<PAGE> 1
SCHEDULE 14A
(RULE 14A-101)
SCHEDULE 14A INFORMATION
PROXY STATEMENT PURSUANT TO SECTION 14(A) OF THE SECURITIES
EXCHANGE ACT OF 1934 (AMENDMENT NO. )
Filed by the Registrant [X]
Filed by a party other than the Registrant [ ]
Check the appropriate box:
[ ] Preliminary Proxy Statement [ ] Confidential, for Use of the
Commission Only (as permitted by
Rule 14a-6(e)(2))
[X] Definitive Proxy Statement
[ ] Definitive Additional Materials
[ ] Soliciting Material Pursuant to sec. 240.14a-11(c) or sec. 240.14a-12
STONE ENERGY 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)(1) and 0-11.
(1) Title of each class of securities to which transaction applies:
- -------------------------------------------------------------------------------
(2) Aggregate number of securities to which transaction applies:
- -------------------------------------------------------------------------------
(3) Per unit price or other underlying value of transaction computed pursuant
to Exchange Act Rule 0-11 (Set forth the amount of which the filing fee is
calculated and state how it was determined):
- -------------------------------------------------------------------------------
(4) Proposed maximum aggregate value of transaction:
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(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:
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(2) Form, Schedule or Registration Statement No.:
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(3) Filing Party:
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(4) Date Filed:
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<PAGE> 2
[STONE ENERGY LOGO]
STONE ENERGY CORPORATION
Lafayette, Louisiana
NOTICE OF ANNUAL MEETING OF STOCKHOLDERS
Thursday, May 14, 1998
To the Stockholders:
The 1998 Annual Meeting of Stockholders (the "Annual Meeting") of Stone
Energy Corporation (the "Company") will be held on Thursday, May 14, 1998 at
10:00 a.m., local time, in the Denechaud Room of Le Pavillon Hotel, Baronne and
Poydras Streets, New Orleans, Louisiana, for the following purposes:
(1) To elect three directors to serve until the 2001 Annual Meeting of
Stockholders;
(2 To ratify the appointment of Arthur Andersen LLP as independent
auditors of the Company for the fiscal year ending December 31,
1998; and
(3) To transact such other business as may properly come before such
meeting or any adjournment(s) thereof.
The close of business on March 20, 1998, was fixed as the record date
for the determination of stockholders entitled to receive notice of and to vote
at the Annual Meeting or any adjournment(s) thereof.
You are cordially invited to attend the Annual Meeting. WHETHER OR NOT
YOU PLAN TO ATTEND THE ANNUAL MEETING, WE ASK THAT YOU SIGN AND RETURN THE
ENCLOSED PROXY AS PROMPTLY AS POSSIBLE. A SELF-ADDRESSED, POSTPAID ENVELOPE IS
ENCLOSED FOR YOUR CONVENIENCE.
By Order of the Board of Directors
/s/ Andrew L. Gates, III
---------------------
Secretary
March 31, 1998
<PAGE> 3
[STONE ENERGY LOGO]
STONE ENERGY CORPORATION
625 E. Kaliste Saloom Road
Lafayette, Louisiana 70508
(318) 237-0410
- --------------------------------------------------------------------------------
PROXY STATEMENT
- --------------------------------------------------------------------------------
SOLICITATION AND REVOCABILITY OF PROXIES
The enclosed proxy is solicited by and on behalf of the Board of
Directors of the Company for use at the Annual Meeting to be held on Thursday,
May 14, 1998 at 10:00 a.m., local time, in the Denechaud Room of Le Pavillon
Hotel, Baronne and Poydras Streets, New Orleans, Louisiana, or at any
adjournment(s) thereof. The solicitation of proxies by the Board of Directors of
the Company (the "Board of Directors") will be conducted primarily by mail. In
addition, officers, directors and employees of the Company may solicit proxies
personally or by telephone, telegram or other forms of wire or facsimile
communication. The Company will reimburse brokers, custodians, nominees and
fiduciaries for reasonable expenses incurred by them in forwarding proxy
material to beneficial owners of common stock of the Company ("Common Stock").
The costs of the solicitation will be borne by the Company. This proxy statement
and the form of proxy were first mailed to shareholders of the Company on or
about April 3, 1998.
The enclosed proxy, even though executed and returned, may be revoked
at any time prior to the voting of the proxy (a) by execution and submission of
a revised proxy, (b) by written notice to the Secretary of the Company or (c) by
voting in person at the Annual Meeting. In the absence of such revocation,
shares represented by the proxies will be voted at the Annual Meeting.
