Stock Options and Awards. Effective with the merger, each share of PanEnergy common stock outstanding immediately prior to the merger was converted into the right to receive 1.0444 shares of the Corporation’s common stock. Each option to purchase PanEnergy common stock that was outstanding prior to the merger was assumed by the Corporation and became exercisable upon the same terms as under the applicable PanEnergy stock option plan and option agreement, except that such options became an option to purchase shares of the Corporation’s common stock, appropriately adjusted. Each award of restricted shares of PanEnergy common stock outstanding and not vest-ed prior to the merger was assumed by the Corporation and such restricted shares of PanEnergy common stock were exchanged for restricted shares of the Corporation’s common stock.

Under the Corporation’s 1996 Stock Incentive Plan, stock options and awards for up to two million shares of common stock may be granted to key employees. Under the plan, the exercise price of each option granted equals the market price of the Corporation’s common stock on the date of grant. Vesting periods range from one to five years with a maximum exercise term of 10 years.

In 1997, the Corporation granted 115,615 shares of performance-based stock awards and 1,000 fixed stock awards with an average grant date fair value of $44 per share. The Corporation recognized compensation expense of $4.4 million in 1997, $8.3 million in 1996 and none in 1995 for such stock awards.