AND RETURN IT PROMPTLY IN THE ACCOMPANYING
ENVELOPE.
(CONTINUED AND TO BE SIGNED ON REVERSE SIDE)
<PAGE>
TEJAS GAS CORPORATION
PLEASE MARK VOTE IN OVAL IN THE FOLLOWING MANNER USING DARK INK ONLY. / X /
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C> <C>
1. Election of Directors-- FOR WITHHELD FOR ALL Except the following nominee(s)
NOMINEES: Frederic C. Hamilton, Jay A. Precourt ALL ALL
and Charles C. Gates. [ ] [ ] [ ] ______________________________
2. To amend the Director Stock Option Plan. FOR AGAINST ABSTAIN
[ ] [ ] [ ]
3. To amend the Employee Stock Option Plan. FOR AGAINST ABSTAIN
[ ] [ ] [ ]
4. To adopt the Annual Incentive Plan. FOR AGAINST ABSTAIN
[ ] [ ] [ ]
5. To ratify the selection of Deloitte & Touche FOR AGAINST ABSTAIN
LLP as Auditors for fiscal year 1997. [ ] [ ] [ ]
</TABLE>
*NOTE: In their discretion, the persons named as proxies in
this Proxy are authorized to vote upon such other
business as may properly come before the meeting or
any adjournment thereof.
Dated:_____________________________, 1997
Signature(s)______________________________________
_______________________________________
Please sign exactly as name appears hereon. Joint owners
should each sign. Where applicable, indicate official position
or representative capacity.