At the close of business on March 20, 1998, the record date for the
determination of stockholders entitled to notice of and to vote at the Annual
Meeting, there were outstanding 15,063,408 shares of Common Stock, each share of
which is entitled to one vote. Common Stock is the only class of outstanding
securities of the Company entitled to notice of and to vote at the Annual
Meeting.
The Company's annual report to stockholders for the year ended December
31, 1997, including financial statements, is being mailed herewith to all
stockholders entitled to vote at the Annual Meeting. The annual report does not
constitute a part of the proxy soliciting material.
ITEM 1.
ELECTION OF DIRECTORS
Three directors are to be elected at the Annual Meeting. The Company's
Bylaws provide for a classified Board of Directors. Thus, the Board of Directors
is divided into Classes I, II and III, the terms of office of which are
currently scheduled to expire on the dates of the Company's Annual Meetings of
Stockholders in 2000, 1998 and 1999, respectively. B.J. Duplantis, Michael L.
Finch and John P. Laborde have been nominated to serve in Class II and, if
elected, will serve until the Company's 2001 Annual Meeting of Stockholders and
until their respective successors shall have been elected and qualified. Each of
the nominees for director currently serves as a director of the Company. The
<PAGE> 4
remaining six directors named below will not be required to stand for election
at the Annual Meeting because their present terms expire in either 1999 or 2000.
A plurality of the votes cast in person or by proxy by the holders of Common
Stock is required to elect a director. Accordingly, abstentions and "broker
non-votes" will have no effect on the outcome of the election of directors
assuming a quorum is present or represented by proxy at the Annual Meeting. A
broker non-vote occurs if a broker or other nominee does not have discretionary
authority and has not received instructions with respect to a particular item.
Stockholders may not cumulate their votes in the election of directors.
Unless otherwise instructed or unless authority to vote is withheld,
the enclosed proxy will be voted for the election of the nominees listed below.
Although the Board of Directors does not contemplate that any of the nominees
will be unable to serve, if such a situation arises prior to the Annual Meeting,
the persons named in the enclosed proxy will vote for the election of such other
person(s) as may be nominated by the Board of Directors.
The following table sets forth information regarding the names, ages as
of March 15, 1998 and principal occupations of the nominees and directors, other
directorships in certain companies held by them and the length of continuous
service as a director of the Company.
<TABLE>
<CAPTION>
Principal Occupation and Director
Directorships Since Age
<S> <C> <C> <C>
Class I Directors
D. Peter Canty............ President and Chief Operating Officer
of the Company 1993 51
Raymond B. Gary........... Advisory Director, Morgan Stanley &
Co. Inc. 1993 69
David R. Voelker.......... Private investments 1993 44
Class II Nominees
B. J. Duplantis........... Managing Partner of the law firm of
Gordon, Arata, McCollam & Duplantis 1993 58
Michael L. Finch.......... Executive Vice President and Chief
Financial Officer of the Company 1993 42
John P. Laborde........... Director, Tidewater Inc., Stewart
Enterprises, Inc., Stolt Comex
Seaway, S.A. and Council member,
American Bureau of Shipping 1993 74
Class III Directors
Robert A. Bernhard........ Co-Chairman of Munn, Bernhard &
Associates, Inc., an investment advisory
firm and a member of McFarland, Dewey
and Co. LLC, an investment banking firm 1993 69
Joe R. Klutts............. Vice Chairman of the Board of the
Company 1993 63
James H. Stone............ Chairman of the Board and Chief
Executive Officer of the Company;
Director, Newpark Resources, Inc. 1993 72
</TABLE>
Each of the nominees and directors has been engaged in the principal
occupation set forth opposite his name for at least the past five years except
as described below. The Company was formed in March 1993 to become a holding
company for The Stone Petroleum Corporation ("TSPC") and its subsidiaries and
certain partnership interests in three affiliated limited partnerships.
<PAGE> 5
James H. Stone has served as Chairman of the Board and Chief Executive
Officer of the Company since March 1993, and as Chairman of the Board of TSPC
since 1981 and served as President of TSPC from September 1992 to July 1993.
Joe R. Klutts was named to his present position in March 1994. He has
also served as a Director of TSPC since 1981. He served as President of the
Company from March 1993 to March 1994, and as Executive Vice
President-Exploration and President of TSPC from 1981 to 1993 and from July 1993
to May 1994, respectively.
D. Peter Canty has served as Chief Operating Officer of the Company
since March 1993 and also served as an Executive Vice President until he was
named as President of the Company in March 1994. Mr. Canty served as Vice
President and Chief Geologist of TSPC from 1987 to May 1994, when he was named
President of TSPC.
Michael L. Finch has served as Executive Vice President and Chief
Financial Officer of the Company since March 1993. From 1988 through July 1993,
he was a partner in the firm of Finch & Pierret, CPAs, which performed a
substantial amount of financial reporting, tax compliance and financial advisory
services for TSPC and its affiliates.
David R. Voelker has served as a Director of TSPC since 1991. He was a
partner of Johnson Rice & Company from 1989 to February 1994.
John P. Laborde served as Chief Executive Officer and Chairman of the Board
of Tidewater Inc. from 1956 and 1968, respectively, to his retirement in October
1994. Mr. Laborde also served as President of Tidewater Inc. from 1958 to 1981
and from 1988 to his retirement.
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The following table sets forth below certain information regarding
beneficial ownership of Common Stock as of March 15, 1998 (unless otherwise
indicated) by (i) each person known by the Company to own beneficially five
percent or more of its outstanding Common Stock, (ii) the Company's Chief
Executive Officer and each of the Company's other four most highly compensated
executive officers, (iii) each of the Company's directors and (iv) all executive
officers and directors of the Company as a group.
<TABLE>
<CAPTION>
Beneficial Ownership(2)
------------------------------------
Name of Beneficial Owner(1) Shares Percent
- ------------------------------------------------- ---------------- ----------------
<S> <C> <C>
C.S. McKee & Co., Inc............................ 1,244,400(3) 8.3
James H. Stone................................... 1,539,970(4) 10.2
Joe R. Klutts.................................... 483,070 3.2
D. Peter Canty................................... 383,710(5) 2.5
Michael L. Finch................................. 384,771 2.6
Phillip T. Lalande............................... 28,100 *
James H. Prince.................................. 279,522(6) 1.9
David R. Voelker................................. 702,153(7) 4.7
John P. Laborde.................................. 17,000 *
Robert A. Bernhard............................... 158,000(8) 1.1
Raymond B. Gary.................................. 54,259(9) *
B. J. Duplantis.................................. 16,000 *
Executive Officers and Directors as a group
(consisting of 14 persons)....................... 4,093,455 26.8
- ----------
* Less than 1%.
</TABLE>
<PAGE> 6
(1) The address of C. S. McKee & Co., Inc. is One Gateway Center, 8th
Floor, Pittsburgh, Pennsylvania 15222. The address of Mr. Stone is
LL&E Tower, 909 Poydras, Suite 2650, New Orleans, Louisiana 70112.
(2) Under the regulations of the Securities and Exchange Commission, shares
are deemed to be "beneficially owned" by a person if he directly or
indirectly has or shares the power to vote or dispose of such shares,
whether or not he has any pecuniary interest in such shares, or if he
has the right to acquire the power to vote or dispose of such shares
within 60 days, including any right to acquire such power through the
exercise of any option, warrant or right. The shares beneficially owned
by (i) Messrs. Stone and Lalande each include 28,000 shares, (ii)
Messrs. Canty, Klutts and Finch each include 25,000 shares, (iii) Mr.
Prince includes 19,000 shares, (iv) Messrs. Voelker and Gary each
include 10,000 shares, (v) Mr. Duplantis includes 15,000 shares and
(vi) the executive officers and directors as a group includes 231,400
shares that may be acquired by such persons within 60 days through the
exercise of stock options.
(3) Based solely upon oral advice received from C. S. McKee & Co., Inc.
(4) Includes shares owned by two partnerships known as James H. Stone
Interests and James H. Stone Interests II, of which Mr. Stone
disclaims any pecuniary interest with respect to 47,017 and 16,234
shares, respectively. Also includes 6,380 shares held by Mr. Stone
as custodian for the benefit of his two minor children, to which Mr.
Stone disclaims any pecuniary interest.
(5) Includes 200 shares owned by Mr. Canty's wife.
(6) Includes 500 shares held by Prince Foundation, Inc., a non-profit
corporation, of which Mr. Prince is the President.
(7) Includes 104,347 shares owned by the KGB Trust, of which Mr. Voelker is
the sole trustee, 72,440 shares owned by two trusts for the benefit of
Mr. Stone's minor children, of which Mr. Voelker is a trustee, and
466,570 shares owned by Frantzen/Voelker Investments, L.L.C. Mr.
Voelker disclaims any pecuniary interest with respect to the shares
owned by the trusts for the benefit of Mr. Stone's children.
(8) Includes 30,000 shares held by the Bernhard Trust "B" of which Mr.
Bernhard is the trustee and a potential beneficiary, and 12,000 shares
held by Mr. Bernhard's wife.
(9) Includes 20,000 shares owned by Mr. Gary's wife.
DIRECTORS' MEETINGS AND COMMITTEES OF THE BOARD OF DIRECTORS
The Board of Directors held eight meetings and took action by written
consent on three occasions during 1997. Each director attended at least 75% of
the aggregate total meetings of the Board of Directors and any committee on
which such director served. The Company has the following standing committees:
AUDIT COMMITTEE. The Audit Committee, which currently consists of
Messrs. Bernhard, Duplantis, Gary, Laborde and Voelker, met two times during
1997. Its principal functions are to recommend to the Board of Directors each
year the engagement of a firm of independent auditors, to review the Company's
accounting and internal control systems and principal accounting policies and to
oversee the entire audit function, both independent and internal.
COMPENSATION COMMITTEE. The Compensation Committee, which currently
consists of Messrs. Bernhard, Duplantis, Gary, Laborde and Voelker, met six
times during 1997 and took action by written consent on one occasion. Its
principal functions are to review and approve the compensation of the officers
and other employees of the Company. In addition, the Compensation Committee
administers the Company's Stock Option and Incentive Compensation Plans and has
the sole authority to make grants pursuant to such plans. Members of the
Compensation Committee are not eligible to participate in any of the plans that
they administer.
<PAGE> 7
EXECUTIVE COMMITTEE. The Executive Committee, which currently consists
of Messrs. Canty, Duplantis, Finch, Klutts and Stone, did not meet during 1997,
but did take action by unanimous written consent on three occasions during 1997.
Its principal function is to aid and assist the Company's management in the
day-to-day operation of the Company.
INVESTMENT COMMITTEE. The Investment Committee, which consists of Messrs.
Bernhard, Canty, Finch and Stone, met one time during 1997. Its principal
functions are to determine the investment objectives for the Company's cash
assets and select and supervise one or more investment managers.
PRICING COMMITTEE. The Pricing Committee, which consists of Messrs. Stone,
Canty, Bernhard, Gary, and Finch, met one time during 1997. Its principal
function is to determine the price at which the Company's securities are
initially sold.
EXECUTIVE COMPENSATION
The following table sets forth annual and long-term compensation for
services in all capacities to the Company and its subsidiaries for the fiscal
years ended December 31, 1995, 1996 and 1997 of those persons who were, at
December 31, 1997, the Chief Executive Officer and the other four most highly
compensated executive officers of the Company (collectively, the "named
executive officers").
<TABLE>
<CAPTION>
SUMMARY COMPENSATION TABLE
LONG-TERM
COMPENSATION
AWARDS
-------------------
NUMBER OF
SECURITIES
UNDERLYING ALL OTHER
NAME AND PRINCIPAL POSITION YEAR SALARY BONUS(1) OTHER OPTIONS COMPENSATION(2)
--------------------------- ---- ------ -------- ----- ------- ---------------
<S> <C> <C> <C> <C> <C> <C>
James H. Stone................... 1997 $167,500 $108,875 $ -- -- $21,160(3)
Chairman of the Board and 1996 145,000 107,300 -- 40,000 21,160(3)
Chief Executive Officer 1995 145,000 -- -- -- 4,620
D. Peter Canty................... 1997 157,500 102,375 -- -- 13,902(4)(5)
President and Chief 1996 135,000 99,900 -- 25,000 13,902(4)(5)
Operating Officer 1995 135,000 -- -- -- 11,472(5)
Michael L. Finch................. 1997 138,750 90,200 -- -- 4,750
Executive Vice President and 1996 120,000 88,800 -- 25,000 4,500
Chief Financial Officer 1995 120,000 -- -- -- 4,620
Andrew L. Gates, III(6).......... 1997 120,000 66,000 -- 10,000 8,250(7)
Vice President and General 1996 120,000 72,000 -- 10,000 8,750(7)
Counsel 1995 50,000 3,867 -- 25,000 2,250
Phillip T. Lalande............... 1997 105,000 68,300 10,516(8) 15,000 10,990(9)
Vice President-Engineering 1996 100,000 70,000 15,047(8) -- 10,990(9)
1995 100,000 7,735 15,793(8) 50,000 10,860(9)
</TABLE>
- ----------
(1) The amounts reflected in the table for 1995, 1996 and 1997 represent
bonuses paid in March 1996, February 1997 and February 1998,
respectively, which related to performance in 1995, 1996 and 1997,
respectively.
<PAGE> 8
(2) Except as indicated in the following notes, amounts in all other
compensation reflect amounts contributed or accrued by the Company on
behalf of the named executive officers under the Company's 401(k)
profit sharing plan.
(3) Includes $16,410 of premiums paid by the Company for a life insurance
policy as to which the Company is not a beneficiary.
(4) Includes $2,300 of premiums paid by the Company for a life insurance
policy as to which the Company is not a beneficiary.
(5) A predecessor of TSPC entered into deferred compensation agreements
with several of its employees, including Mr. Canty, prior to 1982. TSPC
has purchased split-dollar life insurance policies to fund these
agreements. A substantial portion of the face value of each of the
policies is payable to the beneficiaries of the employees. See "--
Deferred Compensation Agreements." Of the amounts reflected in the
table for each of 1997, 1996 and 1995, $6,852 is attributable to
premiums paid by the Company pursuant to the policy relating to Mr.
Canty.
(6) Mr. Gates was employed by the Company on August 1, 1995.
(7) Includes $3,500 and $4,000 of premiums paid by the Company in 1997 and
1996, respectively, for a life insurance policy as to which the Company
is not the beneficiary.
(8) Reflects amounts paid by a trust formed by the Company for the benefit
of certain employees. Such trust holds net profits interests that
burden properties acquired by the Company prior to July 1993.
(9) Includes $6,240 of premiums paid by the Company for a life insurance
policy as to which the Company is not a beneficiary.
STOCK OPTIONS GRANTED IN 1997
The following table contains certain information concerning
nonqualified stock options granted to the named executive officers in 1997.
<TABLE>
<CAPTION>
INDIVIDUAL GRANTS
--------------------------------------------------------------
POTENTIAL REALIZABLE
PERCENT OF VALUE AT ASSUMED
NUMBER OF TOTAL ANNUAL RATES OF STOCK
SECURITIES OPTIONS PRICE APPRECIATION FOR
UNDERLYING GRANTED TO EXERCISE OR OPTION TERMS(3)
OPTIONS EMPLOYEES BASE PRICE EXPIRATION ----------------------
NAME GRANTED(1) IN 1997 PER SHARE(2) DATE 5% 10%
- ------------------- ---------- ------- ------------ ---- ------ -------
<S> <C> <C> <C> <C> <C> <C>
Phillip T. Lalande 15,000 6.8% $28.1563 8/07/07 $265,610 $673,108
Andrew L. Gates, III 10,000 4.5% $28.1563 8/07/07 177,073 448,739
</TABLE>
(1) The options expire 10 years from the date of grant. Twenty percent of
the options will vest on the first and each succeeding anniversary of
the date of the grant.
(2) The exercise price of the options was based upon the average of the
high and low sales price of the Common Stock on the New York Stock
Exchange on the date of grant.
(3) Calculated based upon the indicated rates of appreciation, compounded
annually, from the date of grant to the end of each option term. Actual
gains, if any, on stock option exercises and Common Stock holdings are
dependent on the future performance of the Common Stock and overall
stock market conditions. There can be no assurance that the amounts
reflected in this table will be achieved. The calculation does not take
into
<PAGE> 9
account the effects, if any, of provisions of the option plan governing
termination of options upon employment termination, transferability or
vesting.
STOCK OPTION EXERCISES AND FISCAL YEAR-END VALUES
The following table contains certain information concerning the value
of unexercised options at December 31, 1997. None of the named executive
officers exercised any stock options during 1997.
<TABLE>
<CAPTION>
NUMBER OF SECURITIES VALUE OF UNEXERCISED
UNDERLYING UNEXERCISED IN-THE-MONEY OPTIONS
OPTIONS AT DECEMBER 31, 1997 AT DECEMBER 31, 1997(1)
-------------------------------------- -------------------------------------
NAME EXERCISABLE UNEXERCISABLE EXERCISABLE UNEXERCISABLE
- ---------------------------- --------------- ------------------ -------------- -----------------
<S> <C> <C> <C> <C>
James H. Stone.............. 28,000 37,000 $528,000 $527,625
D. Peter Canty.............. 25,000 25,000 488,438 369,375
Michael L. Finch............ 25,000 25,000 488,438 369,375
Phillip T. Lalande.......... 28,000 47,000 591,500 756,156
Andrew L. Gates, III........ 12,000 33,000 245,750 488,000
- ----------
</TABLE>
(1) The value of each unexercised in-the-money stock option is equal to the
difference between the closing price of the Common Stock on the New
York Stock Exchange on December 31, 1997 of $33.50 and the per share
exercise price of the stock option.
DEFERRED COMPENSATION AGREEMENTS
A predecessor of the Company entered into deferred compensation and
disability agreements (the "Deferred Compensation Agreements") with several of
its employees, including D. Peter Canty, prior to 1982. Benefits under the
Deferred Compensation Agreements have become fully vested. Benefits are payable
in a fixed monthly amount at age 65 (or actual retirement, if later) until the
later of the expiration of 180 months or the death of the employee. The Deferred
Compensation Agreements also provide for monthly payments upon total disability
until age 65 and certain benefits upon partial disability. Mr. Canty is entitled
to receive an annual benefit at age 65 (or actual retirement, if later) of
$28,500 under his Deferred Compensation Agreement.
The Company has purchased split-dollar life insurance policies to fund
its obligations under the Deferred Compensation Agreements. The policies are
designed to have a cash surrender value at age 65 of the employee sufficient to
fund the Company's obligations. The Company has the right to the cash surrender
value of the policies. A substantial portion of each of the policies is payable
to the beneficiaries of the employees and the remainder is payable to the
Company. Premiums paid by the Company pursuant to the policy relating to Mr.
Canty are included under "All Other Compensation" in the Summary Compensation
Table.
COMPENSATION OF DIRECTORS
Pursuant to the Company's 1993 Nonemployee Directors' Stock Option Plan
(the "Directors' Plan"), directors of the Company who are not officers or
employees of the Company or any of its subsidiaries ("Nonemployee Directors")
will receive, upon the date of their initial election to the Board of Directors
of the Company, a nonqualified stock option to purchase 1,000 shares of Common
Stock. Further, as of the date of each annual meeting of the stockholders of the
Company, each Nonemployee Director who has already received his initial option
grant as described in the preceding sentence will receive a nonqualified stock
option to purchase 5,000 shares of Common Stock. Each option will have an
exercise price equal to the fair market value of the Common Stock on the date of
grant. The exercise price may be paid in cash, in shares of Common Stock (valued
at fair market value at the date of exercise), or by a combination of such means
of payment. Generally, the fair market value of a share of Common Stock on a
particular date is equal to the average of the high and low sales prices of the
Common Stock on the New York Stock Exchange on such date. Effective as of the
date of the Company's 1997 Annual Meeting of Stockholders, each of Messrs. Gary,
Voelker,
<PAGE> 10
Duplantis, Laborde and Bernhard were granted an option to purchase 5,000 shares
of Common Stock at an exercise price of $28.0625 per share pursuant to the
Directors' Plan.
Except upon the occurrence of a Change of Control (as defined in the
Directors' Plan), all options granted under the Directors' Plan have a maximum
term of five years and will vest in three equal annual installments beginning on
the first anniversary of the date of grant. Upon the occurrence of a "Change of
Control," each option will be exercisable in full.
Beginning in 1997, Nonemployee Directors were paid $1,500 each quarter,
plus $1,000 for attending each of the four regularly scheduled meetings of the
Board of Directors. Each Nonemployee Director was also reimbursed for expenses
incurred in attending meetings of the Board of Directors and committees thereof.
TRANSACTIONS WITH MANAGEMENT AND CERTAIN STOCKHOLDERS
Set forth below is a description of certain transactions entered into
between the Company and certain of its officers, directors and stockholders.
James H. Stone and Joe R. Klutts collectively own 9% of the working
interests in the Weeks Island Field. These interests were acquired at the same
time as the Company's predecessor acquired its interests in the Weeks Island
Field. In their capacity as working interest owners, they are required to pay
their proportional share of all costs and are entitled to receive their
proportional share of revenues.
COMPENSATION COMMITTEE REPORT ON EXECUTIVE COMPENSATION
The Compensation Committee's principal duties are to review and approve
the compensation of the officers and other employees of the Company. In
addition, the Compensation Committee administers the Company's Stock Option Plan
and has the sole authority to make grants pursuant to such plan. Members of the
Compensation Committee are not eligible to participate in any of the plans that
they administer.
EXECUTIVE COMPENSATION. The Committee believes that compensation of
executive officers should not only be adequate to attract, motivate and retain
competent executive personnel, but should also serve to align the interests of
executive officers with those of stockholders. To achieve these ends, in
addition to a competitive yet modest base salary, the Company has adopted both
short-term and long-term incentive compensation plans that are dependent upon
the Company's performance. The Compensation Committee does not currently intend
to award levels of compensation that would result in a limitation on the
deductibility of a portion of such compensation for federal income tax purposes
pursuant to Section 162(m) of the Internal Revenue Code of 1986, as amended (the
"Code"); however, the Compensation Committee may authorize compensation that
results in such limitations in the future if it determines that such
compensation is in the best interest of the Company.
BASE SALARY. While the Committee believes it is crucial to provide
salaries within a competitive market range in order to attract and retain
personnel who are highly talented, the Committee has established a philosophy of
generally providing more conservative base salaries and more aggressive
incentive compensation opportunities than the market in order to strongly
emphasize pay-for-performance. 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. In 1997, the
Committee concluded that 1997 base salary compensation for certain members of
the executive group needed to be increased. The adjustments were required
because total compensation for each such member, including salary, bonus and
other benefits, was below the average for companies of comparable revenue size
primarily engaged in oil and gas exploration. The Committee intends to review
the executive group's salaries on a biannual basis and adjust them if they
deviate substantially from the average for other companies, including the Peer
Group, and salary levels implied by other market data.
INCENTIVE COMPENSATION. The Company's Annual Incentive Compensation
Plan was terminated in 1996 and, in lieu thereof, the Committee adopted a
discretionary bonus program. Under this program, bonuses are primarily tied to
several performance criteria, including the annual return on the Company's
Common Stock (including dividends and
<PAGE> 11
price appreciation), how such return compares to the average annual return on
the common stock of the Peer Group, and the annual increase in earnings and cash
flow per share and in the net asset value of the Company. The Peer Group
consists of the companies named under the heading "Stockholder Return
Performance Presentation." A portion of the bonuses is determined by the sole
discretion of the Committee. To the extent that performance criteria are met, an
incentive pool is generated. The amount of the incentive pool, however, may not
exceed the aggregate base salary of all eligible employees for the relevant plan
year, and no individual award to an eligible employee may exceed such employee's
base salary for the relevant plan year.
The Committee is responsible for determining the participants,
performance criteria to be used, award levels and allocation of generated
incentives. Any allocated incentives are awarded to individuals, including
executive officers, based upon a combination of group and individual performance
factors. It is the overall objective of the Company that the Incentive Plan not
reward employees until the Company's stockholders have been appropriately
rewarded for investing in the Company. The Committee is not required to grant
awards for all amounts available under the Incentive Plan. For the 1997
performance year, a total of $2.3 million was available for awards and $1.9
million was paid. Awards granted to the named executive officers for the 1997
performance year are presented under "Bonus" in the Summary Compensation Table.
STOCK OPTION PLAN. The Company's Stock Option Plan authorizes the
Committee to award stock options to purchase up to 1,170,000 shares of Common
Stock to employees of the Company. The Committee determined that this number was
comparable, as a percentage of outstanding stock, to the number of shares
available for grant under stock option plans of the companies comprising the
Peer Group. The Committee generally grants non-statutory options at an exercise
price equal to the fair market value of the Company's Common Stock on the date
of grant. Options generally have ten-year terms, with exercise restrictions that
lapse over a five-year period.
Stock option grants are designed to align the long-term interests of
the Company's employees with those of its stockholders by directly linking
compensation to stockholder return, as well as by enabling employees to develop
and maintain a significant, long-term equity ownership position in the Company.
Awards of stock options to the named executive officers in 1997
pursuant to the Stock Option Plan are presented under "Long-Term Compensation
Awards" in the Summary Compensation Table. Such awards were granted in order to
provide the named executive officers with further incentive with respect to the
Company's future performance, to further align the interests of such executive
officers with those of the Company's stockholders, to provide additional
incentive for such executive officers to continue in their positions with the
Company and to award such executive officers for their contribution to the
Company's performance in 1997.
401(K) PLAN. Under the Company's 401(k) profit sharing plan, eligible
employees are permitted to defer receipt of up to 15% of their compensation
(subject to certain limitations imposed under the Code). The plan provides that
a discretionary match of employee deferrals may be made by the Company in cash
or shares of Common Stock. During 1997, the Company's discretionary match of
employee deferrals totaled approximately $0.2 million. The amounts held under
the plan are to be invested among various investment funds maintained under the
plan in accordance with the directions of each participant.
Salary deferral contributions are 100% vested. Matching contributions
are vested over a period of five years at the rate of 20% per year. If a
participant terminates employment with the Company after attaining age 65 or by
reason of death or disability, however, the participant will be fully vested in
his or her share of Company matching contributions. Participants or their
beneficiaries are entitled to payment of vested benefits upon termination of
employment. In addition, hardship distributions to participants from the plan
are available under certain conditions. The amount of benefits ultimately
payable to a participant under the plan depends on the level of the
participant's elective deferrals under the plan, the amount of Company matching
contributions made to the plan and the performance of the investment funds
maintained under the plan in which contributions are invested.
Chief Executive Officer Compensation. As described above, the Company's
executive compensation philosophy, including the compensation of the Company's
Chief Executive Officer, James H. Stone, is a competitive, but conservative,
base salary and incentive compensation based upon the Company's performance.
<PAGE> 12
BASE SALARY. Mr. Stone's base salary for 1997 increased from 1996 for the
reasons described under "Executive Compensation-- Base Salary," above.
INCENTIVE COMPENSATION. Mr. Stone was awarded a $108,875 bonus for the 1997
performance year. This award was based upon the criteria set forth above under
"Executive Compensation -- Incentive Compensation."
STOCK OPTION PLAN. Mr. Stone was not granted options to purchase shares of
Common Stock pursuant to the Stock Option Plan in 1997.
Compensation Committee
David R. Voelker
John P. Laborde
Robert A. Bernhard
Raymond B. Gary
B.J. Duplantis
STOCKHOLDER RETURN PERFORMANCE PRESENTATION
As required by applicable rules of the Securities and Exchange
Commission, the performance graph shown below was prepared based upon the
following assumptions:
1. $100 was invested in the Company's Common Stock, the S&P
500 and the Peer Group (as defined below) on July 8, 1993 at the
initial public offering price of the Company's Common Stock of $12 per
share and the closing price of the stocks comprising the S&P 500 and
the Peer Group, respectively, on such date. The Company's Common Stock
began trading on the New York Stock Exchange on July 9, 1993.
2. Peer Group investment is weighted based upon the market
capitalization of each individual company within the Peer Group at the
beginning of the period.
3. Dividends are reinvested on the ex-dividend dates.
<TABLE>
<CAPTION>
Measurement Period Peer
(Fiscal Year Covered) SGY Group S&P 500
<S> <C> <C> <C>
07/08/93 100.00 100.00 100.00
12/31/93 112.50 91.89 103.97
12/31/94 160.42 81.34 102.37
12/31/95 128.12 99.04 137.29
12/31/96 248.96 164.56 165.11
12/31/97 279.17 136.83 216.31
</TABLE>
The companies that comprise the Company's current Peer Group are as
follows: Barrett Resources Corporation, Cabot Oil & Gas Corporation, Clayton
Williams Energy, Inc., Cross Timbers Oil Company, Devon Energy Corporation,
Newfield Exploration Company, Nuevo Energy Company, Pogo Producing Company,
Snyder Oil Corporation, Southwestern Energy Company, Tom Brown, Inc., United
Meridian Corporation, Vintage Petroleum, Inc. and The Wiser Oil Company.
<PAGE> 13
ITEM 2.
APPOINTMENT OF AUDITORS
Pursuant to the recommendation of the Audit Committee, the Board of
Directors appointed Arthur Andersen LLP, independent public accountants, to
audit the consolidated financial statements of the Company for the year ending
December 31, 1998. The Company is advised that no member of Arthur Andersen LLP
has any direct or material indirect financial interest in the Company or, during
the past three years, has had any connection with the Company in the capacity of
promoter, underwriter, voting trustee, director, officer or employee.
Ratification of this appointment shall be effective upon receiving the
affirmative vote of the holders of a majority of the Common Stock present or
represented by proxy and entitled to vote at the Annual Meeting. Under Delaware
law, an abstention would have the same effect as a vote against this proposal,
but a broker non-vote would not be counted for purposes of determining whether a
majority had been achieved.
The Board of Directors recommends that stockholders vote "FOR"
ratification of this appointment.
In the event the appointment is not ratified, the Board of Directors
will consider the appointment of other independent auditors. A representative of
Arthur Andersen LLP is expected to be present at the Annual Meeting, and will be
offered the opportunity to make a statement if such representative desires to do
so and will be available to respond to appropriate questions.
ITEM 3.
OTHER MATTERS
The Board of Directors does not know of any other matters that are to
be presented for action at the Annual Meeting. However, if any other matters
properly come before the Annual Meeting or any adjournment(s) thereof, it is
intended that the enclosed proxy will be voted in accordance with the judgment
of the persons voting the proxy.
STOCKHOLDER PROPOSALS
Any stockholder who wishes to submit a proposal for inclusion in the
proxy material and for presentation at the Company's 1999 Annual Meeting of
Shareholders must forward such proposal to the Secretary of the Company at the
address indicated on the second page of this proxy statement, so that the
Secretary receives it no later than November 30, 1998.
By Order of the Board of Directors
/s/Andrew L. Gates, III
----------------------
Secretary
March 31, 1998
